Amended Franchise Agreement

SUBURBAN LODGE(R)


FRANCHISE AGREEMENT


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SUBURBAN LODGE


FRANCHISE AGREEMENT


TABLE OF CONTENTS


Heading Page
------- ---- 1. Parties and Recitals 1 2. Grant of Franchise 1 3. Term and Renewal 2 4. Operating Assistance 2 5. Fees 4 6. Licensed Marks 5 7. Standards of Design, Construction and Operations 6 8. Confidential Operating Manual 10 9. Advertising and Marketing 11 10. Statements, Records and Fee Payments 13 11. Covenants 14 12. Transfer and Assignment 15 13. Default and Termination 17 14. Post Term Obligations 20 15. Insurance 21 16. Taxes, Permits and Indebtedness 22 17. Indemnification and Independent Contractor 22 18. Written Approvals, Waivers, Forms
of Agreement and Amendment 22 19. Enforcement 23 20. Notices 24 21. Governing Law and Dispute Resolution 24 22. Severability and Construction 25 23. General Provisions 25 24. Acknowledgments 25
Guaranty of Franchise Owner's Undertakings


Exhibit 1 - Licensed Marks and Acknowledgement
Regarding Controlling Persons
Exhibit 2 - Territory
State Rider 3 1. PARTIES AND RECITALS


(a) This Franchise Agreement ("Agreement") is entered into as of __________________, 19____, (the "Execution Date"), by and between Suburban Franchise Systems, Inc., a Georgia corporation, with its principal place of business at 1000 Parkwood Circle, Suite 850, Atlanta, Georgia 30339 ("SFS"), and _________________________________ ("Franchise Owner") with its principal place of business at __________________________________________________________.


(b) SFS owns and has the right to license certain trade names, trademarks, service marks and/or indicia of origin (the "Licensed Marks") identified on Exhibit 1 hereto, the uniqueness and value of which are acknowledged by Franchise Owner. In connection therewith, SFS has developed a plan for the organization and operation of a system of extended stay lodging establishments which system includes assistance in site evaluation and selection, equipment and furnishings selection and layout, prototype architectural plans and specifications, proprietary management software and procedures, manuals covering development issues, business practices and policies, sales and promotional techniques, personnel training, and other matters relating to the operation and promotion of SUBURBAN LODGE facilities (hereinafter collectively referred to as the "SUBURBAN LODGE System") all of which are designed to enhance the reputation and goodwill with the public of establishments operated pursuant to the SUBURBAN LODGE System.


(c) Franchise Owner has investigated and become familiar with the SUBURBAN LODGE System, and desires, upon the terms and conditions set forth herein, to obtain a license to operate a business which will utilize the Licensed Marks and the SUBURBAN LODGE System (the "Franchised Business"). SFS is willing, upon the terms and conditions set forth herein, to license Franchise Owner to operate the Franchised Business.


2. GRANT OF FRANCHISE


(a) Subject to all of the terms and conditions herein, SFS grants to Franchise Owner the right to operate a SUBURBAN LODGE System facility (the "Unit") solely at the following address:________________________________________ ___________________________________________________________________________ (the "Premises") and the non-exclusive right to utilize the Licensed Marks in conjunction therewith. The rights granted herein are sometimes referred to in this Agreement as the "Franchise."


(b) Franchise Owner acknowledges and agrees that the Franchise relates solely to the Premises and the Unit thereon, and affords Franchise Owner no right to use the SFS prototype architectural plans and specifications for any other purpose or to construct or operate any additional, expanded or modified facilities on the Premises, nor any right to construct or operate the Franchised Business at any location other than the Premises.


(c) Franchise Owner expressly acknowledges and agrees that SFS may itself construct and/or operate, and grant to others the right to construct and/or operate any business not utilizing the Licensed Marks, at any location.


(d) Franchise Owner expressly acknowledges and agrees that SFS may itself construct and/or operate, and grant to others the right to construct and/or operate any business utilizing the Licensed Marks, at any location outside the territory referenced in Exhibit 2 attached hereto. The territory referenced in Exhibit 2 shall be deemed to be that area bounded by the right of ways (i.e., streets and highways), county lines, city lines, and/or land lot lines highlighted in red on Exhibit 2, running from the center of such right of ways, county lines, city lines, and/or land lot lines to the Premises, or as otherwise indicated by the area inside the red highlighting on the map attached to Exhibit 2.


