FRANCHISE AGREEMENT

Exhibit 10.36

 

FRANCHISE AGREEMENT

 

BETWEEN

 

SUMMERFIELD HOTEL COMPANY, L.P.

(Franchisor)

 

and

 

KPA LEASECO IV, INC.

(Franchisee)

 

dated

 

FEBRUARY 24, 2004

 

for a

 

SUMMERFIELD SUITES^® BY WYNDHAM HOTEL

 

EL SEGUNDO, CALIFORNIA

 

Form Dated: May 1, 2002

(UFOC Dated: May 1, 2002)

SUMMERFIELD HOTEL COMPANY, L.P.

FRANCHISE AGREEMENT

 

TABLE OF CONTENTS

 

 

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ATTACHMENTS

 

 

ADDENDA

 

 

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SUMMERFIELD HOTEL COMPANY, L.P.

FRANCHISE AGREEMENT

 

THIS AGREEMENT is made and entered into as of the 24^th day of February 2004, to be effective as of the Effective Date, between Summerfield Hotel Company, L.P., a Kansas limited partnership (“Franchisor”), and KPA Leaseco IV, Inc. (“Franchisee”). Certain terms used in this Agreement are defined in Attachment D.

 

WITNESSETH:

 

WHEREAS, Franchisor or its Affiliates have developed and Franchisor has the right to use and license the use of a System for the establishment and operation of extended stay all-suite hotels under the Proprietary Marks; and

 

WHEREAS, Franchisee is the owner of the fee or long-term leasehold interest in the property at the Approved Location identified in Attachment A to this Agreement and desires to obtain a license to use the Proprietary Marks and the System to operate the Hotel located or to be located at the Approved Location under the System and the Proprietary Marks; and

 

WHEREAS, Franchisee understands and acknowledges the importance of operating in conformity with Franchisor’s standards and specifications in order to enhance public acceptance of, and demand for, all System Hotels; and

 

WHEREAS, in entering into this Agreement Franchisor is relying upon the business skill, financial capacity and character of Franchisee and its Principals and the guaranty of Franchisee’s obligations under this Agreement by its Controlling Principals, each of whom has executed a Guaranty in the form of Attachment B to this Agreement;

 

NOW, THEREFORE, in consideration of the mutual undertakings and commitments set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

 

I. GRANT OF FRANCHISE

 

A. Grant. As of the Effective Date, Franchisor grants to Franchisee, upon the terms and conditions contained in this Agreement, the nonexclusive right and license, and Franchisee undertakes the obligation, to operate the Hotel under the System and the Proprietary Marks at, and only at, the Approved Location, in accordance with this Agreement and Franchisor’s standards, specifications, policies and procedures, and to use, solely in connection with the operation of the Hotel at the Approved Location, the Proprietary Marks and the System as such may be changed, improved and further developed from time to time. This franchise and Franchisee’s rights under this Agreement are granted only for the number of guest rooms specified in Attachment A. Franchisee shall not expand or change the number of guest rooms or make other structural changes to the Hotel without the prior written consent of Franchisor.

 

B. Reserved Rights. Franchisee acknowledges and agrees that (i) this franchise relates solely to the operation of the Hotel at the Approved Location; and (ii) this Agreement does not entitle Franchisee to any protected territory, territorial rights or exclusivity. Franchisee further acknowledges and agrees that Franchisor and its Affiliates retain the right to develop and operate, and to license others to develop and operate, hotels and lodging facilities (including, without limitation, extended stay facilities) or other business operations of any type whatsoever, under the Proprietary Marks or under other trade names, trademarks and service marks, at any location except the Approved Location, including locations adjacent, adjoining or proximate to the Approved Location, and that these business operations may compete directly with and adversely affect the operation of the Hotel. Franchisee agrees that Franchisor and its Affiliates may exercise these rights from time to time without notice to Franchisee, and Franchisee covenants that it shall not take any action, including any action in a court of law or equity, which may interfere with the exercise of such rights.

