SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended . . . . . . . . . . . . . . . . . . . . September 30, 1995
Commission File Number . . . . . . . . . . . . . . . . . . . . . . . 0-17838
Microtel Franchise & Development Corporation
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(Exact name of Registrant as specified in its charter)
New York 16-1312167
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State or other jurisdiction of I.R.S. Employer
in corporation or organization Identification No.
One Airport Way, Suite 200, Rochester, New York 14624
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(Address or principal executive offices) (Zip Code)
(716) 436-6000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
As of October 30, 1995, the Registrant had issued and outstanding
3,266,267 shares of its $.001 par value common stock.
The total number of pages in this report is 20.
The Index of Exhibits filed with the Reports is found at Page 20.
Page 1 of 20
<PAGE>
<TABLE><CAPTION>
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
MICROTEL FRANCHISE AND DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 and 1994, AND THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
September 30, September 30,
1995 1994 1995 1994
OPERATING REVENUES:
<S> <C> <C> <C> <C>
Hotel revenues $ 1,703,742 297,016 $ 2,843,933 710,902
Beach club income 511,461 481,482 1,198,550 1,131,971
Management fees -
Nonaffiliate 73,520 116,986 136,335 230,077
Affiliate 208,378 142,797 352,148 272,386
Royalties 144,360 104,659 253,089 182,902
Franchise placement income 55,500 51,750 80,500 102,250
Development fees 80,000 78,250 120,000 203,250
Miscellaneous -- 16 5,500 47
----------- ---------- ----------- ----------
Total operating revenues 2,776,961 1,272,956 4,990,055 2,833,785
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,320,986 1,125,667 4,187,548 2,266,299
----------- ---------- ------------ ----------
Income from operations before depreciation and amortization 455,975 147,289 802,507 567,486
------------ ------------ ----------- ----------
DEPRECIATION AND AMORTIZATION 120,202 111,691 240,404 222,129
------------ ------------ ------------ ----------
Income from operations 335,773 35,598 562,103 345,357
------------- ------------- ------------ -----------
OTHER INCOME (EXPENSE):
Interest income 45,861 56,168 123,431 124,450
Interest expense (227,429) (180,898) (459,062) (362,975)
Gain on Repurchase of Franchise Rights --- --- 150,000 ---
------------- ------------- ------------ -----------
Total other income (expense) (181,568) (124,730) (185,631) (238,525)
Income from operations, before income taxes, minority
interest and equity on net losses of affiliates 154,205 (89,132) 376,472 106,832
PROVISION (BENEFIT) FROM INCOME TAXES 40,750 (1,825) 83,849 (2,593)
------------- ----------- ----------- -----------
Income from operations, before minority interest, and
equity on net losses of affiliates 113,455 (87,307) 292,623 109,425
MINORITY INTEREST 91,048 149,222 32,512 54,534
EQUITY INCOME/(LOSSES) OF AFFILIATES 14,619 28,397 16,444 (16,280)
------------- ----------- ----------- -----------
NET INCOME $ 219,122 90,312 $ 341,579 147,679
============= =========== =========== ==========
NET INCOME PER COMMON SHARE $ 0.05 0.02 $ 0.08 0.03
============= =========== =========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
Page 2 of 20
<PAGE>
MICROTEL FRANCHISE AND DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995
(unaudited)
<TABLE><CAPTION>
_________________________________________________________________________________________________________________________
ASSETS 1995
- ------ ----
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 239,864
Accounts receivable - trade 229,861
Inventories 100,196
Prepaid expenses and other 423,708
Accounts and notes receivable -
Affiliates 234,557
Nonaffiliate 594,129
-----------
Total current assets 1,822,315
----------
INVESTMENTS IN PARTNERSHIP INTERESTS 2,293,712
-----------
INVESTMENT IN LAND 1,686,687
-----------
PROPERTY AND EQUIPMENT, NET 6,505,492
-----------
DEFERRED TAX ASSET 682,091
-----------
OTHER ASSETS:
Mortgage and note receivable - Affiliate 1,400,000
Deposit 254,661
Intangibles and other assets 185,064
-----------
Total other assets 1,839,725
-----------
Total assets $14,830,022
===========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
Page 3 of 20
<PAGE>
<TABLE><CAPTION>
_________________________________________________________________________________________________________
LIABILITIES AND SHAREHOLDERS' INVESTMENT 1995
---------------------------------------- ----
<S> <C>
CURRENT LIABILITIES:
Line of credit $ 895,000
Accounts payable - trade 327,216
Accrued payroll and related taxes 84,015
Accrued interest 47,792
Other accrued expenses 279,041
Notes payable - affiliate 170,000
Current portion of long-term debt 122,867
Obligation under franchise agreements 1,750
Deferred revenue - Beach Club 96,203
Deferred franchise revenue - current 55,000
Customer deposits 6,100
----------
Total current liabilities 2,084,984
-----------
LONG-TERM DEBT 8,546,000
-----------
DEFERRED FRANCHISE REVENUE 100,000
-----------
DEFERRED REVENUE - LAND SALE 185,055
-----------
LIMITED PARTNERS' INTEREST IN CONTROLLED PARTNERSHIPS 1,098,381
----------
SHAREHOLDERS' INVESTMENT:
Preferred stock 295
Common stock 3,266
Additional paid-in capital 7,013,522
Warrants outstanding 60,000
Accumulated deficit (4,138,626)
-----------
2,938,457
Less 49,142 shares of common stock in treasury, at cost (122,855)
-----------
Total shareholders' investment 2,815,602
-----------
Total liabilities and shareholders' investment $14,830,022
===========
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
</TABLE>
Page 4 of 20
<PAGE>
MICROTEL FRANCHISE AND DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATION STATEMENTS OF CHANGES IN SHAREHOLDERS' INVESTMENT
FOR THE PERIOD ENDED SEPTEMBER 30, 1995
(unaudited)
<TABLE><CAPTION>
____________________________________________________________________________________________________________________________________
Additional Additional
Series A Paid-In Paid-In
Preferred Capital Common Capital Warrants Accumulated Treasury
Stock Preferred Stock Common Outstanding Deficit Stock Total
--------- ---------- ---------- ----------- ----------- ----------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, March 31, 1995 $ 295 $1,560,705 $3,161 $5,187,217 $105,000 ($4,416,545) ($125,000) $2,314,833
Net income -- -- -- -- -- 341,579 -- 341,579
Exercise of stock options -- -- 105 260,245 (45,000) -- -- 215,350
Sale of treasury stock -- -- -- 5,355 -- -- 2,145 7,500
Cash dividends paid on
preferred stock -- -- -- -- -- (63,660) -- (63,660)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, September 30, 1995 $295 $1,560,705 $3,266 $5,452,817 $60,000 ($4,138,626 ($122,855) $2,815,602
====================================================================================================================================
</TABLE>
Stock balances at March 31, 1995:
Common stock: 3,111,067 shares; Preferred Stock: 294,723 shares
Stock balances at September 30, 1995:
Common stock: 3,266,267 shares; Preferred Stock: 294,723 shares
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
Page 5 of 20
<PAGE>
MICROTEL FRANCHISE AND DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIOD ENDED SEPTEMBER 30, 1995 and 1994
(unaudited)
<TABLE><CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
1995 1994
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ 341,578 $ 147,679
Adjustments to reconcile net income to net cash
from operating activities:
Deferred tax benefit 83,040 (5,000)
Depreciation and amortization 240,587 222,129
Other income (150,000) --
Minority interest in earnings (32,512) (54,534)
Non-cash consulting 15,875 --
Equity in net losses of affiliates (16,444) 16,280
Capital distributions from unconsolidated
partnership interests 19,692 27,597
Acquisition of prepaid franchises (200,000) --
(Increase) decrease in assets -
Accounts receivable - trade 234,848 245,277
Inventories (7,349) 4,700
Prepaid expenses (46,766) (180,678)
Increase (decrease) in liabilities -
Accounts payable 101,873 20,388
Accrued payroll and related taxes (14,691) (74,836)
Accrued interest (10,525) 13,104
Other accrued expenses 40,776 104,098
Deferred revenue - Beach Club (520,274) (468,320)
Customer deposits (69,967) 77,580
Deferred franchise revenue (75,000) (77,250)
------------ ------------
Net cash provided by operating activities (65,259) 18,214
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of land (590,730) (150,000)
Capital contribution to unconsolidated partnership interests (269,500) (636,500)
Collection on affiliate notes receivable 488,437 426,440
Increase in non-affiliates accounts and notes payable 170,000 --
Increase in non-affiliates accounts and notes receivable (160,434) (73,455)
Purchase of equipment (120,781) (60,769)
Cash received for options exercised 222,850 --
Deposit - Management Contract -- (200,000)
Change in other assets (112,568) (46,001)
----------- -----------
Net cash used in investing activities (372,726) (740,285)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to limited partners (68,700) (141,040)
Payments of debt (101,837) (92,576)
Borrowings on line of credit, net 579,000 50,000
Dividends paid (63,660) (63,660)
----------- ------------
Net cash provided by (used in) financing activities 344,803 (247,276)
--------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS (93,182) (969,347)
CASH AND CASH EQUIVALENTS - beginning of period 333,046 1,149,041
---------- ----------
CASH AND CASH EQUIVALENTS - end of period $ 239,864 $ 179,694
========== ==========
The accompanying notes to financial statements are an integral part
of these consolidated statements.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 459,587 $ 363,446
========== ==========
Income taxes $ 28,256 $ 6,723
========== ==========
</TABLE>
Page 6 of 20
<PAGE>
MICROTEL FRANCHISE AND DEVELOPMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1995
(unaudited)
1. Basis of Presentation
In the opinion of Management, the interim financial statements included
herewith reflect all adjustments which are necessary for a fair statement
of the results for the interim periods presented. All significant
intercompany transactions and accounts have been eliminated in
consolidation.
The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the full year.
The accounting policies followed by the Company are set forth in Note 2 to
the Company's financial statements in the March 31, 1995 10-KSB.
Other footnote disclosures normally included in the financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted. It is suggested that these consolidated
financial statements be read in conjunction with the financial statements
and notes included in the Company's March 31, 1995 10-KSB.
2. The Company
On April 1, 1994, Microtel completed a statutory merger of Hudson Hotels
Corporation. As a result of the merger, the former (Hudson Hotels
Corporation) company will be referred to as Hudson Hotels, a division of
Microtel. The division provides a full menu of hotel services including
development, operations, management, sales and marketing, business systems,
financial management and food and beverage management.
3. Litigation
On October 26, 1990, a complaint was filed in Palm Beach County Circuit
Court, Florida, by Seagate Beach Quarters, Inc., a Florida corporation,
seeking damages plus interest and costs, against Rochester Community
Savings Bank ("RCSB"), a New York based bank, and naming Hudson as a co-
defendant. On December 6, 1990, Delray Beach Hotel Properties, Ltd., a
Florida limited partnership controlled by Hudson, purchased the Seagate
Hotel and Beach Club from Rochester Community Savings Bank. The Purchase
Contract includes an indemnification of Hudson against any action resulting
from previously negotiated contracts between RCSB and third parties. The
requested relief in this case, Seagate Beach Quarters, Inc., vs. Rochester
Community Savings Bank, etc., et al, including Hudson Hotels Corp., etc.,
was based on allegations that RCSB, through its subsidiary, Shore Holdings,
defaulted in its obligations under a Contract for Purchase and Sale, and
failed to go forward with the transaction due to tortious ongoing
negotiations between RCSB and Hudson, and that there was a breach of
contract by RCSB. RCSB is diligently defending this suit, and is holding
Hudson harmless. On March 17, 1994, the court granted summary judgement in
favor of all defendants. That judgement has been appealed; on appeal, the
summary judgment in favor of Hudson was reversed. Attorneys for Hudson are
preparing a motion for rehearing or clarification. On September 8, 1994,
Seagate Beach Quarters, Inc., sued Delray Beach Hotel Properties, Ltd.,
Delray Beach Hotel Corp. and Shore Holdings, Inc., in a cause of action for
conspiracy and tortious interference with a business relationship based on
essentially the same facts stated above. On January 27, 1995, the Court
issued an order dismissing the amended complaint as to Delray Beach Hotel
Properties, Ltd. Plaintiff has field a notice of appeal
Page 7 of 20
<PAGE>
from that order. On September 18, 1995, Seagate Beach Quarters, Inc. filed
a notice of voluntary dismissal against Delray Beach Hotel Properties, Ltd.
On February 11, 1993 a complaint was filed in the Western District of New
York, United States District Court, by John Miranda, Susan Miranda and
Christopher Miranda, seeking damages and costs against Quality Inn
International, Choice Hotels International, and naming Hudson as a co-
defendant. The requested relief in this case, John Miranda and Susan
Miranda and Christopher Miranda vs. Quality Inns International Inc., Choice
Hotels International, Inc., Ridge Road Hotel Properties, Ridge Road Hotel
Properties d/b/a Comfort Inn, a/k/a Comfort Inn West, Hudson Hotels Corp.,
and Jennifer L. Ansley, as Executrix of the Estate of Loren G. Ansley, was
based on allegations that John Miranda, while staying at the Comfort Inn,
stepped on a needle, and claims negligence and lack of due care on the part
of the defendants. This case is being diligently defended by the insurance
carrier of Ridge Road Hotel Properties and Hudson. The Company believes
that it has adequate insurance for any potential loss.
After taking into consideration legal Counsel's evaluation of all such
actions described above, management is of the opinion that the outcome of
each such proceeding or claim which is pending, or known to be threatened
(as described above), will not have a significant effect on the Company's
financial statements.
On June 20, 1995, Ladenburg, Thalmann & Co., Inc., the Company's former
investment bankers, filed a complaint in New York State Supreme Court
against the Company alleging breach of contract and damages of $906,250
relating to the Company's rescission of a warrant granted to them in
connection with the investment advisory agreement. In February 1994, the
Board of Directors of the Company determined that Ladenburg had been
otherwise adequately compensated for such services as were actually
performed, and voted to rescind the warrant. The Company has answered the
complaint, denying the relevant allegations, and asserting several
affirmative defenses. Discovery in the case has commenced and is
continuing. The ultimate outcome of the litigation cannot presently be
determined. Accordingly, no provision for any liability that may result
has been made in the financial statements.
Page 8 of 20
<PAGE>
4. SUMMARIZED FINANCIAL INFORMATION - INVESTMENTS IN PARTNERSHIP INTERESTS
The following is a summary of condensed financial information for the
partnerships which the Company exercises control for the six month period
ended September 30, 1995 and a combined summary of condensed financial
information for the partnerships which the Company does not control for the
six month period ended September 30, 1995.
<TABLE><CAPTION>
Delray Beach Watertown Total
Hotel Properties Hotel Consolidated Unconsolidated
Limited Properties Partnerships Partnerships
------------------ ---------- ------------ --------------
<S> <C> <C> <C> <C>
Property and equipment
net of accumulated
depreciation $6,381,771 $ -- $6,381,771 $22,549,195
Current assets 169,039 11,875 180,914 1,979,530
Notes and mortgage
receivable - noncurrent -- 1,400,000 1,400,000 1,500,000
Other assets 147,877 -- 147,877 750,250
---------- ---------- ---------- ---------
TOTAL ASSETS 6,698,687 1,411,875 8,110,562 26,778,975
---------- ---------- ---------- -----------
Mortgage and notes
payable - current 52,011 -- 52,011 2,427,970
Other current liabilities 608,038 -- 608,038 1,104,930
Mortgage/Notes payable - non
current 6,282,923 -- 6,282,923 21,780,061
---------- --------- --------- -----------
TOTAL LIABILITIES 6,942,972 -- 6,942,972 25,312,961
---------- --------- --------- -----------
NET ASSETS (244,285) 1,411,875 1,167,590 1,466,014
=========== ========== ========== =============
Net Revenues 1,945,870 -- 1,945,870 6,742,061
Operating Expenses 1,715,692 -- 1,715,692 3,703,837
----------- ---------- ---------- -----------
Income from Operations 230,178 -- 230,178 3,038,224
Other Income (Expense), net (342,793) 70,000 (272,793) (2,552,201)
----------- --------- ---------- ------------
NET INCOME (LOSS) $ (112,615) $ 70,000 $(42,615) $486,023
=========== ========= ========= ==========
</TABLE>
Page 9 of 20
<PAGE>
5. Long Term Debt
Future minimum repayments under long-term debt are as follows:
Remainder 1996 $ 122,867
1997 184,718
1998 123,370
1999 130,273
2000 and thereafter 8,107,639
The Company is in the process of obtaining refinancing for the mortgage
payable by Delray Beach Hotel Properties, Ltd. and has received a
commitment letter dated June 5, 1995. The term of the loan is 10 years,
with amortization calculated on a term of 20 years, with monthly
payments of principal and interest. Interest shall be adjusted annually
at prime plus 1%. The current and long term debt on the financial
statements, along with the future minimum repayments, reflect the terms
of the commitment letter.
6. Line of Credit
In May 1995, the Company obtained a second line of credit of $750,000,
from a commercial bank, which bears interest at prime plus 1 1/4%.
Outstanding balances on this line are to be repaid no later than nine
months from the date of the draw. Amounts borrowed are collateralized
by substantially all of the Company's assets and personally guaranteed
by the Chairman and C.E.O. of the Company. At September 30, 1995,
$750,000 was borrowed under the terms of this line and $145,000 was
borrowed under the terms of the first line. As of October 9, 1995, the
Company has no funds borrowed under the terms of the two lines.
7. Commitments and Contingencies
The Company has various operating lease arrangements for automobiles and
office space. Total rent expense under operating leases amounted to
$76,286 and $71,094 for the periods ending September 30, 1995 and 1994,
respectively. Future minimum lease payments under operating leases are
approximately - 1996 remainder - $57,397; 1997 - $121,680; 1998 -
$41,454.
As an equity partner in various hotel partnerships, the Company has
guaranteed portions of mortgages payable relating to the partnerships.
The guarantees range from 50% to 200% of the outstanding mortgages
payable to banks. Amounts guaranteed by the Company related to the
partnership's mortgages payable were approximately $3.5 million at
September 30, 1995. In addition, Delray Beach Hotel Corp., a wholly
owned subsidiary, has guaranteed Delray Beach Hotel Properties, Ltd.'s
mortgage payable to a bank which has an outstanding balance of
$5,334,934 at September 30, 1995. Under the terms of the new mortgage
negotiated for Delray Beach Hotel Properties, Ltd., the Company will be
jointly and severally liable on the new mortgage.
8. Income Taxes
Income taxes are provided in accordance with Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes", which
requires an asset and liability approach to financial accounting and
reporting for income taxes. The Statement requires that deferred income
taxes be provided to reflect the impact of "temporary differences"
between the amount of assets and liabilities for financial reporting
purposes and such amounts as measured by current tax laws and
regulations. A valuation allowance is established, when necessary, to
reduce deferred tax assets to the amount expected to be realized.
Page 10 of 20
<PAGE>
Deferred tax assets include loss carryforwards and deferred revenue.
Deferred tax liability represents the gross up relating to the purchase
of Hudson. At September 30, 1995, a valuation allowance has been
provided to reduce the Company's deferred tax asset.
At September 30, 1995, the Company has net operating loss carryforwards
for income tax purposes of approximately $2,300,000 which may be used to
offset future taxable income. These loss carryforwards will begin to
expire in 2003.
9. Note Receivable Non-Affiliate - Master Franchise Agreement On June 30,
1995, a Third Amendment was executed by Essex Microtel International
Lodging, Inc., ("EMILI") and the Company relating to the Canadian Master
Franchise Agreement. This occurred because the current economic
conditions in Canada prevented EMILI from meeting the Development
Schedule. The Third Amendment has extended the Development Schedule to
10 1/4 years, extended the period that the Company is to provide to
EMILI certain products, services and assistance to August 13, 1997,
temporarily suspended the requirement that EMILI not employ a training
director until the earlier of May 15, 1997, or the time EMILI has four
Microtels open or under construction, allowed EMILI to utilize the
Company's training facilities and trainers until such time that EMILI
has an operating Microtel open. In addition, the Company has obtained
the absolute right, at its option, to terminate the Master Franchise
Agreement in the event that the Company shall negotiate the licensing or
sale to a third party of the world-wide franchise rights. In connection
with this amendment, EMILI paid the Company its remaining financial
obligation. In connection with subsequent event (Note 13) the Canadian
Master Franchise agreement was terminated.
10. Receivables/Payables with Affiliates
The Company has advanced affiliated entities the following as of
September 30, 1995:
<TABLE>
<S> <C>
Fishers Road Hotel Properties, L.P. $101,757
Airport Hotel Properties, L.P. 46,300
Gatlinburg Microtel, LP 20,000
Brookwood Hotel Properties 64,500
950 Jefferson Road Associates 2,000
-------
$234,557
========
</TABLE>
A wholly owned subsidiary of the Company has received advances from the
following as of September 30, 1995:
<TABLE>
<S> <C>
Brookwood Hotel Properties, LP $100,000
Jamestown Hotel Properties, LP 70,000
------
$170,000
========
</TABLE>
As of October 27, 1995, all amounts were repaid to affiliated entities
by the wholly owned subsidiary.
11. Acquisition of Land
In May 1995, the Company purchased 2 acres of land in Plano, Texas, for
approximately $600,000, or $300,000 an acre. The parcel is zoned for
commercial use and is located north of Dallas, Texas, off Interstate 75
and is in proximity of major businesses and shopping centers. Funds
used to purchase this land were provided through the use of the
Company's line of credit. The Company is currently in the process of
developing this land for the future construction of a Microtel.
Page 11 of 20
<PAGE>
12. Exclusive Development Agreement
On June 30, 1995, the Company entered into an agreement with the former
partners of S&E Hospitality Partnership where as one of the former
partners of S&E sold all of their assigned prepaid franchises (14) for
$200,000 back to the Company. The 14 prepaid franchises had been
recorded as deferred revenue with a value of $350,000 on the Company's
balance sheet prior to the transaction. This transaction resulted in a
$150,000 gain. The remaining 5 prepaid franchises are still being held
by the other former partner of S&E. In May 1995, one of the five
prepaid franchises was used for the Microtel opened in Colonie, New
York; and in July 1995 another was used for the Microtel opened in
Greensboro, North Carolina, and in September 1995, another was used for
the Microtel opened in Chattanooga, Tennessee.
13. Subsequent Event
On October 5, 1995, the Company signed an exclusive joint venture
agreement with U.S. Franchise Systems, Inc. in which USFS assumed
worldwide franchising and administration for the Microtel hotel chain.
The Company in return will receive $4 million over a three year period
in exchange for the exclusive franchise rights of the Microtel name and
various consulting services; $2 million was paid at closing, another $1
million will be paid at the first anniversary and $500,000 at the second
and third anniversary. In addition to the lump sum payment, the Company
will receive royalty payments from properties franchised by USFS.
Royalty payments will consist of 1% of gross room revenues from hotels
1-100; .75% from hotels 101-250; and .5% above 250 units. In addition,
the Company issued USFS 100,000 warrants exercisable at the Company's
common stock market price on October 5, 1995.
The Company has retained the right to franchise and construct an
additional twenty-three (23) Microtel properties and ten (10) "Suites"
properties (if offered by USFS), and to receive all royalties on the
fifty (50) Microtels (27 existing and 23 new ones to be undertaken by
the Company) and ten (10) Suites.
Page 12 of 20
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis should be read in conjunction with
Selected Financial Data (item 6); Management's Discussion and Analysis of
Financial Condition and Results of Operations (item 7); and Accountant's
Report, Financial Statements and Notes to Financial Statements (item 8) of
the Company's March 31, 1995 Annual Report on Form 10-KSB.
Results of Operations
---------------------
Franchise placement income for the six month period ended September 30, 1995
reflects the opening of three franchises (Colonie, New York; Greensboro,
North Carolina; and Chattanooga, Tennessee) of which two opened during the
second quarter ended September 30, 1995. Royalties for the six month period
ended September 30, 1995, have increased $70,187 over the six month period
ended September 30, 1994, an increase of 38%. This is attributable to
twenty-two franchised Microtels currently in operation as opposed to eighteen
in operation during the same six month period in 1994. Overall, management
fees for the six month period ended September 30, 1995 decreased $13,980, or
3%, from the same period in 1994. The decrease is a result of non-renewal of
contracts on four mature properties throughout fiscal 1995 and their
replacement with contracts on four properties during fiscal 1995 which are
all in a start-up mode. Development fees decreased $83,250 from the same
period in 1994. The decrease is due to a significant development fee charged
for a construction of a Microtel during the second quarter of 1994 which did
not reoccur during this fiscal quarter. During the six month period ended
September 30, 1995, the Company has four hotels under development in which
fees were charged compared to four during the same period September 30, 1994.
A significant increase in hotel revenues ($2,133,031, or 300%) is
attributable to the operations of a hotel which the Company leased (Inn on
the Lake) in November 1994. Twenty six percent (26%) of hotel revenue and
all of the Beach Club income relate to the operation of Delray Beach Hotel
Properties, Ltd., of which the Company is a controlling partner. Delray
Beach Hotel Properties, Ltd. hotel revenues increased slightly (5%) due to a
slightly higher daily room rate and higher occupancy from the prior year and
Beach Club income increased $66,579, or 6%, from the prior year due to
increased dues and food and beverage sales. Seventy four percent (74%) of
the hotel revenue for the period ended September 30, 1995 represents the
operations of the Inn on the Lake.
Selling, general and administrative expenses for the six month period ended
September 30, 1995 increased $1,921,249, or 85% from the period ended
September 30, 1994. $1,871,431, or 97%, of the increase represents the
operations of the Inn on the Lake, which the Company is leasing. Also,
expenses for the six month periods ended September 30, 1995 and 1994 include
the operations of the Company and its controlled affiliates (Delray Beach
Hotel Properties, Ltd. and Watertown Hotel Properties II). Expenses for the
controlled affiliate (Delray Beach Hotel Properties, Ltd.) remained
consistent from the same period last year. Expenses, excluding controlled
affiliates and the Inn on the Lake, for the six month period ended September
30, 1995, increased 4%, as compared to the six month period ended September
30, 1994. Depreciation and amortization increased $18,275, or 8%, due to
capital improvements performed in fiscal 1995 to Delray Beach Hotel
Properties, Ltd., a controlled affiliate. Amortization expense associated
with the adjustment of fair value of real estate investment will continue at
a current quarterly level of approximately $25,000 for the next 7 years.
Interest income for the six month period ended remained relatively consistent
with the same period in 1994. $70,000, or 57%, of the $123,431 relates to
interest on the mortgage receivable from Watertown Hotel Properties II. Of
the $459,062 in total interest expense, 63% relates to the mortgage financing
of an operating hotel entity (Delray Beach Hotel Properties, Ltd.). The
remaining relates to interest on the lines of credit, two convertible
debentures, note payable relating to purchase of partnership interests and
the Tonawanda bond issue. Other income of $150,000 represents the
reacquisition of 14 prepaid franchises for $200,000 from a former partner of
S&E Hospitality. The 14 prepaid franchises had been recorded as deferred
revenue with a value of $350,000 on the Company's balance sheet prior to the
transaction.
Page 13 of 20
<PAGE>
Minority interest represents the elimination of the minority partners
interest in Delray Beach Hotel Properties, Ltd. and Watertown Hotel
Properties II. Equity in income/losses of affiliates represents net
income/losses incurred from the Company's equity investment in various
hotels.
The majority of income tax expense for the six month period ended September
30, 1995 represents deferred federal and state taxes related to net operating
loss carryforwards classified as Deferred Tax Assets on the Balance Sheet.
Also, certain minimal state liabilities were recorded, which are incurred by
the Company on a regular basis.
As a result of the above factors, net income of $219,122 and $341,579 was
reported for the three and six month periods ended September 30, 1995,
compared to net income of $90,312 and $147,679 respectively for the
corresponding periods in fiscal 1995. The net income per share for the three
and six month periods ended September 30, 1995 was $.05 and $.08, compared to
net income per share of $.02 and $.03 for the corresponding periods in fiscal
1995.
Shares used in computing net income per share for the six month period
increased from 3,262,400 for September 30, 1994 to 3,619,677 for September
30, 1995. The predominant factors for this increase are (i) stock issued
for consulting services (ii) stock options exercised, and (iii) additional
options and warrants included in the calculation due to an increase in the
Company's stock price. Consolidation of revenues and expenses of Delray
Beach Hotel Properties, Ltd. and Watertown Hotel Properties II provides no
additional net income or loss to the Company, than from reporting the
investment under the equity method of accounting.
Financial Condition, Liquidity and Capital Resources
----------------------------------------------------
At September 30, 1995 the Company had a working capital deficit of $262,669,
as compared to a positive working capital of $443,604 at March 31, 1995.
Cash and cash equivalents totaled $239,864. The reduction in working capital
from March 31, 1995 is attributable to a draw on the Company's lines of
credit to purchase land in Plano, Texas, and the reacquisition of previously
purchased franchises, which had not been reflected in income, at a
discount. (See Note 12). As of October 30, 1995, the Company has repaid
the entire balance on the lines of credit from proceeds received from the
sale of the worldwide franchise rights (see note 13).
Investment in real estate partnership interests represents the Company's
interest in various partnerships. Investment in real estate partnership
interests increased $210,952 from March 31, 1995. The predominant factor for
the increase is due to cash contributions of $269,500 to various partnerships
and income/losses recorded from the various partnerships offset by cash
distributions received from the partnerships. Investment in real-estate land
represents land purchased for the purpose of future development or sale. In
May 1995, the Company purchased 2 acres of land in Plano, Texas, for
approximately $600,000 (See Note 11).
The majority of property and equipment reflected on the balance sheet relates
to real and personal property of Delray Beach Hotel Properties, Ltd. The
Company maintains an ongoing capital improvement policy at the property,
which is funded through the hotel and beach club operations.
On June 30, 1995, Essex Microtel International Lodging, Inc., the master
franchisee for the Canadian territory, paid its remaining obligation to the
Company, but has failed to meet its development schedule as of March 31,
1995. The Company, recognizing that the economic climate in Canada is not
favorable with respect to real estate development, executed an amendment to
the original agreement on June 30, 1995, which extended the development
schedule and modified other terms. (See Note 8 - Note Receivable Non-
Affiliate - Master Franchise Agreement).
Deferred tax assets represents federal and state future tax benefit from tax
loss carryforwards realized as a result of current year earnings and the
expected profitability in future periods, net of deferred tax liability
related to the acquisition of Hudson and the related temporary differences
associated with the difference in the financial reporting and tax basis of
the purchased assets.
Page 14 of 20
<PAGE>
Other assets consist of a mortgage note receivable held by Watertown Hotel
Properties II in the amount of $1,400,000, collateralized by land and the
Microtel hotel located in Watertown, New York. Also, the Company provided a
$250,000 cash deposit to secure a ten year operating lease and management
contract of a full-service hotel located in Canandaigua, New York, from L, R,
R & M, LLC. One of the minority owners of L, R, R & M, L.L.C., is a greater
than 5% Microtel shareholder who is not involved in the management or
operation of the Company. Also, in January 1995, the Company received a note
from Delray Beach Hotel Properties, Ltd. for $1,000,000 due May 1, 2000.
Under the terms of the note, payments are required for interest only and are
calculated at 12% per annum. Minimum monthly principal payments of $7,500
will be required beginning May 1, 1996. Additional principal payments can be
made at any time, without penalty. The note does not appear on the face of
the balance sheet, as it is eliminated during consolidation. The Company was
able to provide these funds through the proceeds of a $1,500,000 subordinated
debenture.
In fiscal 1994, the first of the twenty hotels was opened under the exclusive
development agreement with S&E Hospitality Partnership (S&E) (see Note 11 -
Exclusive Development Agreement). In March 1994, a Termination of Exclusive
Development Agreement was executed by S&E Hospitality Partnership and the
Company, due to the occurrence of the second consecutive default by S&E on
the Development Schedule, which resulted in the exclusive territorial rights
reverting back to the Company. According to the terms and conditions of the
Termination Agreement, certain provisions survive; namely, that S&E retains
the right to develop the balance of the Microtels for which S&E has paid the
non-refundable franchise fees. Therefore, 19 Microtels to be developed by
S&E at any approved location within or outside of the originally defined
territory. In June 1995, the Company and a former partner in the S&E
Partnership agreed to have the Company buy back their prepaid franchises for
a discount. The Company paid $200,000 to repurchase 14 franchises valued at
$350,000. The remaining four prepaid franchises are assigned to the other
partner of the former S&E Partnership. In May 1995, one of the four prepaid
franchises was used for the Microtel opened in Colonie, New York, and in July
1995 one was opened in Greensboro, North Carolina. The remaining $50,000 has
been classified as deferred franchise revenue on the September 30, 1995
balance sheet. The Company will recognize revenue as the franchised hotels
are opened. The remaining $100,000 of the $155,000 total deferred revenue
(current and long term) represents deposits submitted by franchisees to
secure a Microtel franchise which will be built at a later date. During the
quarter ended September 30, 1995 the Company recognized revenue for the
opening of two Microtels, while receiving a deposit. The deferred revenue
will be recognized as each franchised hotel is opened.
Long-term debt is substantially comprised of a $5,364,628 mortgage on the
real property of Delray Beach Hotel Properties, Ltd. Debt service will be
paid through income from operations. The Company has received a commitment
letter dated June 5, 1995, from a commercial bank in Florida and intends to
refinance the mortgage by November 10, 1995, in accordance with terms in the
commitment letter. The remaining long-term debt relates to Microtel issuing
two $1,500,000 convertible subordinated debentures, a note issued by the
Company for the purchase of various partnership interests and a bond with the
Town of Tonawanda relating to a land purchase.
Shareholders' equity increased to $2,815,602 as of September 30, 1995 from
$2,314,833 as of March 31, 1995. The four factors which affected the level
of shareholders' equity are represented by (i) an increase of $215,350 for
shares issued relating to the exercise of stock options, (ii) a decrease of
$63,660 resulting from preferred dividend payments, (iii) sale of treasury
stock, and (iv) an increase of $341,579 due to the net income for the six
month period ended September 30, 1995.
The Company has, in total, $1,250,000 in two lines of credit, which are
available for short term requirements which may arise. The Company believes
it has sufficient resources from its present cash position to meet its
current obligations and believes that its cash position and revenues from
operations are sufficient to meet its cash requirements for the next twelve
months. The Company has not been negatively impacted by inflation during any
of the periods presented.
Page 15 of 20
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
On October 26, 1990, a complaint was filed in Palm Beach County Circuit
Court, Florida, by Seagate Beach Quarters, Inc., a Florida corporation,
seeking damages plus interest and costs, against Rochester Community Savings
Bank ("RCSB"), a New York based bank, and naming Hudson as a co-defendant.
On December 6, 1990, Delray Beach Hotel Properties, Ltd., a Florida limited
partnership controlled by Hudson, purchased the Seagate Hotel and Beach Club
from Rochester Community Savings Bank. The Purchase Contract includes an
indemnification of Hudson against any action resulting from previously
negotiated contracts between RCSB and third parties. The requested relief in
this case, Seagate Beach Quarters, Inc., vs. Rochester Community Savings
Bank, etc., et al, including Hudson Hotels Corp., etc., was based on
allegations that RCSB, through its subsidiary, Shore Holdings, defaulted in
its obligations under a Contract for Purchase and Sale, and failed to go
forward with the transaction due to tortious ongoing negotiations between
RCSB and Hudson, and that there was a breach of contract by RCSB. RCSB is
diligently defending this suit, and is holding Hudson harmless. On March 17,
1994, the court granted summary judgement in favor of all defendants. That
judgement has been appealed; on appeal, the summary judgment in favor of
Hudson was reversed. Attorneys for Hudson are preparing a motion for
rehearing or clarification. On September 8, 1994, Seagate Beach Quarters,
Inc., sued Delray Beach Hotel Properties, Ltd., Delray Beach Hotel Corp. and
Shore Holdings, Inc., in a cause of action for conspiracy and tortious
interference with a business relationship based on essentially the same facts
stated above. On January 27, 1995, the Court issued an order dismissing the
amended complaint as to Delray Beach Hotel Properties, Ltd. Plaintiff has
field a notice of appeal from that order. On September 18, 1995, Seagate
Beach Quarters, Inc. filed a notice of voluntary dismissal against Delray
Beach Hotel Properties, Ltd.
On February 11, 1993 a complaint was filed in the Western District of New
York, United States District Court, by John Miranda, Susan Miranda and
Christopher Miranda, seeking damages and costs against Quality Inn
International, Choice Hotels International, and naming Hudson as a co-
defendant. The requested relief in this case, John Miranda and Susan Miranda
and Christopher Miranda vs. Quality Inns International Inc., Choice Hotels
International, Inc., Ridge Road Hotel Properties, Ridge Road Hotel Properties
d/b/a Comfort Inn, a/k/a Comfort Inn West, Hudson Hotels Corp., and Jennifer
L. Ansley, as Executrix of the Estate of Loren G. Ansley, was based on
allegations that John Miranda, while staying at the Comfort Inn, stepped on a
needle, and claims negligence and lack of due care on the part of the
defendants. This case is being diligently defended by the insurance carrier
of Ridge Road Hotel Properties and Hudson. The Company believes that it has
adequate insurance for any potential loss.
After taking into consideration legal Counsel's evaluation of all such
actions described above, management is of the opinion that the outcome of
each such proceeding or claim which is pending, or known to be threatened (as
described above), will not have a significant effect on the Company's
financial statements.
On June 20, 1995, Ladenburg, Thalmann & Co., Inc., the Company's former
investment bankers, filed a complaint in New York State Supreme Court against
the Company alleging breach of contract and damages of $906,250 relating to
the Company's rescission of a warrant granted to them in connection with the
investment advisory agreement. In February 1994, the Board of Directors of
the Company determined that Ladenburg had been otherwise adequately
compensated for such services as were actually performed, and voted to
rescind the warrant. The Company has answered the complaint, denying the
relevant allegations, and asserting several affirmative defenses. Discovery
in the case has commenced and is continuing. The ultimate outcome of the
litigation cannot presently be determined. Accordingly, no provision for any
liability that may result has been made in the financial statements.
Item 2. Change in Securities - None
--------------------
Page 16 of 20
<PAGE>
Item 3. Defaults Upon Senior Securities - None
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the annual meeting of the stockholders of the Company held on August 15,
1995, the stockholders of the Company approved the following:
The shareholders approved the appointment of the Board of Directors
consisting of five Directors. Each Director shall hold office until the next
annual meeting of shareholders and until the successor of the Director is
duly elected and qualifies.
Appointment of Bonadio & Company as the Company's independent public
accountants for the year ending March 31, 1996.
