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FRANCHISE AGREEMENT between HYATT PLACE FRANCHISING, L.L.C. and ENTITY NAME CAPS

Franchise Agreement

FRANCHISE AGREEMENT between HYATT PLACE FRANCHISING, L.L.C. and ENTITY NAME CAPS | Document Parties: HYATT HOTELS CORP | Hotel System | HYATT PLACE FRANCHISING, LLC You are currently viewing:
This Franchise Agreement involves

HYATT HOTELS CORP | Hotel System | HYATT PLACE FRANCHISING, LLC

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Title: FRANCHISE AGREEMENT between HYATT PLACE FRANCHISING, L.L.C. and ENTITY NAME CAPS
Governing Law: Illinois     Date: 8/5/2009

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Exhibit 10.46

FRANCHISE AGREEMENT

between

HYATT PLACE FRANCHISING, L.L.C.

and

ENTITY NAME CAPS


TABLE OF CONTENTS

 

 

  

 

  

Page

1.

  

The Franchise

  

1

2.

  

Grant

  

2

3.

  

Your Responsibilities

  

3

4.

  

Our Responsibilities

  

12

5.

  

Proprietary Rights

  

16

6.

  

Records and Audits

  

19

7.

  

Indemnity and Insurance

  

20

8.

  

Transfer

  

24

9.

  

Condemnation and Casualty

  

27

10.

  

Termination

  

28

11.

  

Renewal

  

37

12.

  

Relationship of Parties

  

39

13.

  

Miscellaneous

  

39

14.

  

Compliance with Anti-Terrorism Laws

  

46

 

GUARANTY

  

  

ATTACHMENT A

  

  

The Hotel

ATTACHMENT B

  

  

Area of Protection

ATTACHMENT C

  

  

The Work

ATTACHMENT D

  

  

Our Right of First Offer in Strategic Markets

 

i


HYATT PLACE HOTEL

FRANCHISE AGREEMENT

This Franchise Agreement (“Agreement” or “Franchise Agreement”) is made and entered into as of              , 20      (the “Effective Date”) (regardless of the dates of the parties’ signatures) by and between HYATT PLACE FRANCHISING , L.L.C. , a Delaware limited liability company having its principal business address at 200 West Monroe, 8th Floor, Chicago, Illinois 60606 (“we,” “our,” or “us”), and ENTITYNAMECAPS, a ENTITY having an address at ENTITYADDRESS (“you” or “your”).

1 . The Franchise.

We have the exclusive right to license and franchise a concept and system (the “Hotel System”) associated with the establishment and operation of hotels under the name “HYATT ® PLACE” and other Proprietary Marks (defined below) (collectively, “Hyatt Place Hotels”). Before signing this Agreement, you read our Uniform Franchise Offering Circular and independently investigated and evaluated the risks of investing in the hotel industry generally and acquiring a Hyatt Place Hotel franchise specifically. Following your investigation and recognizing the benefits that you may derive from being identified with the Hotel System, you wish to enter into this Agreement to obtain a franchise to use the Hotel System to operate a Hyatt Place Hotel located at HOTELADDRESS1, HOTELADDRESS2 (the “Hotel”).

A. The Hotel . The Hotel includes all structures, facilities, appurtenances, furniture, fixtures, equipment, entrances, exits, and parking areas located on the real property identified on Attachment A or any other real property we approve for Hotel expansion, signage, or other facilities. You may not make any material changes to the Hotel’s existing or planned construction without our prior written consent, including any change in the number of guest rooms at the Hotel (collectively “Guest Rooms”).

B. The Hotel System . We and our affiliates have designed the Hotel System so that the public associates Hyatt Place Hotels with high quality standards. The Hotel System now includes: (a) the trade names, trademarks, and service marks “Hyatt Place” and such other trade names, trademarks, service marks, logos, slogans, trade dress, domain names, and other designations of source and origin (including all derivatives of the foregoing) that we periodically develop and designate for use in connection with the Hotel System (collectively, the “Proprietary Marks”); (b) all copyrightable materials that we periodically develop and designate for use in connection with the Hotel System, including the Manual (as defined below), videotapes, CDs/DVDs, marketing materials (including advertising, promotional, and public relations materials), architectural drawings (including all architectural plans, designs, and layouts such as, without limitation, site, floor, plumbing, lobby, electrical, and landscape plans), building designs, and business and marketing plans, whether or not registered with the U.S. Copyright Office (“Copyrighted Materials”); (c) all materials and other information that we designate as “confidential” orally or in writing or which, under the circumstances surrounding disclosure, ought to be treated as confidential, including all operations information, confidential manuals, revenue information, specifications, procedures, and business, marketing and other plans, as more fully identified in Section 5F of this Agreement (collectively, “Confidential Information”); (d) a national toll-free number for, and other aspects of, the central reservation system, as we renovate and modify it from time to time (“CRS”); (e) a global distribution system, as we renovate and modify it from time to time (“GDS”); (f) the national directory of Hyatt Place Hotels (which, at our option, also may be associated with any other hotel brand or other business that we or our affiliates own, operate, franchise, license or manage) (the “National Directory”); (g) management, personnel, and operational training programs, materials, and procedures; (h) standards, specifications, procedures, and rules for operations, marketing, construction, equipment, furnishings, and quality assurance (collectively, “System Standards”) described in our confidential


manuals, as amended from time to time (collectively, the “Manual”), or in other written or electronic communications; and (i) marketing, advertising, and promotional programs. Although we retain the right to establish and periodically to modify System Standards for the Hotel that you agree to implement and maintain, and. to modify the Hotel System as we deem best for Hyatt Place Hotels, you retain the right to control, and responsibility for, the Hotel’s day-to-day management and operation and implementing and maintaining System Standards at the Hotel. In addition, our mandatory System Standards do not include any personnel or security-related policies or procedures that we (at our option) make available to you in the Manual or otherwise for your optional use. You will determine to what extent, if any, these optional policies and procedures should apply to your Hotel’s operations. You acknowledge that we do not dictate or control labor or employment matters for franchisees and their employees and will not be responsible for the safety and security of Hotel employees or patrons.

2 . Grant

A. Term . Commencing on the Effective Date and continuing during the term provided in Section 10A (the “Term”), we hereby grant you, and you hereby accept, the non-exclusive right and franchise to use the Hotel System to build or convert and operate the Hotel at the site specified in Attachment A (the “Site”) in accordance with this Agreement’s terms. Your right to operate the Hotel will cease upon termination or expiration of this Agreement.

B. Area of Protection . We grant you a geographic area of protection, which is described in Attachment B (the “Area of Protection”), in which to construct and operate your Hotel. Subject to the one exception below, neither we nor any of our affiliates will open and operate, or authorize any other party to open and operate, any other Hyatt Place Hotels the physical premises of which are located within the Area of Protection. The one exception to this restriction is that, if we or any of our affiliates acquire (whether through purchase, sale, merger, consolidation, or other transaction) another chain, franchise system, group or portfolio of at least four (4) hotels, or acquire the right to operate or manage another chain, franchise system, group or portfolio of at least four (4) hotels, one (1) or more of which hotels are located in the Area of Protection (as we have the right to do), we and/or our affiliates then will have the unrestricted right to convert, or cause to be converted, the acquired hotel(s) within the Area of Protection from its (or their) original trade identity to the Hotel System and then to operate, or authorize any other party to operate, such hotel(s) as Hyatt Place Hotels using the Hotel System, even if one (1) or more of the other acquired hotels, whether operating within or outside the Area of Protection, are not converted to Hyatt Place Hotels.

Except for the limited exclusivity provided above, there are no restrictions on us or our affiliates, your rights under this Agreement are nonexclusive in all respects, the Hotel has no territorial protection whatsoever, and we and our affiliates have the right without any restrictions at all to engage in any and all activities we and they desire (including any and all types of lodging facilities), at any time and place, whether or not using the Proprietary Marks or any aspect of the Hotel System, whether or not those activities compete with your Hotel, and whether or not we or our affiliates start those activities ourselves or purchase, merge with, acquire, or affiliate with businesses that already engage in such activities. We and our affiliates may engage in all activities not expressly prohibited in this Agreement. We and our affiliates may use or benefit from common hardware, software, communications equipment and services, administrative systems, reservation systems, franchise application procedures, central purchasing, approved vendor lists, and personnel. You agree that you will have no right to pursue any claims, demands, or damages as a result of these activities, whether under breach of contract, unfair competition, implied covenant of good faith and fair dealing, divided loyalty, or other theories, because you have expressly allowed us and our affiliates to engage in all such activities without restriction.