C. Promotion of System. Franchisee acknowledges that Franchisor has and may have business interests other than the operation of the network of System Hotels and that Franchisor, in its sole discretion, may identify, define, and act upon such interests in the manner it deems appropriate. Franchisee further acknowledges that business decisions made by Franchisor and its Affiliates may impact Franchisee and agrees that Franchisor and its Affiliates have no express obligation or implied duty to protect Franchisee from the consequences of such business decisions and expressly waives any right to assert any claim against Franchisor or its Affiliates based on the existence, actual or arguable, of any such obligation or duty.

 

D. Obligations Commencing on Effective Date. The obligations of the parties derived from the grant of the franchise and the right to become part of the System (including, but not limited to, those set forth at Sections III.B.-D., IV., V., VI., VII., VIII., IX., X., XI., and XIII. of this Agreement, but expressly excluding, without limitation, those in Sections V.A. (relating to management company and management agreement approval procedures), V.B. (with respect to initial training) VII.A.1., XI., XII., XIV., XV., XVI., XVII., XVIII., XIX., XX., XXI., and XXVII.) shall begin as of the Effective Date. Franchisee understands and agrees that it shall not open the Hotel for business under the System and the Proprietary Marks until the Effective Date, and Franchisee has no rights to the franchise or to the use of the System or the Proprietary Marks until the Effective Date. Upon any such termination, this Agreement shall thereafter be deemed null and void, except for the obligations of Franchisee set forth in Section XVIII. hereof.

 

II. TERM

 

A. Term. Except as otherwise provided in this Agreement, the term of this Agreement shall begin on the date set forth in the preamble and shall expire on the Expiration Date set forth in Attachment A.

 

B. Renewal. Franchisee may, at Franchisee’s option, renew this franchise for one additional period of ten (10) years upon compliance with the following terms and conditions:

 

1. Franchisee shall not then be in default of any material provision of this Agreement, any amendment hereof or successor hereto, or any other agreement between Franchisee and Franchisor or its Affiliates and Franchisee shall have substantially complied with all the material terms and conditions of such agreements during their respective terms;

 

2. Franchisee shall have satisfied all monetary obligations owed by Franchisee to Franchisor and its Affiliates and to all suppliers to the Hotel and shall have met these obligations on a timely basis throughout the term of this Agreement;

 

3. Franchisee shall submit a renewal application to Franchisor not less than twenty-four (24) months nor more than thirty-six (36) months prior to the end of the initial term;

 

4. The Hotel manager and other employees of Franchisee shall comply with Franchisor’s then-current training requirements.

 

5. Franchisee shall upgrade the Hotel, at Franchisee’s expense, to conform to the then-current standards and specifications of Franchisor, including, without limitation, such structural changes, remodeling, redecoration, and modifications to existing improvements as may be necessary to do so.

 

6. Franchisee shall execute a general release of any and all claims against Franchisor and its Affiliates and the officers, directors, shareholders, partners, agents, representatives, independent contractors, servants and employees of each of them, in their corporate and individual capacities, including, without limitation, claims arising under this Agreement or under federal, state or local laws, rules, regulations or orders.

 

7. Franchisee shall execute Franchisor’s then-current form of franchise agreement, which shall supersede this Agreement in all respects and the terms of which may differ from the terms of this Agreement including, without limitation, higher royalty and marketing fees. Franchisee shall not be required to pay any additional initial fee but shall pay a renewal fee in an amount equal to fifty percent (50%) of Franchisor’s then-current initial franchise fee.

 

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C. Effect of Expiration. If Franchisee does not qualify to renew, or elects not to renew, this franchise in accordance with Section II.B., the franchise shall expire on the Expiration Date. Upon the expiration of this Agreement, Franchisee shall comply with the requirements of Section XVIII. hereof.