The table below sets forth the number of votes cast for, against or withheld
for each nominee to the Company's Board of Directors, as well as votes cast
for other proposals discussed above at the August 15, 1995 shareholders
meeting:
Election of Directors
Nominee For Against Abstained
------- --- ------- ---------
E. Anthony Wilson 1,978,710 1,950 --
Michael Cahill 1,978,710 1,950 --
Bruce A. Sahs 1,978,710 1,950 --
Ralph L. Peek 1,978,710 1,950 --
Robert Fagenson 1,978,710 1,950 --
As to the proposal to appoint Bonadio & Company as the Company's independent
public accountants for the year ending March 31, 1996:
1,966,035 shares have voted FOR
3,000 shares have voted AGAINST,
11,625 and shares have ABSTAINED.
Item 5. Other Information
-----------------
On September 7, 1995, the Registrant entered into a Joint Venture Agreement
with U.S. Franchise Systems, Inc. relating to the sale of franchises for the
Microtel system. The transaction proposed pursuant to this Joint Venture
Agreement was consummated on October 5, 1995.
Pursuant to the joint Venture Agreement, Microtel has transferred to U.S.
Franchise all rights to franchise the Microtel concept and system world-wide.
This includes the rights to the Microtel name and trademark. U.S. Franchise
has agreed to a development schedule that calls for two hundred-fifty (250)
new Microtel franchise units to be open or under development within five (5)
years after the Commencement Date. U.S. Franchise has also agreed to use its
best efforts to register its franchise offering whenever required in the
United States. The Registrant has agreed to provide on-going consulting as
required by U.S. Franchise.
The Registrant has retained the right to franchise and construct an
additional twenty-three (23) Microtel properties and ten (10) "Suites"
properties (if offered by U.S. Franchise), and to receive the full royalties
on fifty (50) Microtels (27 existing and 23 new ones to be undertaken by
Registrant) and ten (10) Suites. In addition, the Registrant will receive
ongoing royalties in consideration of the transfer of its trademark for new
properties licensed by Registrant to third parties, as follows:
Page 17 of 20
<PAGE>
% Revenues Number of Properties
1% up to 100
3/4% 101 to 250
1/2% 251 and over
In consideration of the Joint Venture Agreement, U.S. Franchise paid to
Registrant $2,000,000 at closing and will pay $1,000,000 on October 5, 1996,
$500,000 on October 5, 1997 and $500,000 on October 5, 1998.
Registrant has retained all of its assets relating to its business of
development, management, operation and ownership of hotel properties, and
plans to use the revenues from the Joint Venture to expand those businesses.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
A. Exhibits
Exhibit No. Description
----------- -----------
10.24 Joint Venture Agreement between Microtel Franchise and
Development Corporation and U.S. Franchise Systems, Inc.
11 Statement re: computation of per share earnings
27 Financial Data Schedule
B. Form 8-K: There were no reports on Form 8-K filed during the second
quarter ended September 30, 1995.
Page 18 of 20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
MICROTEL FRANCHISE AND DEVELOPMENT CORPORATION
----------------------------------------------
(Registrant)
Date: 11/3/95 /s/Bruce A. Sahs
---------------------------------------
Bruce A. Sahs, Executive Vice President
and Chief Operating Officer
Date: 11/3/95 /s/Taras M. Kolcio
--------------------------------------
Taras M. Kolcio, Controller
Page 19 of 20
<PAGE>
Exhibit Index
-------------
Exhibits and Reports on Form 8-K
--------------------------------
A. Exhibits
Exhibit No. Description
----------- -----------
10.24 Joint Venture Agreement between Microtel Franchise and
Development Corporation and U.S. Franchise Systems, Inc.
11 Statement re: computation of per share earnings
27 Financial Data Schedule
B. Form 8-K: There were no reports on Form 8-K filed during the second
quarter ended September 30, 1995.
Page 20 of 20
JOINT VENTURE AGREEMENT
between
MICROTEL FRANCHISE AND DEVELOPMENT CORPORATION
(as The Company)
and
U.S. FRANCHISE SYSTEMS, INC.
(as Newco)
RELATING TO THE WORLD-WIDE
FRANCHISING OF THE
MICROTEL SYSTEM
<PAGE>
TABLE OF CONTENTS
PAGE
1. TRANSFER OF ASSETS . . . . . . . . . . . . . . . . . . . . . 2
2. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. POST CLOSING OBLIGATIONS OF NEWCO . . . . . . . . . . . . . 5
4. THE COMPANY'S RETAINED PROPERTIES . . . . . . . . . . . . . 5
5. CONSULTING BY THE COMPANY . . . . . . . . . . . . . . . . . 8
6. FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8. RIGHTS AND OBLIGATIONS PENDING THE CLOSING . . . . . . . . . 14
9. DEFAULT PENDING CLOSING . . . . . . . . . . . . . . . . . . 16
10. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . 17
11. CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . 24
12. ACCOUNTING AND RECORDS . . . . . . . . . . . . . . . . . . . 25
13. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . 25
14. TRANSFERABILITY OF INTEREST . . . . . . . . . . . . . . . . 26
15. DEFAULT BY NEWCO AFTER CLOSING . . . . . . . . . . . . . . . 27
16. OBLIGATIONS DUE TO POST CLOSING DEFAULT BY NEWCO . . . . . . 28
17. DEFAULT BY THE COMPANY AFTER CLOSING . . . . . . . . . . . . 29
18. OBLIGATIONS DUE TO POST CLOSING DEFAULT BY THE COMPANY . . . 30
19. POST CLOSING COVENANTS OF THE COMPANY . . . . . . . . . . . 30
20. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . 31
21. SURVIVAL OF REPRESENTATIONS AND WARRANTIES . . . . . . . . . 32
22. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . 32
i
<PAGE>
23. RIGHT TO SET-OFF . . . . . . . . . . . . . . . . . . . . . . 35
24. SEVERABILITY AND CONSTRUCTION . . . . . . . . . . . . . . . 35
25. APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . . . 36
26. ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . 36
27. MISCELLANEOUS BUSINESS TERMS . . . . . . . . . . . . . . . . 36
28. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 37
ii
<PAGE>
DEFINED TERMS
-------------
"Company" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Newco" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Suites" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Suites Hotel". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Business", the "System". . . . . . . . . . . . . . . . . . . . . . . . 1
"Microtel System" . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Proprietary Marks" . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Manual". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Assets". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Existing Franchise Agreements" . . . . . . . . . . . . . . . . . . . . 2
"Existing Franchisees". . . . . . . . . . . . . . . . . . . . . . . . . 2
"Existing Franchises" . . . . . . . . . . . . . . . . . . . . . . . . . 2
"New Microtel Franchises" . . . . . . . . . . . . . . . . . . . . . . . 3
"New Microtel Franchisees" . . . . . . . . . . . . . . . . . . . . . . 3
"Microtel Hotels" . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"New Franchise Agreement" . . . . . . . . . . . . . . . . . . . . . . . 3
"Current Agreement Form". . . . . . . . . . . . . . . . . . . . . . . . 3
"Development Schedule". . . . . . . . . . . . . . . . . . . . . . . . . 3
"Scheduled Microtels" . . . . . . . . . . . . . . . . . . . . . . . . . 3
"under development" . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Commencement Date" . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Cure Payment". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"Retained Properties" . . . . . . . . . . . . . . . . . . . . . . . . . 5
"Franchise Royalties" . . . . . . . . . . . . . . . . . . . . . . . . . 6
"Additional Hotel Franchises" . . . . . . . . . . . . . . . . . . . . . 6
"Additional Suite Hotel Franchises" . . . . . . . . . . . . . . . . . . 6
"Supplemental Hotel Franchises" . . . . . . . . . . . . . . . . . . . . 6
"Substitute Hotel Franchise". . . . . . . . . . . . . . . . . . . . . . 7
"Supplemental Suites Franchises". . . . . . . . . . . . . . . . . . . . 7
"Impact Issues" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"Encroachment Issues" . . . . . . . . . . . . . . . . . . . . . . . . . 8
"Trademark Royalty" . . . . . . . . . . . . . . . . . . . . . . . . . . 9
"Operating Properties". . . . . . . . . . . . . . . . . . . . . . . . . 9
"Revenues Subject to Royalties" . . . . . . . . . . . . . . . . . . . . 9
"Closing" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
"EMILI Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
"UFOC". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
"FTC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
"Company's Employees" . . . . . . . . . . . . . . . . . . . . . . . . . 22
"knowledge" or "awareness". . . . . . . . . . . . . . . . . . . . . . . 24
"control" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
"Reversion of Microtel Rights". . . . . . . . . . . . . . . . . . . . . 29
"Indemnified Party" . . . . . . . . . . . . . . . . . . . . . . . . . . 34
iii
<PAGE>
"Asserted Liability". . . . . . . . . . . . . . . . . . . . . . . . . . 34
"Claims Notice" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
"Indemnifying Party". . . . . . . . . . . . . . . . . . . . . . . . . . 34
"Contest Notice" . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
"Loss" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
"Expiration Time and Date". . . . . . . . . . . . . . . . . . . . . . . 37
iv
<PAGE>
STATE OF GEORGIA
COUNTY OF FULTON
JOINT VENTURE AGREEMENT
THIS AGREEMENT is made and entered into as of September 1, 1995, by
and between MICROTEL FRANCHISE AND DEVELOPMENT CORPORATION, a New York
corporation, with its principal place of business at One Airport Way, Suite
200, Rochester International Airport, Rochester, New York, 14624, U.S.A.
(the "Company"); and U.S. FRANCHISE SYSTEMS, INC., a Delaware corporation,
with its principal place of business at 1800 Peachtree Street, Suite 615,
Atlanta, Georgia 30309 ("Newco").
WITNESSETH:
WHEREAS, the Company, as a result of the expenditure of time, skill,
effort, and money has developed a distinctive concept, system and business
relating to the establishment, operation and franchising of super budget or
hard budget hotels (including without limitation, an all-suites hotel
product, hereinafter referred to as "Suites" or "Suites Hotel") which
operate under the name "Microtel" (hereinafter referred to as the
"Business", the "System" or the "Microtel System"), as is more particularly
described in Exhibit "A" attached hereto;
-----------
WHEREAS, the components of the System and Business include, without
limitation:
A. Any and all trade names, trademarks, service marks or other types or
items of intellectual property used in the operation of or developed
in connection with the Business, including, without limitation,
"MICROTEL" and the other service marks listed on Exhibit "A-1"
-------------
attached hereto (hereinafter "Proprietary Marks");
B. All of the prototypical architectural plans, designs, and layouts
used in the operation of or developed in connection with the
Business, including, without limitation, all site plans, floor
plans, roof plans, plumbing plans, lobby plans, electrical plans,
landscape plans and any copyrights in connection therewith;
C. All reservation referral systems used in the operation of or
developed in connection with the Business;
D. All directories of Microtel hotels;
E. All management and personnel training programs and materials used
in the operation of or developed in connection with the Business;
F. All management and operational procedures and techniques used in the
operation of or developed in connection with the Business including
without limitation as prescribed in confidential manuals
(hereinafter the "Manual");
G. All standards and specifications for construction, equipment, and
furnishings used in the operation of or developed in connection
with the Business, including without limitation as described in the
Manual;
H. All advertising, marketing, and promotional programs, layouts and
materials used in the operation of or developed in connection with
the Business;
<PAGE>
I. Any and all related intellectual property which may be necessary for
full and complete operation of the System or Business;
J. All rights to develop any and all hotel products based upon or
derived in whole or in part from the Microtel System (whether or
not utilizing the name "Microtel"), including without limitation,
Suites Hotels.
K. Any and all business records used by the Company or necessary to
operate the Business; and
L. Any and all other assets related to and necessary for the Company's
operation of the System (all of the foregoing, including without
limitation, the items set forth on Exhibit "A", being sometimes
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hereinafter collectively referred to as the "Assets").
WHEREAS, the Company has previously entered into or has committed to
enter into franchise agreements (the "Existing Franchise Agreements"), with
various parties (some of which may be affiliates of the Company)
("Existing Franchisees") relating to a total of twenty-seven (27) Microtel
properties, of which twenty-one (21) are currently open and under
operation, three (3) are currently under construction, and three (3) are
under development (the "Existing Franchises");
WHEREAS, the Company desires to transfer all rights and interest in
and to the System and the Assets to a party who will utilize its best
efforts to provide the resources necessary to exploit the System on a
world-wide basis;
WHEREAS, Newco has proposed to raise capital, establish an
organization consisting of key executive and management personnel,
and enter into an agreement with the Company, to the end that Newco
shall exclusively undertake the world-wide sale and maintenance of
franchises under the System; and
WHEREAS, Newco understands the importance of and fully intends to
continue the sales and maintenance of franchises under the Microtel System;
NOW, THEREFORE, the parties, in consideration of the undertakings and
commitments of each party to the other party set forth herein, hereby agree
as follows:
1. TRANSFER OF ASSETS.
1.1 Subject to terms, covenants and conditions of this Agreement, Newco
agrees to undertake the world-wide franchising of properties using the
System based upon the Microtel concept. It is agreed that Newco shall be
the sole entity with the authority, right and power to act as franchisor
for the System. The respective rights and obligations of the parties
hereto shall be as established in this Agreement, which shall survive and
shall govern the ongoing rights of the parties inter se.
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1.2 To permit Newco to fulfill its obligations hereunder, the Company
shall transfer to Newco at Closing (as defined herein) any and all right,
title and interest in and to: (i) all of the Assets; and (ii) the Existing
Franchise Agreements.
1.3 At Closing, Newco shall assume the obligations of the Company as
franchisor under the Existing Franchise Agreements. Except as specifically
set forth herein, Newco shall not assume any other liability or obligation
of the Company whatsoever.
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1.4 To further enable Newco to fully exploit the sale of franchises
under the System, and to avoid confusion, the Company shall, no later than
one year after the Closing Date, change its corporate name to a name which
does not contain the words "Microtel," or "U.S. Franchise Systems," or any
words confusingly similar, and will require any and all of its affiliated
companies, subsidiaries, or other related entities under common control or
management to similarly change their legal names, or to execute a name
license agreement acceptable to Newco in its sole discretion, and will use
its best efforts to have any other entity not under control of the Company
to take similar steps. Following Closing, Microtel agrees that Microtel
will operate its business under the name "Hudson Hotels" or some other
assumed name which does not contain the words "Microtel" or "U.S.
Franchise Systems" or any words confusingly similar.
1.5 The Company further shall transfer, assign and convey to Newco any
and all of its rights to the Suites Hotel concept and all future franchise
rights thereto.
1.6 Without limitation Newco shall have the right to and will
undertake the following as determined by Newco in its sole discretion: (i)
to undertake on an exclusive world-wide basis, the offering and sale of
franchises or licenses under the Microtel System utilizing the Proprietary
Marks ("New Microtel Franchises") to individuals or entities ("New
Microtel Franchisees"), which may or may not be affiliated with Newco and
which may include Newco, (ii) to establish and operate Microtel hotels and
Microtel Suites using the Microtel System and the Proprietary Marks
("Microtel Hotels") throughout the world; (iii) to fulfill the obligations
of franchisor under all New Microtel Franchises which may be sold by Newco;
and (iv) to fulfill the obligation of franchisor under the Existing
Franchises.
1.6.1 The term "New Microtel Franchises" shall mean and shall
include: (i) any franchise issued by Newco using any of
the Proprietary Marks; and (ii) any franchise issued by
Newco in the Hard Budget or Super Budget category,
whether or not using the Proprietary Marks, other than
franchises issued pursuant to registered trademarks or
other proprietary marks acquired by Newco from another
entity. For purposes hereof, the terms "Hard Budget" or
"Super Budget" shall mean an economy based hotel or motel
facility with minimal amenities, intended to be, or
compete directly with, the lowest average daily room
rate in each target market.
1.7 Newco shall have all right, title and interest in and to the
Assets, the Business and the System. Accordingly, Newco shall have the
right in its sole discretion to use the Assets and the System, including,
without limitation, operating Microtel Hotels, changing, modifying or
improving the System, approving hotel sites, determining, modifying or
amending any and all terms and conditions of agreements with franchisees,
including Existing Franchisees (to the extent permitted pursuant to the
Existing Franchise Agreements), determining any and all fees to be paid by
franchisees, and accepting New Microtel Franchisees.
1.8 Each new Microtel Hotel shall be established and operated pursuant
to a standard form of franchise agreement to be developed by Newco and
revised or amended from time to time (the "New Franchise Agreement") and
entered into between Newco and such New Franchisee. Without limitation,
Newco shall have the right to establish the various fees and terms and
conditions under each New Franchise Agreement. The current form of
standard franchise agreement utilized by the Company throughout the
United States is attached hereto as Exhibit "B" (the "Current Agreement
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Form").
1.9 Newco and the Company hereby agree on a schedule for the future
development of Microtel Hotels or Suites by Newco or through its New
Microtel Franchisees (the "Development Schedule"). The Development
Schedule is attached as Exhibit "C" to this Agreement and requires Newco,
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subject to the
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provisions of Section 1.10 below, to execute New Franchise Agreements for,
and have open or under development, the number of Microtel Hotels by the
date set forth on the Development Schedule ("Scheduled Microtels"). For
purposes of this Agreement, the term "under development" shall mean that:
(i) a site for the Microtel Hotel has been acquired by purchase or
otherwise by the New Franchisee; (ii) the New Franchisee has executed a New
Franchise Agreement; and (iii) the New Franchisee has commenced
construction of the hotel by breaking ground. For purposes of this Section
1.9, the term New Franchisee may include Newco or an affiliate of Newco.
For the purposes of this Agreement, "Commencement Date" shall mean the
earlier of: (i) the date on which Newco shall be able to offer franchises
to prospective franchisees in all fifty (50) states within the United
States of America, or (ii) ninety (90) days following Closing. Newco shall
comply in all material respects with the Development Schedule.
1.10 The Company and Newco agree that the failure by Newco to satisfy
the Development Schedule for two consecutive periods, excluding delays
caused by events beyond Newco's control, including, without limitation,
strikes, civil, or political unrest, labor and/or material shortages, acts
of God, and war, shall constitute a default under this Agreement.
Notwithstanding the language of Section 1.9 and Section 15 hereof, if, at
the date which is the end of such second consecutive period Newco shall
have open, or under development, in the aggregate, at least seventy-five
percent (75 %) of the Scheduled Microtels required at the date which is the
end of any such second consecutive period, Newco may cure such default and
be deemed to have opened, or have under development, the number of
Scheduled Microtels then required at the end of such second consecutive
period (for purposes of determining compliance with the Development
Schedule at the end of such second consecutive period and in all subsequent
periods during the term of this Agreement) by paying to the Company the
amount of One Million Dollars ($1,000,000) (such payment being hereinafter
referred to as the "Cure Payment"), within thirty (30) days of written
notice by the Company to Newco of such default. By the way of example and
not limitation, if at the end of Period Number 3 (three years after
Commencement Date) if Newco shall have open or under development 80
Microtel Hotels and shall pay the Cure Payment, Newco will be deemed to
have open or under development 100 Microtel Hotels. Therefore, in order to
meet the subsequent Development Schedule, Newco would have to open or have
under development during Periods 4 and 5 the number of Microtel Hotels
required pursuant to the Development Schedule assuming the actual number of
MICROTEL Hotels open or under development at the end of Period Number 3 was
100 (instead of 80). Further, under this example, Newco could not be in
default pursuant to Section 1.9 (subject to cure) for the purposes of this
Agreement before the end of Period Number 5, if at all. Further, under
this example, assuming Newco has paid the 'cure payment at the end of
Period Number 3, and if (i) during Periods 4 and 5, Newco opens or has
under development at least eighty-eight (88) additional MICROTEL Hotels;
and (ii) Newco shall pay an additional cure payment at the end of Period
5, Newco shall be deemed to have satisfied forever the Development
Schedule.
1.11 Once Newco has under Development within the term of the
Development Schedule at any time a cumulative number of MICROTEL Hotels
equal to the number of MICROTEL Hotels required by the Development
Schedule, then Newco will be deemed to have complied in full with the
requirement of the Development Schedule ,and no further obligations or
conditions for sale or placement of franchises shall apply.
1.12 Except for payment of the royalties and other fees provided for
herein, the Warrants, and other specific obligations of the parties hereto,
neither party shall have any rights or interest in the assets or the
business of the other. No joint venture or partnership shall be created
hereby, and neither party shall have any authority to speak for or bind the
assets or property of the other.
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<PAGE>
2. TERM
This Agreement shall commence on the date of execution hereof. The
term of this Agreement shall continue unless terminated as provided
herein.
3. POST CLOSING OBLIGATIONS OF NEWCO.
Following Closing:
3.1 Newco will use its best efforts to register or take other
appropriate action as soon as practicable after Closing to be able to
offer franchises of Microtel Hotels in all fifty (50) states within the
United States of America. Newco shall register as a franchisor in all
jurisdictions, which now require or from time to time during the term
hereof may require such registration, in which Newco shall be actively
pursuing the sale of franchises and shall otherwise conduct its Business
and deal with Franchisees and prospective franchisees so as to materially
comply in all respects with all applicable federal, state and local laws,
rules and regulations, now in effect or hereafter enacted, affecting or
governing the advertising or sale of franchises, or the relationship and
dealings between franchisors and franchisees.
3.2 Newco (either directly or through an operating subsidiary or
affiliate) shall execute a New Franchise Agreement as franchisor or
licensor for each New Franchisee and each new Microtel Hotel (subject to
approval of each New Microtel Franchisee and New Microtel Franchise
location, and satisfaction of all other regular conditions). Newco
(either directly or through an operating subsidiary or affiliate) shall
assume, undertake and discharge the obligations of the Company as
franchisor under the Existing Franchise Agreements.
3.3 Recognizing the value of advertising and the importance of the
standardization of advertising programs to the furtherance of the goodwill
and public image of the System, Newco may develop or cause to be developed
a national advertising program designed to promote the knowledge of the
System and the advantages of Microtel Hotels in the minds of the consuming
public.
3.4 Newco will during the term of this Agreement develop and implement
a reservation system, in which all Microtel Hotels (including New
Franchises and Existing Franchises) who pay to Newco the appropriate fee
established by Newco and who install the appropriate equipment and software
as determined by Newco shall be eligible to participate.
3.5 Newco shall use its best efforts and consistent with sound business
practices, to vigorously enforce its rights under all franchise agreements
with Franchisees and to promptly and vigorously pursue its rights with
respect to any alleged infringement or unlawful or improper use of any
Proprietary Mark(s) or of the "trade dress" associated with Microtel.
4. THE COMPANY'S RETAINED PROPERTIES.
Following Closing, the Company shall have or retain the following
rights as to the Existing Franchises, as well as to certain Additional
Hotel Franchises (including, if and when developed, Additional Suite Hotel
Franchises), as well as to certain Supplemental Franchises, if and when
opened or developed by the Company (hereinafter collectively referred to as
the "Retained Properties"):
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4.1 Existing Franchises. The Company shall assign and transfer to
-------------------
Newco at Closing any and all rights, and Newco shall accept and agree to
perform and shall have the sole authority to perform the obligations of
Company, as franchisor, related to the Existing Franchise Agreements.
To the extent that the prospective Franchisees for any of the Existing
Franchises have not executed Franchise Agreements at the time of Closing
(specifically, the three franchise locations identified as under
development), the Company shall use its best efforts to cause such
Franchisees to execute, when available, the New Franchise Agreement.
However, with respect to each such Existing Franchise, the Company shall
retain all rights to receive from the fees generated from such Existing
Franchise Agreements, an amount equal to: (i) all Franchise Royalties
(as hereinafter defined), plus (ii) any renewal franchise fees paid by
the Existing Franchisee pursuant to the applicable Existing Franchise
Agreement. The Company will use best efforts to persuade all of the
Existing Franchisees with whom the Company has an ongoing contractual
relationship to comply with the franchisee standards as may hereafter
be established or required pursuant to the New Franchise Agreement as may
be developed by Newco.
4.1.1 For purposes hereof, the term "Franchise Royalties" shall mean
all amounts payable by each respective Franchisee to the Franchisor under
the terms of the respective Franchise Agreement then in effect, based on or
calculated as a percentage of the gross receipts collected by such
Franchisee for the rental of guest rooms or otherwise, provided, however,
the term Franchise Royalties shall specifically exclude for purposes hereof
any amounts designated as reservation, advertising, or marketing fees and
shall also exclude any other amounts payable which are designated or
described as one time or non-recurring fees or charges other than regular
monthly royalty fees, such as fees for renewal, placement, substitution,
amendment, organization, initial placement, termination, or transfer.
4.2 The Company's Additional Hotel Franchises. Subject to Newco's
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authority as Franchisor with respect to operation of the System, the
Company shall have the right to acquire from Newco after Closing, an
additional number of franchises (the "Additional Hotel Franchises") for the
purposes of developing and operating additional Microtel Hotels (not
including any Suites) such that the total number of Existing Franchises
plus Additional Hotel Franchises shall equal fifty (50). Each of the
Additional Hotel Franchises shall be entered into upon the New Franchise
Agreement as may be developed by Newco. With respect to each such
Additional Hotel Franchise, the Company shall retain the right to collect
or receive from such New Franchisee (i) the initial franchise placement fee
paid or payable by such New Franchisee; and (ii) all Franchise Royalties.
Franchisees or potential Franchisees eligible for consideration as an
Additional Franchisee can include only (i) an entity in which the Company
has a material ownership and management interest; or (ii) an entity in
which one of the individuals or entities set forth in Schedule 19.1.3
---------------
shall have a material ownership and management interest.
4.3 The Company's Suites. Subject to Newco's authority as Franchisor
--------------------
with respect to operation of the System, the Company shall have the
additional right to acquire franchises from Newco for the purposes of
developing and operating ten (10) Suites Hotels ("Additional Suite Hotel
Franchises"), so long as the Company shall have such Additional Suite Hotel
Franchises open or under development within five (5) years following the
date Newco first registers (in any state) an offering of a franchise of
Suites. Each such New Franchise shall be entered into using a New
Franchise Agreement for Microtel Suites Hotels as may be developed by
Newco and used as its standard form of franchise agreement for Suites
Hotels. With respect to each such Additional Suites Hotel Franchise,
the Company shall retain the right to collect or receive from such New
Franchisee (i) the initial franchise placement fees and (ii) all Franchise
Royalties.
4.4 Supplemental Franchises.
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4.4.1 At any time the sum of the number of Existing Franchises
plus the number of Additional Hotel Franchises actually open
and operational equals fifty (50), subject to Newco's authority
as Franchisor with respect to the operation of the System,
the Company shall have the right to acquire additional hotel
franchises ("Supplemental Hotel Franchises") from Newco for the
purposes of developing and operating additional Microtel Hotels
(but not including Suites), on the terms hereinafter set forth.
In order for the Company to obtain a Supplemental Hotel
Franchise, the Company shall transfer to Newco and Newco shall
accept one (1) of the following: (i) an Existing Franchise or
(ii) an Additional Hotel Franchise (the Existing Franchise or
the Additional Hotel Franchise being transferred, as
applicable, being designated as a "Substitute Hotel Franchise")
(but not including Suites) from the retained rights set forth
above for each such additional property franchised. In order
to be eligible for consideration as a Substitute Hotel
Franchise such franchisee must agree to execute a New Franchise
Agreement with Newco, must be current on payment of all fees
and royalties payable, and must otherwise meet then applicable
franchise standards. In addition thereto, the Company
(or the franchisee) shall pay to Newco a fee ("Substitution
Fee") equivalent in amount to the fee payable to Newco
pursuant to the terms of the New Franchise Agreement upon any
transfer of the franchise.
4.4.2 The Company shall also have the right to acquire additional
franchises from Newco for the purposes of developing and
operating Suites ("Supplemental Suites Franchises"), so long as
the Company shall transfer to Newco and Newco shall accept one
(1) of the Additional Suites Franchises (the Additional Suites
Franchise being transferred being designated as a "Substitute
Suites Franchise") from the retained rights set forth above for
each such additional Suites property franchise. In order to be
eligible for consideration as a Substitute Suite Franchise,
such franchisee must agree to execute a New Franchise Agreement
with Newco, must be current on payment of all fees and
royalties payable, and must otherwise meet then applicable
franchise standards. In addition thereto, the Company (or the
franchisee) shall pay to Newco the Substitution Fee.
4.4.3 Subject to Newco's rights hereunder, each Supplemental Hotel.
Franchise and each Supplemental Suites Franchise shall
thereafter be deemed a Retained Property, and the
Company shall be entitled to collect or receive from such
franchisee (i) an amount equal to fifty percent (50%) of the
initial franchise placement fee as provided for in the New
Franchise Agreement and (ii) all Franchise Royalties payable
under the New Franchise Agreement.
4.4.4 For each Substitute Hotel Franchise and each Substitute Suites
Franchise transferred to Newco hereunder, Newco shall be
entitled to receive all of the Franchise Royalties plus any
other fees, expenses, or other compensation or remuneration
payable thereunder (including, without limitation the
Substitution Fee), and the Company shall relinquish and
transfer to Newco all of such rights.
4.5 The Company and Newco hereby agree that the Company may accept
payment of any amounts due to the Company pursuant to this
Section 4 hereunder (but only such amounts) directly from the
franchisees of Retained Properties, and Newco shall cooperate
with such direct payment, however, Newco shall have no liability
to the Company for failure of the franchisees of the Retained
Properties to remit payments due. However, the Company
shall be required to account to Newco (in such form, manner, and
time as determined by Newco from time to time) for any such
amounts paid to the Company. To the extent
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any of such fees, payments or other amounts are remitted to
Newco, Newco shall promptly transfer, assign, or pay over such
amounts to the Company.
4.6 Notwithstanding any other provision to the contrary contained
herein with respect to Retained Properties, the Company agrees that Newco
shall not be required to pay to the Company any fees or compensation paid
to or payable to Newco by Franchisees relating to reservation, advertising,
or marketing fees with respect to Retained Properties, the Supplemental
Hotel Franchises, the Supplemental Suites Franchises, the Additional Hotel
Franchises or the Additional Suites Hotel Franchises. The Company shall
also immediately pay to Newco any such fees relating to reservation or
marketing which the Company receives from the franchisees of any Retained
Property, Supplemental Hotel Franchises, the Supplemental Suites Hotel
Franchise, or Additional Hotel Franchises or the Additional Suites Hotel
Franchises. The Company agrees to take those actions requested by Newco to
assist, implement, maintain and collect such fees.
4.7 With respect to the Company's retained rights pursuant to this
Section 4, the judgment of the Company as to the viability of a site for
the development of a Microtel Hotel shall be conclusive, provided, however,
Newco shall have the right, in its sole discretion, to reject such proposed
site as a Microtel location if Newco should determine upon review of all
Encroachment Issues or Impact Issues (as hereinafter defined) that
development of the potential site would have a material negative impact
upon the gross room revenue generated or anticipated to be generated by an
Existing Microtel Franchise facility.
4.7.1 For purposes hereof, "Impact Issues" or "Encroachment
Issues" shall refer to all issues or matters which in the sole discretion
of Newco, as Franchisor, should be considered in evaluating the impact
which the development of a new Microtel Franchise on a prospective site
would have upon the gross guest room revenues generated or anticipated to
be generated by an existing Microtel franchise facility, including but not
limited to any specific geographic or territorial restriction contained in
the franchise agreement for the existing Microtel franchise facility,
traffic patterns and volume, anticipated growth patterns, development
patterns in the same geographic area, and general business conditions.
4.8 Newco agrees that any agreement it may enter into after Closing
for any future development of unspecified franchise locations on an
exclusive territorial basis will reflect and will be subject to the rights
of the Company hereunder for development of additional franchise locations
and such exclusive territorial rights will not affect the Company as to
any of the Retained Properties Additional Hotel Franchises, Additional
Suites Hotel Franchises, or any Supplemental Franchises. The foregoing
notwithstanding, Newco and the Company agree that, without limitation, the
New Franchise Agreements or similar franchise agreements entered into with
New Microtel Franchise for specified franchise locations may contain
exclusive franchise territory agreements related to hotel market Impact
Issues, and that the Company shall not have the right to develop a property
or obtain a franchise within any such restricted geographic area. Newco
represents and warrants to the Company that Newco has not entered into and
is not now negotiating any such agreement with any party.
5. CONSULTING BY THE COMPANY.
5.1 To ensure the ultimate successful operation of the System, the
Company shall, for a period of three (3) years following the Closing Date
of this Agreement, consult with and assist Newco as may be required or as
reasonably requested by Newco, to establish Newco as an operating entity
in the business of selling and administering franchises utilizing the
System, which consulting and assistance may be expected to include, without
limitation, some or all of the following:
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5.1.1 Consulting and advice regarding the general outlines,
parameters and philosophy of the System and the Microtel
concept;
5.1.2 Assistance in the preparation of Newco's UFOC and
compliance with applicable federal and state franchising
laws;
5.1.3 Identification of and contacts with franchising prospects
known to the Company;
5.1.4 Consulting regarding prototypical plans and
specifications;
5.1.5 Review of existing manuals, training programs and other
elements of the System;
5.1.6 Consultation regarding the desirability or feasibility of
proposed sites for franchise development; and
5.1.7 Ongoing compliance with regulatory requirements, including
federal, state and international franchising laws.
5.2 After the date which is one (1) year after the Closing Date, any
required consultation and assistance shall be provided as reasonably
requested by Newco and shall be scheduled subject to the workloads of the
personnel of the Company.
6. FEES
6.1 The Company shall retain the rights to collect fees and royalties
from the Existing Franchisees designated as Retained Properties, as
provided for in Section 4 hereinabove. Newco shall assist the Company with
direct collection of such mounts and shall, to the extent such funds are
transmitted or paid to Newco, promptly remit such funds to the Company,
provided, however, Newco shall have no liability to the Company for failure
of the franchisees of the Retained Properties to remit payment due.
6.2 In consideration for the transfer of the Proprietary Marks to
Newco pursuant to Section 1 hereof, Newco shall pay or cause to be paid to
the Company from the Franchise Royalties collected from each New Microtel
Franchisee after Closing, as royalties with respect to each New Microtel
Franchise (excluding any franchises designated as Retained Properties), a
continuing monthly royalty fee (the 'Trademark Royalty') in an amount equal
to the sum of: (i) one percent (1%) of the Revenues Subject To Royalties
(as hereinafter defined), for the applicable month for each New Microtel
Franchise on the first 100 operating properties (other than Retained
Properties) opened by Newco ("Operating Properties"); plus (ii) seventy-
five hundredths of one percent (0.75 %) of the Revenues Subject to
Royalties for the applicable month for each New Microtel Franchise on the
next 150 Operating Properties; plus (iii) one half of one percent (0.5%) of
the Revenues Subject to Royalties for each New Microtel Franchise after the
first 250 Operating Properties. Payment of the Trademark Royalty shall be
deferred until the month in which Newco actually receives its Franchise
Royalties from each respective Franchisee and shall be paid to the Company
not later than the twentieth (20th) day of the month following such receipt
by Newco.
6.2.1 For purposes hereof, "Revenues Subject to Royalties" shall
mean the gross receipts collected by Franchisees for the
rental of guest rooms at a Microtel Hotel or Microtel Suite,
whichever is applicable, as well as any other revenues which
are subject to royalty payments by Franchisee to Newco as
set forth in the applicable franchise agreement.
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6.2.2 In addition to Trademark Royalty payable hereunder, Newco
shall pay to the Company a portion of any termination fee
received by Newco upon termination of any New Microtel
Franchise, such portion to be calculated as (i) the total
amount of the termination fee actually received by Newco,
(ii) less any direct expenses incurred by Newco in
connection with collecting and receiving such fee and
terminating such franchise (including but not limited to
attorney's fees), with the remainder (iii) multiplied by a
fraction, (aa) the numerator of which shall be the lowest
marginal percentage rate then applicable for purposes of
calculating the Trademark Royalty set forth herein and
(bb) the denominator of which shall be the percentage
rate set forth in the applicable Franchise Agreement which
is used for calculation of the Franchise Royalties payable
by such franchisee to Newco.
6.2.3 The parties acknowledge and agree that Newco, as franchisor,
may waive the requirement for a specific Franchisee to pay
Franchise Royalties for a specified period of time (not to
exceed 120 days) from the date when a New Franchise
Agreement is effective and the Franchise facility is
operational, and that no Trademark Royalty shall
accrue or be due or payable by Newco for such period during
which the obligation to pay Franchise Royalty is actually
waived.
6.3 In consideration of the performance by the Company of its
consulting obligations set forth in Section 5 hereof, the transfer of the
Assets (other than the Proprietary Marks) and rights under the Existing
Franchise Agreements, and all of the Company's other obligations hereunder,
Newco shall pay to the Company the amount of Three Million Seven Hundred
Thirty-Seven Thousand Six Hundred Forty-One and NO/100ths Dollars U.S.
(U.S. $3,737,641.00), plus simple interest at the rate of ten percent (10%)
per annum as reflected on Exhibit "F" attached hereto, due and payable as
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follows: Two Million Dollars U.S. (U.S. $2,000,000) upon Closing; One
Million Dollars U.S. (U.S. $1,000,000) on the date one (1) year from the
Closing Date hereof; Five Hundred Thousand Dollars U.S. (U.S. $500,000) on
the date two (2) years from the Closing Date hereof; and Five Hundred
Thousand Dollars U.S. (U.S. $500,000) on the date three (3) years from the
Closing Date hereof.
6.4 The Company shall be responsible for any and all taxes or similar
charges relating to payments by Newco (or on Newco's behalf) to the
Company, including but not limited to value-added taxes, goods and services
taxes, consumption taxes, gross receipts taxes and sales taxes, (but
excluding taxes based upon Newco's income), which may be imposed now or in
the future, and the Company shall transmit such taxes to the appropriate
fiscal authorities.
6.5 If any payment owed by Newco to the Company under this Agreement
or under any other agreement with the Company is finally determined to be
overdue pursuant to Sections 15 and 16 below, Newco shall pay the Company,
in addition to the overdue amount, interest on such mount from the date it
was due until paid, at a rate which is one percent (1%) above the interest
rate the Company pays on its operational line of credit from its principal
bank, or if the Company has no line of credit, two percent (2%) above the
prime rate of interest as reported in The Wall Street Journal on the day
-----------------------
such amount was due, or the maximum rate permitted by law, whichever is
less. In the event any amount is finally determined to he overdue and
intentionally unpaid by Newco pursuant to Sections 15 and 16 below for more
than ninety (90) days, then the interest payable by Newco under this
section shall be computed at a rate of eighteen percent (18%) per annum,
computed on a daily basis, or the maximum amount permitted by law,
whichever is less. Entitlement to such interest shall be in addition to
any other remedies the Company may have.
10
<PAGE>
6.6 Except for the amounts specifically payable to the Company as
set forth in this Section, all revenues generated by the conduct of the
Business or otherwise by Newco after Closing shall belong to Newco.