 

2


You acknowledge that our affiliates operate other franchise and non-franchised systems for lodging facilities (including time-share or interval ownership facilities and vacation clubs) that use different brand names, trademarks, and service marks, including those with the “Hyatt” name as part of their brand name, some of which might operate and have facilities in the Area of Protection, that will compete directly with you. None of those activities, even other uses of the “Hyatt” name, will constitute a violation of this Agreement. Only the operation of a “Hyatt Place” Hotel the physical premises of which are located within the Area of Protection would constitute a violation of this Agreement, unless the one exception noted above applies.

C. Opening . You have no right to open the Hotel for business under the Hotel System unless and until we authorize you to do so in writing. The date on which you first open the Hotel for business shall be deemed the “Opening Date.” You must not open the Hotel for business and begin operating the Hotel until: (1) you have properly developed and equipped the Hotel according to our System Standards and in compliance with all applicable laws, rules and regulations; (2) all pre-opening training for the Hotel’s personnel has been completed to our satisfaction; (3) all amounts then due to us and our affiliates have been paid; (4) you have obtained all required certificates of occupancy, licenses and permits to operate the Hotel; (5) you have given us copies of all insurance policies required under this Agreement, or such other evidence of insurance coverage and payment of premiums as we request; and (6) we have conducted a pre-opening inspection and approved the Hotel for opening. Our determination that you have met all of our pre-opening requirements will not constitute a representation or warranty, express or implied, that the Hotel complies with any laws or a waiver of your non-compliance, or of our right to demand full compliance, with such pre-opening requirements.

3 . Your Responsibilities.

A. Operational and Other Requirements . During the Term, you agree to do the following (many of which requirements also are addressed in more detail elsewhere in this Agreement):

 

 

(1)

have your owners, employees, and approved independent contractors satisfactorily complete all required orientation and training programs and ensure that a trained management and operations staff, including a general manager and sales manager who devote full time to their duties at the Hotel, is in place at the Hotel at all times, as you are responsible for management of the Hotel’s business;

 

 

(2)

maintain the Hotel in first class condition and in a clean, safe, and orderly manner;

 

 

(3)

provide efficient, courteous, competent, prompt, and high-quality service to the public while maintaining a high moral and ethical standard and atmosphere at the Hotel;

 

 

(4)

operate the Hotel twenty-four (24) hours a day, every day, and use the Hotel premises solely for the business franchised under this Agreement;

 

 

(5)

strictly comply in all respects with our mandatory System Standards and other requirements, as we may periodically modify them, concerning:

 

 

(a)

the Hotel System, the Manual (other than any personnel and security-related policies and procedures contained in the Manual, which are for your optional use), and all other mandatory policies and procedures we periodically communicate to you;

 

3


 

(b)

our quality standards and the types of services, products, and amenities you may use, promote, or offer at the Hotel;

 

 

(c)

your use of the Proprietary Marks and display, style, location, and type of signage, as outlined in this Agreement, the Manual, and other written directives we periodically issue;

 

 

(d)

directory and reservation service listings of the Hotel; and

 

 

(e)

your participation in and compliance with the terms of all of our marketing, reservation service, rate and room inventory management, advertising, cooperative advertising, guest frequency, discount or promotional, customer award, Internet, computer, training, and operating programs, including a property management system that interfaces with the CRS or any other central reservation system we periodically adopt. We may periodically establish and/or coordinate these programs with third parties we designate. These third parties might (but need not) be our affiliates. You must sign and comply with any license, participation and other agreements we periodically specify relating to these programs. You acknowledge and agree that we have the right, without prior notice to you, to access your computer systems, including the property management system, and all data and information that you have processed or stored with, through, or otherwise in connection with such computer systems;

 

 

(6)

participate in, connect with, and use the CRS and GDS in the manner we designate in the Manual or otherwise for offering, booking, modifying, and communicating Guest Room and meeting space reservations for the Hotel and bear all related costs and expenses. You may not use any other central reservation or similar system without our prior written consent. You agree to pay all applicable monthly maintenance fees;

 

 

(7)

adopt all changes we periodically make to the Hotel System;

 

 

(8)

strictly comply with all governmental requirements concerning the Hotel’s operation, including

 

 

(a)

paying all taxes when due,

 

 

(b)

filing and maintaining trade or fictitious name registrations,

 

 

(c)

filing and maintaining all licenses and permits necessary to operate the Hotel, and

 

 

(d)

obtaining and maintaining all licenses required to sell alcoholic beverages at the Hotel (unless we, at our sole option, have determined that no alcoholic beverages may be offered at or from the Hotel’s premises);

 

 

(9)

permit our representatives to inspect or audit the Hotel at any time and give them free lodging during the inspection period;

 

4


 

(10)

refer guests and customers, wherever reasonably possible, only to Hyatt Place Hotels or other brands affiliated with us, not use the Hotel or the Hotel System to promote a competing business or other lodging facility, and not divert business from the Hotel to a competing business;

 

 

(11)

use your best efforts to create a favorable response to the name “Hyatt Place” and the names of any brand extensions and other Proprietary Marks;

 

 

(12)

participate in, and pay all fees of, any Hotel System travel agent commission payment program, as we periodically modify it, and promptly pay as we require all travel agent commissions and third party reservation service charges according to the terms of those programs;

 

 

(13)

promptly pay us and/or our affiliates when due all royalties and other amounts owed, whether under this Agreement or any related agreement;

 

 

(14)

honor all nationally recognized credit cards and other payment mechanisms we periodically designate and enter into all necessary credit card and other agreements with the issuers of those cards and other applicable parties;

 

 

(15)

treat as confidential and proprietary the Manual and any other Confidential Information and

 

 

(a)

use such material only in operating the Hotel during the Term,

 

 

(b)

not duplicate, circulate, distribute, reproduce, copy, or exhibit any portion of the Manual or Confidential Information, and

 

 

(c)

not divulge any Confidential Information to any person unless he or she needs to know the Confidential Information in order to perform his or her duties at the Hotel;

 

 

(16)

use best efforts to require anyone with access to any Confidential Information to keep the Confidential Information confidential. You must obtain a written agreement from those of your officers, directors, employees, and managers whom we specify agreeing to this Agreement’s restrictions regarding the Confidential Information. We have the right to regulate the form of agreement that you use and to be a third party beneficiary of that agreement with independent enforcement rights. You must keep copies of those agreements and send them to us upon request;

 

 

(17)

conduct a pre-opening marketing program for the Hotel according to our requirements. At least one hundred twenty (120) days before the Hotel’s grand opening, you must

 

 

(a)

pay us an amount equal to One Hundred Dollars ($100) multiplied by the number of Guest Rooms at the Hotel (the “Marketing Deposit”), and

 

 

(b)

prepare and submit to us for our approval a written pre-opening marketing program that contemplates spending the Marketing Deposit and satisfies our requirements. You must change the program as we

 

5


 

specify and implement the approved program. We will use the Marketing Deposit to pay, on your behalf, providers of products and services according to the approved pre-opening marketing program;

 

 

(18)

conduct your advertising in a dignified manner. Before you use them, you must submit to us for our prior approval all advertising, promotional, and public relations plans, programs, and materials that you desire to use, including any materials in digital, electronic, computerized, or other form (including materials to be made available through a computer or telecommunications network such as the Internet, or on a Hotel Website (defined below), subject to Subsection (23) below). If you do not receive written disapproval within fifteen (15) business days after we receive the materials, they are deemed to be approved. You may not use any advertising, promotional, or public relations materials or engage in any programs that we have not approved or have disapproved and must discontinue using any previously-approved materials and engaging in any previously-approved programs within the timeframe we specify after you receive written notice from us;

 

 

(19)

continually, but not less than once every six (6) months, send us current information regarding the name, address, and telephone number of the financial institution (the “Lender”), if any, that provided or is providing the financing enabling you to purchase or operate the Hotel and the name and telephone number of your contact at the Lender;

 

 

(20)

notify us in writing within ten (10) days after you receive information or documentation about any lawsuit, action, or proceeding, or the issuance of any injunction, award, or decree of any court, quasi-judicial body, or governmental agency, that might adversely affect the Hotel, your ability to perform your obligations under this Agreement, or your financial condition;

 

 

(21)

subject to our rights and your obligations under Section 8 below, notify us in writing at least ten (10) days in advance of your intent to list the Hotel for sale and promptly send us all information we reasonably request regarding any proposed sale. You also must ensure that each holder of a direct or indirect Controlling Ownership Interest (defined in Section 8B below), whether that person or entity owns that interest as of the Effective Date or acquires that interest during the Term (subject to our rights and your obligations under Section 8 below), signs our required form of Guaranty and Assumption of Obligations;

 

 

(22)

at our request, send us the names of Hotel customers and guests and give us access to your sales and customer database;

 

 