 

III. FEES

 

A. Initial Franchise Fee; Expansion Fee.

 

1. Upon the execution of this Agreement, Franchisee shall pay to Franchisor the initial franchise fee set forth in Attachment A, less the amount of the application fee paid by Franchisee (as set forth in Attachment A), which shall be credited against the initial franchise fee. The initial franchise fee is paid by Franchisee to Franchisor in consideration for the administrative and other expenses incurred by Franchisor in approving Franchisee’s site for the Hotel and in entering into this Agreement.

 

2. The initial franchise fee is based on the number of guest rooms at the Hotel initially approved by Franchisor. Franchisee shall have no right to expand the number of guest rooms at the Hotel without Franchisor’s prior written consent and payment of an expansion fee in an amount equal to the then-current initial franchise fee per guest room for each additional guest room proposed to be added. Franchisee shall pay the expansion fee to Franchisor with its application for approval of the proposed expansion, which approval will be at the sole discretion of Franchisor. If Franchisee’s application for expansion is approved by Franchisor, the expansion fee shall be non-refundable. If Franchisee’s application for expansion is not approved by Franchisor, Franchisor will refund the expansion fee, less Franchisor’s application processing charge.

 

B. Royalty. In consideration for Franchisee’s continuing use of the Proprietary Marks and the System, Franchisee shall pay to Franchisor a continuing monthly royalty fee beginning on the Effective Date and continuing during the term of this Agreement in an amount equal to five percent (5%) of the Gross Room Revenues of the Hotel.

 

C. Marketing Fee. Beginning on the Effective Date, Franchisee shall remit to Franchisor on a monthly basis an amount equal to one and one-half percent (1.5%) of the Gross Room Revenues of the Hotel (the “Marketing Fee”) as a contribution to the Central Marketing Fund (defined in Section IX.B.), which shall be maintained and administered for the System by Franchisor or its designee as provided in Paragraph IX.B. hereof. Each System Hotel owned or managed by Franchisor or its Affiliates shall make contributions to the Central Marketing Fund at generally the same rate required of franchisees. Franchisor may increase the Marketing Fee periodically to an amount consistent with the Marketing Fee allocation for all System Hotels, including System Hotels which are owned or managed by Franchisor or its Affiliates.

 

D. Reservation System Fees. Beginning on the Effective Date, Franchisee shall pay to Franchisor or its designee reservation system fees in an amount equal to the allocated reservation center cost per reservation charged to all System Hotels, including System Hotels which are owned or managed by Franchisor or its Affiliates. Reservation center costs shall be paid or reimbursed on the basis of an initial link-up charge and on the cost for handling reservations made for the Hotel. Reservation system fees shall be subject to increase or decrease by Franchisor, provided that any increase or decrease shall apply equally to all System Hotels, including System Hotels which are owned or managed by Franchisor or its Affiliates. Franchisor reserves the right to modify or change the reservation system and the basis for computing reservation system fees, provided the fees are computed on the same basis for all System Hotels.

 

E. National Sales Fee. Beginning on the Effective Date, Franchisee shall pay to Franchisor or its designee a continuing monthly national sales fee in an amount equal to one-half percent (0.5%) of the Gross Room Revenues of the Hotel. The national sales fee is for national group sales services, regional convention sales services and transient business sales services provided by Franchisor’s National Sales Office.

 

F. Regional Cooperative Marketing Fee. Franchisee shall pay to Franchisor or its designee a continuing monthly regional cooperative marketing fee, beginning on the Effective Date and continuing during the term of this Agreement, in an amount equal to one-half percent (0.5%) of the Gross Room Revenues of the Hotel.

 