7. CLOSING.
7.1 Time and Place. Closing shall take place at the offices of
Boylan, Brown, Code, Fowler, Vigdor & Wilson, L.L.P., 900 Midtown Tower,
Rochester, New York 14604, at 9:00 a.m. or at such other mutually
determined location and time within two (2) business days following the
date of the last to be satisfied of the conditions below, but in no event
later than Monday, October 9, 1995, or such other date and place as the
parties hereto shall mutually agree upon ("Closing").
7.2 Conditions of Closing.
7.2.1 Closing of the transactions contemplated hereunder shall be
conditioned upon, at Newco's option:
7.2.1.1 All of the covenants to be performed or complied with
by the Company and all required deliveries by the
Company or on the Company's behalf contained in this
Agreement will have been performed, complied with, or
delivered on or before Closing.
7.2.1.2 All of the representations and warranties made by the
Company to Newco shall be and remain true, accurate
and complete as of the Closing Date.
7.2.1.3 The approvals of the transactions contemplated hereby
and of this Agreement by the Board of Directors and,
if required, the Stockholders of the Company shall
have been obtained.
7.2.1.4 The Company shall have obtained all third party
consents or approvals as shall be necessary or
appropriate to the completion of the transaction in
all respects or as may be required by law or
regulation.
7.2.1.5 The Company shall have executed any and all
assignments' required to transfer to Newco any and all
rights in the Proprietary Marks and any other
intellectual property. Such assignments shall be in
a form acceptable to Newco for recording with the U.S.
Patent and Trademark Office and any other state,
county or local governmental department or agency,
domestic or foreign.
7.2.1.6 The Company shall have effected the termination of
the Master Franchise Agreement by and between the
Company and Essex Microtel International Lodging, Inc.
(the "EMILI Agreement").
11
<PAGE>
7.2.1.7 The Company shall have obtained final execution of
Franchise Agreements from all of the Existing
Franchisees using either the Current Agreement Form
or the New Franchise Agreement.
7.2.1.8 Michael A. Levin ("CEO Candidate") shall have
resigned from his current position and agreed to
become Chief Executive Officer of Newco.
7.2.1.9 At the Closing Date: (a) there shall be no effective
injunction, restraining order, or order of any nature
issued by any court of competent jurisdiction which
directs or has the effect of directing that this
Agreement or any material transactions contemplated
hereby shall not be consummated as herein provided;
(b) there shall be no investigation, action, or other
proceeding pending before any court or governmental
authority or threatened against the Company or Newco
or any of the directors or officers of the Company or
Newco in connection with this Agreement or the
consummation of the transactions contemplated by this
Agreement which is likely, in the opinion of Newco's
counsel (after consideration of any defense), to
result in such substantial damages or other
substantial relief being obtained, as to materially
and adversely affect the Business on or after the
closing Date; and (c) none of the parties hereto shall
have received from any governmental authority any
notice (oral or written) of any potential litigation,
civil, criminal, or administrative, against the
Company or Newco for a violation alleged to arise out
of the consummation of the transactions contemplated
hereby.
7.2.1.10 Newco shall have secured the minimum offering of
$12,400,000 as provided for in Newco's initial private
placement dated August 19, 1995;
7.2.2 Closing of the transactions contemplated hereunder shall be
conditioned upon, at the Company's option:
7.2.2.1 All of the covenants to be performed or complied with
by Newco and all required deliveries by Newco or on
Newco's behalf contained in this Agreement will have
been performed, complied with, or delivered on or
before Closing.
7.2.2.2 All of the representations and warranties made by
Newco to the Company shall be and remain true,
accurate and complete as of the Closing Date.
7.2.2.3 The individual who has been identified as the CEO
Candidate of Newco shall have resigned from his
current position and agreed to become Chief
Executive Officer of Newco.
7.2.2.4 Newco shall have secured the minimum offering of
$12,400,000 as provided for in Newco's initial
private placement dated August 19, 1995;
7.2.2.5 The approvals of the transactions contemplated hereby
and of this Agreement by the Board of Directors and,
if required, the Stockholders of Newco shall have
been obtained.
12
<PAGE>
7.2.2.6 The Company shall have received the documents or
information described in Exhibit "D" hereof.
-----------
7.2.2.7 At the Closing Date: (a) there shall be no effective
injunction, restraining order, or order of any nature
issued by any court of competent jurisdiction which
directs or has the effect of directing that this
Agreement or any material transactions contemplated
hereby shall not be consummated as herein provided;
(b) there shall be no investigation, action, or
other proceeding pending before any court or
governmental authority or threatened against the
Company or Newco or any of the directors or
officers of the Company or Newco in connection with
this Agreement or the consummation of the
transactions contemplated by this Agreement
which is likely, in the opinion of the Company's
counsel (after consideration of any defense), to
result in such substantial damages or other
substantial relief being obtained, as to materially
and adversely affect the Business on or after the
Closing Date; and (c) none of the parties hereto
shall have received from any governmental authority
any notice (oral or written) of any potential
litigation, civil, criminal, or administrative,
against Company or Newco for a violation alleged to
arise out of the consummation of the transactions
contemplated hereby.
7.2.2.8 Newco shall have prepared and available for
distribution to potential offerees a current
UFOC disclosure document.
7.3 Deliveries at Closing.
7.3.1 The Company shall deliver to Newco at Closing:
7.3.1.1 An executed Secretarial Certificate of the Company
satisfactory to Newco;
7.3.1.2 All of the appropriate assignments or other transfer
documents of all of the Assets, Proprietary Marks
and other intellectual property as described herein
satisfactory to Newco;
7.3.1.3 The Warrant relating to the purchase of shares of the
Company, fully executed in the form attached hereto
as Exhibit "B";
7.3.1.4 An opinion of Boylan, Brown, Code, Fowler, Vigdor &
Wilson, L.L.P., corporate and intellectual property
counsel to the Company, in a form satisfactory to
Newco;
7.3.1.5 All assignments or other transfer documents required
to transfer to Newco any and all rights in the
Proprietary Marks and any other intellectual
property. Such assignments shall be in a form
acceptable to Newco for recording with the U.S.
Patent and Trademark Office and any other state,
county or local governmental department or
agency, domestic or foreign.
7.3.2 Newco shall deliver to the Company at Closing:
7.3.2.1 An executed Secretarial Certificate of Newco
satisfactory to the Company;
13
<PAGE>
7.3.2.2 $2,000,000 in cash, certified check or wire transfer
at Newco's
option;
7.3.2.3 An instrument or instruments reflecting Newco's
assumption
of the obligations of
franchisor under the Existing Franchise Agreements; and
7.3.2.4 An opinion of Bodker, Ramsey & Andrews, a Professional
Corporation, counsel to
Newco, in a form satisfactory to the Company.
7.4 Allocation of Consideration.
7.4.1 At the Closing, the Company and Newco shall execute an
allocation of all payments
hereunder pursuant to Section 1060 of the Internal Revenue Code
of 1986, as amended,
substantially in the form of Exhibit "F" hereto. The Company
------------
and Newco hereby agree
to prepare their respective tax and other returns and to take
and pursue any and all other
actions (including without limitation, in connection with tax
examinations) to reflect and
retain such allocation.
7.4.2 The Company and Newco hereby acknowledge and agree that (i)
the
Company intends to
treat the payments received by the Company pursuant to Section
6.2 hereof as amounts
received on account of a transfer, sale or other disposition of
a franchise, trademark or
trade name which are contingent on the productivity, use or
disposition of the franchise,
trademark or trade name transferred and thus as amounts
received from the sale or other
disposition of property, which is not a capital asset pursuant
to Internal Revenue Code
Section 1253(c), as amended, and (ii) Newco intends to treat
the payments made by the
Company pursuant to Section 6.2 hereof as amounts paid on
account of a transfer, sale or
other disposition of a franchise, trademark or trade name which
are contingent on the
productivity, use or disposition of the franchise, trademark or
trade name and which are
paid as a part of a series of payments which are payable not
less frequently than annually
and which are substantially equal in amount (or payable under a
fixed formula) and thus
allowed as a deduction as paid or accrued under Internal
Revenue Code Section 162(a),
all pursuant to Internal Revenue Code Section 1253(d)(1) as
amended, or other similar tax
principles which provide for such payments to be deductible as
paid or accrued. The
Company and Newco acknowledge the importance of such intended
treatment by the
Company and Newco and accordingly agree to prepare their
respective tax and other
returns and to take and pursue any and all other actions
(including without limitation, in
connection with audit examinations) to retain and reflect such
intended tax treatment.
8. RIGHTS AND OBLIGATIONS PENDING THE CLOSING.
During the period commencing on the date hereof and ending on the
Closing Date:
8.1 In order to allow Newco to perform its due diligence
investigation, the Company will or will cause its agents to give to
Newco its representatives, auditors, and attorneys, access, during normal
business hours, to the facilities of the Company and to the books, records,
contracts, and documents of the Company and to furnish to Newco such
information as Newco may reasonably request from time to time.
8.2 The Business and the Assets and properties of the Company will
continue to be operated, used, and employed by the Company in the ordinary
course of business. Specifically; without limiting the
14
<PAGE>
foregoing, the Company will continue to pursue and support new business;
faithfully perform in all material respects all the obligations required to
be performed under existing contracts, Existing Franchise Agreements, and
commitments; and use its best efforts and take all reasonable steps to
retain the patronage of all customers and Franchisees (whether existing
business or business obtained after the date hereof). The foregoing
notwithstanding, the parties acknowledge and agree that the Company will
not enter into new franchise agreements from the date of the agreement
through Closing but with the prior written consent of Newco.
8.3 Not in limitation of Section 8.2,, the Company will not take the
following actions, without the written consent of Newco:
8.3.1 make any material change in the Current Agreement Form, any
Existing Franchise
Agreements, or the UFOC, or to any existing contracts or
commitments pertaining to the
Business, except as such changes occur in the ordinary course of
business;
8.3.2 enter into any new contract pertaining to the Business.
8.4 The Company will promptly supply counsel for Newco with copies of
all litigation or legal proceedings against the Company which may arise
after the date of this Agreement and will also notify counsel for Newco of
any litigation or other legal proceeding which to the actual knowledge of
the officers or directors of the Company is threatened against Newco or the
Company.
8.5 Newco will promptly supply counsel for the Company with copies of
all litigation or legal proceedings against Newco which arise after the
date hereof and will also notify counsel for Company of any litigation or
other legal proceeding which to the actual knowledge of the officers or
directors of Newco is threatened against Newco or the Company.
8.6 The Company will promptly notify Newco of any matters with
respect to Franchisees or other parties which could materially adversely
affect any Existing Franchise Agreement, the Business, the System, results
of operations or financial condition of the Company or its Franchisees or
adversely affect the ability of the Company to perform its obligations
hereunder.
8.7 Newco will keep the provisions of this Agreement strictly
confidential and will not without the prior consent of the Company,
which shall not be unreasonably withheld, disclose such provisions to
any third party, except for (a) disclosure to employees, directors,
potential investors, offerees, stockholders, officers, lawyers, and
financial advisors of Newco on a "need-to-know" basis; (b) such
disclosures as may reasonably be required pursuant to applicable state
and federal laws, for securities, franchise and business opportunity law
purposes; (c) such other disclosures as may reasonably be required for
Newco to comply with its pre-closing obligations hereunder; and (c) such
other disclosures as may be required by law, without the prior consent
of the Company, which shall not be unreasonably withheld.
8.8 The Company will keep the provisions of this Agreement strictly
confidential and will not, without the prior consent of Newco, which shall
not be unreasonably withheld, disclose such provisions to any third party,
except for (a) disclosure to employees, directors, officers, lawyers, and
financial advisors of the Company on a "need-to-know" basis; (b) such other
disclosures as may reasonably be required for the Company to comply with
its pre-closing obligations hereunder; and (c) disclosures as may be
required by law.
15
<PAGE>
8.9 Upon final acceptance of this Agreement, Newco and the Company
will issue in writing a mutually agreeable public announcement as to the
transaction contemplated herein.
8.10 Until the Closing, or the date of termination of this Agreement
pursuant to the terms hereof, whichever first occurs, the Company will not
solicit, encourage, or conduct, directly or indirectly, any discussions or
negotiations with, or provide any information to, any entity or person
other than Newco with respect to the sale of the rights to the System and
its component parts or the transactions contemplated herein or any
transactions similar to any of those contemplated herein. The Company
shall immediately notify Newco of any solicitation or offer by a third
party with respect to the sale or transfer of the rights to the System or
its component parts.
8.11 The Company will obtain any and all required consents of third
parties prior to the Closing.
8.12 The Company and Newco will fully cooperate with each other and
their respective counsel and accountants in connection with all steps to be
taken as part of their respective obligations under this Agreement. The
Company and Newco will use their best efforts to cause the conditions to
the other party's obligation to close to be fulfilled on or prior to the
Closing Date.
8.13 The Company shall take all necessary and appropriate steps
including changing its assumed name as provided for in this Agreement to
assure that all rights to the "Microtel" name will inure to Newco.
8.14 Notwithstanding any provision in this Agreement to the contrary,
and in addition to (and without waiving) any other rights Newco may have
pursuant to this Agreement or otherwise, regardless of whether the
transactions contemplated by this Agreement are consummated,' each party
shall be responsible for and bear all of its own expense and fees,
including attorney and accountant fees, incurred by .it in connection
with the transactions contemplated herein; provided, however, if the
transactions contemplated herein are not consummated for any reason except
due to Newco's default under this Agreement, the Company agrees to pay
Newco's legal fees and related expenses incurred in the drafting of this
Agreement in an amount not to exceed $15,000.00.
8.15 Newco shall utilize its best efforts to prepare a uniform
franchise offering circular to be used for filing or registration at or
near the Closing Date.
8.16 Prior to Closing, the Company shall in accordance with the
limitations set forth herein, continue to conduct its business in the
ordinary course (except that the Company will not enter into new franchise
agreements with potential new franchisees, but with the prior written
Consent of Newco), preserving its rights to franchise the System and taking
reasonable steps to protect the Proprietary Marks and other intellectual
property which constitutes the System.
9. DEFAULT PENDING CLOSING.
9.1 Default by Company: In the event of any default by Company in any
of its closing obligations hereunder or agreements to be performed prior to
Closing, or in the event any of the representations and warranties of
Company shall be discovered prior to Closing to be untrue or false in any
material respect, Newco shall provide written notice to Company and, should
such default, untruthfulness, or falsity not immediately be cured, Newco,
at the sole option of Newco, shall have the right to either: (i) waive
compliance with such obligation or lack of performance and proceed with
Closing; (ii) proceed to Closing and reserving to Newco all rights and
remedies provided for hereunder or otherwise available at law or in
16
<PAGE>
equity, including but not limited to the right to seek specific
performance, or the right to indemnification pursuant to Section 22 and to
setoff amounts payable to Company all costs and expenses incurred in
connection therewith in accordance with the provisions of Section 23
hereof; (iii) postpone Closing upon written notice to Company for a
reasonable period of time and take such remedial action as may reasonably
be necessary or appropriate to cure such default or to make the
representation and warranty not untrue or false, and to deduct the
reasonable costs, expenses, and attorney's fees thereof from the
consideration to be paid to Company at Closing; (iv) terminate this
Agreement upon written notice to the Company, whereupon Company shall
immediately pay or reimburse to Newco all fees, costs, expenses, or other
costs or claims of any kind or nature whatsoever incurred by Newco, the CEO
Candidate, or its principals (including but not limited to reasonable
attorney's fees, any consequential damages or damages for loss of economic
opportunity or profits) arising out of or related to the negotiation and
entering into of this Agreement and related activities in connection with
preparation for Closing.
9.2 Default by Newco: In the event of any default by Newco in any of
its closing obligations hereunder, or in the event any of the
representations and warranties of Newco shall be discovered prior to
Closing to be untrue or false in any material respect, the Company shall
provide written notice of such default, untruthfulness or falsity and the
Company, at the sole option of the Company, shall have the right to either:
(i) waive compliance with such obligation or lack of performance and
proceed with Closing; (ii) proceed to Closing and reserving to the Company
all rights or remedies provided for hereunder or otherwise available at law
or in equity, including but not limited to the right to seek specific
performance, or the right to seek indemnification pursuant to Section 22
hereof; or (iii) terminate this Agreement upon written notice to Newco,
whereupon Newco shall immediately pay or reimburse to the Company all fees,
costs, expenses, or other costs or claims of any kind or nature whatsoever
incurred by the Company (including but not limited to reasonable attorney's
fees, any consequential damages or damages for loss of economic opportunity
or profits) arising out of or related to the negotiation and entering into
of this Agreement and related activities in connection with preparation for
Closing.
10. REPRESENTATIONS AND WARRANTIES.
10.1 The Company represents, warrants and agrees to and with Newco as
of the date hereof and through the date of Closing as follows:
10.1.1 The Company (a) is a corporation duly organized, validly
existing and in good standing
under the laws of the State of New York; (b) is qualified or
licensed to do business and
is in good standing in all jurisdictions in which the nature
of its business or its properties
makes such qualification or licensing necessary, except as set
forth on Schedule 10.1,1;
---------------
and (c) has all requisite legal and corporate power and
authority to own, operate or lease
its properties and assets and to carry on its business as now
conducted.
10.1.2 (a) The Company has registered the Uniform Franchise
Offering
Circular ("UFOC") in
every jurisdiction in which the UFOC is required to be
registered including any federal,
state, county, municipal or other governmental agency,
department, commission, board,
bureau or instrumentality, both domestic and foreign.
Schedule
- --------
10.1.2(a) is a list of all
----------
such agencies with which the UFOC has been registered, the date
of such registration, and
the renewal date, if any, for such registration. The most
recent UFOC registered is dated
June 27, 1995, and the UFOC has not been updated or modified
since June 27, 1995,
except as provided in Schedule 10, 1.2(b) Except as provided in
--------------------
Schedule 10.1.2(c) the
------------------
Company is not aware of, nor received any notice of any
proceedings, revocation,
17
<PAGE>
termination or other action or threat of action against or with
respect to any registration or its UFOC or otherwise which would
affect the Company's ability to transact or conduct its business
or operations in any jurisdiction.
(b) The most recent UFOC dated June 27, 1995, and all prior
UFOC's issued, used and/or relied upon by the Company were
prepared, maintained and distributed in compliance with all
applicable statutes, rules and regulations, including but not
limited to the United States Federal Trade Commission ("FTC") and
applicable status regulatory authorities.
10.1.3 This Agreement has been duly and validly executed and
delivered by the
Company. The
execution and delivery by the Company of this Agreement, and the
consummation of the
transactions contemplated hereby, have been duly and validly authorized
and approved by
all necessary and proper action on the part of the Board of Directors.
No
shareholder
action or approval, or consents of any third parties or of any
governmental agencies are'
required for Closing except as forth on Schedule 10.1.3 attached (which
---------------
consents the
Company is required to obtain prior to Closing), and no further action is
required to be
taken or obtained by the Company in connection with authorization and
approval of the
execution and delivery of this Agreement and the consummation of the
transactions
contemplated hereby. The Company has all requisite legal and corporate
power and
authority to enter into, perform and carry out this Agreement. The
representatives of the
Company who have executed this Agreement have been duly authorized to do
so by the
Company, and no law, ordinance, judicial decree, order or regulation
prohibits the
Company from executing this Agreement or performing any of its obligations
hereunder.
10.1.4 Neither the execution and delivery of this Agreement nor
the
consummation of the
transactions contemplated hereby will constitute or, with the
giving of notice or the
passage of time or both, would constitute a violation of or a
default under or conflict with
any term or provision of the Certificate of Incorporation or By-
Laws
of the Company, or
any of the terms, conditions or provisions of any agreement,
contract, lease, instrument,
indenture, license or franchise to which the Company is a party, or
by which it or any of
its properties or assets is or may be bound, or result in the
creation or imposition of any
lien, claim, charge or encumbrance of any nature whatsoever upon
any of its properties
or assets, or constitute a violation of any statue, law or
ordinance
or any rule, regulation,
order of any governmental authority, including, without limitation,
any franchise law, rule,
regulation or order, and any securities law, rule, regulation or
order, or any judicial
decree, or require the consent or approval of any governmental
authority, lending
institution or other third party.
10.1.5 Schedule 10.1.5(a) is a list of all actions, suits,
investigations,
------------------
claims or proceedings
pending or threatened in the last five (5) years against the Company (or
to the knowledge
of the Company, against any of the Existing Franchisees) at law or in
equity or before or
by any federal, state, municipal or other governmental court, department,
commission
board, bureau, agency or instrumentality, domestic or foreign, whether or
not any such
claims have been litigated, settled, or otherwise decided. Except as
<PAGE>
provided in Schedule 10.1.5(b) there is no action, suit, investigation,
------------------
claim or proceeding pending or threatened against the Company (or, to the
knowledge of the Company against any of the Existing Franchisees) at
law or in equity or before or by any federal, .state,
county, municipal or
18
<PAGE>
other governmental court, department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any arbitrator
or panel of arbitrators which individually or in the aggregate
either (a) questions the validity of this Agreement or of any
action taken or to be taken in connection herewith, or (b) if
determined adversely to the Company or any Existing Franchisee
might have a material adverse effect upon the Business, the
Assets, the System, results of operations or financial condition
of the Existing Franchisees or adversely affect the ability of
the Company to perform its obligations hereunder. The Company is
not in violation, in any material respect, of any laws, statutes,
ordinances, regulations, orders, writs, injunctions, decisions,
awards or decrees or any court or federal, state, county,
municipal or other governmental department, commission, board,
bureau, agency, or instrumentality, domestic or foreign, or any
arbitrator or panel of arbitrators, relating to the Business, the
Assets, or the System and the Company has no knowledge or any
basis for any claim for compensation or damage or otherwise from
any violation of the foregoing.
10.1.6 Schedule 10.1.6 sets forth a list of all defaults, actions,
suits,
---------------
or claims pending or
threatened by the Company against any Existing Franchisee, or other
third party as relates
to the Business, the Assets, or the System, at law or in equity or
before any arbitrator or
federal, state, county, municipal or other governmental court,
domestic or foreign.
10.1.7 This Agreement constitutes a legal, valid and binding
obligation of
the Company,
enforceable against the Company in accordance with its terms.
10.1.8 Except for such liens shown on Schedule 10.1.8 which will
be
----------------
released prior to or at
Closing, the Company shall have good, marketable, and indefeasible
title to all of the
Assets, free and clear of all liabilities, mortgages, conditional
sales agreements, security
interests, liens, pledges, encumbrances, restrictions, charges,
claims, tax liens, or any
other imperfections of title whatsoever.
10.1.9 Except as set forth on Schedule 10.1.9(a), the Company (a)
has all right,
------------------
title and interest
in and to the Proprietary Marks; (b) all such Proprietary Marks are valid
and enforceable; (c) the Company's ownership of such Proprietary Marks has
been duly
recorded in the U.S. Patent and Trademark Office; (d) all such
Proprietary Marks have been
maintained all fees have been .paid to maintain their validity,
enforceability,
and to ensure the issuance of any necessary registrations or
certificates; (e) the Company
is unaware of any
infringement or misappropriation of any proprietary property rights of
others by the
Company; (f) there is no action, suit, claim or proceeding pending or
threatened against
the Company alleging or involving any state of facts that the Company has
infringed or
misappropriated any proprietary property rights of others; (g) there has
been no
infringement or misappropriation of any of the Proprietary Marks; (h) the
Company has
no knowledge of any current infringement or misappropriation of the
Proprietary Marks,
or any actions, suits or proceedings pending or threatened against any
party for actual or
alleged infringement or misappropriation of the Proprietary Marks; and
(i)
the Company
has no knowledge of any potential or future infringement or
misappropriation of (1) the
Proprietary Marks by any party, or (2) any proprietary property rights by
the Company,
which would affect the ability to use the Proprietary Marks or to develop
and franchise
the Microtel concept and System. Exhibit "A-1" is a complete and
accurate
------------
list of the
19
<PAGE>
Proprietary Marks showing with whom each mark is registered, the
registration number and the date registered.
10.1.10 The Company is the owner of and has authority to assign
and transfer to Newco the Assets, the exclusive rights,
Proprietary Marks and System which are the subject of this
Agreement. Each of the Proprietary Marks, the System and all of
Microtel's rights therein
are valid and are in good standing and uncontested. The Company has
not received any
notice and has no knowledge with respect to any alleged infringement
or unlawful or
improper use of any Proprietary Mark or the System. The Company has
not granted any
licenses or other rights to use any of the Proprietary Marks or to
develop, build, establish
or operate the Business except as expressly
set forth on Schedule 10.1.10 hereto.
----------------
10.1.11 Schedule 10.1.11(a) identifies all confidential and
-------------------
proprietary property, other than the Proprietary Marks,
with respect to the franchising and operation of
the Business and the System which the Company has maintained as
confidential in nature.
Except as provided
in Schedule 10.1.11(b), the Company is unaware of any infringement,
------------
misappropriation
or public disclosure of any of the property included in Schedule
--------
10.1.11(a), and has no
------------
knowledge of any current infringement, misappropriation or public
disclosure or any
actions, suits or proceedings pending or threatened against any
party for actual or alleged
infringement, misappropriation or public disclosure of such
property.
10.1.12 Schedule 10.1.12 is a list of all franchise agreements
----------------
which the Company has executed and is true and complete
list indicating for each such franchise
agreement (a) the location of
such Franchise; (b) whether the Company has a management agreement
with the
Franchisee; (c) if the Franchisee is a related party, the nature of
such relationship to the
Company. Except as provided on Schedule 10.1.12, all franchise
----------------
agreements (a) are in
full force and effect; (b) have not been mended; (c) are not in
default; and (d) may be
transferred or assigned without the consent of the Franchisee or
any other party other than
the Company. There are no such franchise agreements other than the
Existing Franchise
Agreements for the Existing Franchises. Except as provided on
Schedule 10.1.12, there
----------------
has not been any waiver, amendment, or other reduction of any
royalties, management
fees, or other payments of any kind with respect to the franchise
agreements, below the
level of such fees as set forth in the respective disclosure
documents for such Franchise.
A true, correct and complete copy of each of the Existing Franchise
Agreements set forth
on Schedule 10.1.12 has been provided to Newco.
-----------------
10.1.13 Except as provided on Schedule 10.1.13, since March 31,
----------------
1995 (a) the operations of the Business have been
carried on only in the ordinary course consistent with
past practice, and (b) there has been no material adverse
change, and there has
been no event or
circumstance which is reasonably anticipated to result in a
material adverse change with
respect to the Business, the Existing Franchises, or the System or
its component parts.
10.1.14 Except as provided on Schedule 10.1.14, the Company has
----------------
timely filed or otherwise timely secured extensions for
filing with the appropriate federal, state, local and
foreign governmental authorities all tax returns and
information returns required by it to be filed, and there
will remain on the date of Closing no unpaid taxes,
assessments or public charges of any type or nature
whatsoever due and payable to any governmental agency or
authority, whether federal, state, local or foreign,
including, without limitation, any
20
<PAGE>
income, intangible property, social security, unemployment
insurance, Worker's Compensation premiums, other employment
sales, use and other taxes, assessments or charges and any
deposits required to be made with respect thereto, which are or
could become a lien or charge against or otherwise affect any of
the assets of the Company or the System or its component parts or
the Assets transferred hereunder. The Company has not been
delinquent in the payment of any taxes, assessment, deposit, or
other charge by any governmental authority and no liability,
obligation, deficiency, or other claim is pending or has been
assessed, asserted or threatened against the Company, the Assets,
or the System or its component parts in connection with any tax
and, to the Company's knowledge, there is no basis for any such
liability. The Company has not received any notice of assessment
or proposed assessment in connection with any tax returns and
there are no pending tax examinations of or tax claims asserted
against the Company, the Assets, or the System or any of its
component parts, including without limitation, any claim by any
governmental authority in any jurisdiction where the Company did
not file tax returns, that the Company is or may be subject to or
liable for taxes imposed by that governmental authority or
jurisdiction. There are no liens, security interests, pledges, or
other encumbrances for any taxes (other than any lien for current
real property or ad valorem taxes not yet due and payable) on the
Assets, or System or any of its component parts. No tax is
required to be withheld pursuant to Section 1445 of the Internal
Revenue Code of 1986, as amended, as a result of any of the
transfers contemplated by this Agreement and the Company will
provide any certificate requested by Newco at Closing with
respect thereto. The Company has provided to Newco true, correct
and complete copies of the Company's corporate income tax return
for the fiscal year ended March 31, 1994 filed with the Internal
Revenue Service and most recent franchise/net worth tax returns
filed with each state or jurisdiction in which such returns are
required to be filed.
10.1.15 Schedule 10.1.15 is a true and complete list of all oral or
----------------
written contracts which the Company has executed which relate to
the development and operation of the System, indicating for each
such contract whether such contract is with a related party, the
nature of such relationship to the Company and the principal
terms of such contracts. Except as provided on Schedule 10.1.15,
----------------
all such contracts (a) are in full force and effect; (b) have not
been amended; (c) are not in default; and (d) may be transferred
or assigned without the consent of the other parties to the
Contract or any other third parties.
10.1.16 The Company has not employed any finder, agent, broker or other
person to act for it with respect to the transactions
contemplated by this Agreement, and the Company agrees to
indemnify, defend and save Newco harmless from and against any
claims of any finder, agent, broker or other person resulting
from its actions with respect to the transactions contemplated
hereby.
10.1.17 All of the assets and the operations of the Business of an
insurable nature and of a character usually insured by companies
of similar size and in similar businesses are insured by the
Company in such amounts and against such losses, casualties or
risks as is (a) usual in such companies and for such assets,
operations and businesses, (b) required by law, ordinance,
regulation, rule or other statute applicable to the Company or
its operations, or (c) required by any contract, agreement,
lease, commitment or other arrangement of the Company relating to
the System or its component parts and the Company's franchising
operations. Schedule 10.1.7 contains a complete and accurate list
---------------
21
<PAGE>
of all insurance policies held or owned by the Company relating
to the Assets, the System and its component parts and the
Company's franchising operations and now in force. All such
policies are in full force and effect and enforceable in
accordance with their terms. The Company is not now in default
regarding the provisions of any such policy, including, without
limitation, failure to make timely payment of all premiums due
thereon, and has not failed to give any notice or present any
claim thereunder in due and timely fashion. Except as set forth
in Schedule 10.1.7, the Company has not been refused, or denied
-----------------
renewal of, any insurance coverage in connection with the
ownership or use of its assets or operations. In addition to the
deductibles set forth on Schedule 10.1.7, such Schedule discloses
-----------------
all risks that are self-insured by the Company that in the
ordinary course of business could be insured.
10.1.18 Termination of the EMILI Agreement will not constitute or, with
the giving of notice or the passage of time or both, would not
constitute a violation of or a default under or a conflict with
any term or provision of the Certificate of Incorporation or By-
Laws of the Company, or any of the terms, conditions or
provisions of any agreement, contract, lease, instrument,
indenture, license, or franchise to which the Company is a party,
or by which it or any of its properties or assets is or may be
bound, or result in the creation or imposition of any lien,
claim, charge or encumbrance of any nature whatsoever upon any of
its properties or assets, or constitute a violation of any
statute, law or ordinance or any rule, regulation, order of any
governmental authority, including, without limitation, any
franchise law, rule, regulation, or order, and any securities
law, rule, regulation or order, or any judicial decree, or
require the consent or approval of any governmental authority,
lending institution or other third party. Upon termination of the
EMILI Agreement the Company will have no further obligations or
liabilities thereunder (except obligations arising under the
warrants to purchase common stock of the Company issued in
connection with the original execution of the EMILI Agreements).
The Company has heretofore provided to Newco a true, correct and
complete copy of such EMILI Agreement. Such termination will not
in any manner prohibit or materially adversely affect Newco's
prospective operations or development of the franchise business
in Canada or elsewhere.
10.1.19 Except as provided in Schedule 10.1.19, the Company has not
------------------
executed nor is it actively negotiating or considering
negotiating a master franchise development, area development,
multiple franchise or similar agreement with any other entity
other than the EMILI Franchise Agreement covering any
jurisdiction, city, state, country or other geographical area.
10.1.20 The Company is not, and will not be, on the date of Closing, a
party to any union, collective bargaining or similar agreement
relating to the Business.
10.1.21 The Company has not used any business names, trade names and
other names to conduct or carry out the Business in the last five
(5) years.
10.1.22 No representation or warranty made by the Company or any
statement, certificate or instrument furnished or to be furnished
to Newco pursuant to this Agreement or any other document,
agreement or instrument referred to herein or therein contains or
will contain any untrue material statement of fact or omit or
will omit to state a material fact necessary to make the
statements contained therein not misleading.
22
<PAGE>
10.1.23 Except as provided in Schedule 10.1.23, the consummation of the
------------------
transactions contemplated by this Agreement will not give rise to
any liability for any employee benefits, including, without
limitation, liability for severance pay, unemployment
compensation, termination pay or withdrawal liability, or
accelerate the time of payment or vesting or increase the amount
of compensation or benefits due to any of the Company's
Employees. As used in this Agreement, the term the "Company's
Employees" means (i) all active or former employees or directors
of the Company, (ii) all employees of the Company who, as of the
Closing, are on workers' compensation, military leave, other
approved leaves of absences, long-term or short-term disability,
non-occupational disability and employees on layoff with recall
rights, (iii) all individuals who are covered under any employee
benefit plan as a result of previously being described in (i) or
(ii) above, and (iv) beneficiaries or dependents under any
employee benefit plan or anyone described in (i) through (iii)
above.
10.1.24 that the Company has not issued or given any written consent
permission or authorization to any of the Existing Franchisees to
use the term "Microtel" or any other of the Proprietary Marks as
part of the corporate or other legal name of such Franchisee.
10.1.25 No provision of the Existing Franchise Agreements restricts or
prohibits the right of Newco, as franchisor, to collect and
administer in its sole discretion (but in accordance with
applicable law) any amounts designated as reservation,
advertising, or marketing fees.
10.2 Newco represents and warrants to the Company as follows:
10.2.1 Newco (a) is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware; (b) is
qualified and licensed to do business and is in good standing in
all jurisdictions in which the nature of its business or its
properties makes such qualification or licensing necessary,
except as set forth on Schedule 10.2.1 and (c) has all requisite
----------------
legal power and authority to own or lease its properties and
assets and to carry on its business as now conducted.
10.2.2 This Agreement has been duly and validly executed and delivered
by Newco. The execution and delivery by Newco of this Agreement,
and the consummation of the transactions contemplated hereby,
shall be duly and validly authorized and approved at the time of
Closing by all necessary and proper action on the part of the
board of directors of Newco. Newco has all requisite legal and
corporate power and authority to enter into, perform and carry
out this Agreement. No consent of any third parties or
governmental agencies is required to be taken or obtained by
Newco in connection with the authorization and approval of the
execution and delivery of this Agreement. The representatives of
Newco who have executed this Agreement have been duly authorized
to do so by Newco, and no law, ordinance, judicial decree, order
or regulation prohibits Newco from executing this Agreement or
performing any of its obligations hereunder.
10.2.3 Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will
constitute or, with the giving of notice or the passage of time
or both, would constitute a violation of or a default under or
conflict with any term or provision of the Certificate of
Incorporation or By-Laws of Newco, or any
23
<PAGE>
of the terms, conditions or provisions of any agreement,
contract, lease, instrument, indenture, license or franchise to
which Newco is a party, or by which it or any of its properties
or assets is or may be bound, or result in the creation or
imposition of any lien, claim, charge or encumbrance of any
nature whatsoever upon the properties or assets of Newco, or
constitute a violation on the part of Newco of any statute, law
or ordinance or any rule, regulation, order of any governmental
authority or any judicial decree, or require Newco to obtain the
consent or approval of any governmental authority, lending
institution or other third party.
10.2.4 This Agreement constitutes a legal, valid and binding obligation
of Newco, enforceable against Newco in accordance with its terms.
10.2.5 Except as provided on Schedule 10.2.5, there are no actions,
---------------
suits or proceedings pending or, to the knowledge of Newco,
threatened against Newco before or by any court or federal,
state, county, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or
foreign, or any arbitrator or panel of arbitrators. Newco is not
in violation of any laws, statues, ordinances, regulations,
orders, writs, injunctions, decisions, awards or decrees of any
court or federal, state, county, municipal or other governmental
department, commission, board, bureau, agency, court or
instrumentality, domestic or foreign, or any arbitrator or panel
of arbitrators, relating to Newco or its business and Newco has
no knowledge of any basis for any claim for compensation or
damage or otherwise from any violation of the foregoing.
10.2.6 Newco has not taken any action or failed to take any action for
purposes of compliance with applicable state or federal
securities laws which would materially limit the ability of Newco
to carry out its obligations hereunder.
10.2.7 Except as provided on Schedule 10.2.7, there are no material
---------------
restrictions in the existing employment contract of the
individual identified as the Chief Executive Officer candidate of
Newco such that such individual could not be employed by Newco.
10.2.8 No representation or warranty made by Newco or any statement,
certificate or instrument furnished or to be furnished to the
Company pursuant to this Agreement or any other document,
agreement or instrument referred to herein or therein contains or
will contain any untrue material statement of fact or omit or
will omit to state a material fact necessary to make the
statements contained there in not misleading.
10.3 For purposes of this Section 10 the terms "knowledge" or
"awareness" or words of similar comport mean facts, circumstances or
conditions known to or, which by reason of job function, responsibility or
circumstances, and after such inquiry as such person or entity should have
reasonably conducted under the circumstances, should have been known by,
any person or entity or, if such person or entity is a corporation, any
officer or director of such corporation.
11. CONFIDENTIAL INFORMATION.
11.1 The Company shall not, during the term of this Agreement and prior
to a Reversion of Microtel Rights (as defined hereinafter) communicate,
divulge, or use for the benefit of any other person, partnership,
association, corporation or other entity other than Newco any confidential
information, knowledge, or know-
24
<PAGE>
how concerning the methods of operation of the System and the Microtel
Hotels or Suites; and further the Company shall not, during the term of
this Agreement or following any Reversion of Microtel Rights communicate,
divulge, or use any confidential, information, knowledge or know-how
relating to Newco (including for purposes of this section the affiliates
and subsidiaries of Newco), or the business of Newco which may be known or
communicated in writing, verbally or otherwise to the Company, or which the
Company may be apprised by virtue of Newco's operation hereunder. The
Company shall divulge such confidential information only to such employees
of the Company as must have access to it in order to exercise the Company's
rights or perform the Company's obligations hereunder. Without limitation,
any and all information, knowledge, know-how, and techniques which Newco
reasonably designates as confidential shall be deemed confidential for
purposes of this Agreement.