-1- 4 3. TERM AND RENEWAL


(a) This Agreement, unless previously terminated pursuant to Paragraph 13 hereof, shall expire ten (10) years and three (3) months from the date of commencement of operations to the public ("Commencement Date") at the Premises, as determined by SFS in its sole discretion (the "Initial Term").


(b) Upon the expiration of the Initial Term of this Agreement, Franchise Owner shall be entitled to the issuance of a new franchise agreement with respect to the Franchised Business for an additional ten (10) year term, subject to the following conditions, otherwise, such renewal right shall automatically expire:


(i) Franchise Owner, at the expiration of the Initial Term and within twelve (12) months prior thereto, shall not be or have been in default in the performance of any material obligation under this Agreement;


(ii) Franchise Owner shall have modernized or contracted to modernize the Premises, which may include structural changes, additions to or modification, as well as refurbishment of the buildings, signs, equipment, furnishings and decor so as to reflect the then-current image of SUBURBAN LODGE System units;


(iii) Franchise Owner shall have duly made written application to SFS for a new franchise agreement not less than one hundred eighty (180) days nor more than twelve (12) months prior to the expiration date of the Initial Term and shall have duly executed and returned to SFS for final approval and execution the new franchise agreement within thirty (30) days of receipt. The new franchise agreement to be issued to Franchise Owner shall be SFS's then-current standard form franchise agreement and may contain terms and conditions substantially different from those contained herein, including without limitation, increased fees and/or required advertising contributions, and renewal terms; and,


(iv) Franchise Owner shall have duly tendered to SFS in lieu of the initial franchise fee specified in the new franchise agreement an administrative fee equal to ten percent (10%) thereof prior to the expiration date of this Agreement.


4. OPERATING ASSISTANCE


(a) Prior to Franchise Owner's commencement of business, SFS shall provide Franchise Owner with the following assistance, on the same basis as it will from time to time make available to other franchise owners of SUBURBAN LODGE System units:


(i) One (1) set of any written facility development materials which SFS may make available (known as the Confidential Development Manual(s)), as the same may be amended from time to time by SFS in its sole discretion;


(ii) Information with respect to site evaluation and selection;


(iii) Proprietary and confidential information with respect to prototype plans, specifications and layouts for the Unit, which SFS shall provide to Franchise Owner for use only during the term of this Agreement, and standards and specifications for all fixtures, signs, improvements, equipment and other related facilities for use in typical or similar units;


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(iv) Such information as SFS may have concerning possible sources of fixtures, signs, improvements, equipment, furnishings and other related facilities and other products and services available in connection with the operation of SUBURBAN LODGE System units;


(v) A minimum of three to five (3 - 5) days of training (and such additional time as SFS may deem necessary) in the operation of the Franchised Business prior to its opening for either Franchise Owner or its designated manager selected by Franchise Owner and approved by SFS. Such training shall be conducted exclusively by SFS or its designee at a site to be designated by SFS; provided, however, Franchise Owner shall pay all its and its employees' costs and living expenses during and in connection with such training; and, provided further, that for training provided at Franchise Owner's Unit, Franchise Owner shall pay the reasonable transportation, meals and living expenses of SFS or its designees. If this is Franchise Owner's first SUBURBAN LODGE System Unit, at least three to five (3 - 5) additional days of training shall take place at the Unit, prior to, during and/or subsequent to its opening.


(vi) Such on-Premises pre-opening or opening assistance by SFS or its representative(s) in the initial operation of the Franchised Business as SFS may, in its discretion, deem appropriate; provided, however, that for assistance requested by Franchise Owner, SFS may require Franchise Owner to pay the reasonable transportation, meals and living expenses of SFS or its designees; and, provided further, that if Franchise Owner requests SFS or an affiliate of SFS to take principal responsibility for supervising the development or construction of Franchise Owner's Unit, SFS or an affiliate of SFS may provide such services to Franchise Owner pursuant to a separate agreement providing for separate charges for such services;


(vii) One (1) set of any written facility operational materials which SFS may make available (known as the Confidential Operating Manual(s), as defined in Paragraph 8 hereof), as the same may be amended from time to time by SFS in its sole discretion;


(viii) An initial supply of accounting forms for reporting transactions to SFS in accordance with Paragraphs 5 and 10 hereof. Subsequent supplies will be available at SFS's cost plus handling charges;


(ix) Proprietary computer software programs and procedures which may be required by SFS to be utilized by Franchise Owner in the operation of the Franchised Business and which may be updated or modified by SFS from time to time during the term of this Agreement. Any such proprietary software programs shall remain the property of SFS and shall be on loan to Franchise Owner for six month intervals during the term of this Agreement. SFS shall be obligated to renew such loan but only so long as Franchise Owner is in good standing under this Agreement.