(23)

not create a separate website promoting your Hotel (a “Hotel Website”) without our prior written approval. If we approve your use of a Hotel Website, we will own all intellectual property and other rights in the domain name or URL for the Hotel Website, the log of “hits” by visitors, and any personal or business data that visitors supply. You must sign the documents we periodically request to secure our ownership of those rights. We may implement and periodically modify, and you must comply with, System Standards relating to the Hotel Website and similar websites. The Hotel Website may not contain any content that references any other hotel, motel, or other lodging facility. In addition, you

 

6


 

may allow the Hotel to be listed on third-party websites (other than the Hotel System website) that offer and sell travel-related products and services, but we have the right to approve in advance these websites and your proposed listings on or links to these websites in order to protect the Proprietary Marks and Hotel System and may withdraw our approval of any website or listing that no longer meets our minimum standards;

 

 

(24)

comply with all System Standards concerning mystery shopper programs, guest relations, and guest complaints and resolution, including reimbursing dissatisfied guests for their costs of staying at the Hotel and participating in other guest satisfaction programs in the manner we specify;

 

 

(25)

purchase or lease, install, and maintain at the Hotel all fixtures; equipment; furnishings; furniture; telephone systems; communications systems; facsimile machines; copiers; signs; property management, revenue management, in-room entertainment, and other computer and technology systems; and other items (collectively, “FF&E”) we specify for the Hotel System. You may not install at the Hotel, without our prior written consent, any FF&E or other items we have not previously approved. You may use at the Hotel only FF&E, supplies, and other goods and services at the Hotel that conform to our System Standards. We may specify for the Hotel System a particular model or brand of FF&E, supplies, and other goods and services that is available from only one manufacturer or supplier. We may specify that certain FF&E, supplies, and other goods and services be purchased only from us or our affiliates or sources we designate or approve. If you wish to obtain any FF&E, supplies, or other goods and services for which we have established standards or specifications from a source that we have not previously approved as meeting our System Standards, you must send us a written request with any information and samples we consider necessary to determine whether the item and source meet our then current criteria. Upon our request, you must reimburse our costs in reviewing your request and evaluating the item and/or source. If you comply with our processes and procedures regarding approval of alternate or additional manufacturers or suppliers, we will respond to your request within a reasonable time period. You may not purchase any FF&E, supplies or other goods or services for the Hotel unless the purchase is from a source we designate or approve or we have approved in writing that the item you proposed meets our standards and specifications. We may modify our System Standards in this area as we deem best. We reserve the right, at our option, to revoke our approval of certain sources or items if they fail to continue to meet our System Standards. We may refuse any of your requests if we already have designated a particular source for, or model or brand of, FF&E, supplies or other goods or services that we (in our sole judgment) determine to be critical to the Hotel System and we do not desire to expand the list of approved sources, models, or brands. We may make this decision as we deem best. We and our affiliates have the right to receive payments from suppliers on account of their actual or prospective dealings with you and other franchisees and to use all amounts we and our affiliates receive without restriction for any purposes we and our affiliates deem appropriate (unless we and our affiliates agree otherwise with the supplier);

 

 

(26)

own fee simple title (or a long-term ground leasehold interest, provided that such interest has been granted to you by an unrelated third party ground lessor in an

 

7


 

arms-length transaction for a term equal to, or longer than, the Term) to the Hotel’s real property and improvements or, at our request, cause the fee simple owner or other third party acceptable to us to provide its guarantee covering all your obligations under this Agreement in form and substance acceptable to us. You must provide us copies of any lease for the Hotel’s premises (and any amendments thereto) upon our request. You acknowledge that our approval of the Hotel’s site is not a guarantee or warranty, express or implied, of the success or profitability of a Hyatt Place Hotel operated at that location. Our approval indicates only that we believe that the site meets our then acceptable criteria; and

 

 

(27)

promptly send us a copy of any notice of default you receive from any mortgagee, trustee under any deed of trust, or ground lessor for the Hotel and, at our request, any additional information we request concerning any alleged default or any subsequent action or proceeding in connection with any alleged default.

B. Performance of the Work . As a primary inducement for us to enter into this Agreement, you agree to perform the work listed on Attachment C (the “Work”) in strict accordance with our specifications and this Agreement’s other applicable terms and conditions.

C. Hotel Upgrading . We may require you at any time and from time to time during the Term to upgrade or renovate the Hotel to comply with then current building decor, appearance, and trade dress standards that we have established and require for Hyatt Place Hotels generally, and this upgrading or renovation may obligate you to invest additional capital in the Hotel and/or incur higher operating costs. You agree to implement such upgrading and renovation, and any other changes in System Standards, within the time period we request, regardless of their cost or the point during the Term when we require you to do so, as if they were part of this Agreement as of the Effective Date. Your failure to do so within the timeframe we specify may result in our issuing a quality default notice that could lead to the termination of this Agreement and your obligation to pay liquidated damages under Section 10E of this Agreement.

D. Fees .

 

 

(1)

Unless otherwise specified, all fees that you paid us before or simultaneously with the execution of this Agreement, or will pay us during the Term, are non-refundable.

 

 

(2)

We and you acknowledge that, before we and you signed this Agreement, you paid us an application fee of Sixty Thousand Dollars ($60,000) plus an additional Four Hundred Dollars ($400) for each Guest Room in excess of one hundred fifty (150) Guest Rooms (the “Application Fee”). The Application Fee paid under this Agreement was $              . The Application Fee is fully earned by us and non-refundable upon our and your execution of this Agreement.

In addition, if we and you agree to add additional Guest Rooms to the Hotel during the Term, then you must pay us an additional Application Fee in an amount equal to Four Hundred Dollars ($400) multiplied by the number of additional Guest Rooms. When you request our approval of your plans to develop the additional Guest Rooms, you must pay us a non-refundable Property Improvement Plan (“PIP”) fee of Five Thousand Dollars ($5,000.00). We will apply this PIP fee toward the additional Application Fee if we approve your

 

8


plans. The remaining portion of the additional Application Fee is due, fully earned by us, and non-refundable on the date we approve your plans to develop the additional Guest Rooms.

 

 

(3)

You must pay us a non-refundable fee of Seven Thousand Five Hundred Dollars ($7,500) on or before the date upon which we or our representative provides data installation services relating to the initial set-up of the CRS and GDS at the Hotel.

 

 

(4)

On or before the tenth (10 th ) day of each month beginning with the month following the Opening Date, you shall pay us:

 

 

(a)

a “Royalty Fee” equal to

 

 

(i)

three percent (3%) of the Hotel’s Gross Rooms Revenue (as defined in Section 3D(6)) accrued during the First Year (defined below);

 

 

(ii)

four percent (4%) of the Hotel’s Gross Rooms Revenue accrued during the Second Year (defined below); and

 

 

(iii)

five percent (5%) of the Hotel’s Gross Rooms Revenue during the balance of the Term.

The “First Year” means the calendar twelve (12) month period beginning on the first (1 st ) day of the calendar month during which the Opening Date occurs, and the “Second Year” means the calendar twelve (12) month period beginning on the first (1 st ) anniversary of the first (1 st ) day of the calendar month during which the Opening Date occurs;

 

 

(b)

a contribution to the Marketing, Central Reservations and Technology Fund (described in Section 4D) (“Contribution”) equal to three and one-half percent (3  1 / 2 %) of the Hotel’s Gross Rooms Revenue during the preceding month. At any time during the Term, we may, upon thirty (30) days’ prior notice to you, periodically increase the Contribution, but it will not exceed four percent (4%) of the Hotel’s Gross Rooms Revenue; and

 

 

(c)

all fees and other amounts that we (or our affiliates) then have paid or have agreed to pay on your behalf to the then current CRS operator (if applicable), then current GDS operator (if applicable), and other providers of products or services for the Hotel (collectively, the “Providers”). If any Provider assesses a single or group fee or other charge that covers all or a group of Hyatt Place Hotels to which that Provider provides products or services, you agree that our allocation of that fee or other charge among the Hotel and other Hyatt Place Hotels is final. The Providers may periodically increase the fees and other charges they impose. At our option, you must begin paying these fees and other charges directly to the applicable Provider(s).

 

 

(5)

You agree to pay on a timely basis:

 

9


 

(a)

applicable commissions to travel agents;

 

 

(b)

all commissions and fees for reservations you accept through any sources (including the Internet), whether processed through us, the CRS, or a third-party reservation system or billed directly to you;

 

 

(c)

all contributions for cooperative advertising programs in which you agree to participate, as required in Section 3E below;

 

 

(d)

charges for telephone and other equipment related to the CRS; and

 

 

(e)

all fees and assessments due for guest frequency programs or other marketing programs we initiate that are attributable to the Hotel. Failure to pay any of these fees is a default under this Agreement.