11.2 "Confidential information, knowledge or know-how relating to Newco
or the business of Newco" shall not include any information, knowledge or
know-how disclosed or made known to the Company provided that: (i) the
source of such information is not known by the Company to be subject to a
confidentiality agreement; (ii) such information has been or is
independently acquired or developed by the Company without reference to any
other confidential information; or (iii) such information was or becomes
generally available to the public on a non-confidential basis.
11.3 Subject to and not in limitation of any and all of Newco's rights
hereunder (including without limitation those relating to the
representations and warranties given by the Company hereunder and relating
to the terms, covenants and conditions contained herein), Newco
acknowledges that all information furnished under this Agreement is
provided without a specific representation, warranty, or guarantee by the
Company as to its successful and profitable use, and acknowledges in that
specific respect that the Company does not guarantee the success or
profitability of Newco's business in any manner whatsoever.
12. ACCOUNTING AND RECORDS.
12.1 During the term of this Agreement from and after Closing, Newco
shall maintain, and preserve for the purposes of accounting for payments to
be made to the Company hereunder for a period of five (5) years from the
dates of their preparation, fun, complete, and accurate books, records, and
accounts pertaining to the royalties and other fees paid by Franchisees to
Newco in accordance with the Uniform System of Hotel Accounts (8th Rev. Ed.
---------------------------------
1986), as it may be amended or supplemented from time to time, or such
other system of accounting as may be designated by the Company and agreed
to by Newco, and in the form and manner reasonably prescribed by the
Company and agreed to by Newco from time to time in writing. The Company or
its designated agents shall have the right, upon seven (7) days notice and
without material interruption to Newco's business, to examine, copy, and
inspect, at Newco's place of business, at the Company's expense, such
books, records, and accounts. The Company shall also have the right, upon
reasonable notice agreed to by Newco and without material interruption to
Newco's business, to have an independent audit made of such books, records,
and accounts of Newco, at the Company's expense. Subject to the notice and
cure provisions of Sections 15 and 16 hereof, if such an inspection or
audit of Newco discloses an intentional underpayment by Newco to the
Company of five percent (5 %) or more of the total amount that should have
been paid to the Company during any six (6) month period, Newco shall, in
addition to repayment of such understated amount with such interest at the
rate calculated pursuant to Section 6.5 hereof, reimburse the Company for
any and all reasonable costs and expenses incurred in connection with the
inspection or audit (including, without limitation, reasonable accounting
and attorneys fees). In addition to any rights Newco may have pursuant to
this Agreement, Newco shall have the right to review all records and
documents related to any such independent audit by the Company.
25
<PAGE>
12.2 During the term of this Agreement from and after Closing, Newco
shall, at its expense, submit to the Company no later than (i) the
twentieth day of each month; (ii) within forty-five (45) days after the end
of each fiscal quarter of Newco; and (iii) within one hundred twenty (120)
days after the end of each fiscal year of Newco, periodic reports
accurately reflecting occupancy data and Revenues Subject to Royalties for
each Microtel Hotel during the applicable prior period, and all continuing
monthly royalty fees and all other fees paid by Franchisees to Newco during
such periods. The Company reserves the right to require submission as
received by Newco of audited annual financial statements, prepared at
Newco's expense, by an independent certified public accountant regularly
selected by Newco. All audited annual financial statements shall be
prepared according to generally accepted accounting principles.
13. INSURANCE.
13.1 During the term of this Agreement, Newco shall procure as soon as
is reasonably practicable after Closing, and, following Closing, Newco and
the Company shall maintain in full force and effect at all times during the
term of this Agreement, at each party's respective expense, an insurance
policy or policies determined by each respective party in its reasonable
business judgment to be necessary to protect Newco and the Company, and
their respective officers, directors, partners, employees, agents, and
shareholders, against those certain demands, claims, losses, liabilities,
or expenses determined by each respective party in its reasonable business
judgment to be necessary in an amount reasonably determined by each party
to be necessary. Such insurance policy or policies shall be consistent
with industry standards. Newco shall have the right to use self insurance
upon completion of the Development Schedule.
13.2 Each party's obligation to obtain and maintain the foregoing
policy or policies shall not be limited in any way by reason of any
insurance which may be maintained by the other party, nor shall each
party's performance of such obligation relieve it of liability under the
indemnity provisions set forth in this Agreement.
13.3 Prior to the commencement of any operations by Newco under this
Agreement, and thereafter at least thirty (30) days prior to the expiration
of any policy, each party shall deliver to the other party certificates or
other evidence of insurance demonstrating the proper coverage as required
hereunder.
14. TRANSFERABILITY OF INTEREST.
14.1 Subject to the prior written consent of Newco (and subject to any
applicable restrictions on transfer set forth in the applicable franchise
agreement), the Company shall have the right to transfer, sell, assign, or
otherwise encumber all or any part of its rights or obligations under this
Agreement to any person or legal entity. Newco's prior written consent
shall be required to such transfer, sale, assignment or other encumbrance,
but Newco's discretion shall be limited to considerations based on whether
the party (or future party) to whom such rights or obligations are
transferred, sold, assigned or otherwise encumbered would qualify as a
franchisee of Newco. Any permitted transfer and assignment of such rights
or obligations pursuant to this Agreement by the Company shall not
constitute a violation of this Agreement.
14.2 In the event that the Company shall propose to sell, transfer or
assign either directly or indirectly, through a transfer of control or
otherwise, any or all of its rights hereunder to any third party or entity
or any third party shall propose to purchase or acquire such rights, the
Company shall give notice of such intention to Newco, and the Company shall
in good faith give Newco the opportunity to bid and negotiate to purchase
or acquire such rights. For the purposes of this Agreement, "control" shall
mean the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies
26
<PAGE>
of a person, corporation or other business entity, whether through the
ownership of voting securities, by contract, or otherwise.
14.3 Subject to the provision of Section 14.6 hereof, in the event that
Newco shall propose to sell, transfer or assign, either directly or
indirectly, through a transfer of control or otherwise, all or
substantially all the Assets acquired hereunder to any unrelated third
party or entity pursuant to a bona fide offer to purchase or acquire such
Assets, Newco shall give notice of such intention to the Company, setting
forth the terms of the offer. The Company shall have the right of first
refusal, to be exercised by written notice to Newco within twenty (20)
days, to purchase such Assets on terms and conditions that are economically
equivalent in all material respects, including relative economic strength
of the Purchaser and all future economic consideration to be received.
Should the Company not agree with the decision of Newco as to whether such
terms and conditions are economically equivalent, then the Company shall
have the right within ten (10) days of notice of such decision to demand
that such issue be arbitrated within ten (10) days by an independent and
nationally recognized investment banking firm to be mutually agreed upon
(with neither party unreasonably withholding its consent as to choice of
such investment banking firm), provided, however, any such demand or
arbitration must be final and concluded within thirty (30) days of the date
of notice of the decision of Newco. In the event that the Company shall
fail or decline to exercise its right of first refusal, Newco may proceed
with the sale upon the proposed terms; provided, that any amounts not yet
paid under Section 6.3 hereof shall be due and payable upon transfer. If
Newco shall subsequently fail to close or transfer in accordance with the
terms disclosed to the Company, then the right of first refusal shall apply
to any future proposal.
14.4 Notwithstanding any other contrary provision contained herein,
Newco may sell, transfer or assign any part or all of the Assets or any of
its rights or obligations acquired hereunder without notice to or consent
of Company, to any related or affiliated party where such entity has a net
book value of at least $5.0 million dollars. In addition, prior to Closing,
Newco may assign all or any potion of its rights to a wholly owned
operating subsidiary or to a separate legal entity (including but not
limited to a limited liability company) having similar management,
ownership and capitalization as Newco which subsidiary or other legal
entity satisfies the conditions to Closing, and Newco may sell shares (or
other interests) to its subscribers.
14.5 Notwithstanding any other provision of this Agreement, the
Company's right of first refusal shall not apply to the assignment,
transfer, pledge, or hypothecation by Newco of this Agreement, or any of
the Assets acquired in this Agreement, or all and any part of Newco, to a
creditor as collateral security for loans made directly to or for the
benefit of Newco's business hereunder; provided however, that Newco shall
use its best efforts to have such creditor agree that if such creditor
exercises its rights under its agreement(s) with Newco, and intends to
sell, assign, transfer, or otherwise dispose of the pledged collateral, the
secured creditor will give the Company not less than thirty (30) days
notice of any public sale or proposed disposition, and the secured creditor
shall first offer to the Company the right to acquire such pledged
collateral on the same terms and conditions under which the secured
creditor intends to dispose of it.
14.6 All limitations (either expressly set forth or implied herein) on
the ability of Newco to freely sell, transfer, or assign all or any part of
the Assets, stock, ownership, interests, or any of its rights hereunder,
and all other rights of the Company under this Section 14, including but
not limited to the Company's right of first refusal pursuant to Sections
14.3 or 14.5, shall terminate upon the occurrence of the earlier of (i) the
execution by Newco and its underwriters of a firm (and not a best efforts)
underwriting agreement underwriting an offering of Newco securities; or
(ii) the completion by Newco of the Development Schedule.
27
<PAGE>
14.7 The consent of the Company or of Newco to a transfer of any
interest in the rights granted herein shall not constitute a waiver of any
claims such party may have against the transferring party, nor shall it be
deemed a waiver of the right of the Company or Newco, as applicable, to
demand exact compliance with any of the terms of this Agreement by the
transferee.
15. DEFAULT BY NEWCO AFTER CLOSING.
15.1 An Event of Default shall have occurred if from or after the date
of Closing, (i) Newco fails to maintain its registrations which materially
affects Newco's ability to sell or maintain franchises; (ii) subject to the
cure provisions of Section 1.10 hereof, Newco fails to open or have under
construction the minimum number of Microtel Hotels pursuant to Section 1.9
hereof; (iii) Newco falls to pay to the Company any amounts determined to
be due hereunder; or (iv) Newco otherwise fails to fulfill its material
obligations hereunder.
15.2 The foregoing notwithstanding, Newco shall not be deemed to be in
default and there shall be no Event of Default hereunder unless or until
Newco shall have received written notice of the alleged default and shall
have had thirty (30) days to cure such alleged default or to take such
actions to initiate a cure of such default pursuant to reasonable efforts
by Newco to be substantially completed or performed within a reasonable
time. Upon cure, substantial completion or performance by Newco, this
Agreement shall remain in full force and effect as if no such breach or
default or alleged breach or default shall have existed.
16. OBLIGATIONS DUE TO POST CLOSING DEFAULT BY NEWCO.
16.1 Until the time of occurrence of either of the events set forth in
Section 14.6, upon the occurrence of an Event of Default pursuant to
Section 15 from and after the date of Closing and failure by Newco to cure
within the applicable notice and cure period therein:
16.1.1 Newco shall immediately cease to operate the Microtel Business
operated pursuant to this Agreement and shall not thereafter,
directly or indirectly, represent to the public or hold itself
out as a present franchisor of Microtel Hotels, and shall have no
right or obligation to franchise or license any other party to
establish or operate any Microtel Hotel for which a franchise
agreement has not been executed by Newco at the time of
termination.
16.1.2 Newco shall immediately execute and deliver to the Company
assignments and transfers of the Proprietary Marks and such other
assignments as may be required to vest in the Company all rights
in and to the intellectual property then constituting the
Microtel System.
16.1.3 Subject to the provisions of Section 16.2 hereof, Newco shall
immediately transfer and assign all Newco's rights and
obligations in all of the Microtel franchise agreements to the
Company, and the Company shall assume such rights and
obligations; and Newco shall immediately provide to the Company
all records in Newco's possession prepared or retained in
connection with Newco's obligations under Section 12 hereof, and
all records relating to the Microtel Hotels operating under this
Agreement.
16.1.4 Newco shall immediately and permanently cease to use the
Proprietary Marks and distinctive logos, slogans, signs, symbols,
and forms associated with the System.
28
<PAGE>
16.1.5 Newco shall immediately execute and deliver to the appropriate
state and international authorities documents evidencing the
termination of its registration to sell Microtel Hotel
franchises.
16.1.6 To the extent Newco continues or subsequently begins to operate
any other business, Newco shall not use any reproduction,
counterfeit, copy, or colorable imitation of the Proprietary
Marks, either in connection with such other business or the
promotion thereof, which is likely to cause confusion, mistake,
or deception, and shall not utilize any designation of origin or
description or presentation which falsely suggests or represents
an association or connection with the Company.
16.1.7 Newco shall immediately pay all sums owing to the Company and
its affiliates pursuant to this Agreement including all damages,
costs, and expenses, including but not limited to reasonable
attorney's fees and expenses incurred by the Company as a result
of the default and the enforcement of the Company's rights
hereunder.
16.1.8 Newco shall not have the right to claim any indemnity,
reimbursement, or compensation for alleged loss of clientele or
goodwill, loss of profits or anticipated sales, or any other
reimbursement for losses or damages resulting from such
expiration or termination.
16.1.9 Notwithstanding any other contrary provision contained herein,
Newco or its affiliates shall continue to operate any Microtel
Hotel pursuant to a franchise agreement.
16.2 Following the reversion to the Company of certain rights to the
System and Assets as specifically set forth in Section 16.1 hereof (the
"Reversion of Microtel Rights"), the Company shall pay to Newco (less the
amount to be paid to the Company pursuant to Section 6.2 hereof), on a
monthly basis, all Franchise Royalties received from each New Franchisee so
long as such New Franchisee (or its successor or assign) remains a
Franchisee, including, without limitation, by renewal, amendment, execution
of a new Franchise Agreement, or otherwise, less the following: (i) a
servicing fee equal to seventy-five one hundredths of one percent (0.75%) of
all Revenues Subject To Royalties; and less, (ii) any reservation or
marketing fees collected by the Company (but only if the Company continues
to operate a central reservation system). Newco shall have and retain the
right to collect directly for its own account any amounts owing to Newco
hereunder following any such Reversion of Microtel Rights. The Company
shall also provide to Newco accounting and records similar to those
provided to the Company pursuant to Section 12 hereof, as well as all other
rights or remedies otherwise available to the Company in connection with
collection of any amounts owing hereunder.
16.3 Notwithstanding any other provision to the contrary contained in
this Agreement, no Reversion of Microtel Rights shall result from the
occurrence of an Event of Default by Newco after the occurrence of the
earlier of the events described in Section 14.6 herein.
16.4 Notwithstanding any other provision to the contrary contained
herein, no Reversion of Microtel Rights shall be effective until a court of
competent jurisdiction shall have finally determined that an Event of
Default which could result in a Reversion of Microtel Rights shall have
occurred and until Newco shall have had the opportunity to cure such
default following such final determination by payment of any amounts so
finally determined to be owed by Newco to the Company or by taking such
actions necessary to cure such default and unless Newco shall not so cure
within thirty (30) days of such final determination such default or take
such actions to initiate a cure of such default pursuant to reasonable
efforts by Newco to be
29
<PAGE>
substantially completed or performed within a reasonable time. Upon cure,
substantial completion or performance by Newco, this Agreement shall remain
in full force and effect as if no such breach or default or alleged breach
or default shall have existed as provided for in this Section 16.4.
16.5 Notwithstanding any other provision to the contrary contained
herein, if a Reversion of Microtel Rights shall occur, any and all of
Newco's other rights under and interest in this Agreement including but not
limited to Newco's right of indemnification under Section 22 shall survive
such termination.
17. DEFAULT BY THE COMPANY AFTER CLOSING.
17.1 Following Closing, an Event of Default shall have occurred if from
or after the date of Closing, (i) the Company shall fail to pay to Newco
any amounts determined to be due hereunder after written notice; or (ii)
the Company shall otherwise fail to fulfill its material obligations
hereunder.
17.2 Provided, however, the Company shall not be deemed to be in default
and there shall be no Event of Default hereunder unless or until the Company
shall have received written notice of the alleged default and shall have
had thirty (30) days to cure such alleged default pursuant to reasonable
efforts by the Company to be substantially completed or performed within a
reasonable time. Upon cure, substantial completion or performance by the
Company, this Agreement shall remain in full force and effect as if no such
breach or default or alleged breach or default shall have existed.
18. OBLIGATIONS DUE TO POST CLOSING DEFAULT BY THE COMPANY.
18.1 Upon the occurrence of an Event of Default pursuant to Section 17
from and after the date of Closing and failure by the Company to cure
within the applicable notice and cure period there in, Newco, at the sole
option of Newco, shall have the right to exercise any one or more of the
following rights and remedies: (i) exercise its rights to indemnification
pursuant to the provision of Section 22 hereof and to set off from amounts
payable to the Company all losses, costs and expenses incurred in
connection therewith in accordance with the provisions of Section 23
hereof; (ii) to cease the entering into of any agreements with the Company
as franchisee, or to accept the tender or offer by the Company of any of
the Existing Retained Properties or Substitute Retained Properties; (iii)
to declare the right of the Company to acquire any Additional Franchises
(including but not limited to franchises for Suites) terminated and of no
further force and effect; (iv) to seek injunctive relief where applicable;
or (v) to take such other action or seek such other remedy as may otherwise
be available to Newco under the terms hereof or otherwise available at law
or in equity.
19. POST CLOSING COVENANTS OF THE COMPANY.
19.1 The Company hereby covenants and agrees with Newco:
19.1.1 Immediately after the Closing, the Company shall terminate all
registrations or filings relating to the offering and sale of
franchises under the System.
19.1.2 During the term of this Agreement, following Closing and until
the occurrence of a Reversion of Microtel Rights, the Company,
its directors, its officers or any of its affiliates (directly or
indirectly) shall not enter into or operate any business which
develops or offers or sells franchises for a hospitality or hotel
product (including a Suites Hotel type concept) in the super
budget or hard budget category. This provision shall not be
30
<PAGE>
construed to restrict the Company from developing, owning or
managing individual properties of any other category, brand or
type.
19.1.3 During the term of this Agreement, following Closing and until
the occurrence of a Reversion of Microtel Rights, the Company
shall not solicit as a potential venture partner, investor, co-
developer, owner, or other participant in any new hotel
development or property utilizing the Microtel concept, or as a
customer of the Company, any Existing Franchisee, or any New
Franchisee, or any party who Newco is actively pursuing as a
prospective franchisee For a Microtel Hotel other than for those
parties set forth on Schedule 19.1.3 attached hereto.
---------------
19.1.4 During the term of this Agreement, following Closing and until
the occurrence of a Reversion of Microtel Rights, the Company as
part of its ongoing Hotel development activities: (i) shall
comply at all times with the limitations and restrictions of
applicable law regarding the solicitation of any potential
venture partner, investor, co-developer, owner, or other
participant in any new hotel development or property utilizing
the Microtel concept; (ii) shall not act as a franchise
salesperson or broker on behalf of or in the name of Newco, or
hold itself out as a salesperson, broker, or representative of
Newco; (iii) shall make no representations or warranties
regarding a potential Microtel franchise to any potential venture
partner, investor, co-developer, or other participant in any new
Microtel hotel development; (iv) shall promptly report to Newco
any such potential venture partner, investor, co-developer,
owner, or other participant who could be classified as a
potential offeree or franchisee, so that Newco may properly
register each person or entity and provide to such person or
entity a current UFOC disclosure package; and (v) shall promptly
refer to Newco all leads for potential franchisees made known to
the Company or other inquiries regarding acquiring a franchise.
20. NOTICES.
All notices to either of the parties hereto desired or required to be given
hereunder shall be in writing, addressed to recipient as specified below, and
shall be deemed delivered upon the earlier of: (i) the time and date of actual
delivery by hand, mail, or express delivery; or (ii) three (3) days following
deposit thereof in the United States Mail, postage prepaid, certified, return
receipt requested. All such notices shall be addressed as follows:
To the Company: Microtel Franchise and
Development Corporation
One Airport Way, Suite 200
Rochester, New York 14624
Attn: Bruce A. Sahs
Telephone: 716 436-6000
Facsimile: 716 436-1865
31
<PAGE>
and the Company's counsel:
Boylan, Brown, Code, Fowler,
Vigdor & Wilson, L.L.P.
900 Midtown Tower
Rochester, New York 14604
Attn: Alan S. Lockwood, Esq.
Telephone: 716-232-5300
Facsimile: 716-232-3528
To Newco: U.S. Franchise Systems, Inc.
196 East 751h Street
Apt. 19-C
New York, New York 10021
Attn: Neal K. Aronson
Telephone: 212-772-6741
Facsimile: 212-772-0574
and Newco's counsel:Bodker, Ramsey & Andrews
A Professional Corporation
1800 Peachtree Street, N.W.
Suite 615
Atlanta, Georgia 30309
Attn: Brian D. Bodker
Telephone: 404-351-1615
Facsimile: 404-352-1285
The address specified for notice to any party may be changed pursuant
to written notice by such party delivered in accordance herewith.
Specifically for purposes of Section 29 hereof, written notice may be given
by facsimile and shall be deemed delivered at the time of transmission.
21. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
21.1 All representations, warranties, agreements and covenants made or
undertaken by the parties in this Agreement are material, have been relied
upon by each party hereto, shall survive the Closing hereunder and the
termination of this Agreement, unless specifically provided to the
contrary here in, and shall not merge in the performance of any obligation
by any party hereto.
21.2 The representations and warranties made by the Company and
contained in Section 10.1 of this Agreement and the representations and
warranties made by Newco and contained in Section 10.2 of this Agreement
are deemed by the parties hereto to have been made by the Company and
Newco, as the case may be, on and as of both the date hereof and the
Closing Date with the same force and effect as if this Agreement were
executed by the Company and Newco on each of the date hereof and the
Closing Date. The Company acknowledges and agrees that prior to the Closing
Date, Newco intends to perform such investigation of the Company, its
business operations and assets as it may deem necessary or appropriate;
however, no such investigation by Newco will diminish or obviate any of the
representations, warranties, covenants or agreements made or to be
performed by the Company pursuant to this Agreement or Newco's right to
fully rely upon such representations, warranties, covenants and agreements.
32
<PAGE>
22. INDEMNIFICATION.
22.1 Obligation of the Company to Indemnify. The Company hereby
--------------------------------------
covenants and agrees to indemnify, defend and hold Newco (for purposes of
this section, Newco to be deemed to include the officers, directors,
stockholders, employees, agents, attorneys, and affiliates of Newco)
harmless from and against all Losses (as hereinafter defined) asserted
against, imposed upon or incurred by Newco by reason of, resulting from,
arising out of, based upon or otherwise in respect of the following:
22.1.1 any action or inaction of the Company or any other matter, thing
or occurrence related to the subject of this Agreement that
accrued, occurred, or arose prior to the Closing Date;
22.1.2 any breach or inaccuracy in any representation or warranty
made by the Company pursuant to this Agreement;
22.1.3 any breach of any covenant or agreement made or to be
performed by the Company pursuant to this Agreement;
22.1.4 any and all liabilities, indebtedness or other obligations not
expressly assumed by Newco pursuant to this Agreement;
22.1.5 any claim by any broker, finder, agent or other person
employed or allegedly employed by the Company in connection with
the transactions contemplated by this Agreement;
22.1.6 the conduct by the Company of the Business or System, or
ownership of the Assets prior to the Closing Date;
22.1.7 the conduct by the Company of any business or activity other
than the Business, either before or after Closing.
22.1.8 the operation of the Company's ongoing business subsequent to
the Closing Date, including without limitation with respect to
any Loss related to the operation or ownership by the Company of
Retained Properties (but not including any Loss solely caused by
Newco's breach of those obligations as franchisor under the
Existing Franchise Agreements which are specifically to be
assumed by Newco hereunder).
22.2 Obligation of Newco to Indemnify. Newco agrees to indemnify, defend
--------------------------------
and hold the Company (for purposes of this Section, Company to be
deemed to include the officers, directors, stockholders, employees, agents,
attorneys, and affiliates of Company) harmless from and against all Losses
asserted against, imposed upon or incurred by the Company by reason of,
resulting from, arising out of, based upon or otherwise in respect of the
following:
22.2.1 any breach or inaccuracy in any representation or warranty
made by Newco pursuant to this Agreement;
22.2.2 any breach of any covenant or agreement made or to be
performed by Newco pursuant to this Agreement;
33
<PAGE>
22.2.3 any claim by any broker, finder, agent or other person employed
or allegedly employed by Newco in connection with the
transactions contemplated by this Agreement; and
22.2.4 any claim, demand, damage or cause or chose in action of any
kind or nature incurred by or asserted against the Company as a
result of or arising out of the operation of the Business by
Newco that accrues, occurs or arises for or with respect to any
period subsequent to the Closing Date, except for any claim,
demand, damage or cause or chose in action of any kind or nature
incurred by or asserted against the Company as a result of or
arising out of the operation of the Business by Newco for which
Newco shall be entitled to indemnification or the right of
set-off under any other provision of this Agreement.
22.2.5 the conduct by Newco of any other business or activity other
than the Business, either before or after the Closing.
22.2.6 the private offering conducted by Newco, provided, however,
that said Loss is not caused by any default or breach by the
Company of this Agreement.
22.3 Notice Of Loss or Asserted Liability. Promptly after (a) becoming
------------------------------------
aware of circumstances that have resulted or might result in a Loss for
which any person or persons entitled to indemnification pursuant to Section
22.1 or Section 22.2 hereof intends to seek indemnification under such
Section (the "Indemnified Party") or (b) receipt by the Indemnified Party
of written notice of any demand, claim or circumstances which, with the
lapse of time, the giving of notice or both, would give rise to a claim or
the commencement (or threatened commencement) of any lawsuit, arbitration,
proceeding or other action that may result in a Loss (an "Asserted
Liability"), the Indemnified Party shall give notice thereof (the "Claims
Notice") to any party obligated to provide indemnification pursuant to
Section 22.1 or Section 22.2 hereof (the "Indemnifying Party"). The Claims
Notice shall describe the Loss or the Asserted Liability in reasonable
detail, and shall indicate the amount (estimated, if necessary) of the Loss
that has been or may be suffered by the Indemnified Party. The Claims
Notice may be amended on one or more occasions with respect to the amount
of the Asserted Liability or the Loss at any time prior to final resolution
of the obligation to indemnify relating to the Asserted Liability or the
Loss. If a Claims Notice is not provided promptly as required by this
Section 22.3, the Indemnified Party nonetheless shall be entitled to
indemnification by the Indemnifying Party to the extent that the
Indemnifying Party has not established that it has been prejudiced by such
late receipt of the Claims Notice. Notwithstanding the foregoing sentence,
however, if the Claims Notice is not provided prior to compromise or
payment of any Asserted Liability by the Indemnified Party, the Indemnified
Party shall only be entitled to indemnification by the Indemnifying Party
to the extent that the Indemnified Party has established that the
Indemnifying Party has not been prejudiced by either such late. receipt of
the Claims Notice or by the making of such compromise or payment prior to
the making of the Claims Notice.
22.4 Opportunity to Contest. Subject to the provisions of Section 22.5
----------------------
hereof, the Indemnifying Party may elect to compromise or contest, at its
own expense and with counsel reasonably acceptable to the Indemnified
Party, any Asserted Liability. If the Indemnifying Party elects to
compromise or contest such Asserted Liability, it shall, within twenty (20)
days (or sooner, if the nature of the Asserted Liability so requires),
notify the Indemnified Party of its intent to do so by sending a notice to
the Indemnified Party (the "Contest Notice"), and the Indemnified Party
shall cooperate, at the expense of the Indemnifying Party, in the
compromise or contest of such Asserted Liability. If the Indemnifying Party
either (i) elects not to compromise or contest the Asserted Liability, (ii)
fails to notify the Indemnified Party of its election as herein provided,
or (iii) contests its obligation to indemnify under this Agreement, then in
any such case the
34
<PAGE>
Indemnified Party shall have the right to pay, compromise or contest such
Asserted Liability on behalf of and for the account and risk of the
Indemnifying Party. Anything in this Section 22.4 to the contrary
notwithstanding, the Indemnified Party shall (i) have the right, at its own
cost and for its own account (except as provided in Section 22.5) hereof,
to compromise or contest any Asserted Liability, and (ii) not, without the
Indemnified Party's written consent, settle or compromise any Asserted
Liability or consent to entry of any judgment which does not include an
unconditional term releasing the Indemnified Party from all Liability in
respect of such Asserted Liability. In any event, the Indemnified Party and
the Indemnifying Party may participate, at their own expense, in the
contest of such Asserted Liability. Each of the Company and Newco shall
cooperate fully with the other as to all Asserted Liabilities, shall make
available to the other as reasonably requested all information, records,
and documents relating to all Asserted Liabilities and shall preserve all
such information, records, and documents until the termination of any
Asserted Liability. Each of the Company and Newco also shall make available
to the other, as reasonably requested, its personnel, agents and other
representatives who are responsible for preparing or maintaining
information, records, or other documents, or who may have particular
knowledge with respect to any Asserted Liability.
22.5 Subrogation Rights. In the event that the Indemnifying Party shall
------------------
be obligated to indemnify the Indemnified Party pursuant to this Section
22, the Indemnifying Party shall, upon payment of such indemnity in full,
be subrogated to all rights of the Indemnified Party with respect to the
Loss to which such indemnification relates; provided, however, that the
Indemnifying Party shall only be subrogated to the extent of any amount
paid by it pursuant to this Section 22 in connection with such Loss.
22.6 Indemnification Payments. Unless a Loss is contested pursuant to
------------------------
Section 22.4 hereof or otherwise subject to insurance reimbursement from
any insurer, an Indemnifying Party shall pay to the Indemnified Party the
full amount of any such Loss within ten (10) days after the receipt by the
Indemnifying Party of notice of such Loss. With respect to any Asserted
Liability that has been contested, the Indemnifying Party shall pay the
full amount of any Loss resulting therefrom within ten (10) days of the
date the contest has been settled, compromised or terminated or the date a
final judgment or award is rendered and no appeal is taken, and thereafter
the amount of such Loss shall bear interest at a rate equal to the lesser
of two percent (2%) per month or the maximum amount permitted by law. Newco
shall be entitled to offset from any payments due to the Company for any
reason whatsoever any amount due and owing to Newco by way of
indemnification pursuant to Section 22.1 hereof, or any other provision
herein, and Newco shall not be liable for any amounts so offset. Likewise,
the Company is entitled to offset from any payments due to Newco for any
reason whatsoever any amount due and owing to the Company by way of
indemnification pursuant to Section 22.2 hereof, and the Company shall not
be liable for any amounts so offset.
22.7 For purposes of this Section 22 the term "Loss" means any and all
direct or indirect demands, claims, payments, obligations, recoveries,
deficiencies, frees, penalties, interest, assessments, actions, causes of
action, suits, losses, damages, liabilities, costs, expenses (including
without limitation (i) interest, penalties and reasonable attorneys' fees
and expenses, (ii) attorneys' fees and expenses necessary to enforce fights
to indemnification hereunder, and (iii) consultant's fees and other costs
of defense or investigation), and interest on any amount payable to a third
party as a result of the foregoing, whether accrued, absolute, contingent,
known, unknown, or otherwise as of the Closing Date or thereafter.
23. RIGHT TO SET-OFF.
If (i) a Claims Notice is given by Newco to the Company, pursuant to
Section 22, or (ii) Newco reasonably believes Newco is owed any sum under
any provision of this Agreement or otherwise by the
35
<PAGE>
Company and the Company shall fail to pay any such sum within thirty (30)
days after demand therefore has been made by Newco, Newco may (without in
any way limiting or compromising any rights to which it may be entitled at
law for additional damages or compensation) prior to expiration of the
applicable notice and cure provision of Section 17.2 set-off against or
withhold from any sums which Newco may then owe or which Newco may later
owe to the Company up to the amount (estimated, if necessary) (i) of Loss
indicated in the Claims Notice as having been or may be suffered by Newco,
or (ii) which the Company has failed to pay Newco, and, upon demand of the
Company, pay such funds into an applicable registry of court or to any
third party commercial escrow agent to be held pending expiration of such
cure period.
24. SEVERABILITY AND CONSTRUCTION.
24.1 Except as expressly provided to the contrary herein, each potion,
section, part, term, and provision of this Agreement shall be considered
severable. If, for any reason, any term or provision herein is determined
to be invalid and contrary to, or in conflict with, any existing or future
law or regulation by a court or agency having valid jurisdiction, such
shall not impair the operation, or have any other effect upon, such other
portions, sections, parts, terms, and provisions of this Agreement as may
remain otherwise intelligible, and the latter shall continue to be given
full force and effect to bind the parties, and said invalid terms or
provisions shall be deemed not to be part of this Agreement.
24.2 Except as has been expressly provided to the contrary herein,
nothing in this Agreement is intended, nor shall be deemed to confer any
rights or remedies created or granted by this Agreement upon any person or
legal entity other than Newco, the Company, the officers, directors, and
employees of Newco and the Company, and such respective successors and
assigns of Newco and of the Company as may be contemplated by Section 14
hereof.
24.3 Any provision or covenant of this Agreement which expressly or by
its nature imposes obligations beyond the expiration or termination of this
Agreement shall survive such expiration or termination.
25. APPLICABLE LAW.
25.1 This Agreement shall be interpreted and construed under the laws
of the State of Georgia and shall be treated in all respects as a Georgia
contract. In the event of any conflict of law, the laws of the State of
Georgia shall prevail, without regard to the application of conflict-of-law
rules.
25.2 No right or remedy conferred upon or reserved to the Company or
Newco by this Agreement is intended to be, nor shall be deemed, exclusive
of any other fight or remedy herein or by law or equity provided or
permitted, but each shall be cumulative of every other right or remedy.
25.3 Nothing herein contained shall bar the Company's or Newco's right
to seek and obtain injunctive relief in any court of competent jurisdiction
against threatened conduct that will cause the Company or Newco loss or
damages, under the applicable rules for obtaining specific performance,
restraining orders, preliminary injunctions, and any other injunctive
relief. The non-prevailing party shall pay all court costs and reasonable
attorneys' fees and. expenses incurred by the prevailing party in obtaining
such relief.
26. ENTIRE AGREEMENT.
This Agreement, the documents referred to herein or related to this
Agreement, and the Schedules and Exhibits hereto, constitute the entire,
full, and complete agreement between the Company and Newco
36
<PAGE>
concerning the subject matter hereof and supersede any and all prior
agreements. No amendment, change, or variance from this Agreement shall be
binding on either party unless mutually agreed to by the parties and
executed by their authorized officers or agents in writing.
27. MISCELLANEOUS BUSINESS TERMS.
27.1 At Closing the Company will issue to Newco warrants to purchase
100,000 shares of the Company's common stock at an exercise price equal to
the closing price on July 16, 1995. The form of warrant is attached hereto
as Exhibit "E".
-----------
27.2 Subject to the Company providing complete Directors and Officers
liability insurance satisfactory to Newco and subject to the Company
providing satisfactory contractual indemnification, Newco shall use its
best efforts to have, during the term of this Agreement from and-after the
date of Closing, the Chief Executive Officer candidate of Newco agree to
serve on the Board of Directors of the Company
27.3 During the term of this Agreement from and after the date of
Closing, E. Anthony Wilson, or a Company designee, will be offered a
permanent seat on Newco's Franchisee Advisory Board.
27.4 During the term of this Agreement from and after the date of
Closing, the Company shall have the right to purchase key man insurance
upon the life of the Chief Executive Officer of Newco in an amount mutually
determined by Newco and the Company, and Newco shall cooperate in all
respects to enable the Company to obtain such insurance.
28. MISCELLANEOUS.
28.1 Cooperation Of Parties. Newco and the Company will fully cooperate
----------------------
with each other and their respective counsel and accountants in connection
with all steps to be taken as part of their obligations under this
Agreement. Newco and the Company will use their best efforts to cause the
conditions to the other party's obligation to close to be fulfilled on or
prior to the Closing Date.
28.2 Transfer Documents The parties hereto will at the Closing or at
------------------
any time thereafter deliver and/or execute such further instruments as may
reasonably be requested by the other party which are necessary to or
appropriate with respect to the consummation of the transactions described
herein. None of the documents or instruments requested hereunder shall be
required to contain an undertaking or representation not contained in this
Agreement or be required if inconsistent with the understandings and
representations contained in this Agreement.
28.3 Headings. The headings of the articles and sections of this
--------
Agreement are inserted for convenience only and shall not constitute a part
hereof.
28.4 Waiver. There can be no waiver of any term, provision, or
------
condition of this Agreement which is not in writing signed by both parties
hereto.
28.5 Counterparts. This Agreement may be executed simultaneously in two
------------
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
28.6 Time. Time is and shall be of the essence of this Agreement.
----
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29. OFFER TO ACCEPT.
29.1 This Agreement has been executed by the Company as a continuing
and irrevocable offer to Newco to remain open for acceptance by Newco no
later than 5:00 p.m. Eastern Daylight Time on Monday, September 11, 1995
(the "Expiration Time and Date"). The Company acknowledges and agrees that
Newco, the officers, directors and stockholders of Newco, and the Chief
Executive Officer candidate of Newco, intend to undertake material and
significant actions based upon and in reliance on such offer and
accordingly, that such offer shall be irrevocable by the Company until the
Expiration Time and Date shall have passed. Newco may accept this offer by
delivery of written notice of acceptance to the Company as provided for
herein prior to passing of the Expiration Time and Date. Should the
Expiration Time and Date pass without the delivery of such acceptance,
such offer shall be deemed withdrawn and this Agreement of no further force
and effect. Should such offer be accepted by Newco, the parties shall
cooperate to fully execute multiple counterparts of this Agreement as soon
as is reasonably practicable and provide a fully executed counterpart to
each party, and shall jointly issue a mutually agreed upon public
announcement of the entering into of this Agreement.
WHEREOF, the parties hereto have duly executed and delivered this Agreement
on the date first above written.
COMPANY:
MICROTEL FRANCHISE AND DEVELOPMENT CORPORATION,
a New York corporation
By: /s/ E. Anthony Wilson
-------------------------------------
E. Anthony Wilson, Chairman
NEWCO:
U.S. FRANCHISE SYSTEMS, INC., a Delaware
corporation
By: /s/ Neal Aronson
-------------------------------------
Neal K. Aronson, Initial Director
38
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Exhibit "A"
-----------
The Microtel System
-------------------
The Microtel system includes the following:
I. Architectural and design
------------------------
A. Prototypical plans
1. two-story
2. three-story
(in varying footprints as available from master architect
based on existing constructed "Microtels" to fit site
location and circumstances)
B. Specification manual.
C. Design standards manual.
D. List of fixture and equipment requirements.
E. Listing of potential vendors with negotiated prices.
II. Trademarks and service marks
----------------------------
A. MICROTEL (word mark)
B. MICROTEL (stylized logo)
C. "Don't Sleep with Amenity Creep" (word mark)
D. "First the Hotel Then the Motel Now Microtel." (word mark)
E. "Savings you can Sleep on." (word mark)
F. Microtel Suites (word mark)
G. Microtel & Suites (word mark)
III. Reservation Referral System
---------------------------
A. "800" national referral telephone number (800-365-MTEL) (800-365-
6835)
B. Existing National directories of operating Microtel units
C. Rights and obligations of "800" referral system, directory design
and distribution
IV. Operational Property & Philosophy
---------------------------------
A. Manager/owner training - orientation program
B. Operations manual
C. Advertising, promotional material and layouts
D. Philosophy
1. Provide consistent clean, safe, contemporary guest rooms
without unnecessary amenities (including upscale decor and
furnishings with strong curb appeal).