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G. Due Dates. All payments required in Sections III.B, III.C, III.E, and III.F shall be paid to Franchisor by the fifteenth (15th) day of each month with respect to the Gross Room Revenues for the preceding month, and shall be submitted to Franchisor together with any reports required under Section XIII. of this Agreement. All payments required in Section III.D. and all other invoices forwarded by Franchisor or its Affiliates to Franchisee, shall be paid as provided in the invoice or, if the invoice does not specify a date for payment, within thirty (30) days after Franchisee’s receipt of the invoice. Any payment or report not actually received by Franchisor on or before the date due shall be deemed overdue. If any payment is overdue, Franchisee shall pay to Franchisor, in addition to the overdue amount and as a late charge, interest on such amount from the date it was due until paid, at one and one-half percent (1.5%) per month or the maximum rate permitted by law, whichever is less. Entitlement to the late charge shall be in addition to any other remedies Franchisor may have. If Franchisor is ever deemed to have contracted for, charged, or received interest in an amount that exceeds the amount permitted under applicable law, then the excess amount shall be deemed to be, and shall be treated as, a payment of outstanding fees or other amounts due under this Agreement and, if no such amounts remain outstanding, any remaining excess shall be paid to Franchisee, as applicable.

 

H. No Right to Withhold or Offset. Franchisee shall have no right to withhold payment of any fee required by this Section III. on account of Franchisor’s breach or alleged breach of this Agreement. Further, Franchisee shall have no right to offset any fee required by this Section III. against any obligation that Franchisor may owe to Franchisee.

 

IV. FRANCHISEE COUNCIL

 

A. Establishment of Council. During the term of this Agreement, Franchisor may, but is not obligated to, establish, or authorize the establishment of, a council (“Council”) to serve as an advisory body to Franchisor with respect to such matters relating to System Hotels as Franchisor, in its sole judgment, deems appropriate. If a Council is established, then all franchisees of the System (including Franchisee) and Franchisor shall be members of the Council.

 

B. Governing Rules. The Council will be subject to such terms (including membership, representative qualification and election, purpose and authority) as Franchisor may, in its sole judgment, authorize or approve in writing.

 

C. Voting. For all matters on which members of the Council in good standing are authorized to vote under the Bylaws of the Council, each franchisee member shall be entitled to one (1) vote for each System Hotel and the Proprietary Marks it has in operation, and Franchisor shall be entitled to one (1) vote for each System Hotel and the Proprietary Marks which is owned or managed by Franchisor or its Affiliates “Good standing” means that Council dues and assessments are current, Franchisor has authorized a franchisee member to open and operate its Hotel under the System and the Proprietary Marks, and such franchisee member is not in default under its franchise agreement.

 

D. Dues and Assessments. Franchisee shall pay to the Council all dues and assessments authorized by the Council and shall otherwise maintain its membership in the Council in good standing.

 

V. MANAGEMENT, STAFFING AND TRAINING

 

A. Hotel Management. Franchisee will at all times retain and exercise management control over the Hotel. Any lease, management agreement or other arrangement for operating the Hotel or any part thereof (including, without limitation, food and beverage service facilities) shall be subject to Franchisor’s prior written consent.

 

1. If Franchisee wishes to engage a management company to manage the Hotel, Franchisee shall apply to Franchisor for its consent. In order to be approved by Franchisor, a proposed management company must be deemed by Franchisor, in its reasonable judgment, qualified to manage the Hotel. Franchisor may refuse to approve any proposed management company which, in Franchisor’s reasonable judgment, is not financially capable or responsible, is inexperienced or unqualified in managerial skills or operational capacity or capability, or is

 

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otherwise unable to adhere fully to the obligations and requirements of this Agreement. Franchisor may also withhold its approval if the proposed management company does not provide Franchisor with all information that Franchisor may reasonably request in order to reach such decision. It is understood that confidential information and materials are, in the normal course of business, imparted to System franchisees and managers, and Franchisor will be under no obligation to approve any proposed management company that is a franchisor or owner, or is affiliated with the franchisor or owner, of a hotel trade name which is competitive with Franchisor or its Affiliates, regardless of the number of hotels operating under such trade name. Franchisor reserves the right, at its option and upon reasonable notice, to revoke its approval of any management company that fails to continue to meet Franchisor’s standards.

 

2. The management agreement between Franchisee and the management company for the management and operation of the Hotel shall be subject to the terms, conditions, and obligations of this Agreement. Prior to the execution of the management agreement, the management agreement shall be submitted to Franchisor for Franchisor’s written approval, which shall not be unreasonably withheld, but which may be conditioned upon the inclusion of the following terms:

 

a. The management company shall have the exclusive authority and responsibility for the day-to-day management of the Hotel; and

 

b. The Hotel will be operated during the term of the management agreement in compliance with this Agreement.