 

 

(6)

“Gross Rooms Revenue” shall mean all gross revenues attributable to or payable for the rental of Guest Rooms, including guaranteed no-show revenue and cancellation fees and all cash, check, barter, credit, debit, and other transactions, whether or not collected, at the actual rates charged, reduced by Guest Room rebates and overcharges (but only if originally included in Gross Rooms Revenue) and excluding any sales or room taxes you collect and transmit to the appropriate taxing authority. Gross Rooms Revenue also shall include the proceeds from any business interruption insurance applicable to loss of revenue due to the non-availability of Guest Rooms. Gross Rooms Revenue shall be accounted for in accordance with the Uniform System of Accounts for the Lodging Industry, Ninth Edition, as published by The Hotel Association of New York City, Inc., or a later edition that we approve.

 

 

(7)

You must make all payments for Royalty Fees, Contributions, and other fees due to us under this Agreement by electronic funds transfer (“EFT”). You must sign the documents we periodically specify to allow us to debit your bank account or otherwise process these payments through EFT. You also must sign any additional or new forms and complete any reasonable procedures we establish for EFT. We will require payment by EFT only for Royalty Fees, Contributions, and other fees due to us under this Agreement. We periodically may change the procedure for monthly payments and require you to

 

 

(a)

make your monthly payments to a designated bank account by wire transfer or other means we specify and

 

 

(b)

sign any authorizations or other documents required to implement that procedure.

On the date Royalty Fees and Contributions are due, you shall report to us by telephone, electronic means, or in written form, as we direct, pursuant to our standard transmittal procedures, information regarding your Gross Rooms Revenue and any additional information we request. Funds must be available in your account to cover our withdrawals. You may not change your bank, financial institution, or account without first telling us.

 

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(8)

You agree to pay us a late fee of Two Hundred Twenty-Five Dollars ($225) for each required payment not made on or before its original due date and for each payment not honored by your financial institution. The late fee is not interest or a penalty but compensates us for increased administrative and management costs due to your late payment. In addition, all amounts that you owe us that are more than seven (7) days late will bear interest accruing as of their original due date at one and one-half percent (1.5%) per month or the highest commercial contract interest rate the law allows, whichever is less. We may debit your bank account automatically for the late fee and interest. You acknowledge that this subparagraph is not our agreement to accept any payments after they are due or our commitment to extend credit to, or otherwise finance your operation of, the Hotel.

 

 

(9)

Subject to our requirements and at your own expense, you may conduct local and regional marketing and advertising programs. You shall pay us the reasonable fees we periodically establish for optional advertising materials you order from us for these programs.

 

 

(10)

Despite any designation you make, we may apply any of your payments to any of your past due indebtedness to us or our affiliates. We may set off any amounts you or your owners owe us or our affiliates against any amounts we or our affiliates owe you or your owners. You may not withhold payment of any amounts you owe us or our affiliates due to our alleged nonperformance of any of our obligations under this Agreement.

 

 

(11)

If any gross receipts, sales, use, excise, or similar tax is imposed upon us due to any payment you make to us under this Agreement (but not our own income taxes), you must reimburse us for all tax payments we make so that the amount of your payments we retain after paying the applicable taxes equals the full amount of the payments you were required to make under this Agreement had the tax not been imposed upon us.

E. Cooperative Advertising Programs . We may identify a region in which two (2) or more Hyatt Place Hotels are located in order to establish a local or regional advertising cooperative (a “Cooperative”). We may form, change, dissolve and merge Cooperatives. The Cooperative’s purpose will be to collect funds from its members and to plan, discuss, organize, develop, utilize, produce, disseminate, and implement advertising and promotional programs and materials on a collective basis (and to cover related expenses) for the sale of services at participating Hyatt Place Hotels. We will not require you to participate in a Cooperative. However, if you choose to participate in the Cooperative, you must do so according to the Cooperative’s rules, including by paying your Hotel’s allocable share of any advertising, marketing, promotional and other programs that the Cooperative conducts. All restrictions under this Agreement relating to any advertising, marketing or promotional programs that you conduct also apply to any such programs that the Cooperative conducts.

F. Management of the Hotel . Unless we consent in writing, you must at all times retain and exercise direct management control over the Hotel’s business. You may not enter into any lease, management agreement, or other similar arrangement with any independent entity for all or a part of the Hotel’s operation (a “Management Arrangement”) without our prior written consent, which we will not unreasonably withhold if the independent entity meets our minimum qualifications, attends and satisfactorily completes required training programs, agrees to sign the documents we require to protect our Proprietary Marks, Copyrighted Materials, and Confidential Information, and agrees to perform its

 

11


management responsibilities in compliance with this Agreement. Nevertheless, we may refuse to approve a management company which is, or that has an affiliate which is, a Brand Owner. Under this Agreement, “Brand Owner” means any entity that is a franchisor or owner, or is affiliated with or manages hotels exclusively for the franchisor or owner, of a hotel concept that in our opinion competes with Hyatt Place Hotels, irrespective of the number of hotels operating under that concept’s trade name. Even after we approve a Management Arrangement, we may at our option revoke that approval, and upon delivery of written notice to you require you to terminate the Management Arrangement, if the independent entity or any of its affiliates at any time becomes a Brand Owner or otherwise fails to meet our minimum qualifications or to comply with this Agreement.

G. Guest Room Rates . You will establish the Hotel’s room rates and submit them to us promptly upon our request. Except for special event periods, you may not charge any rate exceeding the rate you submit in writing for sale by the CRS.

4 . Our Responsibilities

A. Orientation and Training .

 

 

(1)

Owner/Management Orientation . Within ninety (90) days after the Effective Date, your managing owners and core management team must attend an owner/management orientation program at our principal business address. We do not charge for this orientation program.

 

 

(2)

General Manager Certification Program/Central Reservation System Training Program . Before opening the Hotel for business, your general manager and other key personnel we specify must attend and successfully complete our General Manager Certification Program, our Central Reservation System Training Program, and such other training programs and curriculum we specify. If you replace your general manager or any other key personnel whom we require to attend training, you must have their replacements attend and successfully complete the applicable training programs within thirty (30) days (or such other period we periodically designate) after they assume their positions. We will designate the dates, locations, and duration of all training. You must pay our then current fees for the initial and all subsequent General Manager Certification Programs and Central Reservation System Training Programs.

 

 

(3)

Sales Director Training Program . Before opening the Hotel for business, your sales director must attend and successfully compete our Sales Director Training Program. If you replace your sales director, you must have his or her replacement attend and successfully complete the training program within thirty (30) days (or such other period we periodically designate) after he or she assumes the position. We will designate the dates, locations, and duration of training. You must pay our then current fees for the initial and all subsequent Sales Director Training Programs.

 

 

(4)

On-Site Training . We will send one or two trainers (at our option) to assist with training your staff and the Hotel’s grand opening. You must pay us our then current fee and our trainer(s)’ travel and living expenses associated with this training. The trainer(s) will arrive at or before the Hotel’s grand opening and stay for the period that we specify. The trainer(s) will generally assist and train

 

12


 

Hotel staff with aspects of day-to-day operations, including laundry, customer service, food and beverage, and front desk operations.

 

 

(5)

Supplemental Training . We may, at such times and places we deem best, require your general manager, your sales director, and other key personnel to attend and successfully complete supplemental training courses in connection with Hotel System modifications. These individuals must attend any supplemental training within one hundred and eighty (180) days after you receive notice from us that such training is required. The fee for supplemental training ranges from One Hundred Fifty Dollars ($150) to Two Thousand Five Hundred Dollars ($2,500) per person, depending on the nature of the training program. Supplemental training may be conducted by, and tuition may be payable to, third parties we designate.

 

 

(6)

Training Expenses . Besides the training fees we charge for the training discussed above, you are responsible for all costs of transportation, meals, lodging, salaries, and other compensation incurred in connection with training. If we hold any training at your Hotel, you must provide free lodging for our representatives.

B. Services . If you are in full compliance with your obligations under this Agreement, you shall have access to the CRS, listings in advertising publications, and the National Directory. You must participate in, connect with, and use the CRS and GDS in the manner we periodically designate for offering, booking, modifying, and communicating Guest Room and meeting space reservations for the Hotel and bear all related costs and expenses. We or our representative will provide data installation services relating to the initial set-up of the CRS and GDS at the Hotel. You must honor and give first priority on available rooms to all confirmed reservations that the CRS or GDS refers to the Hotel. The CRS and GDS are the only reservation system or service that your Hotel may use for outgoing reservations that the Hotel refers to other hotels. You are solely responsible for notifying the reservation center of any changes in your Hotel’s room rates. You may not charge any guest a rate higher than the rate that the reservations center specifies to the guest at the time he or she makes the reservation. We may suspend your access to and listings in these sources while you are in default under this Agreement.