2. Provide excellent price value to the customer at rates
competitive with other nationally franchised brands.
3. Provide a product with low turnkey construction costs and
operating costs lower than the competition.
4. Orient the franchisor to realize that quality
accommodations and pleasant, efficient service will
provide a satisfied Microtel guest.
<PAGE>
V. Other
-----
A. Microtel investment analysis
B. Microtel newsletter
C. Prospective Franchisee sales packages
<PAGE>
MICROTEL FRANCHISE AND DEVELOPMENT CORPORATION
FRANCHISE AGREEMENT
THIS AGREEMENT, made and entered into , 19 , by
--------------------------- --
and between Microtel Franchise & Development Corporation, a New York
Corporation, (the "Franchisor"), and
------------------------------------
, (the "Franchisee").
- ---------------------------------------------
WITNESSETH:
WHEREAS, Franchisor, as the result of the expenditure of time, skill,
effort, and money has developed and owns a unique concept and system
(hereinafter "System") relating to the establishment and operation of
hotels which operate under the name "MICROTEL", "MICROTEL & SUITES", OR
"MICROTEL SUITES", and which feature modern up-scale accommodations, down-
sized standard guest rooms or two-room suites, and economy room rates;
WHEREAS, the distinguishing characteristics of the System, all of which may
be changed, improved, or further developed by Franchisor from time to time,
include, without limitation:
A. Tradenames, trademarks, and service marks, including, without
limitation, "MICROTEL", "MICROTEL & SUITES", "MICROTEL SUITES",
"SAVINGS YOU CAN SLEEP ON", and such other tradenames,
trademarks, and service marks as are now designated (and may
hereafter be designated by Franchisor in writing) as part of the
System (hereinafter "Proprietary Marks");
B. Prototypical architectural plans, designs, and layouts,
including, without limitation, site plan, floor plan, roof plan,
plumbing plan, lobby plan, electrical plan, and landscape plan;
C. A national "800" number for reservation referrals;
D. A national Microtel directory;
E. Management and personnel training, and training programs and
materials;
F. Management and operational procedures and techniques as
prescribed in the Confidential Manuals (hereinafter the
"Manuals");
G. Standards and specifications for construction, equipment, and
furnishings, as described in the Manuals; and
H. Advertising, marketing, and promotional programs
WHEREAS, Franchisee desires to establish and operate a Microtel hotel,
Microtel & Suites hotel, or Microtel Suites hotel, as defined in Attachment
A, under the System, at the location specified herein, and wishes to obtain
a Franchise from the Franchisor for that purpose, as well as to receive the
training and other assistance provided by Franchisor in connection
therewith; and
WHEREAS, Franchisee understands and acknowledges the importance of the
standards of quality and service developed by Franchisor and the necessity
of operating the Microtel hotel, Microtel & Suites hotel, or Microtel
Suites hotel franchised hereunder in conformity with them.
<PAGE>
EXHIBIT A-1
-----------
REGISTERED SERVICEMARKS
-----------------------
<TABLE><CAPTION>
Principal Register of the U.S. Patent and Trademark Office:
Mark Registration Date Registration Number Class
- ---- ----------------- ------------------- -----
<S> <C> <C> <C>
MICROTEL (word mark) December 31, 1991 1,670,688 35 & 42
MICROTEL (stylized) February 25, 1992 1,677,179 35 & 42
"Don't Sleep With Amenity Creep" August 22, 1989 1,553,217 35
"First the Hotel.
Then the Motel.
Now Microtel." December 31, 1991 1,670,687 42
"Savings You Can Sleep On" March 3, 1992 1,678,009 42
Microtel Suites Application filed 12/22/94 35
Microtel & Suites Application filed 12/22/94 35
Florida
- ------
Microtel and Design T10310 January 5, 1989
Georgia
- -------
Microtel and Design S-8721 October 28, 1988
Microtel S-8722 October 28, 1988
Louisiana
- ---------
Microtel and Design October 17, 1988
Microtel October 17, 1988
Maine
- -----
Microtel and Design 19890086M October 14, 1988
South Carolina
- --------------
Microtel and Design October 24, 1988
Utah
- ----
Microtel and Design 29,480 October 17, 1988
Microtel 29,481 October 17, 1988
</TABLE>
<PAGE>
Canada
- ------
Applications for Proposed Use filed with the Canadian Trademark Office:
- ------------------------------------------------------------------------
Microtel (word mark) 2/11/91 675,754 42
(Extension flied 5/23/95)
Microtel and Design 3/8/91 381,158 35
2/11/91 675,853 42
(Extension filed 511 5195)
"First the Hotel....." 2/8/91 676,203 42
(Extension filed 7/28/95)
"Savings You Can Sleep On" 2/8/91 675,205 42
(Extension filed 5/8/95)
United Kingdom
- --------------
Microtel (word mark) 3/27/90 1423166 35
Microtel and Design 6/4/93 - withdrawn 1423167 42
Logo only 5/26/93 1536884 42
Logo only 5/26/93 1536883 35
Mexico
- ------
Microtel and Design 2/3/95 478,447 42
Microtel ** )
"Don't Sleep With Amenity Creep"** ) Renewal applications pending
"Savings You Can Sleep On" ** )
Note: International Class 35 - Franchise Services
International Class 42 - Hotel/Motel Services
<PAGE>
EXHIBIT "B"
-----------
Current standard form of Franchise Agreement utilized by the Company
throughout the United States.
<PAGE>
Exhibit C
MICROTEL FRANCHISE AND DEVELOPMENT CORPORATION
FRANCHISE AGREEMENT
<PAGE>
MICROTEL FRANCHISE AND DEVELOPMENT CORPORATION
FRANCHISE AGREEMENT
TABLE OF CONTENTS
-----------------
RECITALS PAGE
-------- ----
1. GRANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. TERM AND RENEWAL . . . . . . . . . . . . . . . . . . . . . . . 2
3. DUTIES OF FRANCHISOR . . . . . . . . . . . . . . . . . . . . . 2
4. FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5. DUTIES OF FRANCHISEE . . . . . . . . . . . . . . . . . . . . . 4
6. PROPRIETARY MARKS . . . . . . . . . . . . . . . . . . . . . . 7
7. CONFIDENTIAL MANUALS . . . . . . . . . . . . . . . . . . . . . 8
8. CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . 9
9. ACCOUNTING AND RECORDS . . . . . . . . . . . . . . . . . . . . 9
10. ADVERTISING . . . . . . . . . . . . . . . . . . . . . . . . 10
11. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . 11
12. TRANSFER OF INTEREST . . . . . . . . . . . . . . . . . . . . 13
13. DEFAULT AND TERMINATION . . . . . . . . . . . . . . . . . . 15
14. OBLIGATIONS UPON TERMINATION . . . . . . . . . . . . . . . . 17
15. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 19
16. CORPORATE OR PARTNERSHIP FRANCHISEE . . . . . . . . . . . . 19
17. TAXES, PERMITS, AND INDEBTEDNESS . . . . . . . . . . . . . . 20
18. INDEPENDENT CONTRACTOR AND INDEMNIFICATION . . . . . . . . . 20
<PAGE>
MICROTEL FRANCHISE AND DEVELOPMENT CORPORATION
FRANCHISE AGREEMENT
TABLE OF CONTENTS
-----------------
(Continued)
19. APPROVALS AND WAIVERS . . . . . . . . . . . . . . . . . . . . 21
20. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
21. ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . 22
22. SEVERABILITY AND CONSTRUCTION . . . . . . . . . . . . . . . . 22
23. APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . . . 22
24. ACKNOWLEDGEMENTS . . . . . . . . . . . . . . . . . . . . . . 23
GUARANTEE . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ATTACHMENT A . . . . . . . . . . . . . . . . . . . . . . . . 25
ATTACHMENT B . . . . . . . . . . . . . . . . . . . . . . . . 26
<PAGE>
MICROTEL FRANCHISE AND DEVELOPMENT CORPORATION
FRANCHISE AGREEMENT
THIS AGREEMENT, made and entered into , 19 , by and between
----------- ---
Microtel Franchise & Development Corporation, a New York Corporation, (the
"Franchisor'), and , (the "Franchisee").
---------------------------------------
WITNESSETH:
WHEREAS, Franchisor, as the result of the expenditure of time, skill,
effort, and money has developed and owns a unique concept and system
(hereinafter "System") relating to the establishment and operation of
hotels which operate under the name "MICROTEL", "MICROTEL & SUITES", OR
"MICROTEL SUITES", and which feature modern up-scale accommodations, down-
sized standard guest rooms or two-room suites, and economy room rates;
WHEREAS, the distinguishing characteristics of the System, all of which may
be changed, improved, or further developed by Franchisor from time to time,
include, without limitation:
A. Tradenames, trademarks, and service marks, including, without
limitation, "MICROTEL", "MICROTEL & SUITES", "MICROTEL SUITES",
"SAVINGS YOU CAN SLEEP ON", and such other tradenames, trademarks, and
service marks as are now designated (and may hereafter be designated
by Franchisor in writing) as part of the System (hereinafter
"Proprietary Marks");
B. Prototypical architectural plans, designs, and layouts, including,
without limitation, site plan, floor plan, roof plan, plumbing plan,
lobby plan, electrical plan, and landscape plan;
C. A national "800" number for reservation referrals;
D. A national Microtel directory;
E. Management and personnel training, and training programs and
materials;
F. Management and operational procedures and techniques as
prescribed in the Confidential Manuals (hereinafter the "Manuals");
G. Standards and specifications for construction, equipment, and
furnishings, as described in the Manuals; and
H. Advertising, marketing, and promotional programs
WHEREAS, Franchisee desires to establish and operate a Microtel hotel,
Microtel & Suites hotel, or Microtel Suites hotel, as defined in Attachment
A, under the System, at the location specified herein, and wishes to obtain
a Franchise from the Franchisor for that purpose, as well as to receive the
training and other assistance provided by Franchisor in connection
therewith; and
WHEREAS, Franchisee understands and acknowledges the importance of the
standards of quality and service developed by Franchisor and the necessity
of operating the Microtel hotel, Microtel & Suites hotel, or Microtel
Suites hotel franchised hereunder in conformity with them.
<PAGE>
NOW THEREFORE, the parties, in consideration of the undertakings and
commitments of each party to the other party set forth herein, hereby
mutually agree as follows:
1. GRANT
- -- -----
Franchisor hereby grants to Franchisee, upon the terms and conditions
herein contained, the right and franchise, and Franchisee undertakes the
obligation, to develop, construct, and operate a Microtel hotel, Microtel &
Suites hotel, or Microtel Suites hotel (the "Franchised Business"), as
defined in Attachment A, and to use solely in connection therewith,
Franchisor's System, as it may be changed, improved, and further developed
from time to time, at and only at the location specified in Attachment A
hereto (hereinafter "Approved Location"). By approving the location and
configuration of a Microtel hotel, Microtel & Suites hotel, or Microtel
Suites hotel, the Franchisor does not explicitly or implicitly represent or
warrant that the Franchisee's location will be successful.
2. TERM AND RENEWAL
----------------
2.1 Except as otherwise provided in this Agreement, the term of this
franchise shall commence on the date of this Agreement, and unless sooner
terminated in accordance with the provisions hereof, shall expire ten years
from the "Opening Date", as specified in Section 5.6.
2.2 Franchisee may, at Franchisee's option, renew this Franchise for one
additional period of ten years, upon compliance with the following terms
and conditions:
2.2.1 Franchisee shall not be in default of any provision of
this Agreement, or any other agreement between the parties, and shall
have substantially complied with all the terms and conditions of all
such agreements during the terms thereof;
2.2.2 Franchisee shall present satisfactory evidence that
Franchisee has the right to remain in possession of the Approved
Location during the entire renewal term;
2.2.3 Franchisee shall have satisfied all monetary obligations
owed by Franchisee to Franchisor and its subsidiaries and affiliates,
and shall have timely met these obligations throughout the term of
this Agreement;
2.2.4 Franchisee shall submit a renewal application to
Franchisor not less than six months nor more than twelve months prior
to the end of the initial term, and shall pay with its renewal
application a renewal fee in an amount equal to twenty-five percent of
the then-current franchise fee being charged by Franchisor, computed
on a per-room basis;
2.2.5 Franchisee's managers and other employees shall comply
with Franchisor's then-current training requirements, and Franchisee
shall, at Franchisee's expense, upgrade the Franchised Business to
conform to the then-current standards and specifications of Franchisor
as may be specified in the Manuals or otherwise in writing; and
2.2.6 Franchisee and Franchisor shall execute mutual general
releases, in a form prescribed by Franchisor, of any and all claims of
each party against the other, and their respective subsidiaries,
affiliates, officers, directors, agents and employees.
3. DUTIES OF FRANCHISOR
--------------------
3.1 Franchisor shall provide continuing consultation and advisory
assistance to Franchisee, in the manner and at such times as Franchisor
deems advisable, concerning the management, construction, development,
operation, and marketing of the Franchised Business.
2
<PAGE>
3.2 Franchisor shall make available a set of prototypical plans and
specifications (not for construction) for the Franchised Business, which
shall be adapted for use by Franchisee's architects and engineers.
3.3 Franchisor shall make available to Franchisee and Franchisee's
employees an initial training program. Franchisor shall make available to
Franchisee and Franchisee's employees such continuing training Programs,
conferences, and seminars as Franchisor deems appropriate. All training
programs shall be conducted at such locations as Franchisor may designate
and shall be subject to the terms and conditions as set forth in Section
5.8 of this Agreement.
3.4 Franchisor shall provide Franchisee one (1) copy of the Manuals, as
more fully described in Section 7 hereof.
3.5 Franchisor shall maintain a national directory (the "Directory" ),
listing the address and telephone number of all Microtel hotels, Microtel &
Suites hotels, and Microtel Suites hotels operating under the System.
3.6 Franchisor shall maintain, and make available to Franchisee, a national
"800" number reservation referral system.
3.7 Franchisor shall have the right to establish, maintain, and administer
an advertising fund for the System, subject to the provisions of Section 10.2
hereof.
4. FEES
----
4.1 Franchisor acknowledges having received from Franchisee an initial
franchise fee in an amount equal to the greater of
------------------------
thousand dollars ($ ), or dollars ($
------------- ---------------------- -----
) per room, as determined by the number of
- --------------
guest rooms or suites specified on Attachment A hereto. The initial
franchise fee is deemed fully earned and non-refundable upon the execution
of this Agreement, in consideration for the administrative and other
expenses incurred by Franchisor in furnishing services and assistance to
Franchisee, and for the Franchisor's lost or deferred opportunities to
franchise others.
4.2 In consideration of the franchise granted herein, Franchisee shall pay
Franchisor as a continuing monthly royalty fee during the term of this
Agreement a percentage of Franchisee's Gross Room Revenues from the
operation of the Franchised Business, computed as follows:
Microtel
- --------
Microtel & Suites
- -----------------
(Applicable when 50% or more total guest rooms are of standard Microtel
configuration):
a. two and one-half percent during the period when fewer than
fifty Microtel hotels, Microtel & Suites hotels, or Microtel Suites
hotels are open for business and receiving Gross Room Revenues;
b. three percent during the period commencing on the first day of
the month following the month when at least fifty but fewer than one
hundred Franchised Businesses are open for business and receiving
Gross Room Revenues; and
c. three and one-half percent during the period commencing on the
first day of the month following the month when at least one hundred
Franchised Businesses are open for business and receiving Gross Room
Revenues.
3
<PAGE>
Microtel & Suites
- -----------------
Microtel Suites
- ---------------
(Applicable when 51% or more total guest rooms are of Suite configuration):
three and a half percent of gross room revenues
4.3 "Gross Room Revenues" shall mean the gross receipts attributable to
or payable for the rental of guest rooms at the Franchised Business,
including, without limitation, the net proceeds (after deduction of the
expenses of adjustment and collection) of use and occupancy, or for
business interruption, rent loss, or similar insurance with respect to the
Franchised Business (provided that insurance proceeds shall be included in
Gross Room Revenues only when and to the extent actually received), Gross
Room Revenues shall not include gratuities to employees or service charges
levied in lieu of such gratuities, which, in Either case, are payable to
employees, or federal, state, and local taxes or fees collected by
Franchisee for transmittal to the appropriate taxing authorities.
4.4 All monthly payments required by this Agreement shall be paid to
Franchisor on or before the tenth day of each month, shall be based on the
Gross Room Revenues for the preceding calendar month, and shall be
submitted to Franchisor together with all reports required under this
Agreement. Any payment or report not actually received by Franchisor on or
before such date shall be deemed overdue. If any payment is overdue,
Franchisee shall pay to Franchisor, in addition to the amount overdue,
interest on such amount from the day it was due until paid at one and a
half percent per month or the maximum rate permitted by law, whichever is
less. Entitlement to such interest shall be in addition to any of the
remedies Franchisor may have.
5. DUTIES OF FRANCHISEE
--------------------
5.1 Franchisee acknowledges that every detail of the System is important
to Franchisor and other franchisees operating under the System in order to
develop and maintain the standards and public image of the System.
Franchisee agrees to comply with the details of the System as specified by
Franchisor in the Manuals, or otherwise in writing.
5.2 Within ninety days following the date of this Agreement, Franchisee
shall submit to Franchisor for Franchisor's written approval a site layout,
preliminary plans, and outline specifications adapting Franchisor's then-
prototypical plans and specifications to the Approved Location, which shall
comply with all local and state laws, regulations, and ordinances. Within
sixty days of Franchisee's receipt of Franchisor's written approval,
Franchisee shall submit to Franchisor for Franchisor's approval, complete
working drawings and specifications for the hotel and the hotel premises.
When approved by Franchisor, such drawings and specifications shall not
thereafter be changed or modified without the prior written consent of
Franchisor, which consent shall not be unreasonably withheld.
5.3 Franchisee shall commence construction within sixty days after
Franchisor has approved the complete working drawings and specifications,
which date shall be designated the "Commencement Date". Franchisee shall,
within five days after the Commencement Date, provide written notice to
Franchisor that construction has begun. Commencement of construction shall
mean the excavation for footings. Franchisee shall maintain continuous
construction (except for any interruption of by reason of events
constituting force majeure) until construction is completed in accordance
-------------
with the approved site layout and plan. As used in this Agreement, force
-----
majeure" means an act of God, war, civil disturbance, government action,
- -------
fire flood, accident, hurricane, earthquake or other calamity, strike or
other labor dispute, or other action beyond the control of Franchisee.
Franchisee and Franchisor agree that time is of the essence in the
construction and opening of the Franchised Business.
5.4 Franchisee shall notify Franchisor as soon as the interior walls have
been completed so that Franchisor and/or its designees may inspect the site
and the construction in order to determine (solely for its own benefit)
whether construction is proceeding in accordance with the Franchisor's
standards and specifications and approved plans. Franchisee shall cooperate
and cause its architects, engineers, contractors, and subcontractors to
cooperate fully with Franchisor's inspection.
4
<PAGE>
5.5 Subject to any permitted extensions for force majeure interruptions,
--------------
Franchisee shall, within two hundred seventy days after the Commencement
Date, complete all required construction and site work, purchase and
install all fixtures, equipment, furnishings, furniture, signs, supplies,
and other items necessary for the completion and operation of the
Franchised Business, as specified in the approved plans and in the Manual,
and be ready to open for business (the "Completion Date").
5.6 Franchisee shall, within ten days of the Completion Date, submit a
written request to Franchisor for Franchisor to conduct a final inspection.
Upon receipt of such request, Franchisor shall promptly conduct such final
inspection. Franchisee shall open for business within ten days after
receipt of Franchisor's authorization to do so. The date upon which
Franchisee receives authorization to open for business shall be the
"Opening Date". Franchisee shall not open for business until Franchisor
provides final approval and authorization in writing.
5.7 Franchisee may request approval by Franchisor to commence operation
of a completed portion of the Franchised Business for an interim period
prior to the Completion Date. Such request shall be in writing and shall
demonstrate to the Franchisor's satisfaction that Franchisee has complied
with Franchisor's standards and specifications with respect to
construction, training, and pre-opening operations of the Franchised
Business, has obtained all governmental licenses and permits necessary to
operate the Franchised Business under the System, and that a minimum of
seventy-five percent of the scheduled total number of guest rooms or suites
have been fully designed, built, and equipped, and are ready to be opened
for occupancy in accordance with this Agreement. If Franchisor approves
Franchisee's request, Franchisee shall conduct business during the interim
period in accordance with all terms and conditions of this Agreement
(including, without limitation, payment of all fees), as well as any
additional conditions which Franchisor may reasonably impose for the
interim period.
5.8 Prior to the Opening Date, Franchisee's General Manager shall attend
and successfully complete Franchisor's initial training program unless,
in the sole judgement of Franchisor, the General Manager has sufficient
prior experience to make training unnecessary. At Franchisor's discretion,
other employees of Franchisee also may attend the initial training session.
All training shall be provided at such locations as Franchisor may
designate. Franchisee shall be responsible for all expenses associated with
attendance at training, including, but not limited to, transportation,
room, board, and wages of each of its employees. Franchisor may
periodically make available other required or optional training courses to
Franchisee's employees, as well as other programs, conferences, and
seminars; and Franchisee shall ensure that all employees, as Franchisor may
direct, satisfactorily complete any required training within the time
specified. All training shall be provided at such location as Franchisor may
designate, and Franchisee shall be responsible for all expenses associated
with attendance at training of its employees.
5.9 Franchisee shall not expand the number of guest rooms or suites in
the Franchised Business without the prior written consent of Franchisor,
which consent shall not be unreasonably withheld; provided, however, that
Franchisor may impose reasonable conditions on its consent, including,
without limitation, the following:
5.9.1 Franchisee shall demonstrate to the satisfaction of
Franchisor that Franchisee is able to satisfy all such reasonable
construction and operations deadlines and obligations imposed by
Franchisor; and
5.9.2 Franchisee shall pay to Franchisor a non-refundable
expansion fee in an amount equal to the then-current per room or suite
charge made to new franchisees multiplied by the number of additional
guest rooms or suites which Franchisee proposes to construct. The
expansion fee shall be due and payable at the time of Franchisor's
approval of the proposed expansion, and is non-refundable.
5.10 Franchisee shall use the premises solely for the operation of the
Franchised Business, and shall refrain from using or permitting the use of
the premises for any other purpose or activity at any time without first
obtaining Franchisor's prior written consent. Franchisee shall operate the
Franchised Business in conformity with such standards, policies, methods,
and techniques as Franchisor may, from time to time, prescribe in the
Manuals. Franchisee shall refrain from deviating from the Manuals, or
otherwise operating the Franchised Business in any manner which adversely
reflects on the System, the Proprietary Marks, the goodwill associated
therewith, Franchisor, or Franchisor's rights therein.
5
<PAGE>
5.11 Franchisee shall maintain the Franchised Business in a high degree of
sanitation, repair, and condition and consistent with the System's image,
and in connection therewith, shall make such additions, alterations,
repairs and replacements thereto as may be required for that purpose (but
no others without Franchisor's prior written consent), including, without
limitation, such periodic repainting, repairs, and replacement of signs and
equipment, furnishings, and furniture as Franchisor may reasonably direct.
5.12 At Franchisor's request, which shall not be more often than once every
five years, Franchisee shall upgrade the Franchised Business at
Franchisee's expense to conform with the building decor, trade dress, and
presentation of trademarks and service marks consistent with Franchisor's
then-current public image, including, without limitation, such remodeling,
redecoration, and such other modifications to existing improvements as may
be necessary and specified by Franchisor.
5.13 Franchisee shall purchase or lease, and install, at Franchisee's
expense, all fixtures, furnishings, furniture, signs, equipment, and
supplies, meeting Franchisor's standards, specifications, and requirements
as provided in the approved plans and as Franchisor may reasonably direct
from time to time in the Manuals or otherwise in writing. Franchisee shall
refrain from installing in, on, or about the Franchised Business, or
permitting to be installed, without Franchisor's prior written consent, any
fixtures, furnishings, furniture, signs, equipment, electronic or video
games, vending machines, gambling devices, or any other items or supplies
not previously approved as meeting Franchisor's then-current standards and
specifications as set forth in the Manuals.
5.14 Franchisee shall comply with all federal, state, local laws, rules and
regulations, and shall timely obtain any and all permits, certificates, and
licenses necessary for the full and proper development and operation of the
business franchised hereunder, including, without limitation, licenses to
do business, fictitious name registrations, building permits, sales tax
permits, health and sanitation permits and ratings, and fire clearances.
5.15 Franchisee shall prominently display in and upon the premises of the
Franchised Business such signs using Franchisor's Proprietary Marks, and
other advertising signs of a nature, form, color, number, location, size
and content as are required by the Franchisor in the Manuals or otherwise
in writing, or as the Franchisor may direct from time to time, or approve
in writing. Franchisee shall comply with the requirements of the System
concerning the types of services and products that may be promoted or
advertised at the Franchised Business, including the display of promotional
materials.
5.16 Franchisee hereby grants to Franchisor and its agents the right to
enter upon the premises of the Franchised Business at any reasonable time
for the purpose of conducting inspections. Franchisee shall take such steps
as may be necessary to correct any deficiencies detected during such
inspection, upon the written request of Franchisor or its agent, within
such time as may be specified therein.
5.17 Franchisee acknowledges and agrees that offering the public a single,
efficient, reservation referral service is essential to the goodwill,
reputation, and success of the System. Franchisee agrees to obtain and
utilize an "800" telephone number and agrees to participate during the
term of this Agreement in a national reservation referral system utilizing
both Franchisor's and Franchisee's "800" numbers, which participation shall
include, without limitation, installing and maintaining at the premises of
the Franchised Business, at Franchisee's expense, such equipment as
Franchisor may prescribe from time to time for use in connection with such
reservation referral system. Franchisee shall also be responsible for
telephone line charges for connecting Franchisee's reservation equipment to
the system, and for the cost of software and supplies used in the operation
of the equipment, and for other related expenses. Franchisee shall execute
the Collateral Assignment of Telephone Numbers and Listings ("Telephone
Listing Agreement") attached hereto as Attachment B, prior to commencement
of operations of the Franchised Business.
5.18 Franchisee shall list the Franchised Business in Franchisor's
Directory, and shall furnish to Franchisor in writing such information as
Franchisor may request for that purpose. Franchisee understands and
acknowledges that the success and utility of the Directory may require that
Franchisee provide information concerning rates for lodging accommodations;
that Franchisee shall have sole discretion for determining the room rates
which appear in each Directory; and that Franchisor assumes no liability
for, nor shall be deemed liable by reason of, any failure by Franchisor or
Franchisor's other franchisees to honor any rates for any period for which
each Directory is in effect.
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5.19 Franchisee shall comply with all other requirements set forth in this
Agreement.
6. PROPRIETARY MARKS
-----------------
6.1 Franchisor represents with respect to the Proprietary Marks that:
6.1.1 Franchisor is the owner of all right, title, and
interest in and to the Proprietary Marks.
6.1.2 Franchisor will take all steps reasonably necessary to
preserve and protect the ownership and validity in and to the
Proprietary Marks.
6.2 With respect to Franchisee's licensed use of the Proprietary Marks
pursuant to this Agreement, Franchisee agrees that:
6.2.1 Franchisee shall use only the Proprietary Marks
designated by Franchisor and shall use them only in the manner
authorized and permitted by the Franchisor.
6.2.2 Franchisee shall use the Proprietary Marks only for the
operation of the Franchised Business at the Approved Location.
6.2.3 During the term of this Agreement, Franchisee shall
identify itself as the owner of the Franchised Business in conjunction
with any use of the Proprietary Marks, including, but not limited to,
on invoices, order forms, receipts, business cards, and contracts, and
at such conspicuous locations of the Franchised Business' premises
(such as behind the front desk or in the lobby) as Franchisor shall
designate in writing. The identification shall be in the form which
specified Franchisee's name, followed by the term "Franchised Owner"
or such other identification as shall be approved by Franchisor.
6.2.4 Franchisee's right to use the Proprietary Marks is
limited to such uses as are authorized under this Agreement, and any
unauthorized use thereof shall constitute an infringement of
Franchisor's rights.
6.2.5 Franchisee shall not use the Proprietary Marks to incur
any obligation or indebtedness on behalf of Franchisor.
6.2.6 Franchisee shall not use the Proprietary Marks as part of
its corporate or other legal name, without the prior written consent
of Franchisor.
6.2.7 Franchisee shall comply with Franchisor's instructions
in filing and maintaining the requisite trade name or fictitious name
registrations,. and shall execute any documents deemed necessary by
Franchisor or to its counsel to obtain protection for the Proprietary
Marks or to maintain their continued validity and enforceability.
6.3 Franchisee expressly understands and acknowledges that:
6.3.1 As between the parties hereto, Franchisor is the owner
of all right, title, and interest in and to the Proprietary Marks and
the goodwill associated with and symbolized by them.
6.3.2 The Proprietary Marks are valid and serve to identify the
System and those who are franchised under the System.
6.3.3 Franchisee shall not directly or indirectly contest the
validity or the ownership of the Proprietary Marks.
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6.3.4 Franchisee's use of the Proprietary Marks pursuant to
this Agreement does not give Franchisee any ownership interest or
other interest in or to the Proprietary Marks, except the nonexclusive
franchise granted herein.
6.3.5 Any and all goodwill arising from Franchisee's use of
the Proprietary Marks in its Franchised Business under the System
shall inure solely and exclusively to the benefit of Franchisor, and
upon expiration or termination of this Agreement and the franchise
herein granted, no monetary amount shall be assigned as attributable
to any goodwill associated with Franchisee's use of the System or the
Proprietary Marks.
6.3.6 The right and license of the Proprietary Marks granted
hereunder to Franchisee is nonexclusive, and Franchisor thus may:
6.3.6.1 Itself use, and grant franchises to others to
use, the Proprietary Marks.
6.3.6.2 Establish, develop, and franchise other
systems, different from the System franchised herein, without
offering or providing Franchisee any rights in, to, or under such
other systems.
6.3.7 Franchisor reserves the right to substitute different
Proprietary Marks for use in identifying the System and the businesses
operating thereunder, and Franchisee agrees to comply with
Franchisor's requirements relating thereto.
6.4 Franchisee shall promptly notify Franchisor of any unauthorized use
of the Proprietary Marks or marks confusingly similar thereto, any
challenge to the validity of the Proprietary Marks, or any challenge to
Franchisor's ownership of, or Franchisee's right to use, the Proprietary
Marks. Franchisee acknowledges that Franchisor has the sole right to direct
and control any administrative proceeding or litigation involving the
Proprietary Marks, including any settlement thereof. Franchisor has the
right, but not the obligation, to take action against uses by others that
may constitute infringement of the Proprietary Marks.
6.5 Provided Franchisee has used the Proprietary Marks in accordance with
this Franchise Agreement, Franchisor will defend at Franchisor's expense
against any third party claim, suit, or demand involving the Proprietary
Marks and arising out of Franchisee's use thereof. In the event that
Franchisee has not used the Proprietary Marks in accordance with this
Agreement, Franchisor shall defend Franchisee, at Franchisee's expense,
against such third party claims, suits, or demands.
6.6 In the event of any litigation or administrative proceeding relating to
the Proprietary Marks, Franchisee shall execute any and all documents and
do all acts as may, in the opinion of Franchisor, be necessary to carry out
such defense or prosecution, including, but not limited to, becoming a
nominal party to any legal action. Except to the extent that such
litigation is the result of Franchisee's use of the Proprietary Marks in a
manner inconsistent with the terms of this Agreement, Franchisor agrees to
reimburse Franchisee for its out of pocket costs in performing such acts,
except that Franchisee shall bear the salary costs of its employees, and
Franchisor shall bear the cost of any judgement or settlement.
7. CONFIDENTIAL MANUALS
--------------------
7.1 Franchisee shall at all times treat the Manuals, all supplements and
revisions thereto, any other manuals created for or approved for use in the
operation of the Franchised Business and the information contained therein
as confidential, and shall use all reasonable efforts to maintain the
confidentiality of such information. Franchisee shall not at any time,
without Franchisor's prior written consent, copy, duplicate, record, or
otherwise reproduce the foregoing materials, in whole or in part, nor
otherwise make the same available to any unauthorized person. Franchisee
may disclose such information and materials only to such of Franchisee's
contractors, architects, lenders, investors, employees, agents, or others
who must have access to it in connection with their employment or the
performance of this Agreement, in which event Franchisee shall obtain the
agreement of such persons and entities to maintain the confidentiality
there of. The Manuals shall remain at all times in the sole property of
Franchisor.
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7.2 Franchisor may from time to time revise the contents of the Manuals,
and Franchisee expressly agrees to comply with each new or changed
standard. Franchisee shall at all times ensure that Franchisee's copy of
the Manuals is kept current and up-to-date; in the event of any dispute as
to the content of the Manuals, the terms of the master copy of the Manuals
maintained by Franchisor at Franchisor's home office shall be controlling.
8. CONFIDENTIAL INFORMATION
------------------------
8.1 Franchisee shall not, during the term of this Agreement or
thereafter, communicate, divulge, or use for the benefit of any other
person, persons, partnership, association, or corporation any confidential
information, knowledge, or know-how concerning the System or the operation
of the Franchised Business which may be communicated to Franchisee, or of
which Franchisee may be apprised, by virtue of Franchisee's operation under
the terms of this Agreement. Franchisee shall divulge such confidential
information only to such of Franchisees employees or agents as must have
access to it in order to operate the Franchised Business. Any and all
information, trade secrets, knowledge, know-how, or other data which
Franchisor designates as confidential shall be deemed confidential for
purposes of this Agreement, except information which Franchisee can
demonstrate came to Franchisee's attention prior to disclosure thereof by
Franchisor, or which, at or after the time of disclosure by Franchisor to
Franchisee, had become or later becomes a part of the public domain,
through publication or communication by others.
8.2 Franchisee acknowledges that the provisions of this Section 8 are and
have been a primary inducement to Franchisor to enter into this Agreement,
and that any failure to comply with the requirements of Section 8.1 will
cause Franchisor irreparable injury without an adequate remedy at law; and
Franchisee agrees to pay all court costs and reasonable attorneys' fees
incurred by Franchisor in obtaining specific performance of, or an
injunction against any violation of, the requirements of Section 8.1.
9. ACCOUNTING AND RECORDS
----------------------
9.1 During the term of this Agreement, Franchisee shall maintain and
preserve, for at least five years from the date of their preparation, full,
complete, and accurate, books, records, and accounts in accordance with
the most current version of a Uniform System of Accounts for Hotels and in
the form and manner prescribed by Franchisor from time to time in the
Manuals or otherwise in writing.
9.2 Franchisee shall, at Franchisee's expense, submit to Franchisor, by the
tenth day of each month, a monthly statement on forms prescribed by
Franchisor accurately reflecting all Gross Room Revenues, and all other
revenues generated at the Franchised Business, for the preceding calendar
month, and such other data and other information as Franchisor may require,
including, without limitation, room occupancy rates, occupancy percentage,
average daily room rate, reservation data, and the sources and amount of
all expenses and revenues. Each statement shall be signed by Franchisee
attesting that it is true and correct.
9.3 Franchisee shall, at Franchisee's expense, submit to Franchisor an
unaudited semi-annual profit and loss statement (in the form prescribed by
Franchisor), and a balance sheet within sixty days of the end of each semi-
annual fiscal period during the term hereof with respect to the operations
of the Franchised Business. Each statement shall be signed by Franchisee
attesting that it is true and correct.
9.4 Franchisee shall submit to Franchisor, for review and auditing, such
other forms, periodic and other reports, records, information, and data, as
Franchisor may reasonably designate, in the form at the times and places
reasonably required by Franchisor, upon request and as specified from time
to time in the Manuals or otherwise in writing.
9.5 Franchisor or its designated agents shall have the right at all
reasonable times to examine and copy, at its expense, all books, records,
and tax returns of Franchisee related to the Franchised Business and, at
its option, to have an independent audit made. If an inspection or audit
should reveal that payments have been understated in any report to
Franchisor, then Franchisee shall immediately pay to Franchisor the amount
understated upon demand, in addition to interest from the date such amount
Was due until paid, at one and
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one half percent per month or the maximum rate permitted by law, whichever
is less. In such event, Franchisor shall also have the right to require
that all future financial statements of Franchisee related to the
Franchised Business be audited at Franchisee's expense for each fiscal year
by an independent certified public accounting firm selected by Franchisee
and approved by Franchisor. If an inspection discloses an underpayment to
Franchisor of five percent or more of the total amount that should have
been paid to Franchisor during any six month period, Franchisee shall, in
addition to repayment of such understated amount, with interest, reimburse
Franchisor for any and all costs and expenses incurred in connection with
the inspection or audit (including, without limitation, reasonable
accounting and attorneys' fees). The foregoing remedies shall be in
addition to any other remedies Franchisor may have, including, without
limitation the remedies for default.
10. ADVERTISING
-----------
10.1 Recognizing the value of advertising and the importance of the
standardization of advertising programs to the furtherance of the goodwill
and public image of the System, the parties agree that all advertising by
Franchisee in any medium shall be conducted in a dignified manner and shall
conform to such standards and requirements as Franchisor may specify from
time to time in writing. Franchisor reserves the right to disapprove upon
written notice to Franchisee any advertising, or promotional materials used
by Franchisee if, in Franchisor's judgement, such materials appear to have
a substantial adverse effect upon the Proprietary Marks or Franchisor's
goodwill therein or to infringe upon the proprietary rights of others.
Franchisee shall discontinue use of any disapproved material upon receipt
of such written notice.
10.2 Recognizing the value to all Franchised Businesses in the System of
marketing and advertising, Franchisor reserves the right to establish,
maintain, and administer an Advertising Fund (the "Fund") for the System.
If the Fund is established, Franchisee agrees to contribute one percent of
its Gross Room Revenues to the Fund, on a monthly basis and in accordance
with the procedures set forth in Section 4.4. Franchisee further agrees
that Franchisor shall maintain and administer the Fund for the System as
follows:
10.2.1 The Fund shall be used on behalf of the System for
advertising and marketing including, without limitation, for any and
all costs associated with developing, preparing, producing, directing,
administering, conducting, maintaining, and disseminating advertising,
marketing, telemarketing, promotional, and public relations materials,
programs and campaigns, conducting market research, and publishing the
Directory. All sums paid by Franchisee, other franchisees in the
System, and Franchisor to the Fund, plus any interest or other income
earned from such contributions, shall be maintained in a separate
account from the other funds of Franchisor and shall not be used to
defray any of Franchisor's general operating expenses, except for the
reasonable administration costs and overhead Franchisor incurs in
directing and administering the Fund including, without limitation,
the cost of collecting and accounting for assessments for the Fund.