 

c. At Franchisor’s request, Franchisor shall be named as a third party beneficiary of the management agreement with the independent right to enforce the provision described in Section V.A.2.b above, or the management company shall execute a separate rider to this Agreement (in substantially the form of Attachment C hereto), agreeing to be bound by those terms hereof that relate to the management and operation of the Hotel and further agreeing to be bound by the covenants of confidentiality set forth herein. Further, at Franchisor’s request, the management company shall cause those of its key employees that Franchisor may require to execute similar covenants of confidentiality, in a form reasonably acceptable to Franchisor.

 

d. If Franchisee terminates the management agreement pursuant to its terms, then Franchisee shall give Franchisor at least thirty (30) days’ prior written notice unless termination is due to extraordinary circumstances requiring that Franchisee promptly remove the management company as the manager of the Hotel.

 

3. If Franchisee or any transferee permitted under Section XV. below (in either case, “Owner”) terminates an approved management agreement for the operation of the Hotel pursuant to its terms, then Owner shall, within 6 months following the date of such termination, enter into a replacement management agreement with a replacement manager approved by Franchisor, as further described below. During such 6 month period, Owner shall, with Franchisor’s consent, employ an interim manager to manage the Hotel under the System and the Proprietary Marks pending the execution of a new management agreement with a replacement manager.

 

a. Any interim manager (as contemplated by this Section V.A.3.) must be approved in writing by Franchisor. Franchisor shall not unreasonably withhold its consent to a proposed interim manager but shall have the right to require that such interim manager (a) be experienced in the operation of quality hotels, as determined by Franchisor in its sole discretion; and (b) manage the Hotel in accordance with the terms and conditions of this Agreement under a short term agreement not to exceed six (6) months.

 

b. Owner shall diligently seek to obtain a replacement manager for the Hotel throughout the period of time the Hotel is operated by any such interim manager. Any replacement manager and replacement management agreement shall be submitted to Franchisor for its written approval, which approval shall not be unreasonably withheld, but which may be conditioned on the requirements set forth in Section V.A.2.a.-d.

 

B. Staffing; Training. Franchisee or its approved manager shall employ qualified personnel sufficient to staff all positions at the Hotel, as prescribed in the Manual.

 

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1. All personnel employed at the Hotel in those positions designated by Franchisor to receive training shall attend and successfully complete such initial and other training programs as Franchisor may from time to time require. Franchisor may also periodically make available other optional training courses to Franchisee’s personnel, as well as other programs, conferences, seminars and materials. All training shall be provided at such times and locations and for such duration as Franchisor may designate. Before any employee attends any required or optional training program, Franchisee shall pay to Franchisor the applicable tuition fees specified in the Manual or otherwise in writing. Franchisee shall also be responsible for its employees’ travel expenses and room, board and wages during any training program. As a condition of providing training, Franchisor reserves the right to require that personnel receiving training execute confidentiality agreements prepared by Franchisor. All persons subsequently employed in positions designated by Franchisor to receive training also must successfully complete Franchisor’s training programs. Franchisor shall determine, in its sole discretion, whether any person has successfully completed training.

 

2. Franchisor may provide Franchisee with on-site training at the Hotel for personnel involved in front desk, reservations, housekeeping, engineering, and other operations, as determined by Franchisor. The number of Franchisor’s personnel and the time period for which such on-site training may be provided (if any) shall be determined by Franchisor based upon its assessment of Franchisee’s requirements. Franchisee shall pay or reimburse Franchisor for the wages and all direct costs (including transportation, meals and lodging) of those persons providing such on-site training.

 

3. Franchisor may from time to time require certain personnel employed at the Hotel to attend periodic meetings held to address matters of general interest to the System (including, without limitation, annual sales and rooms meetings) and may require Franchisee to pay the attendance fee specified in the Manual or otherwise in writing. Such meetings shall be held at locations designated by Franchisor. Franchisee shall be responsible for the travel expenses and room, board and wages for its personnel attending any such meeting.