C. Guidance and Assistance . During the Term, we may advise you from time to time regarding the Hotel’s operation based on your reports or our evaluations and inspections and may guide you with respect to

 

 

(1)

System Standards that Hyatt Place Hotels use,

 

 

(2)

purchasing required and authorized FF&E and other items and arranging for their distribution to you,

 

 

(3)

advertising and marketing materials and programs,

 

 

(4)

employee training, and

 

 

(5)

administrative, recordkeeping, and accounting procedures.

We may guide you in the Manual; in bulletins or other written materials; by electronic media; by telephone consultation; and/or at our headquarters or the Hotel. If you request, and we agree to provide,

 

13


additional or special guidance, assistance, or training, you agree to pay our then applicable charges, including our personnel’s per diem charges and travel and living expenses.

D. Marketing, Central Reservations and Technology Fund . We or our designee will administer a Marketing, Central Reservations and Technology Fund for the Hotel System (the “Fund”). You must make the Contributions specified in Section 3D(4)(b) above. For administrative convenience, we may (but are not required to) collect the Contributions before passing them on to the Fund. Hyatt Place Hotels that we or our affiliates own and operate will contribute to the Fund on the same percentage basis as franchisees. We also have the right to collect for deposit into the Fund any advertising, marketing, or similar allowances paid to us by suppliers who deal with Hyatt Place Hotels and with whom we agree to so deposit these allowances.

We will determine and direct all programs that the Fund finances, with sole control over the creative concepts, materials, and endorsements used and their geographic, market, and media placement and allocation, including by determining on our own the amounts to be spent for the various purposes identified in this Section. The Fund may pay for preparing and producing video, audio, and written materials and electronic media; developing, implementing, maintaining and improving the Hotel System’s website and/or related strategies; developing, implementing, operating, maintaining and improving the CRS, GDS, and National Directory and any other related or successor programs or systems; developing, implementing, maintaining and improving any video, computer-related or other technology for use or sale by Hyatt Place Hotels; planning, coordinating and conducting various sales efforts for Hyatt Place Hotels; market research and other research and development activities relating to improving the Hotel System; administering regional and multi-regional marketing and advertising programs, including purchasing trade journal and other media advertising and using advertising, promotion, and marketing agencies and other advisors to provide assistance; and supporting public relations and other advertising, promotion, and marketing activities. The Fund periodically will give you samples of advertising, marketing, and promotional formats and materials at no cost. We will sell you multiple copies of these materials at our direct cost of producing them, plus any related shipping, handling, and storage charges.

We will account for the Fund separately from our other monies (but we need not segregate the Fund from our assets). We will not use the Fund for any of our general operating expenses. However, we may use the Fund to pay the reasonable salaries, benefits and expenses of personnel who manage, administer and/or perform services for or on behalf of the Fund, including those who account for Contributions; the Fund’s other administrative costs; travel expenses of personnel while they are on Fund business; meeting costs; rent, utilities, other overhead costs, and other costs for equipment, supplies and other materials relating or allocable to Fund business; and other expenses that we incur in activities reasonably related to administering or directing the Fund and its programs, including conducting market research and other research and development activities, public relations, preparing advertising, promotion, and marketing materials, collecting and accounting for Contributions, paying Providers for services relating to the CRS and GDS, and paying for technical and support functions.

The Fund will not be our asset. Although the Fund is not a trust, we will hold all Contributions for the benefit of the contributors and use Contributions only for the purposes described in this Section. We do not owe any fiduciary obligation to you for administering the Fund or any other reason. The Fund may spend in any fiscal year more or less than the total Contributions in that year, borrow from us or others (paying reasonable interest) to cover deficits, or invest any surplus for future use. We will use all interest (if any) earned on Contributions to pay costs before using the Fund’s other assets.

We will prepare an annual, unaudited statement of Fund collections and expenses and give you a copy of the statement upon written request. We may have the Fund audited periodically, at the Fund’s expense, by an independent certified public accountant. We may incorporate the Fund or operate it

 

14


through a separate entity whenever we deem appropriate. The successor entity will have all of the rights and duties specified in this Section.

We intend the Fund to maximize recognition of the Proprietary Marks, patronage of Hyatt Place Hotels, and the productive and efficient operation of the CRS and GDS, any related or successor programs or systems, and other technologies. Although we will try to use the Fund in a manner that will benefit all Hyatt Place Hotels, we need not ensure that Fund expenditures in or affecting any geographic area are proportionate or equivalent to Contributions by Hyatt Place Hotels operating in that geographic area or that any Hyatt Place Hotel benefits directly or in proportion to its Contributions from the programs and other products and services that the Fund finances.

We have the right, but no obligation, to use collection agents and institute legal proceedings at the Fund’s expense to collect Contributions. We also may forgive, waive, settle, and compromise all claims by or against the Fund. Except as expressly provided in this Section, we assume no direct or indirect liability or obligation to you for collecting amounts due to, maintaining, directing, or administering the Fund.

We may at any time defer or reduce Contributions of a Hyatt Place Hotel franchisee and, upon thirty (30) days’ prior written notice to you, reduce or suspend Contributions and operations for one or more periods of any length and terminate (and, if terminated, reinstate) the Fund. If we terminate the Fund, we will distribute all unspent monies to our franchisees, and to us and our affiliates, in proportion to their and our respective Contributions during the preceding twelve (12) month period.

E. Application of Manual . You must comply with the terms of the Manual (other than any personnel and security-related policies and procedures, which are for your optional use). Because complete and detailed uniformity under many varying conditions might not be possible or practical, you acknowledge that we specifically reserve the right and privilege, as we deem best, to vary System Standards for any franchisee based upon the peculiarities of any condition or factors that we consider important to that franchisee’s successful operation. You have no right to require us to grant you a similar variation or accommodation.

The Manual may include audiotapes, videotapes, compact disks, computer software, other electronic media, and/or written materials. It contains System Standards and information on your other obligations under this Agreement. We may modify the Manual periodically to reflect changes in System Standards. You agree to keep your Manual current and in a secure location at the Hotel. If there is a dispute over its contents, our master copy of the Manual controls. You agree that the Manual’s contents are confidential. If your copy of the Manual is lost, destroyed, or significantly damaged, you agree to obtain a replacement copy at our then applicable charge.

At our option, we may post some or all of the Manual on a restricted website or extranet to which you will have access. If we do so, you agree to monitor and access the website or extranet for any updates to the Manual, System Standards, or other aspects of the Hotel System. Any passwords or other digital identifications necessary to access the Manual on a website or extranet will be deemed to be part of Confidential Information. We may require you to return a portion or the entire copy of the Manual given to you in paper or other tangible form after we post the Manual on a restricted website or extranet.

F. Other Arrangements . We may arrange for development, marketing, operations, administration, technical, and support functions, facilities, services, and/or personnel with any other entity. We and our affiliates may use any facilities, programs, services, and/or personnel used in connection with the Hotel System in our and our affiliates’ other business activities, even if these other business activities compete with the Hotel or the Hotel System. You agree that we have the right to

 

15


delegate the performance of any portion or all of our obligations under this Agreement to third-party designees, whether these designees are our affiliates, agents, or independent contractors with whom we contract to perform these obligations. If we do so, the third-party designees will be obligated to perform the delegated functions for you in compliance with this Agreement.

G. Inspections/Compliance Assistance and Quality Assurance Program . We may inspect your Hotel at any time, with or without notice to you, to determine whether you and the Hotel are complying with the Hotel System, System Standards, and other terms and conditions of this Agreement. If you or the Hotel fails to comply with such obligations, we may require you, at your own cost (and in addition to our other rights and remedies), to correct the deficiencies within the reasonable time we establish. Your Hotel must participate in the quality assurance program that we develop and periodically modify (the “Quality Assurance Program”). As part of the Quality Assurance Program, we and/or our representatives and designees may evaluate whether the Hotel is complying with the Hotel System and System Standards. The primary means of operating the Quality Assurance Program will be evaluations conducted through stays at Hyatt Place Hotels. If we determine that the Hotel is not complying with the Hotel System, System Standards, and other terms and conditions of this Agreement and then instruct you to correct those deficiencies, we may charge you One Thousand Five Hundred Dollars ($1,500) for each follow-up or re-evaluation visit until the deficiencies have been fully corrected.

H. Annual Conventions . We may, at our option, hold an annual convention for Hyatt Place Hotels or all Hyatt Select Hotels Group hotels (which currently include Hyatt Place Hotels and Hyatt Summerfield Suites hotels and may include other hotel brands in the future) (the “Annual Convention”) at a location we designate. We may require your general manager and other key Hotel personnel to attend the Annual Convention. You must pay us our then current attendance fee for each person from your Hotel who attends the Annual Convention. You also must pay all expenses your attendees incur to attend the Annual Convention.