10.2.2 Franchisee agrees and acknowledges that the Fund is
intended to maximize general public recognition, acceptance, and use
of the System, and that Franchisor undertakes no obligation in
administering the Fund to make expenditures for Franchisee which are
equivalent or proportionate to Franchisee's contribution or to ensure
that any particular franchisee benefits directly or pro rata from
--------
expenditures for the Fund.
10.2.3 Franchisee shall contribute to the Fund by check made
payable to the Fund. If Franchisor owns and operates any Microtel
hotel, Microtel & Suites hotel, or Microtel Suites hotel under the
System, Franchisor shall make contributions to the Fund on the same
basis as the assessments required of comparable Franchised Businesses
within the System.
10.2.4 It is anticipated that all contributions to the Fund
shall be expended during the taxable year within which the
contributions are made. If, however, excess amounts remain in the Fund
at the end of such taxable year, all expenditures in the following
taxable year(s) shall be made first out of accumulated earnings from
previous years, next out of earnings in the current year, and finally
from contributions.
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10.2.5 The Fund is not and shall not be an asset of
Franchisor and an audit of the operation of the Fund shall be
prepared annually by an independent certified public accountant
selected by Franchisor and shall be made available to Franchisee.
10.2.6 Although Franchisor intends the Fund to be of perpetual
duration, Franchisor maintains the right to terminate the Fund at any
time. The Fund shall not be terminated, however, until all monies in
the Fund have been expended for the purposes described in this
Section.
11. INSURANCE
---------
11.1 Prior to the commencement of any activities or operations pursuant to
this Agreement, Franchisee shall procure and maintain in full force and
effect during the term of this Agreement, at Franchisee's expense, those
insurance policies (set forth in this Section) protecting Franchisee and
Franchisor, and their officers, directors, partners, joint venturers and
employees against any loss or liability resulting in bodily injury,
personal injury, death, property damage or other related expenses arising
or occurring upon, as a result of, or in connection with the Franchised
Business, or by reason of the construction, operation or occupancy of the
Franchised Business.
11.2 Such policy or policies shall be written by an insurance company or
companies satisfactory to Franchisor in accordance with standards and
specifications set forth in the Manuals or otherwise in writing, and shall
include, at a minimum (except as additional coverages and higher policy
limits may reasonably be specified for all franchisees from time to time by
Franchisor in the Manuals or otherwise in writing), the following:
11.2.1 Comprehensive general liability insurance, including
bodily injury, property damage, personal injury coverage, independent
contractors coverage, broad form contractual liability, broad form
property damage endorsement, including products liability and
completed operations coverage. No insurance policy shall contain any
exclusion for explosion, collapse, or underground hazard. Coverage
amount will be not less than five million dollars per occurrence or
aggregate. Such policy shall contain a waiver of subrogation
endorsement in favor of Franchisor.
11.2.2 Comprehensive automobile liability insurance, including
bodily injury and property damage for all owned, non-owned and hired
vehicles, with limits of liability not less than five million dollars
combined single limit. Such policy shall have the contractual
exclusion removed, or Franchisee shall provide separate evidence that
contractual liability for automobile exposure is otherwise insured.
Such policy shall contain a waiver of subrogation endorsement in favor
of Franchisor.
11.2.3 Workers' compensation and employer's liability insurance
as well as other insurance as may be required by statute or rule of
the state in which the Franchised Business is located. Such policy
shall contain a waiver of subrogation endorsement in favor of
Franchisor.
11.2.4 Commercial umbrella liability insurance with limits which
bring the total of all primary underlying coverages to not less than
five million dollars total limit of liability. Such umbrella liability
will provide at minimum those coverages and endorsements required in
the underlying policies.
11.2.5 Property insurance providing for all risk of direct
physical loss or damage including the perils of flood and earthquake.
Appropriate coverage shall also be provided for boiler and machinery
exposures and business interruption/extra expense exposures. Property
insurance shall provide replacement cost coverage, and shall be
written to include values not less than ninety percent of the full
replacement value of the premis.es of the Franchised Business, its
furniture, fixtures, equipment and stock (real and personal property).
Any
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deductibles contained in such policy shall be subject to review and
approval by Franchisor. Property insurance policies) shall contain a
waiver of subrogation in favor of Franchisor.
11.3 In connection with all significant construction of, on or about the
Microtel hotel, Microtel & Suites hotel, or Microtel Suites hotel premises
during the term hereof Franchisee shall cause the general contractor to
effect and maintain at the general contractor's own expense, insurance
policies and bonds set forth below. All such policies must name the
Franchisor and Franchisee as co-insured, contain waiver of subrogation
endorsements in favor of Franchisor and Franchisee, be written by insurance
or bonding companies satisfactory to Franchisor, and shall insure the
following:
11.3.1 Comprehensive general liability insurance providing those
coverages and limits specified in Section 11.2.1.
11.3.2 Comprehensive automobile liability insurance providing those
coverages and limits specified in Section 11.2.2.
11.3.3 Workers' compensation and employer's liability insurance or other
insurance as is specified in Section 11.2.3,
11.3.4 Commercial umbrella liability insurance as specified in
Section 11.2.4.
11.3.5 Owners contractors protective policy in the name of Franchisor
and Franchisee with a combined single limit of liability of five
million dollars.
11.3.6 General contractor shall assure compliance by all independent or
sub-contractors and maintain evidence that all such independent or
sub-contractors have insurance written to comply with limits and
coverages together with appropriate endorsements as specified in
Sections 11.3.1, 11.3.2, and 11.3.3. Commercial umbrella liability
insurance shall be provided with limits of liability not less than
five million dollars.
11.3.7 General contractor shall provide a builder's risk insurance policy
providing for all risk of direct physical loss or damage in an
amount equal to the full estimated completed value of the
Franchised Business. Such policy shall include Franchisor and
Franchisee as additional named insured and also provide a waiver of
subrogation in favor of both Franchisor and Franchisee.
11.4 Upon execution of this Agreement, on each policy renewal date
thereafter, and each time a change is made in any insurance or insurance
carrier, Franchisee shall submit evidence of satisfactory insurance and
proof of payment therefor to Franchisor, together with, upon request,
original or duplicate copies of all policies and policy amendments. The
evidence of insurance shall include a statement by the insurer that the
policy or policies will not be cancelled or materially altered without at
least thirty (30) days' prior written notice to Franchisor.
11.5 Franchisee's obligation to obtain and maintain the foregoing policy or
policies in the amounts specified shall not be limited in any way by reason
of any insurance which may be maintained by Franchisor, nor shall
Franchisee's performance of that obligation relieve Franchisee of liability
under the indemnity provisions set forth in Section 18.3 of this Agreement.
11.6 Should Franchisee, for any reason, fail to procure or maintain the
insurance required by this Agreement, as revised from time to time for all
franchisees by Franchisor in the Manuals or otherwise in writing,
Franchisor shall have the right and authority (without, however, any
obligation to do so) immediately to procure such insurance and to charge
same to Franchisee, which charges, together with a reasonable fee for
Franchisor's expenses in so acting, shall be payable by Franchisee
immediately upon notice.
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12. TRANSFER OF INTEREST
--------------------
12.1 Transfer by Franchisor
----------------------
Franchisor shall have the right to transfer or assign all or any part of
its rights or obligations in this Agreement to any person or legal entity.
12.2 Transfer by Franchisee
----------------------
12.2.1 Franchisee understands and acknowledges that the rights
and duties set forth in this Agreement are personal to Franchisee, and
that Franchisor has granted this franchise in reliance on the business
skill, financial capacity, and character of Franchisee and its
partners or shareholders. Accordingly, neither Franchisee nor any
immediate or remote successor to any part of Franchisee's interest in
this franchise, nor any individual, partnership, corporation, or other
legal entity which directly or indirectly owns any interest in this
franchise or in Franchisee shall sell, sign, transfer, convey, give
away, mortgage, or otherwise encumber any direct or indirect interest
in this franchise (including any ownership interest in Franchisee),
this Agreement, the Franchised Business, or a substantial portion of
the assets (including building and real estate) of the Franchised
Business without the prior written consent of Franchisor; provided,
however, that the transfer of less than a ten percent (10%) equity
interest in Franchisee in a single transaction, which does not have
the affect of transferring control (as described in Sections 12.2.2
and 12.2.5 hereof), shall not require the prior approval of
Franchisor, provided that Franchisee notifies Franchisor in writing of
such transfer within thirty (30) days following such transfer. Any
purported assignment or transfer, by operation of law or otherwise,
not having the prior written consent of Franchisor shall be null and
void and shall constitute a material breach of this Agreement, for
which Franchisor may then terminate without opportunity to cure
pursuant to Section 13.2.6 of this Agreement and seek injunctive
relief as well as monetary damages.
12.2.2 Franchisor shall not unreasonably withhold its consent to
a transfer of any interest in this franchise, in Franchisee, in this
Agreement, in the Franchised Business, or in a substantial portion of
the assets (including building and real estate) of the Franchised
Business; provided, however, that if a transfer, alone or together
with other previous, simultaneous, or proposed transfers, would have
the affect of transferring a controlling interest in the franchise,
Franchisee, this Agreement, the Franchised Business, or substantially
all of the assets (including building and real estate) of the
Franchised Business, Franchisor may, in its sole discretion, require
any or all of the following a conditions of its approval:
12.2.2.1 All of Franchisee's accrued monetary obligations to
Franchisor and its subsidiaries and affiliates and all other
outstanding obligations related to the Franchised Business shall
have been satisfied;
12.2.2.2 Franchisee is not in default of any provision of
this Agreement, any amendment hereof or successor hereto, or any
other agreement between Franchisee and Franchisor, or its
affiliates;
12.2.2.3 The transferor shall have executed a general release
under seal, in a form satisfactory to Franchisor, of any and all
claims against Franchisor and its officers, directors,
shareholders, and employees, in their corporate and individual
capacities, including, without limitation, claims arising under
federal, state, and local laws, rules, and ordinances;
12.2.2.4 The transferee, and all shareholders or general
partners in the transferee, shall enter into a written
assignment, under seal and in a form satisfactory to Franchisor,
assuming and agreeing to discharge all of Franchisee's
obligations under this Agreement;
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12.2.2.5 The transferee, and all shareholders in the
transferee, shall demonstrate to Franchisor's satisfaction that
the transferee and its shareholders or general partners, as
appropriate, meet Franchisor's education, managerial, and
business standards; possess good moral character, business
reputation, and credit rating; have the aptitude and ability to
conduct the Franchised Business (as may be evidenced by prior
related business experience or otherwise); and have adequate
financial resources and capital to operate the Franchised
Business;
12.2.2.6 At Franchisor's option, the transferee and the
shareholders or general partners in the transferee shall execute
for a term ending on the expiration date of this Agreement and with
such renewal term as may be provided by this Agreement, the
standard form franchise agreement then being offered to new
System franchisees and such other ancillary agreements as
Franchisor may require for the Franchised Businesses, provided,
however, that the transferee shall not be required to pay any
initial franchise fee.
12.2.2.7 The transferee shall, at the transferee's expense
and upon the reasonable request of Franchisor, upgrade the
Franchised Business to conform to the then-current standards and
specifications for hotels operating under the System, and shall
complete the upgrading and other requirements within the
reasonable time specified by Franchisor.
12.2.2.8 Franchisee shall remain liable for all obligations
to Franchisor and its subsidiaries and affiliates in connection
with the Franchised Business prior to the effective date of the
transfer and shall execute any and all instruments reasonably
requested by Franchisor to evidence such liability;
12.2.2.9 At the transferee's expense, an officer of the
transferee and the transferee's general manager shall complete
the initial training program then in effect for new licensees
upon such terms and conditions as Franchisor may reasonable
require;
12.2.2.10 Franchisee shall pay a transfer fee of Seven
Thousand Five Hundred Dollars ($7,500), except that no fee shall
be required for transfers to the spouse, issue, parent, or
sibling of a partner or shareholder in Franchisee, or from one
partner or shareholder to another.
12.2.3 Notwithstanding any other provision of this Agreement,
Franchisor shall not require approval of the assignment, transfer,
pledge, or hypothecation of all or any part of the assets of the
Franchised Business, excluding this franchise and this Agreement,
(and, if Franchisee is a corporation all and any part of the stock of
the said corporation) to banks or other lending institutions as
collateral security for loans made directly to or for the benefit of
the Franchised Business.
12.2.4 Franchisee acknowledges and agrees that each condition which
must be met by the transferee is necessary to assure such transferee's
full performance of the obligations hereunder.
12.2.5 For the purposes of this Agreement, "control" shall mean the
possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a person, corporation or
other business entity, whether through the ownership of voting
securities, by contract, or otherwise.
12.3 Transfer Upon Death or Mental Incompetence
------------------------------------------
Upon the death or mental incompetency of Franchisee or a person owning all
or any interest in Franchisee, the executor, administrator, or personal
representative of such person shall transfer within three (3) months after
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such death or mental incompetency his interest to a third party approved by
Franchisor. Such transfers, including, without limitation, transfers by
devise or inheritance, shall be subject to the same conditions as any inter
-----
vivos transfer. However, in the case of transfer by devise or inheritance,
- -----
if the heirs or beneficiaries of any such person are unable to meet the
conditions in this Section 12, the personal representative of the deceased
shareholder shall have reasonable time to dispose of the deceased's
interest in the Franchisee, which disposition shall be subject to all the
terms and conditions for transfers contained in this Agreement. If the
interest is not disposed of within nine months, Franchisor may terminate
this Agreement.
12.4 Offerings by Franchisee
------------------------
Securities in Franchisee may be offered to the public only with the prior
written consent of Franchisor, which consent shall not be unreasonably
withheld. All materials required by federal or state law for the sale of
any interest in Franchisee shall be submitted to Franchisor for review
prior to filing with any government agency; and any materials to be used
and any exempt offering shall be submitted to Franchisor for review prior
to their use. No Franchisee offering shall imply (by use of the Proprietary
Marks or otherwise) that Franchisor is participating as an underwriter,
issuer, or officer of Franchisee's or Franchisor's securities; and
Franchisor's review of any offering shall be limited solely to the subject
of the relationship between Franchisee and Franchisor. Franchisee and other
participants in the offering must fully indemnify Franchisor in connection
with the offering. For each proposed offering, Franchisee shall pay to
Franchisor a non-refundable fee of Five Thousand Dollars, or such greater
amount as is necessary to reimburse Franchisor for its reasonable cost and
expenses associated with reviewing the proposed offering, including,
without limitation, legal and accounting fees.
12.5 Non-Waiver of Claims
--------------------
Franchisor's consent to a transfer of any interest in the franchise granted
herein shall not constitute a waiver of any claims it may have against the
transferring party, nor shall it be deemed a waiver of Franchisor's fight
to demand exact compliance with any of the terms of this Agreement by the
transferee.
13. DEFAULT AND TERMINATION
-----------------------
13.1 Franchisee shall be deemed to be in default under this Agreement, and
all rights granted herein shall automatically terminate without notice to
Franchisee, if Franchisee shall become insolvent or makes a general
assignment for the benefit of creditors; or if a petition in bankruptcy is
filed by Franchisee or such a petition is filed against and consented to by
Franchisee; or if Franchisee is adjudicated a bankrupt; or if a bill in
equity or other proceeding for the appointment of a receiver of Franchisee
or other custodian for Franchisee's business or assets is filed and
consented to by Franchisee; or if a receiver or other custodian (permanent
or temporary) of Franchisee's assets or property, or any part thereof, is
appointed by any court of competent jurisdiction; or if proceedings for a
composition with creditors under any state or federal law is instituted by
or against Franchisee; or if a final judgement against Franchisee remains
unsatisfied or of record for ninety days or longer (unless a supersedeas
bond is filed); or if Franchisee is dissolved; or if execution is levied
against any asset of the Franchised Business, or suit to foreclose any lien
or mortgage against any asset of the Franchised Business is instituted
against Franchisee and not dismissed within ninety days; or if any asset of
the Franchised Business is sold after levy.
13.2 Franchisee shall be deemed to be in default and Franchisor may, at its
option, terminate this Agreement and all rights granted hereunder, without
affording Franchisee any opportunity to cure the defaults, effective
immediately upon receipt of notice by Franchisee upon the occurrence of
any of the following:
13.2.1 If Franchisee ceases to do business at the Approved
Location, or ceases to operate the Franchised Business under the
Proprietary Marks and System, or loses the fight to possession of the
Franchised Business, or otherwise forfeits the right to conduct the
Franchised Business at the Approved Location; provided, however, that
if the cessation of business or loss of possession results from the
governmental exercise of the power of eminent domain, or a fire
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or other casualty, through no fault of Franchisee, then, in such
event, this Agreement shall not be terminated for that reason for six
months thereafter, provided that within that time Franchisee applies
for a receives Franchisor's approval to reconstruct or relocate the
Franchised Business, which approval shall not unreasonably be
withheld;
13.2.2 If Franchisee fails to commence construction within the time
frame and in accordance with all of the terms and conditions of this
Agreement;
13.2.3 If Franchisee fails to meet its Completion Date within
the time frame and in accordance with all of the terms and conditions
of this Agreement;
13.2.4 If a threat or danger to public health or safety results from
the construction, maintenance, or operation of the Franchised Business and
an immediate shutdown thereof is reasonably determined by Franchisor to be
essential to avoid a substantial liability or loss of goodwill; provided,
however, Franchisor shall reinstate this Agreement within six months after
termination under this Section 13.2.4, if, within that period, the threat
or danger to public health or safety is eliminated and Franchisor, in its
sole discretion, reasonably determines that reopening the Franchised
Business would not cause a substantial loss of goodwill;
13.2.5 If Franchisee or any guarantor of this Agreement is
convicted of a felony or any other crime or offense that is reasonably
likely, in the sole opinion of Franchisor, to adversely affect the
System, the Proprietary Marks, the goodwill associated therewith or
Franchisor's interest therein;
13.2.6 If Franchisee or any partner or shareholder in Franchisee
purports to transfer any rights or obligations under this Agreement or
any interest in Franchisee or in the Franchised Business or in the
substantial portion of the assets of the Franchised Business to any
third party without the Franchisor's prior written consent, or in a
manner violative of this Agreement;
13.2.7 If Franchisee intentionally discloses or divulges the
contents of the Manuals or other trade secrets or confidential
information provided to Franchisee by Franchisor to any unauthorized
person or fails to exercise reasonable care to prevent such
disclosure;
13.2.8 If, following Franchisee's death or mental incompetency,
an approved transfer is not effected within the time frame and in
accordance with the provisions of Section 12.3 hereof;
13.2.9 If Franchisee intentionally or negligently makes any
material false statements or omissions to Franchisor in connection
with Franchisee's application for the franchise granted herein, or in
connection with any information submitted to Franchisor; or
13.2.10 If Franchisee misuses or makes any unauthorized use of
the Proprietary Marks or otherwise impairs the goodwill associated
therewith or Franchisor's rights therein.
13.3 Except as provided in Sections 13.1 and 13.2 of this Agreement,
Franchisee shall have thirty days (or such longer period as Franchisor may
specify) from receipt of a written Notice of Termination (citing the
reason(s) therefor) within which to remedy any default hereunder and
provide evidence thereof to Franchisor. If any such default is not cured
within that time, or such longer period as applicable law may require (or
such longer period as may be reasonably required by Franchisee to cure any
non-monetary default if Franchisee immediately commences, diligently and in
good faith pursues, and cures such default), this Agreement shall terminate
without further notice to Franchisee effective immediately upon the
expiration of the thirty day period, expiration of any extended period as
described above, or such longer period as applicable law may require.
Franchisee shall be in default hereunder for any failure to comply with any
of the requirements imposed by this Agreement, as it may from time to time
reasonably be supplemented by the Manuals, or to carry out the terms of
this Agreement in good faith, Such defaults shall include, for example,
without limitation, the occurrence of any of the following:
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13.3.1 If Franchisee fails, refuses, or neglects to pay
promptly any monies owing to Franchisor or its subsidiaries or
affiliates when due, or to submit the financial information or other
reports required by Franchisor under this Agreement;
13.3.2 If Franchisee fails to pay all its financial obligations
to third parties in the ordinary course of business;
13.3.3 If Franchisee, by act or omission, allows a continued
violation in connection with the operation of the Franchised Business,
of any law, ordinance, rule or regulation of a governmental agency, in
the absence of a good faith dispute over its application or legality
and without having promptly resorted to an appropriate administrative
or judicial forum for relief therefrom;
13.3.4 If Franchisee misuses or makes any unauthorized use of
the Proprietary Marks or otherwise impairs the goodwill associated
therewith or Franchisor's rights therein; or
13.3.5 If Franchisee is in default of or terminated any
management agreement under which the Franchised Business is operated
if, as a result of such default or termination, Franchisee fails to
operate the Franchised Business in compliance with the terms and
conditions of this Agreement.
13.4 Franchisee may terminate this Agreement on the anniversary date of the
fifth year of its execution by giving written notice no more than fifteen
months but no less than twelve months prior to such anniversary date to
Franchisor. The notice shall be accompanied by a lump sum payment equal to
the total of all amounts required under Section 4 hereof for the thirty-six
calendar months of operation preceding the notice.
14. OBLIGATIONS UPON TERMINATION
----------------------------
Upon termination or expiration of this Agreement, this Agreement and all
rights granted hereunder to Franchisee shall forthwith terminate, and:
14.1 Franchisee shall immediately cease to operate the Franchised Business
as a System hotel and shall not thereafter, directly or indirectly,
represent to the public or hold itself out as a present or former
franchisee of Franchisor.
14.2 Franchisee shall immediately and permanently cease to use, by
advertising or in any other manner whatsoever, the names "MICROTEL",
"MICROTEL & SUITES", "MICROTEL SUITES", and "SAVINGS YOU CAN SLEEP ON" and
other Proprietary Marks of Franchisor, any other identifying characteristics
of the System, and all confidential methods, procedures and techniques
associated with the System. Franchisee shall promptly remove from its place
of business, and discontinue using for any purpose, any and all signs,
fixtures, furniture, furnishings, equipment, advertising materials,
stationery, supplies, forms or other articles which display the Proprietary
Marks or any distinctive features or designs associated with the System.
Any signs containing the Proprietary Marks which Franchisee is unable to
remove within one day of expiration or termination of this Agreement shall
be completely covered by Franchisee until the time of their removal.
14.3 Franchisee shall, at its expense, immediately make such modifications
or alterations as may be necessary to distinguish the Franchised Business
so clearly from its former appearance and from other Microtel hotels,
Microtel & Suites hotels, or Microtel Suites hotels operated under the
System as to prevent any possibility of confusion therewith by the public,
and to prevent the operation of any business at the Approved Location by
Franchisee or others in derogation of this Paragraph 14.3 (including,
without limitation, removal or changing of the triple gabled roof line, the
semi-circular window in the front lobby wall, the floor-to-ceiling mirrors
behind the bed, the built-in furnishings in the guest rooms (e.g. the
night-stands and desks), and the removal of all distinctive physical and
structural features identifying Microtel hotels, Microtel & Suites hotels,
or Microtel Suites hotels in the System, removal of all distinctive signs
and emblems, and removal or changing of any design or decor features that
Franchisor, in its discretion, determines to be indicative of hotels
operating under the System. Further, until all modifications and
alterations required by this Paragraph 14.3 are
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completed, Franchisee shall (i) maintain a conspicuous sign at the
registration desk in a form specified by Franchisor stating that the
Franchised Business is no longer associated with the Microtel System, and
(ii) advise all customers or prospective customers telephoning the
Franchised Business that it is no longer associated with the Microtel
System. If Franchisee fails to initiate immediately and complete such
alterations when required by this Paragraph 14.3, Franchisee agrees that
Franchisor or its designated agents may enter the premises and adjacent
areas at any time and make such alterations, at Franchisee's sole risk and
expense, without responsibility for any actual or consequential damages to
the property of Franchisee or others, and without liability for trespass or
other tort or criminal act. Franchisee expressly acknowledges that its
failure to make such alterations will cause irreparable injury to
Franchisor.
14.4 Franchisee shall take such action as may be necessary to cancel any
assumed name or equivalent registration which contains the name "MICROTEL",
"MICROTEL & SUITES", "MICROTEL SUITES", or any variation thereof or any
other service mark or trademark of Franchisor, and Franchisee shall furnish
Franchisor with evidence satisfactory to Franchisor of compliance with this
obligation within thirty days after termination or expiration of this
Agreement.
14.5 Franchisee shall promptly pay all sums owing to Franchisor and its
subsidiaries and affiliates, including all damages, costs and expenses,
including reasonable attorneys' fees, incurred by Franchisor as a result of
the default. Franchisor shall have the right within sixty days following
termination or expiration of this Agreement, to inspect Franchisee's hotel
premises and offices, and conduct a review and/or an audit of Franchisee's
books and records, for the purpose, among other things, of assuring
Franchisee's compliance with the provisions of this Section 14.
14.6 In the event of termination as a result of Franchisee's default under
Sections 13.1, 13.2, or 13.3, of this Agreement, Franchisee agrees to pay
Franchisor a lump sum payment (for premature termination only, and not as a
penalty or in lieu of any other payments required under this Agreement),
equal to the total of all amounts required under Section 4 hereof for the
thirty-six calendar months of operation preceding Franchisee's default, or
in the event the Franchisee has not been operating for thirty-six months,
an amount equal to the average of the monthly amounts required under
Section 4 hereof during the months that Franchisee was operating pursuant
to this Agreement, multiplied by thirty-six. Franchisor shall not be
limited to the provisions of this Section 14.6 with respect to its rights
or remedies arising out of Franchisee's default under Section 13, but shall
be entitled to pursue all available remedies at law or in equity including,
without limitation, recovery of damages and lost future profits.
14.7 Franchisee shall pay to Franchisor all damages, costs and expenses,
including reasonable attorneys' fees, incurred by Franchisor subsequent to
the termination or expiration of the franchise herein granted in obtaining
injunctive or other relief for the enforcement of any provisions of this
Section 14.
14.8 Franchisee shall immediately turn over to Franchisor all manuals,
including the Manuals, records, files, instructions, correspondence, and
all other materials provided by Franchisor related to the operation of the
Franchised Business, and all copies thereof (all of which are acknowledged
to be Franchisor's property), and shall retain no copy or record of any of
the foregoing, excepting only Franchisee's copy of this Agreement and of
any correspondence between the parties, and any other documents which
Franchisee reasonably needs for compliance with any provision of law.
14.9 Franchisee hereby assigns to Franchisor all right, title, and interest
in any telephone numbers and business listings used by Franchisee in
connection with its conduct of the Franchised Business, and agrees that any
such right, title or interest may be assumed by Franchisor, at Franchisor's
option, upon termination or expiration of this Agreement. If the Telephone
Listing Agreement is not in a form acceptable to the telephone company
servicing the Franchised Business, Franchisee shall execute such other
similar telephone number assignment agreement provided by Franchisor.
Franchisee also hereby appoints Franchisor as its attorney-in-fact with
full power and authority to execute on Franchisee's behalf any documents
that are necessary to effectuate such an assignment.
14.10 Franchisor shall have the right, but not the duty, to be exercised by
notice of intent to do so within thirty days after termination or
expiration, to purchase any and all signs, advertising materials, supplies
and inventory and any other items bearing Franchisor's Proprietary Marks,
at Franchisee's cost, or, in the case of
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capital equipment, at Franchisee's net book value. With respect to any
purchase by Franchisor as provided herein, Franchisor shall have the right
to set off all amounts due from Franchisee under this Agreement.
15. COVENANTS
---------
15.1 Franchisee specifically acknowledges that, pursuant to this Agreement,
Franchisee will receive valuable specialized training and confidential
information, including, without limitation, information regarding the
operational, sales, promotional, and marketing methods and techniques of
Franchisor and the System. Franchisee covenants that it will at all times
retain and exercise management control over the Franchised Business.
Franchisee's General Manager shall devote full time, energy and best
efforts to the management and operation of the Franchised Business.
Franchisee's General Manager shall not, except as otherwise approved in
writing by Franchisor (which approval shall not be unreasonably withheld),
assist, promote, or engage in any competing business and shall use every
reasonable means to encourage use by the public of Microtel hotels,
Microtel & Suites hotels, and Microtel Suites hotels owned by other
franchisees. The General Manager shall not engage in any other business or
activity, directly or indirectly which requires substantial managerial
responsibility and which may conflict with Franchisee's or General
Manager's obligations herein.
15.2 Franchisee covenants that during the term of this Agreement, except as
otherwise approved in writing by Franchisor, Franchisee shall not, either
directly or indirectly, for itself, or through, on behalf of, or in
conjunction with any person, persons, partnership or corporation, divert or
attempt to divert any business or customer of the Franchised Business or
other franchisee, to any competitor, or competing business, by direct or
indirect inducement or otherwise, or do or perform, directly or indirectly,
any other act injurious or prejudicial to the goodwill associated with
Franchisor's Proprietary Marks and the System.
15.3 Franchisee represents and warrants that Franchisee has no direct or
indirect financial or management interest in any non-Microtel transient
lodging facility, except as disclosed by Franchisee in Exhibit A hereto.
Franchisee agrees to advise Franchisor of any change or modification of
such interest, or the acquisition of any new interest as soon as it occurs,
and in no event later than thirty (30) days thereafter.
15.4 Franchisee and Franchisor covenant and agree that neither party will
seek to employ any person who is at that time employed by the other party
or otherwise directly or indirectly induce such person to leave his or her
employment.
16. CORPORATE OR PARTNERSHIP FRANCHISEE
-----------------------------------
16.1 Franchisee, if a corporation, shall comply with the following
requirements:
16.1.1 Franchisee shall be newly organized and its charter
shall at all times provide that its activities are confined
exclusively to operating the Franchised Business, and other businesses
operated pursuant to franchises granted to Franchisee by Franchisor;
16.1.2 Copies of Franchisee's Articles of Incorporation, Bylaws,
and other governing documents, and any amendments thereto, including
the resolutions of the Board of Directors authorzing entry into this
Agreement shall be promptly furnished to Franchisor;
16.1.3 Franchisee shall maintain stop transfer instructions
against the transfer on its records of any equity securities, and each
stock certificate of Franchisee shall have conspicuously endorsed on
its face the following printed legend:
The transfer of the stock represented by this certificate is
subject to the terms and conditions of a Franchise Agreement
with Microtel Franchise & Development Corporation dated
, 19 . Reference is made to the provisions of the said
Franchise Agreement and to the Articles and Bylaws of this
Corporation, provided, however that this Section 16.1.3
shall not apply if Franchisee is a publicly-held
corporation.
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16.1.4 Franchisee shall maintain a current list of all owners of
record and all beneficial owners of any class of voting stock of
Franchisee and shall furnish the list to Franchisor upon request; and
16.1.5 Such shareholders of Franchisee as specified by
Franchisor shall jointly and severally guarantee Franchisee's
performance hereunder and shall bind themselves to the terms of this
Agreement.
16.2 Franchisee, if a partnership, shall comply with the following
requirements throughout the term of this Agreement:
16.2.1 Franchisee shall furnish Franchisor with its partnership
agreement as well as such other documents as Franchisor may reasonably
request, and any amendments thereto; and
16.2.2 Franchisee shall prepare and furnish to Franchisor, at
any time, upon request, a list of all general and limited partners in
Franchisee.
17. TAXES, PERMITS, AND INDEBTEDNESS
--------------------------------
17.1 Franchisee shall promptly pay when due all taxes levied or assessed by
any federal, state, or local tax authority, and any and all other
indebtedness incurred by Franchisee in the conduct of the Franchised
Business. Franchisee shall pay to Franchisor an amount equal to any sales
tax, gross receipts tax, or similar tax imposed on Franchisor with respect
to any payments to Franchisor required under this Agreement, unless the tax
is credited against income tax otherwise payable by Franchisor.
17.2 In the event of any bona fide dispute as to liability for taxes
assessed or other indebtedness, Franchisee may contest the validity of the
amount of the tax or indebtedness in accordance with the procedures of the
taxing authority or applicable law; however, in no event shall Franchisee
permit a tax sale or seizure by levy of execution or similar writ or
warrant, or attachment by a creditor, to occur against the Franchised
Business or any of its assets.
17.3 Franchisee shall maintain compliance with all federal, state, and
local laws, rules, and regulations and shall timely obtain any and all
permits, certificates or licenses necessary for the full and proper conduct
of the business franchised under this Agreement, including, without
limitation, licenses to do business, fictitious name registration, sales
tax permits, health and sanitation permits and ratings, and fire
clearances. Copies of all inspection reports, warnings, certificates, and
ratings issued by any governmental entity during the term of this Agreement
in connection with the conduct of the Franchised Business which indicate
Franchisee's failure to meet or maintain Franchisor's standards or less
than full compliance with any applicable law, rule, or regulation shall be
forwarded to Franchisor by Franchisee within five days after Franchisee's
receipt thereof.
17.4 Franchisee shall notify Franchisor in writing within five days after
the commencement of any action, suit, or proceeding and of the issuance of
any order, walt, injunction, award, or decree of any court, agency, or
other governmental instrumentality which may adversely affect the operation
or financial condition of the Franchised Business.
18. INDEPENDENT CONTRACTOR AND INDEMNIFICATION
------------------------------------------
18.1 It is understood and agreed by the parties hereto that this Agreement
does not create a fiduciary relationship between them, and Franchisee shall
be an independent contractor and that nothing in this Agreement is intended
to constitute either party an agent, legal representative, subsidiary,
joint venturer, partner, employee or servant of the other for any purpose
whatsoever.
18.2 During the term of this Agreement and any extensions hereof,
Franchisee shall hold itself out to the public as an independent contractor
operating the business pursuant to a franchise from Franchisor and as an
authorized user of the Proprietary Marks which are owned by Franchisor.
Franchisee agrees to take such
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affirmative action as may be necessary to do so, including, without
limitation, exhibiting a notice of that fact in a place on the premises of
the Franchised Business as required under Section 6.2.3 hereof.
18.3 It is understood and agreed that nothing in this Agreement authorizes
either party to make any contract, agreement, warranty or representation on
the other's behalf, or to incur any debt or other obligation in the other's
name, and that neither party shall in any event assume liability for, or be
deemed liable hereunder as a result of, any such action, or by reason of
any act or omission of the other party or any claim or judgement arising
therefrom. Franchisee shall indemnify and hold Franchisor harmless against
any and all claims arising directly or indirectly from, as a result of, or
in connection with, Franchisee's operation of the Franchised Business, as
well as the costs, including reasonable attorneys' fees, of defending
against them. Franchisor shall indemnify and hold Franchisee harmless
against any and all claims arising directly or indirectly from, as a result
of, or in connection with Franchisor's acts (except as set forth in this
Section 18.3 and Section 19.2) as well as the costs, including reasonable
attorneys' fees, of defending against them. Franchisee agrees that all of
the obligations of Franchisor under this Agreement are to Franchisee, and
no other party is entitled to rely on, enforce, or obtain relief for breach
of such obligations either directly or indirectly or by subrogation.
Franchisor shall not indemnify or hold Franchisee harmless against any
action or claim by any third party based upon Franchisor's exercise of any
of its rights in accordance with the terms of this Agreement.
19. APPROVALS AND WAIVERS
---------------------
19.1 Whenever this Agreement requires the prior approval or consent of
Franchisor, Franchisee shall make a timely written request to Franchisor
therefor, and such approval or consent shall be obtained in writing.
19.2 Except as otherwise provided in this Agreement or any other written
agreement between Franchisor and Franchisee, Franchisor makes no warranties
or guarantees upon which Franchisee may rely. Franchisor assumes no
liability or obligation to Franchisee, by providing any waiver, approval,
consent, or suggestion to Franchisee in connection with this Agreement or
by reason of any delay or denial of any request made therefor.
19.3 No failure of a party to exercise any power reserved to it by this
Agreement, or to insist upon strict compliance by the other party with any
obligation or condition hereunder, and no custom or practice of the parties
at variance with the terms hereof, shall constitute a waiver of such
party's right thereafter to demand exact compliance with any of the terms
herein. Waiver by a party of any particular default by the other party
shall not affect or impair such party's rights with respect to any
subsequent default of the same, similar, or different nature; not shall any
delay, forbearance, or omission of a party to exercise any power or right
arising out of any breach or default by the other party of any of the
terms, provisions, or covenants hereof, affect or impair such party's right
to exercise the same.
20. NOTICES
-------
Any and all notices required or permitted under this Agreement shall be in
writing and shall be delivered by any means which will provide evidence of
the date received, to the respective parties at the following addresses
unless and until a different address has been designated by written notice
to the other party:
Notices to FRANCHISOR: Microtel Franchise & Development Corporation
One Airport Way
Suite 200
Rochester, New York, 14624
Notices to FRANCHISEE:
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
Any notice shall be deemed to have been given at the date and time it is
received.
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21. ENTIRE AGREEMENT
----------------
This Agreement, the documents referred to herein, and the Attachments
hereto, if any, constitute the complete Agreement between Franchisor and
Franchisee concerning the subject matter hereof, and supersede all prior
agreements, no other representations having induced Franchisee to execute
this Agreement. Except for those permitted to be made unilaterally by
Franchisor hereunder, no amendment, change, or variance from this Agreement
shall be binding on either party unless executed by both parties in
writing.
22. SEVERABILITY AND CONSTRUCTION
-----------------------------
22.1 Except as expressly provided to the contrary herein, each provision of
this Agreement shall be considered severable; and if, for any reason, any
provision herein is determined to be invalid and contrary to, or in
conflict with, any existing or future law or regulation by a court or
agency having valid jurisdiction, such shall not impair the operation of,
or have any other effect upon, such other provisions of this Agreement as
may remain otherwise intelligible, and the latter shall continue to be
given full force and effect and bind the parties hereto and the invalid
provision shall be deemed not to be a part of this Agreement.
22.2 Except as expressly provided to the contrary herein, nothing in this
Agreement in intended, nor shall be deemed, to confer upon any person or
legal entity other than Franchisee, Franchisor, Franchisor's officers,
directors, and employees, and such of Franchisee's and Franchisor's
respective successors and assigns as may be contemplated (and, as to
Franchisee, permitted by Section 12 hereof), any rights or remedies under
or by reason of this Agreement.
22.3 Franchisee expressly agrees to be bound by any promise or covenant
imposing the maximum duty permitted by law which is subsumed within the
terms of any provision hereof, as though it were separately articulated in
and made a part of this Agreement, that may result from striking from any
of the provisions hereof any portion or portions which a court may hold to
be unreasonable and unenforceable in a final decision to which Franchisee
is a party, or from reducing the scope of any promise or covenant to the
extent required to comply with such a court order.