 

4. Without limiting the foregoing, any person employed as a general manager for the Hotel shall attend and successfully complete (as determined by Franchisor in its sole discretion) Franchisor’s initial training program and the general manager and director of sales for the Hotel shall attend all required sales meetings and shall devote full time to the management and operation of the Hotel.

 

5. Franchisee shall cause all employees, while working at the Hotel, to wear uniforms or otherwise dress as specified in the Manual, to present a neat and clean appearance, and to render competent and courteous service to guests of the Hotel.

 

C. Nonsolicitation of Employees. Unless the employee in question first solicits Franchisee for employment, Franchisee will not employ or seek to employ any person who is employed by Franchisor, its Affiliates, another System franchisee, or any other entity operating under the System and shall not directly or indirectly induce any such person to leave his or her employment without first obtaining the written consent of Franchisor and such other employer.

 

VI. HOTEL OPERATIONS

 

A. Adherence to System Standards. Franchisee understands and acknowledges that each and every standard, specification, policy and procedure of the System is essential in order to maintain the quality and guest service of System Hotels and to enhance public acceptance of, and demand for, System Hotels. Franchisee shall conduct its operations in strict conformity with the standards, specifications, policies and procedures set forth in the Manual or otherwise in writing, which standards, specifications, policies and procedures shall be applied consistently to all System Hotels. Notwithstanding the foregoing, however, if in the reasonable judgment of Franchisor local conditions or special circumstances (including the market area or the physical peculiarities of a hotel) warrant a deviation from such standards, specifications, policies, or procedures, then Franchisor may allow such deviation.

 

B. Restricted Use of Hotel Premises. Franchisee shall use the Hotel premises solely for the operation of a Hotel under the System and the Proprietary Marks and shall refrain from using, or allowing others to use, the

 

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premises for any other purpose or activity at any time, without obtaining the prior written consent of Franchisor, which may be withheld at Franchisor’s sole discretion. Franchisee shall not provide, or allow others to provide, any guest service or offer any product at the Hotel except as prescribed in the Manual or otherwise in writing. Franchisee shall not permit any part of the Hotel premises to be used for gaming purposes without the prior written consent of Franchisor.

 

C. Promotion of Other Businesses. Without the prior written consent of Franchisor, which may be withheld in Franchisor’s sole discretion, Franchisee and Franchisee’s manager shall ensure that no part of the Hotel or the System is used, without limitation, to further or promote a different or competing business, including advertising or promotion for hotels other than those franchised by Franchisor or its Affiliates. In addition, except as expressly permitted in the Manual or otherwise consented to by Franchisor in writing, no part of the Hotel or the System shall be used to further or promote any other business or concession at the Hotel. Franchisee shall use every reasonable means to encourage the use of System Hotels everywhere by the traveling public; provided, however, that nothing herein shall prohibit, and Franchisee agrees to participate in, any program specified by Franchisor for referring prospective customers to other hotels when the customers cannot be accommodated by Franchisee’s Hotel or any other System Hotel and the Proprietary Marks. Nothing herein shall prohibit Franchisee or an Affiliate of Franchisee from developing, operating or promoting other hotels or lodging facilities so long as Franchisee satisfies the provisions of Sections VI.A., B. and C. and Section XII. of this Agreement.