I. Exercise of Our Judgment . We have the right to develop, operate, and change the Hotel System in any manner not specifically prohibited by this Agreement. Whenever we have reserved in this Agreement a right to take or to withhold an action, or to grant or decline to grant you the right to take or omit an action, we may, except as otherwise specifically provided in this Agreement, make our decision or exercise our rights based on information readily available to us and our judgment of what is in the best interests of us, Hyatt Place Hotel franchisees generally, or the Hotel System at the time our decision is made, without regard to whether we could have made other reasonable or even arguably preferable alternative decisions or whether our decision promotes our financial or other individual interest.

5. Proprietary Rights.

A. Ownership and Goodwill of Proprietary Marks, Copyrighted Materials, and Confidential Information . Our affiliate has licensed the Proprietary Marks, Copyrighted Materials, and Confidential Information to us to use and sublicense in franchising, developing, and operating Hyatt Place Hotels. Your right to use the Proprietary Marks, Copyrighted Materials, and Confidential Information is derived only from this Agreement and is limited to your operating the Hotel according to this Agreement and all System Standards we prescribe during the Term. Your unauthorized use of the Proprietary Marks, Copyrighted Materials, and Confidential Information is a breach of this Agreement and infringes our and our affiliate’s rights in the Proprietary Marks, Copyrighted Materials, and Confidential Information. You acknowledge and agree that your use of the Proprietary Marks, Copyrighted Materials, and Confidential Information and any goodwill established by that use are exclusively for our and our affiliate’s benefit and that this Agreement does not confer any goodwill or other interests in the Proprietary Marks, Copyrighted Materials, and Confidential Information upon you (other than the right to operate the Hotel under this Agreement). You may not at any time during or after the Term contest or assist any other

 

16


person in contesting the validity, or our and our affiliate’s ownership, of the Proprietary Marks, Copyrighted Materials, and Confidential Information.

B. Limitations on your Use of Proprietary Marks . You agree to use the Proprietary Marks as the Hotel’s sole identification, except that you must identify yourself as its independent owner in the manner we periodically specify. You may not use any Proprietary Mark (1) as part of any corporate or legal business name, (2) with any prefix, suffix, or other modifying words, terms, designs, or symbols (other than logos we license to you), (3) in providing or selling any unauthorized services or products, (4) as part of any domain name, homepage, meta tags, keyword, electronic address, or otherwise in connection with a website or other electronic media (unless we have approved such use in advance), or (5) in any other manner we have not expressly authorized in writing. If we discover your unauthorized use of the Proprietary Marks, in addition to our other rights and remedies under this Agreement and applicable law, we may require you to destroy (with no reimbursement from us) all offending items reflecting such unauthorized use.

You may not use any Proprietary Mark in advertising the transfer, sale, or other disposition of the Hotel or an ownership interest in you without our prior written consent, which we will not unreasonably withhold. You agree to display the Proprietary Marks prominently as we prescribe at the Hotel and on forms, advertising, supplies, and other materials we periodically designate. You agree to give the notices of trade and service mark registrations that we specify and to obtain any fictitious or assumed name registrations required under applicable law.

C. Notification of Infringements and Claims . You agree to notify us immediately of any apparent infringement or challenge to your use of any Proprietary Mark, Copyrighted Materials, or Confidential Information, or of any person’s claim of any rights in any Proprietary Mark, Copyrighted Materials, or Confidential Information, and not to communicate with any person other than us, our affiliates, and our and their attorneys, and your attorneys, regarding any infringement, challenge, or claim. We and our affiliates may take the action we and they deem appropriate (including no action) and control exclusively any litigation, U.S. Patent and Trademark Office proceeding, or other administrative proceeding arising from any infringement, challenge, or claim or otherwise concerning any Proprietary Mark, Copyrighted Materials, or Confidential Information. You agree to sign any documents and take any other reasonable action that, in the opinion of our and our affiliates’ attorneys, are necessary or advisable to protect and maintain our and our affiliates’ interests in any litigation or Patent and Trademark Office or other proceeding or otherwise to protect and maintain our and our affiliates’ interests in the Proprietary Marks, Copyrighted Materials, and Confidential Information. We or our affiliate will reimburse your reasonable out-of-pocket costs for taking any requested action.

D. Discontinuance of Use of Proprietary Marks . If it becomes advisable at any time for us and/or you to modify, discontinue using, and/or replace any Proprietary Mark and/or to use one or more additional, substitute, or replacement trade or service marks together with or in lieu of any previously-designated Proprietary Mark, you agree to comply with our directions within a reasonable time after receiving notice. Neither we nor our affiliates will reimburse you for your expenses of changing the Hotel’s signs, for any loss of revenue due to any modified or discontinued Proprietary Mark, or for your expenses of promoting a modified or substitute trademark or service mark.

Our rights in this Section 5D apply to any and all of the Proprietary Marks (and any portion of any Proprietary Mark) that this Agreement authorizes you to use. We may exercise these rights at any time and for any reason, business or otherwise, we think best. You acknowledge both our right to take this action and your obligation to comply with our directions.

 

17


E. Indemnification for Use of Proprietary Marks . We agree to reimburse you for all damages and expenses that you incur in any trademark infringement proceeding disputing your authorized use of any Proprietary Mark under this Agreement if you have timely notified us of, and comply with our directions in responding to, the proceeding. At our option, we and/or our affiliate(s) may defend and control the defense of any proceeding arising from your use of any Proprietary Mark under this Agreement.

F. Confidential Information . We and our affiliates possess (and will continue to develop and acquire) Confidential Information, some of which constitutes trade secrets under applicable law, relating to developing and operating Hyatt Place Hotels, including:

 

 

(1)

site selection criteria;

 

 

(2)

the substance, design, and construction of Hyatt Place Hotels;

 

 

(3)

training and operations materials and manuals, including the Manual;

 

 

(4)

methods, formats, specifications, standards, systems, procedures, sales and marketing techniques, knowledge, and experience used in developing and operating Hyatt Place Hotels;

 

 

(5)

marketing and advertising programs for Hyatt Place Hotels;

 

 

(6)

information regarding the Hotel’s guests;

 

 

(7)

knowledge of specifications for and suppliers of FF&E and other products and supplies;

 

 

(8)

any computer software or other technology that is proprietary to us or the Hotel System, including digital passwords and identifications and any source code of, and data, reports, and other printed materials generated by, the software or other technology;

 

 

(9)

knowledge of the operating results and financial performance of Hyatt Place Hotels other than the Hotel; and

 

 

(10)

graphic designs and related intellectual property. All information we obtain from you or about the Hotel or its guests pursuant to this Agreement, or any agreement ancillary to this Agreement (including agreements relating to the CRS and other software systems we provide or require), or otherwise related to the Hotel, will become part of Confidential information and our property, which we then may use for any reason we deem necessary or appropriate. However, you may at any time during or after the Term use to the extent lawful and at your own risk any information and data stored in your Hotel’s property management system database.

 

 

(11)

You acknowledge and agree that you will not acquire any interest in Confidential Information, other than the right to use certain Confidential Information as we specify while operating the Hotel during the Term, and that Confidential Information is proprietary, includes our and our affiliate’s trade secrets, and is

 

18


 

disclosed to you only on the condition that you agree, and you hereby do agree, that you:

 

 

(a)

will not use Confidential Information in any other business or capacity;

 

 

(b)

will keep confidential each item deemed to be a part of Confidential Information, both during and after the Term (afterward for as long as the item is not generally known in the hotel industry);

 

 

(c)

will not make unauthorized copies of any Confidential Information disclosed via electronic medium or in written or other tangible form; and

 

 

(d)

will adopt and implement reasonable procedures to prevent unauthorized use or disclosure of Confidential Information.

Confidential Information does not include information, knowledge, or know-how that you can demonstrate lawfully came to your attention before we or our affiliate provided it to you directly or indirectly; that, at the time we or our affiliate disclosed it to you, already had lawfully become generally known in the hotel industry through publication or communication by others (without violating an obligation to us or our affiliate); or that, after we or our affiliate disclose it to you, lawfully becomes generally known in the hotel industry through publication or communication by others (without violating an obligation to us or our affiliate). However, if we include any matter in Confidential Information, anyone who claims that it is not Confidential Information must prove that one of the exclusions provided in this paragraph is satisfied.

All ideas, concepts, techniques, or materials relating to a Hyatt Place Hotel, whether or not protectable intellectual property and whether created by or for you or your owners or employees, must be promptly disclosed to us and will be deemed to be our and our affiliate’s sole and exclusive property, part of the Hotel System, and works made-for-hire for us and our affiliate. If any item does not qualify as a “work made-for-hire” for us and our affiliate, by this paragraph you assign ownership of that item, and all related rights to that item, to us and agree to take whatever action (including signing assignment or other documents) we request to evidence our ownership or to help us obtain intellectual property rights in the item.