23. APPLICABLE LAW
--------------
23.1 This Agreement takes effect upon its acceptance and execution by
Franchisor in the State of New York, and shall be interpreted and construed
under the laws of the State of New York. In the event of any conflict of
law, the laws of New York shall prevail, without regard to, and without
giving effect to, the application of New York conflict-of-laws rules. If,
however, any provision of this Agreement, including, without limitation,
the covenants in Section 15, would not be enforceable under the laws of New
York and the Franchised Business is located outside of New York, then such
covenants shall be interpreted and construed under the laws of the state in
which the Franchised Business is located. Nothing in this Section 23.1 is
intended by the parties to subject this Agreement to any franchise law or
similar law, rule, or regulation of the State of New York to which it would
not otherwise be subject.
23.2 The parties agree that any action brought by either party against the
other in any court, whether federal or state, shall be brought within the
State of New York in the judicial district in which Franchisor has its
principal place of business and do hereby waive all questions of personal
jurisdiction or venue for the purpose of carrying out this provision.
23.3 No right or remedy conferred upon or reserved to Franchisor or
Franchisee by this Agreement is intended to be, nor shall be deemed,
exclusive of any other right or remedy herein or by law or equity provided
or permitted, but each shall be cumulative of every other right or remedy.
23.4 Nothing herein contained shall bar either party's right to obtain
injunctive relief against threatened conduct that will cause it loss or
damages, under the usual equity rules, including the applicable rules for
obtaining restraining orders and preliminary injunctions.
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24. ACKNOWLEDGEMENTS
----------------
24.1 Franchisee acknowledges that Franchisee has conducted an independent
investigation of the business franchised hereunder and recognizes that the
business venture contemplated by this Agreement involves business risks and
that its success will be largely dependent upon the ability of Franchisee
as an independent businessman. Franchisor expressly disclaims the making
of, and Franchisee acknowledges that Franchisee has not received, any
warranty or guarantee, express or implied, as to the potential volume,
profits, or success'of the business venture contemplated by this Agreement.
24.2 Franchisee acknowledges that Franchisee received a completed copy of
this Agreement, the attachments hereto, if any, and agreements relating
thereto, if any, at least five business days prior to the date on which
this Agreement was executed. Franchisee further acknowledges that
Franchisee has received the disclosure document required by the Trade
Regulation Rule of the Federal Trade Commission entitled Disclosure
Requirements and Prohibitions Concerning Franchising and Business
Opportunity Ventures, at least ten business days prior to the date on which
this Agreement was executed.
24.3 Franchisee acknowledges that it has read and understood this
Agreement, the attachments hereto, if any, and agreements relating thereto,
if any, and that Franchisor has accorded Franchisee ample time and
opportunity to consult with advisors of Franchisee's own choosing about the
potential benefits and risks of entering into this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed, sealed, and
delivered this Agreement on the day and year first above written.
ATTEST: MICROTEL FRANCHISE AND DEVELOPMENT CORPORATION
----------------------------------------------
Franchisor
By:
- ------------------ -------------------------------
Title:
-------------------------------
ATTEST:
----------
Franchisee
By:
- ------------------ -------------------------------
Witness Title:
-------------------------------
By:
- ------------------ -------------------------------
Title:
-------------------------------
23
<PAGE>
GUARANTEE
---------
As an inducement to Microtel Franchise & Development Corporation
("Franchisor") to execute the Franchise Agreement with
--------------------
(" Franchisee" ), dated , 19 ,
- --------------- ---------------------------- -----
(the "Agreement") the undersigned, jointly and severally, hereby agree to
be bound by all the terms and conditions of the above Agreement, including
any amendments thereto whenever made, and unconditionally guarantee to
Franchisor and its successors and assigns that all of Franchisee's
obligations under the Agreement will be promptly paid and performed.
Upon default by Franchisee, the undersigned will immediately make each
payment and perform each obligation required of Franchisee under the
Agreement; provided, however, that the undersigned hereby waive any right
to require Franchisor to: (a) proceed against Franchisee for any payment or
performance under the Agreement; (b) proceed against or exhaust any
security from Franchisee; or (c) pursue or exhaust any remedy, including
any legal or equitable relief; against Franchisee. Without affecting the
obligations of the undersigned under this Guarantee, Franchisor may without
notice to the undersigned extend, modify, or release any indebtedness or
obligation of Franchisee, or settle, adjust, or compromise any claims
against Franchisee. The undersigned waive notice of amendment of the
Agreement and notice of demand for payment or performance by Franchisee.
This Guarantee shall terminate upon the termination or expiration of the
Agreement, and the undersigneds' obligations and liabilities shall cease
upon such termination; provided however, that all obligations and
liabilities which arose on or before such termination shall remain in full
force and effect until satisfied or discharged by undersigned. Upon the
death of an individual guarantor, the estate of such guarantor will be
bound by this Guarantee but only for defaults and obligations hereunder
existing at the time of death, and the obligations of the other guarantors
will continue in full force and effect.
Unless specifically stated otherwise, the terms used in this Guarantee
shall have the same meaning as in the Agreement, and this Guarantee shall
be interpreted and construed in accordance with Section 22 of the
Agreement. This Guarantee shall be interpreted and construed under the laws
of the State of New York, in accordance with the provisions of Section 23
of the Agreement.
IN WITNESS WHEREOF, each of the undersigned has signed this Guarantee as of
the date of the Franchise Agreement.
ATTEST: GUARANTOR
- ------------------ -------------------------------
Witness
- ------------------ -------------------------------
Witness
- ------------------ -------------------------------
Witness
24
<PAGE>
Schedule 19.1.3
---------------
<TABLE>
<S> <C>
Burton S. August, Rochester NY. Charles J. August, Rochester NY.
Robert W,. August, Rochester NY. John Berg, Gettysburg, PA
Dorman Blaine, Knoxville, TN Mrs. Lois Bowie, Bristol, TN
Capitol Lodging, Rochester, NY Conifer Development Corp., Rochester NY.
Anthony J. Costello, Rochester NY. Costello, Spoleta, Schuster Vent., Rochester, NY
Robert L Cottier, Rochester NY. Richard Crossed, Rochester NY.
William Cull, Lexington, KY M.J. Daya, Galax, VA
Rick Dorschel, Rochester NY. Keith Eck, Williamsport, PA
William J. Erdle III, Rochester NY. Essex Investment Group
Seymour Fogel, Pittsford, NY Adelaide Fox, Rochester NY.
Richard C. Fox, Rochester NY. Jack M. Gallagher, Manning, SC
Robert V. Gianniny, Rochester NY. G&W Land Assocs., Rochester NY.
VanBuren Hansford Jr., Rochester NY. William B. Hale II, Rochester NY.
Kevin Ison, Cumberland, KY George Justus, Pittsford, NY
Elliott Landsman, Rochester NY Philip Lama, Scottsdale, AZ
Alan Lockwood, Victor, NY Charles McReynolds, Biloxi, MS
Edward Marchewka, Sewickley, PA Micro Lodgings, Concord, NC
Kenper W. Miller, Pittsford, NY Louise J. Miller, Palm Beach, FL
David Mitchell, Pittsford, NY M.L.R&R Family Partnership, Canandaigua, NY
NWO Motel Developers, Inc. Troy, OH Paramount/Unicorn, Rochester, NY
B. Patel, Youngstown, OH Bhikhu Patel, Pigeon Forge, TN
Bhupendra (Bob) Patel, Springfield, MO Chimenlal Patel, Pigeon Forge, TN
Jay Patel, Pigeon Forge, TN Rohit Patel, Concord, NC
V.N. Ptel, Charlotte, NC Pegasus I, LLC, Galax, VA
Dabney Resnick, Inc. Los Angeles, CA Peter B. & Katherine W. Roby, Canandaigua, NY
Rochester Hospitality Partners LP, Rochester, NY RTR Transportation, Rochester NY.
Harold Bruce Russell, Pittsford, NY Richard Sands, Canandaigua, NY
Frank M. Shumway Jr., Rochester NY. J.D. Singh, Youngstown, OH
David Spoleta, Rochester NY. Michael Spoleta, Rochester NY.
Spoleta Construction & Development Co., Rochester NY. James Stiles, McAllen, TX
Stonehurst Capital, Rochester, NY Stonehurst Hospitality L.P., Rochester, NY
Sweta Enterprises, Pigeon Forge, TN Tropics Hotel Ltd.McAllen, TX
Justin L Vigdor, Pittsford, NY William Warren, Rochester NY.
Douglas G. Weins, Rochester NY. Westboro Properties, LLC, Rochester, NY
Wilson Enterprises, Rochester NY Jerry Manion, Phoenix, AZ
Ron Fielding, Rochester, NY Bruce Rettinger, Kansas City, MO
Mike Rosen, Rochester, NY Dave Aull, Kansas City, MO
Ron Sample, Kansas City, MO
</TABLE>
24
<PAGE>
Attachment A
to
MICROTEL FRANCHISE AND DEVELOPMENT CORPORATION
FRANCHISE AGREEMENT
1. The Approved Location for the Franchised Business shall be
----------------
. (See Section 1.1 ).
- ---------------------------------------
2. The Franchised Business shall be a Microtel and
----------------------
shall have a total of rooms, consisting of standard Guest Rooms,
------- ----- ---
Suites (See Section 4.1 ).
- --------
3. The following is a list of direct or indirect financial or management
interests in non-Microtel transient lodging facilities held or owned by
Franchisee (Section 15.3):
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
Initial: Date:
-------- ---------
(Franchisee)
Initial: Date:
-------- ---------
(Microtel Franchise and Development Corporation)
<PAGE>
Attachment B
to
MICROTEL FRANCHISE AND DEVELOPMENT CORPORATION
FRANCHISE AGREEMENT
COLLATERAL ASSIGNMENT OF TELEPHONE NUMBERS AND LISTINGS
-------------------------------------------------------
THIS ASSIGNMENT is entered into this day of , 19 ,
----------- -------------- --
in accordance with the terms of that certain Microtel Franchise & Development
Corporation Franchise Agreement (the "Franchise Agreement") between Microtel
Franchise & Development Corporation ("Franchisor"), and
-----------------------,
("Franchisee") executed concurrently with this Assignment, under which
Franchisor granted Franchisee the right to own and operate a Franchised Business
located at .
----------------------------
FOR VALUE RECEIVED, Franchisee hereby assigns to Franchisor, all of
Franchisee's right, title and interest in and to those certain telephone numbers
and regular, classified or other telephone directory listings (collectively the
"Telephone Numbers and Listings") associated with Franchisor's trade and service
marks and used from time to time in connection with the operation of the
Franchised Business at the address provided above. This Assignment is for
collateral purposes only and, except as specified herein, Franchisor shall have
no liability or obligation of any kind whatsoever arising from or in connection
with this Assignment, unless Franchisor shall notify the telephone company
and/or the listing agencies with which Franchisee has placed telephone directory
listings (all such entities are collectively referred to herein as the
"Telephone Company"), to effectuate the assignment pursuant to the terms hereof.
Upon termination or expiration of the Franchise Agreement (without renewal
or extension), Franchisor shall have the right and is hereby empowered to
effectuate the assignment of the Telephone Numbers and Listings, and, in such
event, Franchisee shall have no further right, title or interest in the
Telephone Numbers and Listings and shall remain liable to the Telephone Company
for all past due fees owing to the Telephone Company on or before the effective
date of the assignment hereunder.
Franchisee agrees and acknowledges that as between Franchisor and
Franchisee, upon termination or expiration of the Franchise Agreement,
Franchisor shall have the sole right to and interest in the Telephone Numbers
and Listings, and Franchisee appoints Franchisor as Franchisee's true and lawful
attorney-in-fact to direct the Telephone Company to assign same to Franchisor,
and execute such documents and take such action as may be necessary to
effectuate the assignment. Upon such event, Franchisee shall immediately notify
the Telephone Company to assign the Telephone Numbers and Listings to
Franchisor. If Franchisee fails to promptly direct the Telephone Company to
assign the Telephone Numbers and Listings to Franchisor, Franchisor shall direct
the Telephone Company to effectuate the assignment contemplated hereunder to
Franchisor. The parties agree that the Telephone Company may accept Franchisor's
written direction, the Franchise Agreement or this Assignment as conclusive
proof of Franchisor's exclusive rights in and to the Telephone Numbers and
Listings upon such termination or expiration and that such assignment shall be
made automatically and effective immediately upon Telephone Company' s receipt
of such notice
<PAGE>
from Franchisor or Franchisee. The parties further agree that if the Telephone
Company requires that the parties execute the Telephone Company's assignment
forms or other documentation at the time of termination or expiration of the
Franchise Agreement, Franchisor's execution of such forms or documentation on
behalf of Franchisee shall effectuate Franchisee's consent and agreement to the
assignment. The parties agree that at any time after the date hereof, they will
perform such acts and execute and deliver such documents as may be necessary to
assist-in or accomplish the assignment described herein upon termination or
expiration of the Franchise Agreement.
ASSIGNEE: ASSIGNOR:
- ---------- ---------
MICROTEL FRANCHISE AND
DEVELOPMENT CORPORATION
- ----------------------- -----------------------
Franchisor Franchisee
By: By:
------------------ -------------------
Name: Name:
---------------- ------------------
Title: Title:
--------------- -----------------
ACCEPTED AND AGREED TO BY:
- ---------------------------------------------
(Telephone Company Authorized Representative)
- ----------------------------
(Name of Telephone Company)
<PAGE>
EXHIBIT D
State Administrators
--------------------
California Department of Corporations
- ----------
3700 Wilshire Boulevard
Suite 600
Los Angeles, CA 90010
213-736-2741
Hawaii Director of Commerce and Consumer Affairs
- ------
1010 Richards Street
Honolulu, HI 96813
808-548-2021
Illinois Illinois Attorney General's Office
- --------
500 South Second Street
Springfield, IL 62706
217-782-4465
Indiana Indiana Secretary of State
- -------
302 W. Washington Street, Room E-111
Indianapolis, IN 46204
317-232-6681
Maryland Office of the Attorney General
- --------
Division of Securities
200 St. Paul Street, 20th Floor
Baltimore, MD 21202-2020
410-576-7044
Michigan Department of the Attorney General
- --------
Consumer Protection Division
Franchise Section
670 Law Building
Lansing, MI 48913
517-373-7117
Minnesota Office of the Commissioner of Commerce
- ---------
Department of Commerce
133 E Seventh Street
St. Paul, MN 55101
612-296-6328
New York New York State Department of Law
- --------
Bureau of Investor Protection and Securities
120 Broadway, 23rd Floor
New York, NY 10271
212-416-8211
1
<PAGE>
State Administrators
---------------------
(continued)
-----------
North Dakota Securities Commissioner
- ------------ 600 East Boulevard, 5th Floor
Bismarck, ND 58505
701-224-4712
Oregon Department of Consumer and Business Services
- ------ Division of Finance and Corporate Securities
Labor and Industries Building
Salem, OR 97310
Rhode Island Department of Business Regulation
- ------------ Suite 232, 233 Richmond Street
Providence, RI 02903-4232
401-277-3048
South Dakota Division of Securities
- ------------ 118 West Capitol
Pierre, SD 57501
605-773-4013
Virginia Division of Securities and Retail Franchising
- -------- Director, State Corporation Commission
1300 E. Main Street, 9th Floor
Richmond, VA 23219
804-371-9051
Washington Department of Financial Institutions
- ----------- Securities Division
P.O. Box 9033
Olympia, WA 98507-9033
206-902-8760
Wisconsin Office of the Commissioner of Securities
- --------- P.O. Box 1768
Madison, WI 53701
608-266-8559
2
<PAGE>
EXHIBIT E
Agents Authorized to Receive Service of Process
-----------------------------------------------
California Commissioner of Corporations
- ---------- Department of Corporations
3700 Wilshire Blvd., 6th Floor
Los Angeles, CA 90010
Hawaii Director of Department of Commerce and Consumer Affairs
- ------ 1010 Richards Street
Honolulu, HI 96813
Illinois Illinois Attorney General
- -------- 500 South Second Street
Springfield, IL 62706
Indiana Secretary of State of Indiana
- ------- 201 Statehouse
200 West Washington Street,
Indianapolis, IN 46204
Maryland Maryland Securities Commissioner
- -------- Maryland Division of Securities
Office of the Attorney General
200 St. Paul Street, 20th Floor
Baltimore, MD 21202-2020
Michigan Michigan Department of Commerce
- -------- Corporation and Securities Bureau
6546 Mercantile Way
PO Box 30222
Lansing, MI 48910
Minnesota Commissioner of Commerce of Minnesota
- --------- Department of Commerce
133 East Seventh Street
St. Paul, MN 55101
New York Secretary of State of the State of New York
- -------- 162 Washington Avenue
Albany, NY 12231
1
<PAGE>
Agents Authorized to Receive Service of Process
-----------------------------------------------
(continued)
North Dakota The Securities Commissioner
- ------------ State Capital
Bismarck, ND 58505
Oregon Director
- ------- Department of Insurance and Finance
21 Labor & Industries Building
Salem, OR 97310
Rhode Island Director of Department of Business Regulation
- ------------ Suite 232
233 Richmond Street
Providence, RI 02903-4232
South Dakota Director. Division of Securities
- ------------ Department of Commerce and Regulation
State Capitol
Pierre, SD 57501-2017
Virginia Clerk of the State Corporation Commission
- -------- 1300 E. Main Street
Richmond, VA 23209
Washington Director of the Department of Financial Institutions
- ---------- Securities Division
210 11th Street S.W.
Olympia, WA 98504
Wisconsin Commissioner of Securities
- --------- 111 West Wilson Street
PO Box 1768
Madison, WI 53702
2
<PAGE>
EXHIBIT "C"
-----------
Development Schedule
Cumulative 7 5 % o f
Number Cumulative
Scheduled to Number
Date of be Open or
P e r i o d End of Under
No. Period Development by
the end of the
Period
1 One year 0 0
after
Commencement
Date
2 Two years 50 38
after
Commencement
Date
3 Three years 100 75
after
Commencement
Date
4 Four years 175 131
after
Commencement
Date
5 Five years 250 188
after
Commencement
Date
/s/ /s/
- --------------------- -------------------------
Newco's Initials The Company's Initials
<PAGE>
EXHIBIT "D"
-----------
Documentation to be supplied to the Company at or prior to Closing:
1. Copy of the Offering Memorandum utilized by Newco.
2. Current UFOC disclosure document to be utilized by Newco.
3. Copy of the executed employment agreement between Newco and the CEO
candidate.
4. Copy of the current employment agreement for the CEO candidate.
5. Copy of the organizational corporate documents for Newco, certified by its
corporate secretary.
<PAGE>
EXHIBIT "E"
-----------
[Warrants for 100,000 Shares of Voting Common Stock in the Company]
EXHIBIT "F"
-----------
Section 1060 Allocation
<PAGE>
Agreement and Warrant to Purchase 100,000 Common Shares
to
U.S. FRANCHISE SYSTEMS, INC.
This certifies that, for value received, U.S. Franchise Systems, Inc.,
the registered holder hereof or its assign (the "Warrantholder") is
entitled to purchase from Microtel Franchise and Development Corporation, a
New York corporation with its principal office at One Airport Way, Suite
200, Rochester, New York (the "Company") one hundred thousand (100,000)
shares of common stock of the Company (the "Shares") at or before 5:00 p.m.
Eastern Standard Time on September 1, 2000 at the purchase price per share
of $ (the "Warrant Price"), subject to the following terms and
-------
conditions. The number of Shares purchasable upon exercise of this Warrant
and the Warrant Price per Share shall be subject to adjustment from time to
time as set forth herein.
1. Consideration. This Warrant is granted as part of the consideration for
--------------
the Joint Venture Agreement between the parties hereto dated September 1,
1995.
2. Exercise. This Warrant may be exercised in whole or in part by
---------
presentation of this Warrant with the Purchase Form as attached hereto
duly completed and executed, together with payment of the Warrant Price at
the principal office of the Company. Payment of the Warrant Price may be
made in cash, by wire transfer or by check. Upon surrender of the Warrant
and payment of such Warrant Price as aforesaid, the Company shall issue
and cause to be delivered with all reasonable dispatch to or upon the
written order of the Warrantholder and in such name or names as the
Warrantholder may designate a certificate or certificates for the number
of full Shares so purchased upon the exercise of the Warrant, together
with Fractional Warrants, as provided in Section 8 hereof, in respect of
any fractional Shares otherwise issuable upon such surrender. Such
certificate or certificates shall be deemed to have been issued and any
person so designated to be named therein shall be deemed to have become a
holder of record of such Shares as of the date of the surrender of the
Warrant and the payment of the Warrant Price, as aforesaid,
notwithstanding that the certificates representing the Shares shall not
actually have been delivered or that the stock transfer books of the
Company shall then be closed. The Warrant shall be exercisable, at the
election of the Warrantholder, either in full or from time to time in part
and, in the event that a certificate evidencing the Warrant is exercised
in respect of less than all of the Shares specified therein at any time
prior to the Termination Date, a new certificate evidencing the remaining
Warrant will be issued by the Company.
3. Reservation of Shares. There has been reserved, and the Company shall at
---------------------
all times keep reserved so long as the Warrant remains outstanding, out of
its authorized Common Shares, such number of Shares as shall be subject to
purchase under the Warrant. Every transfer agent for the Common Shares and
other securities of the Company issuable upon the exercise of the Warrant
will be irrevocably authorized and directed at all times to reserve such
number of authorized Shares and other securities as shall be requisite for
such purpose. The Company will keep a copy of this Warrant on file with
every transfer agent for the Common Shares and other securities of the
Company issuable upon the exercise of
1
<PAGE>
the Warrant. The Company will supply such transfer agent with duly
executed stock and other certificates for such purpose.
4. Further Obligations of Company. The Company covenants and agrees that all
------------------------------
Shares which may be delivered upon exercise of this Warrant shall, upon
delivery, be fully paid and non-assessable, and be free from all taxes,
liens and charges with respect to the purchase thereof hereunder, and
without limiting the generality of the foregoing, the Company covenants
and agrees that it shall from time to time take all such action as may
be necessary to assure that the par value per share of the Common Shares
is at all times equal to or less than the then current Warrant Price per
share of the Common Shares issuable pursuant to this Warrant.
5. Registration and Transfer. The Warrant shall be registered on the books of
-------------------------
the Company when issued and shall be transferable only on the books of the
Company maintained at its principal office in Rochester, New York, or
wherever its principal executive offices may then be located, upon
delivery thereof duly endorsed by the Warrantholder or its duly
authorized attorney or representative, or accompanied by proper evidence
of succession, assignment or authority to transfer. Upon any registration
or transfer, the Company shall execute and deliver a new Warrant to the
person entitled thereto. Notwithstanding any other provision hereof, this
Warrant may not be transferred to any person other than an affiliate of
Warrantholder without the express written consent of the Company.
6. Exchange of Warrant Certificate. This Warrant certificate may be exchanged
-------------------------------
for another certificate or certificates entitling the Warrantholder to
purchase a like aggregate number of Shares as the certificate or
certificates surrendered then entitled the Warrantholder to
purchase. The Warrantholder desiring to exchange a Warrant certificate
shall make such request in writing delivered to the Company, and shall
surrender, properly endorsed, the certificate evidencing the Warrant to be
so exchanged. Thereupon, the Company shall execute and deliver to the
person entitled thereto a new Warrant certificate as so requested.
7. Adjustment of Warrant Price and Number of Shares.
------------------------------------------------
7.1. General. The number of Shares purchasable upon the exercise of the
-------
Warrant and the Warrant Price shall be subject to adjustment
from time to time upon the happening of certain events, as
follows:
7.1.1 In case the Company shall, with regard to its Common Shares
(or securities convertible into or exchangeable for Common
Shares) (A) pay a dividend in Common Shares or make a
distribution in Common Shares, (B) subdivide its outstanding
Common Shares into a greater number of Shares, (C) combine
its outstanding Common Shares into a smaller number of
Common Shares, or (D) issue by reclassification of its
Common Shares other securities of the Company, the number
of Shares purchasable upon exercise of the Warrant
immediately prior
2
<PAGE>
thereto shall be adjusted so that the Warrantholder shall be
entitled to receive the kind and number of Shares or other
securities of the Company which it would have owned or would
have been entitled to receive after the happening of any of
the events described above, had the Warrant been exercised
immediately prior to the happening of such event or any
record date with respect thereto. Any adjustment made
pursuant to this subsection shall become effective
immediately after the effective date of such event
retroactive to the record date, if any, for such event.
7.1.2. In case the Company shall fix a record date for the issuance
of rights or warrants to all holders of Common Shares
entitling them for a period expiring within forty-five (45)
calendar days (after such record date) to subscribe for or
purchase Common Shares at a price per share of Common Shares
less than the Closing Price per share of Common Shares on
such record date, the Warrant Price to be in effect after
such record date shall be determined by multiplying the
Warrant Price in effect immediately prior to such record
date by a fraction, of which the numerator shall be the
number of shares of Common Shares outstanding on such record
date plus the number of shares of Common Shares which the
aggregate offering price of the total number of shares of
Common Shares so to be offered would purchase at such
Closing Price and of which the denominator shall be the
number of shares of Common Shares outstanding on such record
date plus the number of additional shares of Common Shares
to be offered for subscription or purchase. Shares of Common
Shares owned by or held for the account of the Company shall
not be deemed outstanding for the purpose of any such
computation. Such adjustments shall be made successively
whenever such record date is fixed; and in the event that
such rights or warrants are not so issued, the Warrant Price
shall again be adjusted to be the Warrant Price which would
then be in effect if such record date had not been fixed.
7.1.3. In case the Company shall fix a record date for the making
of a distribution to all holders of Common Shares (including
any distribution made in connection with a consolidation or
merger in which the Company is the continuing corporation)
of evidence of indebtedness or assets (other than cash
dividends or cash distributions payable out of consolidated
earnings or earned surplus or dividends payable in Common
Shares) or subscription rights or warrants (excluding those
referred to in Section 7.1.2), the Warrant Price to be in
effect after such record date shall be determined by
multiplying the Warrant Price in effect immediately prior to
such record date by a fraction of which the numerator shall
be the Closing Price per shares of Common Shares on such
record date, less the fair market value (as determined by
the Board of Directors of the Company, whose determination
shall be conclusive absent manifest error) of the portion of
the assets or evidences of indebtedness so to be distributed
or of such subscription rights or warrants applicable to one
share of
3
<PAGE>
Common Shares and of which the denominator shall be the
Closing Price per share of Common Shares. Such adjustments
shall be made successively whenever such a record date is
fixed; and in the event that such distribution is not so
made, the Warrant Price shall again be adjusted to be the
Warrant Price which would then be in effect if such record
date had not been fixed.
7.1.4. No adjustment in the number of Shares purchasable hereunder
shall be required unless such adjustment would require an
increase or decrease of at least one percent in the
aggregate number of Shares then purchasable upon the
exercise of the Warrant; provided however, that any
adjustments which by reason of this Section 7.14 are not
required to be made immediately shall be carried forward and
taken into account in any subsequent adjustment.
7.1.5. Whenever the number of Shares purchasable upon the exercise
of the Warrant is adjusted as herein provided, the Warrant
Price payable upon exercise of the Warrant shall be adjusted
by multiplying such Warrant Price immediately prior to such
adjustment by a fraction, of which the numerator shall be
the number of Shares purchasable upon the exercise of the
Warrant immediately prior to such adjustment, and of which
the denominator shall be the number of shares so purchasable
immediately thereafter. Whenever the Warrant Price is
adjusted as herein provided, the number of Shares
purchasable upon the exercise of the Warrant shall be
adjusted so that thereafter the Warrant shall evidence the
right to purchase, at the adjusted Warrant Price, that
number of Shares obtained by multiplying the number of
Shares converted by the Warrant Price in effect immediately
prior to such adjustment and dividing the product so
obtained by the Warrant Price in effect immediately after
such adjustment.
7.1.6. Whenever the number of Shares purchasable upon the exercise
of this Warrant or the Warrant Price is adjusted as herein
provided, the Company shall cause to be promptly mailed to
the Warrantholder in accordance with the provisions of
Section 10 hereof, notice of such adjustment or adjustments
and a certificate of a firm of independent public
accountants selected by the Board of Directors of the
Company (who may be the regular accountants employed by the
Company) setting forth the number of Shares purchasable upon
the exercise of the Warrant and the Warrant Price after
such adjustment, a brief statement of the facts requiring
such adjustment, and the computation by which such
adjustment was made.
7.1.7. For the purpose of this Section 7.1, the term "Common
Shares" shall mean (A) the class of shares designated as (or
convertible or exercisable for) the Common Shares of the
Company at the date of this Agreement, or (B) any other
class of shares resulting from successive changes or
reclassifications of such Common Shares including changes in
par value, or from par value to no par value, or
4
<PAGE>
from no par value to par value. In the event that at any
time, as a result of an adjustment made pursuant to this
Section 7, the Warrantholder shall become entitled to
purchase any shares of the Company other than Common Shares,
thereafter the number of such other shares so purchasable
upon exercise of the Warrant and the Warrant Price of such
shares shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to
the provisions with respect to the Shares contained in this
Section 7.
7.2. No Adjustment of Dividends. Except as provided in Section
--------------------------
7.1, no adjustment in respect of regular cash dividends shall be made
during the term of the Warrant or upon the exercise of the Warrant.
7.3. Preservation of Purchase Rights upon Reorganization, Reclassification,
----------------------------------------------------------------------
Consolidation, Merger, etc. In case of any capital reorganization or
--------------------------
reclassification of the Common Shares of the Company, or in case of
any consolidation of the Company with or merger of the Company into
another corporation or in case of any sale or conveyance to another
person of the property, assets or business of the Company as an
entirety or substantially as an entirety, the Company or such
successor or purchaser, as the case may be, shall execute with the
Warrantholder an agreement that the Warrantholder shall have the right
thereafter upon payment of the Warrant Price in effect immediately
prior to such action to purchase upon exercise of the Warrant the kind
and amount of shares and other securities and property which it would
have owned or have been entitled to receive after the happening of
such reorganization or reclassification, consolidation, merger, sale
or conveyance had the Warrant been exercised immediately prior to such
action. In the event of a merger described in Section 368(a)(2)(E) of
the Internal Revenue Code of 1986, as amended, in which the Company is
the surviving corporation, the right to purchase Shares under the
Warrant shall terminate on the date of such merger and thereupon the
Warrant shall become null and void but only if the controlling
corporation shall agree to substitute for the Warrant its warrant
which entitles the holder thereof to purchase upon its exercise the
kind and amount of shares and other securities and property which it
would have owned or had been entitled to receive had the Warrant
been exercised immediately prior to such merger. The adjustments
required by this Section 7.3 shall be effected in a manner which shall
be as nearly equivalent as may be practicable to the adjustments
provided for elsewhere in this Section 7. The provisions of this
Section 7.3 shall similarly apply to successive consolidations,
mergers, sales or conveyances.
7.4. Statement on Warrants. Irrespective of any adjustments in the
---------------------
Warrant Price or the number or kind of Shares purchasable upon the
exercise of the Warrant, the Warrant certificate or certificates
theretofore or thereafter issued may continue to express the same
price and number and kind of Shares as are stated in this initially
issued Warrant.
5
<PAGE>
8. Fractional Shares. The Company shall not be required to issue
-----------------
fractional Shares on the exercise of the Warrant. If any fraction of a
Share would, except for the provisions of this Section 8, be issuable
on the exercise of the Warrant (or specified portion thereof), the
Company shall issue to the Warrantholder a fractional Warrant
entitling Warrantholder, upon surrender with other fractional Warrants
aggregating one or more full Shares, to purchase such full Shares. If
fractional Warrants do not aggregate a full Share, their value (over
and above their exercise price) shall be paid in full in cash upon
exercise to the exercising Warrantholder.
9. No Rights as Shareholder; Notices to Warrantholder. Nothing
--------------------------------------------------
contained in this Agreement or in any of the Warrants shall be
construed as conferring upon the Warrantholder or its transferees any
rights as a shareholder of the Company, including the right to vote,
receive dividends, or consent as a shareholder in respect of any
meeting of shareholders for the election of directors of the Company
or any other matter. However, the Company shall be required to give
notice in writing to the Warrantholder of any meeting of shareholders
of the Company or any proposed consent of the shareholders as provided
in Section 10 hereof at least twenty (20) days prior to the date fixed
as a record date or the date of closing the transfer books for the
determination of the shareholders entitled to any relevant dividend,
distribution, subscription rights or other rights or for the
determination of shareholders entitled to vote at any such meeting or
as to which any consent is requested. Such notice shall specify such
record date or the date of closing the transfer books, as the case
may be.
10. Notices. Any notice pursuant to this Agreement by the Company or by
-------
the Warrantholder shall be in writing and shall be deemed to have been
duly given if delivered by hand or if mailed by certified mail, return
receipt requested, postage prepaid, addressed as follows:
10.1. If to the Warrantholder - addressed to U.S. Franchise Systems,
Inc. at ...
10.2. If to the Company - addressed to Microtel Franchise and
Development Corporation, One Airport Way, Suite 200, Rochester
International Airport, Rochester, New York 14624, Attention:
Bruce A. Sahs, Vice President or to such other address as any
such party may designate by notice to the other party. Notices
shall be deemed given at the time they are delivered personally
or three days after they are mailed in the manner set forth
above.
11. Successors. All the covenants and provisions of this Agreement by or
----------
for the benefit of the Company or the Warrantholder shall bind and
inure to the benefit of their respective successors and assigns
hereunder.
12. Merger or Consolidation of the Company. The Company will not merge or
--------------------------------------
consolidate with or into any other corporation or sell all or
substantially all of its property to another person, unless the
provisions of Section 7.3 are complied with.
6
<PAGE>
13. Applicable Law. This Agreement shall be deemed to be a contract made
--------------
under the laws of the State of New York and for all purposes shall be
construed in accordance with the laws of said State applicable to
contracts made and to be performed entirely within such State.
14. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
15. Headings. The headings in this Agreement are for reference purposes
----------
only and shall not affect in any way the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officers and the corporate seal hereunto fixed.
MICROTEL FRANCHISE AND
DEVELOPMENT CORPORATION
(corporate seal) By:
-----------------------
Attest: E. Anthony Wilson
Chairman
- ----------------------
Alan S. Lockwood,
Secretary
7
<PAGE>
EXHIBIT F
---------
<TABLE><CAPTION>
Interest Paid
at 10% Per
Annum Consulting Principal Total Payment
----- ---------- --------- -------------
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Payment at Closing $400,000.00 $1,600,000.00 $2,000,000.00
- ------------------------------------------------------------------------------------------------
Payment 1 yr. after Closing $143,764.00 150,000.00 706,236.00 1,000,000.00
- ------------------------------------------------------------------------------------------------
Payment 2 yrs. after Closing 73,141.00 150,000.00 276,860.00 500,000.00
- ------------------------------------------------------------------------------------------------
Payment 3yrs. after Closing 45,455.00 454,545.00 500,000.00
- ------------------------------------------------------------------------------------------------
$4,000,000.00
=============
- ------------------------------------------------------------------------------------------------
Purchase Price Allocation
Consulting Services (Section 5) $700,000.00
Category III Assets (Except trademarks and
trade names) and Warrant
(Allocation to Warrant to be mutually
agreed upon by Company and Newco prior
to Closing) $3,037,641.00
-------------
Total Purchase Price $3,737,641.00
=============
</TABLE>
<PAGE>
Schedule 10.1.1
---------------
Microtel Franchise & Development Corporation is registered to do business in the
following States:
Pennsylvania
Tennessee
New York
Ohio
North Carolina
Kentucky
It is the Company's policy, on the advice of Tax Advisors, to register in states
only where there is royalty income upon the contracting of the second franchised
unit, and therefore is not registered to do business in Texas and Alabama.
We are in the process of registering in West Virginia.
1
<PAGE>
Schedule 10.1.2(a}
------------------
FRANCHISE REGISTRATION STATUS
-----------------------------
Status Effective Date Renewal Date
------ -------------- ------------
F.T.C. States Effective 6/27/95 6/30/96
Indiana Effective 8/14/95 7/14/96
Kentucky Exempt 12/21/94 -
Maryland Effective 9/28/94 9/7/95
Michigan Effective 5/12/95 5/12/96
Minnesota Effective 8/7/95 7/7/96
North Dakota Effective 7/31/95 7/10/96
Nebraska Exempt 11/10/93 -
New York Effective 8/22/95 7/22/96
Oregon Effective 6/27/95 6/27/96
Rhode Island Effective 7/31/95 7/1/96
Texas Exempt 5/16/88 -
Virginia Effective 7/14/95 6/29/96
Washington Effective 7/31/95 7/10/96
Wisconsin Effective 7/31/95 7/10/96
2
<PAGE>
Schedule 10.1.2(b)
------------------
The UFOC dated June 27, 1995 has not been updated or modified except for
specific Addenda, which incorporates and demonstrates compliance with various
Franchise and Relationship Rules that are required for Registration in certain
states. The effective and renewal dates of each state addendum are listed in
Schedule 10.1.2(a).
3
<PAGE>
Schedule 10.1.2(c)
------------------
No states have refused, by order or otherwise, to register these franchise
documents. No states have revoked or suspended the right to offer these
franchises. The registration of these franchises has not been involuntarily
withdrawn in any state.
Renewal Applications have also been submitted to the following states in a
timely manner, but are pending approvals from the relevant authorities:
California Expiration date: 7/20/95
Hawaii 6/30/95
Illinois 7/31/95
South Dakota 7/29/95
4
<PAGE>
Schedule 10.1.3
---------------
No shareholder approval is required, except for a name change.
Third party approval is required from M&T Bank, and the Rochester Bond Fund for
Growth
5
<PAGE>
SCHEDULE 10.1.5 (a)
LITIGATION
Pending litigation:
Seagate Beach Quarters vs. Hudson. Updated in latest 10-Q.
Miranda vs. Hudson. Updated in 10-Q.
Ladenburg, Thalmann vs. Microtel. See 10-Q;
Microtel vs. Country Inn Hotel, Inc. and Joseph Gelloso.
Microtel re NWO Hotel Developers, Inc.-Microtel has issued a demand letter
for unpaid royalties under the Franchise Agreement
Microtel vs. Carl Millstein, Trustee, et.al.--re Independence, Ohio--suit
to recover $20,000 deposit on aborted real estate deal. I will provide
further information.
Watertown Hotel Properties-An employee of a subcontractor sued Spoleta
Construction and Watertown for injuries suffered on the job site. Watertown
Hotel Corp., General Partner of Watertown Hotel Properties, is a subsidiary
of Microtel. No action has been taken on this suit in more than one year.