 

D. Food and Beverage Standards. Franchisee shall provide food and beverage service in the Hotel in conformity with the standards and specifications prescribed in the Manual to insure the highest level of quality and service. Franchisee agrees to the following:

 

1. To use and operate all portions of the Hotel premises where food or beverages are served solely for the benefit of the franchised business and to keep them open and in normal operation for such minimum hours and days as Franchisor may from time to time prescribe, and to refrain from using or allowing others to use the premises for any other purpose or activity at any time without first obtaining the written consent of Franchisor;

 

2. To maintain in sufficient supply, and use at all times, only such food and beverage products and ingredients, supplies, paper goods, dinnerware and furnishings as conform to Franchisor’s standards and specifications, and to refrain from deviating therefrom without Franchisor’s prior written consent;

 

3. To sell or offer for sale only those menu items and beverages prescribed in the Manual or otherwise approved in writing by Franchisor, provided, that so long as such menu items and beverages comply with Franchisor’s standards and specifications and all applicable legal requirements (including, without limitation, all licensing and other requirements for the sale of alcoholic beverages); to sell or offer for sale all required menu and beverage items as prescribed in the Manual or otherwise in writing by Franchisor; to prepare all menu items and beverages offered in accordance with Franchisor’s standards and specifications and all applicable legal requirements; and to discontinue selling and offering for sale any items which Franchisor may, in its discretion, disapprove in writing at any time; and

 

4. To use only menus, signs, promotional displays and other materials that comply with the style, pattern and design prescribed in the Manual or otherwise approved in writing by Franchisor.

 

E. Guest Services. Franchisee shall honor at the Hotel all credit cards specified in the Manual. Franchisee also agrees to participate in and shall provide all information requested by Franchisor for the purpose of all customer surveys and guest satisfaction audits conducted by Franchisor. Franchisee shall offer all guest services, including complimentary services, that Franchisor may prescribe for System Hotels including, without limitation, programs and services for senior citizens, children and frequent guests. Additionally, Franchisee shall offer all products and services and shall participate in all programs that Franchisor may determine to be in the best interest of or may reasonably establish for the System, including, without limitation, guest-accessible high speed Internet access, guest recognition programs such as Wyndham By Request, in room, pay per view movies (subject to Franchisor’s right to direct the type of adult movies which are offered and the time and manner in which such movies are offered) travel agent programs, complaint resolution programs and programs for the provision of complimentary rooms or refunds to guests.

 

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F. Quality Assurance Program; Inspections. Franchisor shall administer a quality assurance program for the System which may include conducting periodic inspections of the Hotel and guest satisfaction audits and surveys to ensure compliance with System standards. Franchisee hereby grants to Franchisor and its representatives the right to enter upon the premises of the Hotel at all reasonable times, with or without prior notice, for the purpose of conducting inspections. Franchisee shall pay a fee for each inspection, if any, assessed; shall provide lodging, if available, without charge to Franchisor’s representatives during such time as may reasonably be necessary to complete the inspections; cooperate fully with Franchisor’s representatives during the inspections; and take all steps reasonably necessary to correct any deficiencies detected within the time specified by Franchisor.

 

VII.	FURNISHING AND MAINTAINING THE HOTEL

 

A. Hotel Facilities, Equipment and Furnishings.

 

1. Prior to the Effective Date, Franchisee shall develop, construct, convert, equip and furnish the Hotel in accordance with the provisions of this Agreement and the Manuals. Franchisee shall comply in all respects with all policies, procedures and requirements of Franchisor for the development or conversion of the Hotel as a System Hotel.

 

2. Franchisee shall, at Franchisee’s expense, purchase or lease and install at the Hotel all facilities, appurtenances, furnishings, fixtures, equipment, furniture, computer terminals, hardware, software, and related equipment (including, without limitation, that required for the property management and reservation systems specified by Franchisor), telephone and other communications systems, entertainment systems, facsimile machines and copiers, signs and other items (collectively, “FF&E”) specified by Franchisor for the System in the Manual or otherwise in writing. Franchisee also shall install and maintain, or arrange to have installed and maintained, at the Hotel, all coin-operated vending machines specified by Franchisor for the System.

 

3. Franchisee shall refrain from installing or permitting to be installed at the Hotel, without Franchisor’s prior written consent, any FF&E, electronic or video games, vending machines or any other items not previously approved by Franchisor.

 

4. The size, form, color scheme, content and location of all signs, advertisements and graphic materials displayed in any public area or guest rooms at the Hotel shall be as prescribed in the Manual or otherwise approved in writing by Franchisor.