6. Records and Audits

A. Reports . At our request, you must prepare and deliver to us daily, monthly, quarterly, and annual operating statements, profit and loss statements, balance sheets, and other reports we require, prepared in the form, by the methods, and within the timeframes we specify in the Manual. The reports must contain all information we require and be certified as accurate in the manner we require. By the tenth (10 th ) day of each month, you agree to prepare and send us a statement for the previous month, certified by your chief financial or principal accounting officer, listing Gross Rooms Revenue, other Hotel revenues, room occupancy rates, reservation data, the amounts currently due under Section 3D, and other information we deem useful in connection with the Hotel System (the “Data”). The statement will be in the form and contain the detail we reasonably request, will be our property, and may be used by us for all reasonable purposes.

B. Preparation and Maintenance of Records . You agree to:

 

19


 

(1)

prepare on a current basis in a form satisfactory to us, and preserve for at least four (4) years, complete and accurate records concerning Gross Rooms Revenue and all financial, operating, marketing, and other aspects of the Hotel; and

 

 

(2)

maintain an accounting system that fully and accurately reflects all financial aspects of the Hotel, including books of account, tax returns, governmental reports, register tapes, daily reports, profit and loss and cash flow statements, balance sheets, and complete quarterly and annual financial statements.

We reserve the right to access your computer system independently to obtain sales information, occupancy information, and other Data. You must send us upon our request any information that we do not access independently from your computer system.

C. Audit . We may at any time during your regular business hours, and without prior notice to you, examine your and the Hotel’s business, bookkeeping, and accounting records, sales and income tax records and returns, and other records. You agree to cooperate fully with our representatives and independent accountants in any examination. If any examination discloses an understatement of the Hotel’s Gross Rooms Revenue, you agree to pay us, within fifteen (15) days after receiving the examination report, the Royalty Fees and Contributions due on the amount of the understatement, the late fee, and interest on the understated amounts from the date originally due until the date of payment. Furthermore, if an examination is necessary due to your failure to furnish reports, supporting records, or other information as required, or to furnish these items on a timely basis, or if our examination reveals a Royalty Fee or Contribution underpayment to us of three percent (3%) or more of the total amount owed during any six (6) month period, or that you willfully understated the Hotel’s Gross Rooms Revenue, you agree to reimburse us for the costs of the examination, including the charges of attorneys and independent accountants and the travel expenses, room and board, and compensation of our employees. These remedies are in addition to our other remedies and rights under this Agreement and applicable law.

D. Annual Financial Information . At our request, not later than ninety (90) days after the end of your fiscal year, you must send us one or more of the following as we may request, certified by your chief financial or principal accounting officer to be true and correct: complete financial statements for that fiscal year (including a balance sheet, statement of operations and statement of cash flow) prepared in accordance with generally accepted accounting principles consistently applied; your income tax returns for the Hotel for that year; and statements reflecting all Gross Rooms Revenue and all sources and amounts of other Hotel revenue generated during the year. Any false certification shall be a material breach of this Agreement. At our request from time to time, you also agree to provide us with those operating statistics for the Hotel that we specify. We may require you to have audited financial statements prepared annually during the Term.

7. Indemnity and Insurance.

A. Our and Your Relationship . We and you may not make any express or implied agreements, warranties, guarantees, or representations, or incur any debt, in the name or on behalf of the other or represent that our respective relationship is other than franchisor and franchisee. We will not be obligated for any damages to any person or property directly or indirectly arising out of the Hotel’s operation or the business you conduct under this Agreement.

B. Your Indemnification of Us . In addition to your obligation under this Agreement to procure and maintain insurance, you agree to indemnify, defend, and hold harmless us, our affiliates, and our and their respective owners, officers, directors, agents, employees, representatives, successors, and assigns (the “Indemnified Parties”) against, and to reimburse anyone or more of the Indemnified Parties

 

20


for, any and all claims, obligations, and damages directly or indirectly arising out of, resulting from, or in connection with

 

 

(1)

the application you submitted to us for the rights granted under this Agreement,

 

 

(2)

the construction, development, use, occupancy, or operation of the Hotel, including any claim or allegation relating to the Americans with Disabilities Act or any similar law concerning public accommodations for persons with disabilities,

 

 

(3)

any bodily injury, personal injury, death, or property damage suffered by any Hotel guest, customer, visitor, or employee,

 

 

(4)

claims alleging either intentional or negligent conduct, acts, or omissions by you or us relating to the operation of the Hotel or the Hotel System, and

 

 

(5)

your breach of the terms and conditions of this Agreement.

For purposes of this indemnification, “claims” include all obligations, damages (actual, consequential, or otherwise), and costs that any Indemnified Party reasonably incurs in defending any claim against it, including reasonable accountants’, arbitrators’, attorneys’, and expert witness fees, costs of investigation and proof of facts, court costs, travel and living expenses, and other expenses of litigation, arbitration, or alternative dispute resolution, regardless of whether litigation, arbitration, or alternative dispute resolution is commenced. Each Indemnified Party may defend any claim against it at your expense and agree to settlements or take any other remedial, corrective, or other actions, provided that the Indemnified Party will seek your advice and counsel, and keep you informed, with regard to any proposed or contemplated settlement.

The obligations under this Subsection will continue in full force and effect subsequent to and notwithstanding this Agreement’s expiration or termination. An Indemnified Party need not seek recovery from any insurer or other third party, or otherwise mitigate its losses and expenses, in order to maintain and recover fully a claim against you under this subparagraph. You agree that a failure to pursue a recovery or mitigate a loss will not reduce or alter the amounts that an Indemnified Party may recover from you under this Subsection.

If separate counsel is appropriate in our opinion because of actual or potential conflicts of interest, we may retain attorneys and/or independently defend any claim, action, or alleged claim or action at your sole expense. No party may settle any claim or action that could have an adverse effect on us, the Hotel System, or other franchisees without our prior approval.

You have no obligation to indemnify under this Subsection if a court of competent jurisdiction makes a final decision not subject to further appeal that we or our employees directly engaged in willful misconduct or intentionally caused the property damage or bodily injury that is the subject of the claim, so long as the claim is not asserted on the basis of theories of vicarious liability (including agency, apparent agency, or employment) or our failure to compel you to comply with this Agreement (which are claims for which we are entitled to indemnification under this Section 7B). You shall notify us immediately (but not later than five (5) days following your receipt of notice) of any claim, action, or potential claim or action naming any Indemnified Party as a defendant or potential defendant (the “Indemnification Notice”). The Indemnification Notice shall include copies of all correspondence or court papers relating to the claim or action. Your obligation to indemnify us shall not be limited in any way by reason of any insurance that we maintain.

 

21


C. Insurance . At your expense, you must procure and at all times during the Term maintain such insurance as may be required by the terms of any lease or mortgage on the premises where the Hotel is located, and in any event no less than the following:

 

 

(1)

Property Insurance

 

 

(a)

Property insurance (or builder’s risk insurance during any period of construction) on the Hotel building(s) and contents against loss or damage by fire, lightning, windstorm, and all other risks covered by the usual all-risk policy form, all in an amount not less than ninety percent (90%) of the full replacement cost thereof and a waiver of co-insurance and agreed amount endorsement. Such policy shall also include coverage for landscape improvements and law and ordinance coverage in reasonable amounts.

 

 

(b)

Boiler and machinery insurance against loss or damage caused by machinery breakdown or explosion of boilers or pressure vessels to the extent applicable to the Hotel.

 

 

(c)

Business interruption insurance covering at least twelve (12) months’ loss of profits and necessary continuing expenses for interruptions caused by any occurrence covered by the insurance referred to in subsections (a) and (b) above.

 

 

(d)

If the Hotel is located in whole or in part within an area identified by the federal government as having a special flood hazard, flood insurance in an amount not less than the maximum coverage available under the National Flood Insurance Program and excess flood coverage with reasonable limits, including business interruption coverage for at least twelve (12) months’ loss of profits and necessary continuing expenses.

 

 

(e)

If the Hotel is located in an “earthquake prone zone” as determined by the U.S. Geological Survey, earthquake insurance in an amount not less than the probable maximum loss less any applicable deductibles, including business interruption coverage for at least twelve (12) months’ loss of profits and necessary continuing expenses, all as determined by a recognized earthquake engineering firm.

 

 

(2)

Workers’ Compensation insurance in statutory amounts on all Hotel employees and Employer’s Liability Insurance in amounts not less than $1,000,000 per accident/disease.

 

 

(3)

Comprehensive or Commercial General Liability Insurance for any claims or losses arising or resulting from or pertaining to the Hotel or its operation, with combined single limits of $1,000,000 per each occurrence for bodily injury and property damage. If the general liability coverages contain a general aggregate limit, such limit shall be not less than $2,000,000, and it shall apply in total to the Hotel only by specific endorsement. Such insurance shall be on an occurrence policy form and include premises and operations, independent contractors, blanket contractual, products and completed operations, advertising injury, employees as additional insureds, broad form property damage, personal injury,

 

22


 

incidental medical malpractice, severability of interests, innkeeper’s and safe deposit box liability, and explosion, collapse and underground coverage during any construction.