(b) SFS reserves the right to require Franchise Owner to maintain standards of quality, appearance and service at all SUBURBAN LODGE System units, thereby maintaining the public image and reputation of the SUBURBAN LODGE System and the demand for the services provided thereunder, and to that end SFS will provide Franchise Owner upon request from Franchise Owner with such of the following as it shall deem appropriate, in its sole discretion, and as it then supplies other similarly situated franchise owners:


(i) Periodic assistance in local advertising and marketing, and sales and promotional techniques;


(ii) Periodic individual or group counseling in the operation of the Franchised Business rendered in person, by seminar, or by newsletters or bulletins made available from time to time to all SUBURBAN LODGE System franchise owners;


(iii) Advice concerning operating problems, new techniques or operating methods disclosed by reports submitted to or inspections made by SFS;


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(iv) Advice and guidance with respect to new and improved methods of operation or business procedures developed by SFS, use of the Confidential Operating Manual, management materials, promotional materials, advertising formats and the Licensed Marks;


(v) The opportunity to participate in group purchasing programs for inventory, supplies, insurance and equipment which SFS may, from time to time, use, develop, sponsor or provide and upon such terms and conditions as may be determined solely by SFS; and


(vi) Periodic inspections of the Premises and other SUBURBAN LODGE System units and of the services they offer.


5. FEES


(a) In consideration of the execution of this Agreement, Franchise Owner agrees to pay SFS an initial franchise fee which shall be equal to the greater of Two Hundred Twenty-Five Dollars ($225) per licensed guest room or Thirty Thousand Dollars ($30,000). Three Thousand Dollars ($3,000) of the initial franchise fee was paid on the date of execution of the Preliminary Agreement for a License to Operate a SUBURBAN LODGE Unit ("Preliminary Agreement"). An additional Three Thousand Dollars ($3,000) of the initial franchise fee shall be paid on the Execution Date of this Agreement. The remaining balance shall be paid on the date Franchise Owner breaks ground to commence construction of the Unit (as determined by SFS in its sole discretion) or the date the Franchise Owner's construction loan is closed, whichever is earlier. Each payment of the initial franchise fee shall be non-refundable.


(b) At all times after the Commencement Date, Franchise Owner shall pay to SFS the following recurring fees:


(i) A continuing fee equal to four percent (4%) of the Gross Volume of Business (as hereinafter defined), except during the first ninety (90) days of operation during which time there shall be no continuing fee.


(ii) SFS may, in its sole discretion, upon ninety (90) days prior written notice to Franchise Owner and all other similarly situated SUBURBAN LODGE franchise owners, but not before a minimum of fifteen (15) SUBURBAN LODGE System units are in operation, require payment of an advertising and marketing fee to support national, regional and/or local advertising, initially not to exceed one percent (1%) of the Gross Volume of Business. The advertising and marketing fee shall be expended in accordance with the terms of Paragraph 9. The level of the advertising and marketing fee may be increased from time to time by SFS for all SUBURBAN LODGE System units at the sole option of SFS upon sixty (60) days written notice to Franchise Owner, provided, however, that in no event shall the advertising and marketing fee percentage hereunder exceed one and one-half percent (1.5%) of the Gross Volume of Business at any given time during the term of this Agreement without the concurrence of a majority (in the aggregate) of all company and franchised units then open for business to the public and provided further that the advertising and marketing fee percentage hereunder shall never exceed two percent (2%) of the Gross Volume of Business during the Initial Term. It is the intention of the parties that the cost of the advertising and marketing program shall be shared on a similar basis by all SUBURBAN LODGE System units, including units owned or operated by SFS or its affiliates, rather than for SFS to make a profit from such fees.


(iii) A reservations referral program fee not to exceed one percent (1%) of the Gross Volume of Business, for the purpose of compensating SFS for costs incurred in administering its reservations referral programs and related overhead costs. SFS may in its sole discretion from time to time raise the level of the reservations referral program fee for all SUBURBAN LODGE System units upon thirty (30) days written notice to Franchise Owner, but only to offset any increased costs or expenditures for reservation referral


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programs. It is the intention of the parties that the cost of the reservations referral program shall be shared on a similar basis by all SUBURBAN LODGE System units, including units owned or operated by SFS or its affiliates, rather than for SFS to make a profit from such fees.