10.1.5 (b) None
<PAGE>
Schedule 10.1.5(b)
-------------------
None
7
<PAGE>
Schedule 10.1.6
---------------
1. Microtel Franchise & Development Corporation v. Country Inn Hotel,
-------------------------------------------------------------------
Inc. et al Civil Action No. 95-CV-6108L (W.D.N.Y.).
----------
2. N.W.O. Motel Developers, Inc., Troy, Ohio. Demand letter sent for
unpaid Royalty Fees.
8
<PAGE>
Schedule 10.1.8
---------------
M&T Bank
Rochester Bond Fund for Growth
9
<PAGE>
Schedule 10.1.9(a)
------------------
1. A Canadian telecommunications corporation which does business under
the trade name "Microtel" has registered that trademark in the United
States for use in the telecommunications industry. In July 1988 that
corporation wrote to the Company demanding that it cease and desist
the use of the trade name "Microtel". The Company responded that its
use is in no way conflicting or confusing with the use of the name in
the telecommunications industry, and that the Company intended to
continue to register and use its service mark. The Company does not
anticipate that the objections of the Canadian telecommunications
corporation will prevent either the use or the federal registration
of the Company's service mark.
2. In April 1992, Hutchinson Microtel Ltd., a telecommunications
company in the United Kingdom, challenged the Company's intended use
of the Microtel wordmark and logo (Class 42) in connection with the
use of hotel reservation telephone booths in airports, bus stations,
railwaystations, etc. They claim prior registration of the name, and
expressed concern that it would create confusion to the public if
they also position telephone booths in the same locations, relating
to their telecommunications services available to the public.
After advice from the Company's Patent Attorney in the United Kingdom
in May 1993, the Company withdrew the Application for the Microtel
wordmark and logo in Class 42, and in submitted new Applications for
the design/logo only, in Classes 35 and 42. The two Applications were
approved and have been recorded in the U.K. Trade Mark Register.
10
<PAGE>
Schedule 10.1.10
----------------
Microtel Franchise & Development Corporation has granted the non-exclusive
right to use the Proprietary Marks to those Franchisees listed in Schedule
10.1.12.
With respect to EMILI, those rights will cease upon the termination of the
Master Franchise Agreement.
11
<PAGE>
Schedule 10.1.11(a)
--------------------
Confidential and Proprietary Information:
-----------------------------------------
Prototypical Plans Specifications Design Manual Operations Manual
Prototypical Plans
Specifications
Design Manual
Operations Manual
12
<PAGE>
Schedule 10.1.11(b)
-------------------
None
13
<PAGE>
<TABLE><CAPTION>
14
Schedule 10.1.12
----------------
FRANCHISE AGREEMENTS -
- ----------------------------------------------------------------------------------------------------------------------------
Location Franchisee Address Phone Fax Signed Opened
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Allentown, PA Stonehurst Hospitality L.P. 890 Clinton Sq., 716-325-8080 325-8086 12/31/92 5/12/93
Rochester, NY 14604
- ----------------------------------------------------------------------------------------------------------------------------
Birmingham, AL Essex Hospitality Assocs. III 100 Corporate Woods 716-272-2300 272-2396 12/30/93 9/21/94
L.P. Rochester, NY 14624
- ----------------------------------------------------------------------------------------------------------------------------
Charleston, WV Essex Charleston Assocs. LP 100 Corporate Woods 716-272-2300 272-2396 11/20/92 5/5/93
Rochester, NY 14623
- ----------------------------------------------------------------------------------------------------------------------------
Chattanooga, TN Essex Hospitality Assocs. III 100 Corporate Woods 716-272-2300 272-2396 2/24/95 U.constr.
L.P. Rochester, NY 14623
- ----------------------------------------------------------------------------------------------------------------------------
Colonie, NY Rochester Hospitality Partners, 890 Clinton Square 716-325-8080 325-8086 12/2/94 5/4/95
L.P. Rochester, NY 14604
- ----------------------------------------------------------------------------------------------------------------------------
Columbus, OH Essex Microtel Assocs. LP 100 Corporate Woods 716-272-2300 272-2396 7/26/91 1/10/92
Rochester, NY 14623
- ----------------------------------------------------------------------------------------------------------------------------
Erie, PA Essex Microtel Assocs, II L.P. 100 Corporate Woods 716-272-2300 272-2396 12/31/92 9/22/93
Rochester, NY 14623
- ----------------------------------------------------------------------------------------------------------------------------
Gatlinburg, TN Gatlinburg Microtel L.P. 120 Market Place Blvd 615-693-8900 693-7894 4/20/92 4/29/94
Knoxville, TN 37922
- ----------------------------------------------------------------------------------------------------------------------------
Greensboro, NC Rochester Hospitality Partners, 890 Clinton Square 716-325-8080 325-8086 7/31/95 7/21/95
L.P. Rochester, NY 14604
- ----------------------------------------------------------------------------------------------------------------------------
Kingsport, TN Essex Microtel Assocs. II L.P. 100 Corporate Woods 716-272-2300 272-2396 12/10/92 11/10/93
Rochester, NY 14623
- ----------------------------------------------------------------------------------------------------------------------------
Knoxville, TN Essex Knoxville Assocs. L.P. 100 Corporate Woods 716-272-2300 272-2396 6/17/93 8/8/94
Rochester, NY 14623
- ----------------------------------------------------------------------------------------------------------------------------
Lake Norman, NC Pegasus I, L.L.C. 312 W. Stuart Drive 703-236-5117 -- 3/17/94 U.constr
Galex, VA 24333
- ----------------------------------------------------------------------------------------------------------------------------
Lancaster, NY Essex Microtel 1989 L.P. 100 Corporate Woods 716-272-2300 272-2396 12/29/89 7/19/90
Rochester, NY 14623
- ----------------------------------------------------------------------------------------------------------------------------
Lehigh, NY Essex Microtel Lehigh L.P. 100 Corporate Woods 716-272-2300 272-2396 1/10/89 7/12/89
Rochester, NY 14623
- ----------------------------------------------------------------------------------------------------------------------------
Lexington, KY c/o Microtel Lexington 2240 Buena Vista Rd. 606-299-9600 -- 10/25/89 5/26/90
Lexington, KY 40505
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------
Company Company
Location Managed Interest Notes:
<S> <C> <C> <C>
- --------------------------------------------------------------------
Allentown, PA Yes None Amendment to
Franchise
Agreement to be
executed today
- --------------------------------------------------------------------
Birmingham, AL No None
- --------------------------------------------------------------------
Charleston, WV No None
- --------------------------------------------------------------------
Chattanooga, TN No None
- --------------------------------------------------------------------
Colonie, NY Yes Limited Partner 20%
- --------------------------------------------------------------------
Columbus, OH No None
- --------------------------------------------------------------------
Erie, PA No None
- --------------------------------------------------------------------
Gatlinburg, TN Yes Limited Partner 10%
- --------------------------------------------------------------------
Greensboro, NC Yes Limited Partner 20%
- --------------------------------------------------------------------
Kingsport, TN No None
- --------------------------------------------------------------------
Knoxville, TN No None
- --------------------------------------------------------------------
Lake Norman, NC No None Permission to
substitute equipment
See 10.1.15, Item 20
- --------------------------------------------------------------------
Lancaster, NY No None
- --------------------------------------------------------------------
Lehigh, NY No None
- --------------------------------------------------------------------
Lexington, KY No None
- --------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE><CAPTION>
- -------------------------------------------------------------------------------------------------------------
Location Franchisee Address Phone Fax Signed
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
McAllen, TX Tropics Hotel Ltd. 801 E. Expwy. 83 210-630-2727 630-0666 6/30/93
McAllen, TX 78503
- -------------------------------------------------------------------------------------------------------------
Pigeon Forge, TN Micro Lodgings 2451 Kannapolis Hgwy. 704-788-8550 -- 6/16/93
Concord, NC 28025
- -------------------------------------------------------------------------------------------------------------
Sevierville, TN Sweta Enterprises 2613 Smokey Drive 615-429-2047 -- 3/20/94
Pigeon Forge, TN 37863
- -------------------------------------------------------------------------------------------------------------
Syracuse, NY Essex Microtel Carrier Circle 100 Corporate Woods 716-272-2300 272-2396 6/17/92
L.P. Rochester, NY 14623
- -------------------------------------------------------------------------------------------------------------
Tonawanda, NY Hagel-Essex Microtel L.P. 100 Corporate Woods 716-272-2300 272-2396 4/10/92
Rochester, NY 14623
- -------------------------------------------------------------------------------------------------------------
Troy, OH N.W.O. Developers, Inc. 1210 Brukner Drive 513-335-0013 -- 9/15/89
Troy, OH 45373
- -------------------------------------------------------------------------------------------------------------
Victor, NY Rochester Hospitality Partners 890 Clinton Square 716-325-8080 325-8086 5/26/94
L.P. Rochester, NY 14604
- -------------------------------------------------------------------------------------------------------------
Watertown, NY Essex Microtel Leray L.P. 100 Corporate Woods 716-272-2300 272-2396 6/15/89
Rochester, NY 14623
- -------------------------------------------------------------------------------------------------------------
Youngstown, OH Essex Microtel Assocs. II L.P. 100 Corporate Woods, 710-272-2300 272-2396 6/17/93
Rochester, NY 14623
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Company Company
------- -------
Location Opened Managed Interest Notes:
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
McAllen, TX 4/1/94 No None --
- ----------------------------------------------------------------------------------------------------
Pigeon Forge, TN 10/21/94 Yes None Exclusive territory of
Pigeon Forge. See
10.1.19
- ----------------------------------------------------------------------------------------------------
Sevierville, TN U.constr. No None Permission to
Include guest suites.
See 10.1.15, Item 19
- ----------------------------------------------------------------------------------------------------
Syracuse, NY 11/2/92 No None Amendment to
Franchise
Agreement to be
executed today
- ----------------------------------------------------------------------------------------------------
Tonawanda, NY 5/29/92 Yes None Amendment to
Franchise
Agreement to be
executed today
- ----------------------------------------------------------------------------------------------------
Troy, OH 9/4/90 No None Franchises
delinquent in
payment of
Royalties.
- ----------------------------------------------------------------------------------------------------
Victor, NY 10/28/94 Yes General Partner - 1% --
Limited Partner - 16.5%
- ----------------------------------------------------------------------------------------------------
Watertown, NY 9/7/90 No Special Limited --
Partnership - 4% on
profits only upon sale of
Property. Watertown
Hotel Properties II is
mortgagor for Essex
Leray, of which the
Company is General
Partner - 1%
- ----------------------------------------------------------------------------------------------------
Youngstown, OH 12/8/93 No None --
</TABLE>
15
<PAGE>
<TABLE><CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Location Franchisee Address Phone Fax Signed Opened
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Morrisville, NC Rochester Hospitality Partners, 890 Clinton Square 716-325-8080 325-8086 Not yet
L.P. Rochester, NY 14604 signed
- --------------------------------------------------------------------------------------------------------------------------
Charlotte, NC Rochester Hospitality Partners, 890 Clinton Square 716-325-8080 325-8086 Not yet
(I-85) L.P. Rochester, NY 14604 signed
- --------------------------------------------------------------------------------------------------------------------------
Charlotte, NC Rochester Hospitality Partners, 890 Clinton Square 716-325-8080 325-8086 Not yet
(USHwy.29) L.P. Rochester, NY 14604 signed
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------
Company Company
------- --------
Location Managed Interest Notes:
- ---------------------------------------------------------------------
<S> <C> <C>
Morrisville, NC Yes General Partner - 1%
Limited Partner - 16.5%
- ---------------------------------------------------------------------
Charlotte, NC Yes General Partner - 1%
(I-85) Limited Partner- 16.5%
- ---------------------------------------------------------------------
Charlotte, NC Yes General Partner - 1%
(USHwy.29) Limited Partner - 16.5%
- ---------------------------------------------------------------------
</TABLE>
16
<PAGE>
Schedule 10.1.13
----------------
No exceptions
17
<PAGE>
Schedule 10.1.14
----------------
Exceptions to Tax Representation - None
18
<PAGE>
Schedule 10.1.15
----------------
Written or Oral Contracts
-------------------------
1. All Franchise Agreements as disclosed in schedule 10.1.12.
------------------------
2. MFDC and Wilkenson Enterprises, Inc. 11/10/89
---------------------------------------------
Includes eleven franchises on a right of first refusal basis in
Lexington, Kentucky; the Commonwealth of Kentucky; Knoxville,
Tennessee; Chattanooga, Tennessee; the "Interstate 75 corridor"
including all interchanges in the State of Tennessee. The agreement
exists in a loose letter form. It expired as of December 31, 1993 and
was in default of the development schedule as of December 31, 1990.
Only one franchise was licensed or attempted (Lexington, Kentucky).
The developer has no further rights to develop Microtel properties
under, and MFDC has no further obligations or liability under this
Agreement.
3. MFDC and Essex Microtel International Lodging, Inc. - 2/13/91
-------------------------------------------------------------
Master franchise agreements for Canada exclusive of the Province of
Alberta. Required payments in installments of $350,000 (U.S. funds).
The agreement contains a development schedule. The development
schedule has been modified and extended several times. The obligation
is cancelable based on transfer of the world wide franchise rights. It
is MFDC's intention to Terminate the master franchise agreement with
EMILI at closing of the MFDC-Newco Agreement.
4. MFDC and S&E Hospitality Partnership Exclusive Development Agreement
---------------------------------------------------------------------
- 9/30/91
----------
Contract to allow S&E to develop within a specified territory on the
Eastern seaboard. It required the payment of a $500,000 fee to MFDC
and included a mandatory development schedule by S&E. In March 1994, a
Termination of the exclusive development agreement was executed on the
occurrence of the second consecutive default under the development
schedule by S&E. S&E retained certain prepaid franchise rights. On
June 30, 1995, MFDC reacquired substantially all of the prepaid
franchise rights with the balance of four prepaid franchise placement
fees inuring to Rochester Hospitality partners LP. No further
obligation exists with S&E. (see Rochester Hospitality partners L.P.)
5. MFDC and Rochester Hospitality Partners, L.P.
---------------------------------------------
Agreement to develop five Microtels. MFDC is a 20% limited partner and
will provide the development expertise for a fixed fee of $50,000 per
unit and ongoing hotel management services by contract. Completed
projects are Colonie, New York and Greensboro, North Carolina. Under
development are Raleigh, North Carolina, and two units in Charlotte,
North Carolina (North Charlotte and Charlotte Airport). As a result of
the S&E exclusive development area termination, the general partner of
Rochester Hospitality Partner retained four prepaid franchise
placement fees (@ $25,000). They are being applied to Colonie, New
York; Greensboro, North Carolina; Raleigh, North Carolina and the
first Charlotte Microtel completed. Each of these shall be developed
as a Retained Property. See Item 9 below.
<PAGE>
6. MDFC and Essex Partners, Inc.
-----------------------------
Various agreements between MFDC and Essex to develop and/or manage
specific Mierotels. The location of each Microtel follows; (A)
indicates a development arrangement existed; (B) indicates that a
management arrangement existed.
Microtel - Williamsville; New York (Lancaster)(A) (B)
Microtel - Tonawanda, New York (A) (B)
Microtel - Henrietta, New York (Lehigh) (B)
Microtel - Syracuse, New York (Dewitt) (A) (B)
Microtel - Watertown, New York (Leray) (B)
Microtel - Columbus, Ohio (Worthington) (A) (B)
Microtel - Allentown, Pennsylvania (A) (B)
Microtel - South Charleston, West Virginia (A) (B)
All of the above management contracts have expired with the exception
of Allentown, Pennsylvania, and Tonawanda, New York. Essex Hospitality
Management Division is now providing management services for the other
Microtel franchises.
Control of the Allentown, Pennsylvania franchise passed to Westboro
Properties, LLC as a result of termination of the S&E Hospitality
Partnership. MFDC now provides on going hotel management services to
Westboro for its Allentown franchise.
In 1990 entities related to Hudson Hotels Corporation sold two
Microtels to entities related to Essex Partners (Henrietta, New York
and Watertown, New York). Hudson Hotels developed these units on
behalf of related entities and was their general partner (Lehigh Hotel
Properties and Watertown Hotel Properties).
7. MFDC and various franchisees for consulting services
----------------------------------------------------
MFDC has provided gratis consulting services to various Microtel
franchisees as follows:
Lexington, Kentucky 1990
Troy, Ohio 1991 and 1994
Schenectady, New York (former franchisee) 1993
MFDC has no obligation to provide such services in the future.
8. MFDC and various franchisees for management services
----------------------------------------------------
MFDC currently provides management services for the following
Microtels:
Pigeon Forge, Tennessee - Management since October, 1994.
Victor, New York - Since October, 1994. MFDC is a 17% limited
partner in Fishers Road Hotel Properties, L.P. and its
effective general partner through Victor Hotel Corporation,
a wholly owned subsidiary.
Albany (Colonie), New York - Development and management
services since May, 1995. MFDC is a 20% limited partner
(see Rochester Hospitality Partners, L.P.).
<PAGE>
Tonawanda, New York - Development and management services since
May, 1992.
Greensboro, North Carolina - Development and management services
since July, 1995. MFDC is a 20% limited partner (See Rochester
Hospitality Partners L.P.)
Allentown, Pennsylvania - Development and management services
since May, 1993. MFDC provides contracted management services
to Westboro Properties, LLC, the owner. Westboro is the
general partner of Rochester Hospitality Partners LP.
Gatlinburg, Tennessee - Development and management services
since April, 1994. MFDC is a 10% limited partner in Gatlinburg
Microtel L.P. which owns the Microtel.
9. MFDC and future development of Microtels
----------------------------------------
MFDC has sites under contract or owns land for development of future
Microtels. It is anticipated that each of these sites will be
developed as a Retained Property.
East Knoxville, Tennessee (Strawberry Plains Pike) - MFDC owns
this land and has the appropriate approvals in place. Possible
syndication via Microtel Partners 1995-I LP, a related entity
of MFDC.
Plano, Texas - MFDC owns this land parcel and has the
appropriate approvals in place. Possible syndication via
Microtel Partners 1995-I LP, a related entity of MFDC.
Tonawanda, New York - Site is owned by Microtel Partners
1995-I LP. This will be used as the first developed Microtel
Suite product. The site is adjacent to the existing Microtel
in Tonawanda, New York.
Irving, Texas - Site is under contract and MFDC is seeking the
appropriate approvals.
Raleigh, North Carolina - Site is under contract and MFDC is
seeking the appropriate approvals. This site will be owned and
franchised by Rochester Hospitality Partners L.P. of which MFDC
is a 20% limited partner.
North Charlotte, North Carolina - Site is under contract and
MFDC is seeking the appropriate approvals. This site will be
owned and franchised by Rochester Hospitality Partners L.P. of
which MFDC is a 20% limited partner.
Charlotte, North Carolina (Airport) - Site is under contract
and MFDC is seeking the appropriate approvals. This site will
be owned and franchised by Rochester Hospitality Partners LP.
of which MFDC is a 20% limited partner.
10. MFDC and Franchises under construction
--------------------------------------
MFDC has accepted payment for franchises which are currently under
construction. Each of these are included among the Existing Franchise
Agreements set forth in Schedule 10.1.12.
Lake Norman, North Carolina $25,000
Mr. M. J. Daya
<PAGE>
Pegasus I, L.L.C.
Terrence Chapel
Road Cornelius, NC
Chattanooga, Tennessee $25,000
Mr. T. Blank
Essex Hospitality Associates II L.P.
MeCutcheon Road
Chattanooga, TN 37421
Sevierville, Tennessee $25,000
Jay Patel
Sweta Enterprises
Granny's River Bottom (Highway 66)
Sevierville, TN
11. MFDC and deposits received on future franchises
-----------------------------------------------
Each of these properties, if developed, will be developed as one
of the Retained Properties.
Winston-Salem, North Carolina - 7/10/95 - $1,000. Application
received; site under contract; approval process and zoning in
progress.
G. Justus
Paramount/Unicorn
95 Allens Creek Road
Building 1, Suite 102
Rochester, NY 14618
Raleigh, North Carolina - $25,000 - from Rochester Hospitality
Partners L.P.
Charlotte, North Carolina - $25,000 - from Rochester Hospitality
Partners L.P.
Ms. Patricia Weber
Westboro Properties L.L.C.
890 Clinton Square
Rochester, NY 14604
Springfield, Missouri - $1,000 - from Bob Patel applicant.
Application received; approval process halted. Applicant seeking
approval through legal means in State Court of Appeals. Extension
of time to complete process and commence construction until
11/15/95.
Mr. B. Patel
2209 N. Glenstone
Springfield, MO 65803
Abingdon, Virginia
Carrowinds, South Carolina - two deposits of $1,000 each received
on 1/14/94 from M.J. Daya and Daya family; application has been
received, however, the development period has expired.
M. J. Daya
312 W. Stuart Drive
Galax, VA 24333
<PAGE>
Bristol, Virginia
Johnson City, Tennessee - Applications were received on 3/3/94
(Bristol) and 8/12/94 (Johnson City) with remittances of $25,000
for each site. Development period has expired. MFDC will retain
the $1,000 processing fee on each site and refund the $24,000
balance with respect to each site on closing of the MFDC/Newco
contract.
Mrs. Lois P. Bowie
Bowie Investment Company
516 Holston Avenue
Bristol, TN 37620
12. MFDC and the Costello, Spoleta, Schuster venture
------------------------------------------------
On 9/15/89, Costello, Spoleta, Schuster Venture (CSSV) signed a
franchise contract and development agreement for ten franchises to be
located at various airport locations in metropolitan areas. Five sites
were designated and five were to be later named. CSSV paid the non-
refundable fee of $250,000 associated with the ten franchises. The
franchise rights and development period have expired. The developer
has no further rights to develop Microtel properties under, and MFDC
has no further obligations or liability under this Agreement. As part
of the transaction, options for an aggregate of 15,000 shares, with an
exercise price of $1.50 per share, were transferred by Microtel
shareholders to CSSV principals.
13. MFDC and Microtel Partners - 1995 I. L.P.
-----------------------------------------
MFDC has formed a limited partnership with Michael Spoleta. The
General Partner is Microtel Partners Corporation which will be a
wholly owned subsidiary of MFDC. It is the intent to use the limited
partnership as a syndication vehicle involving several Microtels. Each
property developed by this Partnership will be a Retained Property. It
has been suggested that the following locations be included:
East Knoxville, Tennessee
Plano, Texas
Tonawanda, New York (suites prototype)
14. MFDC and Contract to Purchase the Microtel - Troy, Ohio
-------------------------------------------------------
MFDC negotiated and signed a contract to purchase the Microtel of
Troy, Ohio from NWO Hotel Developers, Inc. for cash, MFDC stock and
assumption of the first mortgage. MFDC had a right at its sole
discretion to cancel the purchase contract based on economic
feasibility during a thirty-day due diligence period. MFDC did give
timely and correct notice of cancellation of the agreement to
purchase, and resultingly, the contract is void. The Troy Microtel had
been in default of its royalty payments and was so notified prior to
negotiation of the contract. There is no change in that status as of
August 31, 1995.
15. MFDC, Watertown Hotel Corporation, Watertown Hotel Properties II
----------------------------------------------------------------
L.P. and Essex Microtel Leray L.P.
-------------- -------------------
MFDC is the parent company of Watertown Hotel Corporation (WHC).
WHC is the general partner of Watertown Hotel Properties II L.P.
(WHPII). WHPII holds the first mortgage on the Microtel located
in Leray (Watertown), New York. MFDC, by virtue of
<PAGE>
the partnership agreement, controls WHPII. Late in 1994, the terms of
the mortgage were adjusted at the request of the owner, Essex Microtel
Leray L.P. because of poor operating performance of that Microtel
unit. Certain concessions were granted and guarantees obtained; none
of these concessions involved the Franchise Agreement. The mortgage is
current based on the negotiated concessions. MFDC is a special limited
partner in Essex Microtel Leray L.P. with 4% ownership.
16. MFDC and various joint venture obligations or negotiations
----------------------------------------------------------
The following exists or existed as a result of a written joint venture
agreement, letter of intent or oral discussion. If any such property
is developed in the future, the development will be subject to the
exercise by Newco, in its discretion, of its rights as franchiser,
unless developed as a Retained Property.
Keith Eck of Centura Development, Williamport, Pennsylvania.
Discussions regarding joint venture development of a site on Fourth
Street in Williamport, Pennsylvania for development of a Microtel. No
written contract exists. Offer on the part of MFDC is predicated on
receipt of a development fee, an ongoing management contract and
control of the project as the general partner. Still in negotiation.
John Berg of Triad Corporation of Gettysburg, Pennsylvania.
Discussions of joint venture of development of a Microtel in
Harrisburg, Pennsylvania (South) based on economic feasibility,
receipt of a development fee, ongoing management contract and control
of the project as the general partner. Still in negotiation.
Edward Marchewka of Sewickley, Pennsylvania. MFDC, through a written
joint venture agreement with Edward Marehewka, agreed to jointly
pursue development of up to seven Microtel properties in Pennsylvania
and contiguous states. One site has been under development in Wexford,
Pennsylvania (Pittsburgh). The joint venture agreement continues in
full force.
Philip Lama (Lama Interests, Inc.) Scottsdale, Arizona - 10/31/94.
MFDC, through a letter of intent granted a right of first refusal to
develop Microtels in 16 Southwestern states to Philip Lama. MFDC was
to be a joint venture partner receiving development and management
fees. MFDC retained the right to cancel the obligation upon ten days
written notice. Pursuant to our right, the obligation by MFDC was
cancelled on 11/30/94.
17. MFDC and Hagel-Essex Microtel L.P. (Microtel Tonawanda, New York)
-----------------------------------------------------------------
MFDC sold two acres of a thirteen-acre site in Tonawanda, New York to
Hagel-Essex Microtel L.P. upon which a Microtel was built. The
purchase price of $500,000 required that the site contain roadside
lighting, lateral sewer and sidewalk paving. The original owner
financed the development infrastructure for the entire thirteen acres
with City of Tonawanda Bonds. MFDC has indemnified and reimburses
Hagel-Essex Microtel LP for the portion of annual bond retirement
payments included on the property tax billing to Hagel Essex Microtel
LP by the city of Tonawanda. MFDC manages this Microtel through its
Hudson Hotels management division.
18. MFDC and sale of East Knoxville land
------------------------------------
MFDC offered to sell (in letter form) to Jay Patel (the Microtel
franchisee Sevierville)
<PAGE>
the parcel owned in East Knoxville, TN (Strawberry Plains Pike) for
$485,000. Jay Patel declined to purchase the parcel. His rejection
exists in letter form.
19. MFDC and approval of non-conforming rooms at the Sevierville,
-------------------------------------------------------------
Tennessee franchise
-------------------
MFDC has allowed its franchise in Sevierville, Tennessee to include up
to four guest suites at the Microtel in Sevierville. These are non-
conforming guest room units which were allowed based upon the resort
market demand in Sevierville-Pigeon Forge-Gatlinburg market area.
20. Variance for equipment items at the Lake Norman, North Carolina
---------------------------------------------------------------
Microtel
--------
MFDC has approved the substitution of 19" remote control color
televisions as a substitute for 20" remote control televisions at the
Lake Norman, North Carolina franchise (M.J. Daya franchisee).
<PAGE>
Schedule 10.1.17
----------------
INSURANCE POLICIES (as relates to "Assets")
WORKERS COMPENSATION:
- ---------------------
Hartford Fire Insurance Company
Policy #: 01 WB E17651
Term: 4/2/95 - 4/2/96
Coverage for work related injuries to employees and officers
BUSINESS PACKAGE POLICY:
- ------------------------
Great American Insurance Companies
American National Fire Insurance Company
Policy #: MAC 073-14-62-02
Term: 4/2/95 - 4/2/96
Coverage for Commercial Business Property; commercial general liability;
commercial crime; Inland Marine
Property: Special form, replacement cost, agreed value, earthquake, flood
- ---------
Limit:
------
Contents ........................... $198,000
Deductible - Flood & Earthquake..... $ 50,000
Deductible - All other perils....... $ 2,500
Business Income:
- ----------------
Extra expense ...................... $ 25,000
General Liability:
- ------------------
General aggregate............... $3,000,000
Products/Completed Op Aggregate. $1,000,000
Personal & advertising injury... $1,000,000
Each occurrence................. $1,000,000
Fire damage .................... $ 50,000
Medical expense (any one person) $ 5,000
General liability relates to property or bodily injury while in the course
of business. It does not cover representations or warranties relating to
franchising operations or obligations. This coverage exists in excess of a
franchisee's insurance limits for liability due to property damage or
bodily injury relating to acts or negligence of franchisees.
19(a)
<PAGE>
BUSINESS AUTOMOBILE POLICY:
- ---------------------------
Hartford Insurance Company
Policy #: 01 UEN FR3054
Term: 4/2/95 - 4/2/96
Liability . . . . . . . . . . . . . . . $1,000,000
Personal injury . . . . . . . . . . . . $ 50,000
Additional personal injury . . . . . . $ 100,000
Uninsured motorist . . . . . . . . . . . $1,000,000
Underinsured motorist. . . . . . . . . . $1,000,000
Hired & non owned auto liability . . . . $1,000,000
Comprehensive & collision deductible . . $ 200
Full glass coverage all private passenger types
Rental reimbursement coverage $30 a day for 30 days
Drive other car coverage
Broadened PIP
Hired auto physical damage $30,000
UMBRELLA LIABILITY:
- -------------------
Great American Insurance Companies
American National Fire Insurance Company
Policy #: UMB 073-14-60-02
Term: 4/2/95 - 4/2/96
Limit of Liability . . . . . . . . $20,000,000
Self insured retention. . . . . . . $ 10,000
Additional general liability coverage above limits of the underlying
coverages within the primary General Liability policy. This also provides
additional coverage above the limits of the business auto policy.
19(b)
<PAGE>
Schedule 10.1.19
----------------
Rochester Hospitality Partners, L.P.
Microtel Parties 1995 I L.P.
Joint Venture E. Marchewka and Microtel Franchise & Development Corporation
Exclusive territory granted to Micro Lodgings, for the City of Pigeon Forge,
Tennessee, with a populace of 3500, bounded on the north by the Little Pigeon
River, bounded on the south by Conner Heights Road, bounded on the east by
Middle Creek Road, and bounded on the west by the commencement of the Smokey
Mountain Forest Preserve.
21
<PAGE>
Schedule 10.1.21
----------------
None
22
<PAGE>
Schedule 10.1.23
----------------
None
23
<PAGE>
SCHEDULE 10.2.1
---------------
U.S. Franchise Systems, Inc., was newly formed as a Delaware corporation
on August___, 1995. It has no prior operating history and at present has had no
taxable income. It is not registered to do business in any other State.
<PAGE>
SCHEDULE 10.2.5
---------------
(and SCHEDULE 10.2.7)
---------------------
The CEO Candidate is employed by Holiday Inns, Inc., a Tennessee corporation
("Employer") under the terms of an Employment Agreement dated October 26, 1990.
Section 2.(b) indicates that the CEO candidate is required to give six (6)
months prior written notice of any voluntary resignation. The CEO candidate has
indicated that the prior practice of the Employer is to permit employees to
resign immediately upon notice and to waive the six (6) month notice provision.
The CEO candidate has not yet accepted employment with Newco and has not yet
tendered his resignation to Employer.
<PAGE>
Schedule 19.1.3
---------------
<TABLE>
<S> <C>
Burton S. August, Rochester NY. Charles J. August, Rochester NY.
Robert W. August, Rochester NY. John Berg, Gettysburg, PA
Dorman Blaine, Knoxville, TN Mrs. Lois Bowie, Bristol, TN
Capitol Lodging, Rochester, NY Conifer Development Corp., Rochester NY.
Anthony J. Costello, Rochester NY. Costello, Spoleta, Schuster Vent., Rochester, NY
Robert L Cottier, Rochester NY. Richard Crossed, Rochester NY.
William Cull, Lexington, KY M.J. Daya, Galax, VA
Rick Dorschel, Rochester NY. Keith Eck, Williamport, PA
William J. Erdle III, Rochester NY. Essex Investment Group
Seymour Fogel, Pittsford, NY Adelaide Fox, Rochester NY.
Richard C. Fox, Rochester NY. Jack M. Gallagher, Manning, SC
Robert V. Gianniny, Rochester NY. G&W Land Assocs., Rochester NY.
VanBuren Hansford Jr., Rochester NY. William B. Hale II, Rochester NY.
Kevin Ison, Cumberland, KY George Justus, Pittsford, NY
Eliott Landsman, Rochester NY Philip Lama, Scottsdale, AZ
Alan Lockwood, Victor, NY Charles McReynolds, Biloxi, MS
Edward Marchewka, Sewickley, PA Micro Lodgings, Concord, NC
Kenper W. Miller, Pittsford, NY Louise J. Miller, Palm Beach, FL
David Mitchell, Pittsford, NY M.LR&R Family Partnership, Canandaigua, NY
NWO Motel Developers, Inc. Troy, OH Paramount/Unicorn, Rochester, NY
B. Patel, Youngstown, OH Bhikhu Patel, Pigeon Forge, TN
Bhupendra (Bob) Patel, Springfield, MO Chimenlal Patel, Pigeon Forge, TN
Jay Patel, Pigeon Forge, TN Rohit Patel, Concord, NC
V.N. Ptel, Charlotte, NC Pegasus I, LLC, Galax, VA
Dabney Resnick, Inc. Los Angeles, CA Peter B. & Katherine W. Roby, Canandaigua, NY
Rochester Hospitality Partners LP, Rochester, NY RTR Transportation, Rochester NY.
Harold Bruce Russell, Pittsford, NY Richard Sands, Canandaigua, NY
Frank M. Shumway Jr., Rochester NY. J.D. Singh, Youngstown, OH
David Spoleta, Rochester NY. Michael Spoleta, Rochester NY.
Spoleta Construction & Development Co., Rochester NY. James Stiles, McAllen, TX
Stonehurst Capital, Rochester, NY Stonehurst Hospitality L.P., Rochester, NY
Sweta Enterprises, Pigeon Forge, TN Tropics Hotel Ltd. McAllen, TX
Justin L Vigdor, Pittsford, NY William Warren, Rochester NY.
Douglas G. Weins, Rochester NY. Westboro Properties, LLC, Rochester, NY
Wilson Enterprises, Rochester NY Jerry Manion, Phoenix, AZ
Ron Fielding, Rochester, NY Bruce Rettinger, Kansas City, MO
Mike Rosen, Rochester, NY Dave Aull, Kansas City, MO
Ron Sample, Kansas City, MO
</TABLE>
24
Exhibit 11
Exhibit 11
<TABLE><CAPTION>
COMPUTATION OF EARNINGS PER COMMON SHARE
THREE MONTHS SIX MONTHS
------------ ----------
9/30/95 9/30/94 9/30/95 9/30/94
------- ------- ------- -------
PRIMARY
- --------------------------------------------
Net earnings applicable to common stock:
<S> <C> <C> <C> <C>
Net earnings $219,122 $90,312 $341,579 $147,679
Deduct preferred stock dividends paid (31,830) (31,830) (63,660) (63,660)
---------- ----------- ----------- -----------
Net earnings applicable to common stock
$187,292 $ 58,482 $277,919 $84,019
=========== =========== =========== ===========
Weighted average number of common shares and
common equivalents outstanding:
Weighted average common shares outstanding 3,181,204 3,081,013 3,150,398 3,041,231
Additional shares assuming conversion of options
and warrants 589,497 235,542 469,279 221,169
----------- ------------ ----------- ----------
Weighted average number of common shares and
common equivalents outstanding 3,770,701 3,316,555 3,619,677 3,262,400
========== =========== =========== ===========
Primary earnings per share $ 0.05 $ 0.02 $ 0.08 $ 0.03
=========== =========== ========== ==========
FULLY DILUTED*
- -----------------------------------------
Net earnings applicable to common stock
on a fully diluted basis:
Net earnings applicable to common stock per above $187,292 $58,482 $277,919 $84,019
Add net interest expense related to convertible
debentures 23,100 23,100 46,200 46,200
Add dividends on convertible preferred stock 31,830 31,830 63,660 63,660
---------- ---------- ---------- ----------
Net earnings applicable to common stock on a fully
diluted basis $242,222 $113,412 $387,779 $193,879
========= ========== ========== ==========
Total shares for fully diluted:
Shares used in calculating primary earnings
per share 3,770,701 3,316,555 3,619,677 3,262,400
Additional shares to be issued under full
conversion of convertible debentures 600,000 300,000 600,000 300,000
Additional shares to be issued under full
conversion of preferred stock 294,723 294,723 294,723 294,723
---------- ----------- ---------- -----------
Total shares for fully diluted 4,665,424 3,911,278 4,514,400 3,857,123
=========== =========== ========== ===========
Fully diluted earnings per share $ 0.05 $ 0.03 $ 0.09 $ 0.05
=========== =========== ========== ==========
</TABLE>
* This calculation is submitted in accordance with Securities Exchange Act of
1934 Release No. 9083 although not required by footnote 8 paragraph 40 of APB
No. 15 because it results in anti-dilution.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF OPERATIONS, CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS' INVESTMENT, CONSOLIDATED STATEMENTS OF
CASH FLOWS AND NOTES TO CONSOLIDATED STATEMENTS, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND NOTES TO CONSOLIDATED
STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1995
<CASH> 239,864
<SECURITIES> 0<F1>
<RECEIVABLES> 229,861
<ALLOWANCES> 0<F1>
<INVENTORY> 100,196
<CURRENT-ASSETS> 1,822,315
<PP&E> 8,141,599
<DEPRECIATION> 1,636,107
<TOTAL-ASSETS> 14,830,022
<CURRENT-LIABILITIES> 2,084,984
<BONDS> 8,668,867
<COMMON> 3,266
0<F1>
295
<OTHER-SE> 2,812,041
<TOTAL-LIABILITY-AND-EQUITY> 14,830,022
<SALES> 4,990,055
<TOTAL-REVENUES> 4,990,055
<CGS> 4,187,548
<TOTAL-COSTS> 4,187,548
<OTHER-EXPENSES> 0<F1>
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 459,062
<INCOME-PRETAX> 376,472
<INCOME-TAX> 83,849
<INCOME-CONTINUING> 292,623
<DISCONTINUED> 0<F1>
<EXTRAORDINARY> 0<F1>
<CHANGES> 0<F1>
<NET-INCOME> 341,579
<EPS-PRIMARY> .08
<EPS-DILUTED> 0<F1>
<FN>
<F1>NOTE: If information required by the applicable schedule is not included in the
underlying financial data because it is either immaterial or inapplicable, the
value "0" (zero) will be responded to that item.
</FN>
</TABLE>