 

 

(4)

Liquor Liability (applicable when you distribute, sell, serve, or furnish alcoholic beverages) for combined single limits of bodily injury and property damage of not less than $1,000,000 each occurrence.

 

 

(5)

Business Auto Liability, including owned, non-owned and hired vehicles for combined single limits of bodily injury and property damage of not less than $1,000,000 each occurrence.

 

 

(6)

Umbrella Excess Liability on a following form in amounts not less than $24,000,000 if the Hotel is four to six stories in height above ground or $14,000,000 if the Hotel is three stories or less in height in excess of the liability insurance required under subsections (2) through (5) above. We may require you to increase the amount of coverage if the number of floors of the Hotel above ground is greater than six or if, in our judgment, such an increase is warranted.

 

 

(7)

Such other insurance as may be customarily carried by other hotel operators on hotels similar to the Hotel.

We may periodically increase the amounts of coverage required under these insurance policies and/or require different or additional insurance coverage at any time to reflect inflation, identification of new risks, changes in law or standards of liability, higher damage awards or relevant changes in circumstances. You also must satisfy the following general insurance requirements:

 

 

(i)

All insurance must by endorsement specifically name us and any affiliates that we periodically designate (and our and their employees and agents) as unrestricted additional insureds.

 

 

(ii)

Any deductibles or self-insured retentions that you maintain (excluding deductibles for high hazard risks in high hazard geological zones, such as earthquake and windstorm, which shall be as required by the insurance carrier) shall not exceed $25,000, or such higher amount as we (at our option) may approve in writing in advance.

 

 

(iii)

You must purchase each policy from an insurance company reasonably acceptable to us and licensed, authorized or registered to do business in the state where the Hotel is located. However, this licensing requirement shall not apply to those insurers providing Umbrella Excess Liability above $5,000,000 under subsection (6) above.

 

 

(iv)

All required insurance must be specifically endorsed to provide that the coverages will be primary and that any insurance carried by any additional insured shall be excess and non-contributory.

 

23


 

(v)

All policies must provide that they may not be canceled, non-renewed, or materially changed without at least thirty (30) days’ prior written notice to us.

 

 

(vi)

You may satisfy your insurance obligations under blanket insurance policies that cover your and your affiliates’ other properties so long as such blanket insurance fulfills the requirements in this Agreement.

 

 

(vii)

You must deliver to us a certificate of insurance (or certified copy of such insurance policy if we request) evidencing the coverages required above and setting forth the amount of any deductibles. You must deliver to us renewal certificates of insurance (or certified copies of such insurance policy if we request) not less than ten (10) days prior to their respective inception dates.

 

 

(viii)

Your obligation to maintain insurance shall not relieve you of your obligations under Section 7B.

 

 

(ix)

All insurance must be satisfactory to us and comply with the System Standards. If you fail for any reason to procure or maintain the insurance required by this Agreement, we shall have the right and authority (although without any obligation to do so) to immediately procure such insurance and to charge you the cost together with a reasonable fee for our expenses.

8. Transfer.

A. Transfer by Us . You acknowledge that we maintain a staff to manage and operate the Hotel System and that staff members can change as employees come and go. You represent that you have not signed this Agreement in reliance on any particular owner, director, officer, or employee remaining with us in that capacity. We may change our ownership or form and/or assign this Agreement and any other agreement to a third party without restriction. After our assignment of this Agreement to a third party who expressly assumes the obligations under this Agreement, we no longer will have any performance or other obligations under this Agreement.

B. Transfer by You—Defined . You understand and acknowledge that the rights and duties this Agreement creates are personal to you and your owners and that we have granted you the franchise in reliance upon our perceptions of your and your owners’ collective character, skill, aptitude, attitude, business ability, and financial capacity. Accordingly, neither this Agreement (or any interest in this Agreement), the Hotel or substantially all of its assets, or an ownership interest in you or your owners (if such owners are legal entities) may be transferred without our prior written approval, which will not be unreasonably withheld if the conditions for transfer contained in this Section 8 are satisfied. A transfer of the Hotel’s ownership, possession, or control, or substantially all of its assets, may be made only with a transfer of this Agreement. Any transfer without our approval is a breach of this Agreement and has no effect, meaning that you will continue to be obligated to us for all of your obligations under this Agreement.

For purposes of this Agreement, a “Controlling Ownership Interest” in you or one of your owners (if that owner is a legal entity) means the greater of: (a) the percent of the voting shares or other voting

 

24


rights that results from dividing one hundred percent (100%) of the ownership interests by the number of owners. In the case of a proposed transfer of an ownership interest in you or one of your owners, the determination of whether a “Controlling Ownership Interest” is involved must be made as of both immediately before and immediately after the proposed transfer to see if a “Controlling Ownership Interest” will be transferred (because of the number of owners before the proposed transfer) or will be deemed to have been transferred (because of the number of owners after the proposed transfer); or (b) twenty percent (20%) of the voting shares or other voting rights. In addition, regardless of whether the thresholds in (a) or (b) are satisfied, any transfer of effective control of the power to direct or cause the direction of your (or your owners’) management and policies to someone who did not possess such control as of the Effective Date constitutes the transfer of a Controlling Ownership Interest.

In this Agreement, the term “transfer” includes a voluntary, involuntary, direct, or indirect assignment, sale, gift, or other disposition of any interest in this Agreement; you; the Hotel or substantially all of its assets; any of your owners (if such owner is a legal entity); or any right to receive all or a portion of the Hotel’s, your, or your owner’s profits or losses. An assignment, sale, gift, or other disposition includes the following events: (1) transfer of ownership of capital stock, a partnership or membership interest, or another form of ownership interest; (2) merger or consolidation or issuance of additional securities or other forms of ownership interest; (3) any sale of a security convertible to an ownership interest; (4) transfer of an interest in you, this Agreement, the Hotel or substantially all of its assets, your owner, or any right to receive all or a portion of the Hotel’s, your, or your owner’s profits or losses in a divorce, insolvency, or entity dissolution proceeding or otherwise by operation of law; (5) if one of your owners, or an owner of one of your owners, dies, a transfer of an interest in you, this Agreement, the Hotel or substantially all of its assets, your owner, or any right to receive all or a portion of the Hotel’s, your, or your owner’s profits or losses by will, declaration of or transfer in trust, or under the laws of intestate succession; or (6) pledge of this Agreement (to someone other than us) or of an ownership interest in you or one of your owners as security, foreclosure upon the Hotel, or your transfer, surrender, or loss of the Hotel’s possession, control, or management. You may mortgage the Hotel (but not this Agreement) to a lender that finances your acquisition, development, and/or operation of the Hotel without having to obtain our prior written approval. However, we may require the lender to agree to certain procedures or grant us certain rights if you default and the lender wishes to foreclose on its security interest.

C. Conditions for Approval of Transfer . If you (and your owners) are substantially complying with this Agreement, then, subject to the other provisions of this Section 8, we will approve a transfer that meets all of the requirements in this Section 8C. A non-Controlling Ownership Interest in you or your owners (determined as of the date on which the proposed transfer will occur) may be transferred if the proposed transferee and its direct and indirect owners (if the transferee is a legal entity) are of good character and otherwise meet our then applicable standards for owners of Hyatt Place Hotel franchisees. You also must pay us Seven Thousand Five Hundred Dollars ($7,500) for processing and related costs we incur.

If the proposed transfer is of this Agreement or a Controlling Ownership Interest in you or one of your owners, or is one of a series of transfers (regardless of the time period over which these transfers take place) that in the aggregate transfer this Agreement or a Controlling Ownership Interest in you or one of your owners, then all of the following conditions must be met before or concurrently with the effective date of the transfer:

 

 

(1)

the transferee has the necessary business experience, aptitude, and financial resources to operate the Hotel and meets our then applicable standards for Hyatt Place Hotel franchisees. The proposed transferee must submit to us a complete application for a new franchise agreement (the “Change of Ownership

 

25


 

Application”), accompanied by payment of our then current application fee (although no such fee is due if the transfer is to the spouse, child, parent, or sibling of the owner(s) or from one owner to another). If we do not approve the Change of Ownership Application, we will refund any application fee paid, less Seven Thousand Five Hundred Dollars ($7,500) for processing costs.

We will process the Change of Ownership Application according to our then current procedures, including review of criteria and requirements regarding upgrading the Hotel, credit, background investigations, operations ability and capacity, prior business dealings, market feasibility, guarantees, and other factors concerning the proposed transferee(s) (and, if applicable, its owner(s)) we deem relevant. We have sixty (60) days from receipt of the completed and signed application to consent or withhold ou


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