 

5. At Franchisor’s request, Franchisee shall install and maintain all modems, devices and equipment as Franchisor may specify in the Manual or otherwise in writing to permit Franchisor to access electronically information pertaining to the operation of the Hotel, including, without limitation, Gross Room Revenues, the source and amounts of all other revenues generated at the Hotel, room occupancy and rates, and reservations data. Franchisor shall have electronic access to such information at such times and in such manner as Franchisor shall from time to time specify.

 

B. Sourcing. All food products, beverages, supplies, and FF&E (excluding computer terminals, hardware, software, and related equipment for the property management and reservation systems) used at or in the Hotel may be purchased from any source, provided such products meet the specifications provided for in the Manual. Computer terminals, hardware, software and related equipment for the property management and reservations systems shall be purchased only from sources designated or approved by Franchisor. Notwithstanding the above, Franchisee acknowledges that Franchisor may specify a particular model or brand of FF&E or other items for System Hotels that may be available from only one manufacturer or supplier. Additionally, Franchisor may at any time, in its discretion, specify that certain food products, beverages, FF&E, and supplies be purchased only from designated or approved sources which have demonstrated, to the reasonable satisfaction of Franchisor, the ability to meet Franchisor’s standards and specifications for those items. If Franchisor has designated or approved suppliers for any items, then prior to purchasing or leasing any such item from a source which has not been previously approved by Franchisor, Franchisee shall submit to Franchisor a written request for such approval, or shall request the source itself to do so. Franchisor may require, as a condition of its approval, (i) that the source present satisfactory evidence of insurance protecting Franchisor and its franchisees against any and all claims arising from the use of such item by System franchisees, and (ii) that samples of the item be delivered by the source, at

 

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Franchisor’s option and at no cost to Franchisor, to Franchisor or its designee for inspection. A charge not to exceed the cost of such inspection shall be paid to Franchisor by Franchisee or by the source seeking approval, and Franchisor shall not be liable for damage to any sample. Franchisor reserves the right, at its option, to revoke its approval as to future purchases if a source fails to continue to meet Franchisor’s standards.

 

C. Hotel Maintenance. Franchisee shall maintain the Hotel, including, without limitation, all interior and exterior signs, parking areas, entrance ways, landscaping, and all other facilities and appurtenances in first-class condition. In connection therewith, Franchisee shall make, at Franchisee’s sole cost and expense, all additions, alterations, repairs and replacements of signs and other FF&E as Franchisor may reasonably direct. Franchisee shall not make any material alterations to the Hotel without obtaining the prior written consent of Franchisor.

 

D. Upgrades. Franchisor shall have the right, from time to time, to require by written notice that Franchisee upgrade the Hotel at Franchisee’s sole cost and expense to conform to the building decor and trade dress and FF&E required under Franchisor’s then-current System standards (which standards shall be applied consistently throughout the System for hotels of similar age within the same division as the Hotel), including, without limitation, such FF&E replacements, remodeling, redecoration and modifications to existing improvements as may be necessary to do so. Upgrades to the Hotel required by Franchisor pursuant to this Section VII.D. shall be reasonable, considering the then-current System standards and requirements and the current structural design of the Hotel. Franchisee shall complete upgrading and remodeling of the Hotel as required by Franchisor pursuant to this Section VII.D. within the time reasonably specified by Franchisor, and Franchisee acknowledges that its failure to do so shall, except for delays which may be caused by the occurrence of events constituting force majeure, constitute a material default for which this Agreement may be terminated as provided in Section XVII.C.

 

E. Purchasing Services. Franchisor or one or more of Franchisor’s Affiliates may, at Franchisor’s option, provide purchasing services to Franchisee in connection with Franchisee’s acquisition from third parties of some or all of the FF&E, food products, beverages, supplies and other items required in the operation of the Hotel and may offer such purchasing services to Franchisee for a reasonable fee.

 

VIII. RESERVATION AND PROPERTY MANAGEMENT SYSTEMS