(iv) An amount equal to any sales, gross receipts or similar tax imposed on SFS and calculated solely on payments required under the Franchise Agreement, unless the tax is an optional alternative to an income tax otherwise payable by SFS.


(c) Unless otherwise provided, all fees and other amounts due to SFS hereunder shall be paid in the manner, at the times, and such payments shall be accompanied by the statement required under Paragraph 10 of this Agreement.


(d) If any fee or any other amount due under this Agreement is not paid within ten (10) days after such payment is due, Franchise Owner shall pay a service charge equal to the lesser of the daily equivalent of eighteen percent (18%) per annum of such overdue amount per year or the highest rate then permitted by applicable law for each day such amount is past due. This charge shall accrue whether or not SFS exercises its right to terminate this Agreement pursuant to Paragraph 13 hereof.


(e) The term "Gross Volume of Business," as used in this Agreement, shall mean the aggregate gross amount of all revenues from whatever source derived (whether in the form of cash, credit, agreements to pay or other consideration, and whether or not payment is received at the time of sale) which arise from or are derived by Franchise Owner or by any other person from business conducted or which originated in, on, from, or through the Premises, whether such business is conducted in compliance with or in violation of the terms of this Agreement, including, but not limited to, receipts from the rental of guest rooms and revenues derived from the sale and rental of services and merchandise including vending and laundry machine receipts, but excluding key deposit forfeitures, security deposit forfeitures for room damages and sales or use taxes imposed by any governmental authority directly on sales and collected by Franchise Owner, provided that the amount thereof is added to the selling price or absorbed therein and actually paid to the governmental authority.


(f) All payments by Franchise Owner pursuant to this Paragraph 5 shall be applied in such order as SFS may designate from time to time. Franchise Owner agrees that it may not designate an order for application of any fees different from that designated by SFS and expressly acknowledges and agrees that SFS may accept fees paid pursuant to different instructions without any obligation to follow such instructions, even if such payment is made by its terms conditional on such instructions being followed. This provision may be waived only by written agreement signed by SFS, which written agreement must be separate from the check or other document constituting payment.


6. LICENSED MARKS


(a) Franchise Owner expressly acknowledges SFS's rights in and to the Licensed Marks and agrees not to represent in any manner that Franchise Owner has acquired any ownership rights in the Licensed Marks. Franchise Owner agrees not to use any of the Licensed Marks or any marks, names or indicia which are or may be confusingly similar in its own corporate or business name except as authorized in this Agreement. Franchise Owner further acknowledges and agrees that any and all goodwill associated with the SUBURBAN LODGE System and identified by the Licensed Marks shall inure directly and exclusively to the benefit of SFS and that, upon the expiration or termination of this Agreement for any reason, no monetary amount shall be assigned as attributable to any goodwill associated with Franchise Owner's use of the Licensed Marks.


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(b) Franchise Owner understands and agrees that any use of the Licensed Marks other than as expressly authorized by this Agreement, without SFS's prior written consent, may constitute an infringement of SFS's rights therein and that the right to use the Licensed Marks granted herein does not extend beyond the termination or expiration of this Agreement. Franchise Owner expressly covenants that, during the term of this Agreement and thereafter, Franchise Owner shall not, directly or indirectly, commit any act of infringement or contest or aid others in contesting the validity of SFS's right to use the Licensed Marks or take any other action in derogation thereof.


(c) Franchise Owner shall promptly notify SFS of any claim, demand or cause of action that it believes may exist or that it becomes aware of, that SFS may have based upon or arising from any unauthorized attempt by any person or legal entity to use the Licensed Marks, any colorable variation thereof, or any other mark, name or indicia in which SFS has or claims a proprietary interest. Franchise Owner shall assist SFS, upon request and at SFS's expense, in taking such action, if any, as SFS may deem appropriate to halt such activities, but shall take no action nor incur any expenses on SFS's behalf without SFS's prior written approval. If SFS undertakes the defense or prosecution of any litigation relating to the Licensed Marks, Franchise Owner agrees to execute any and all documents and to do such acts and things as may, in the opinion of SFS's legal counsel, be reasonably necessary to carry out such defense or prosecution.


(d) Franchise Owner further agrees and covenants to operate and advertise only under the names or marks from time to time designated by SFS for use by similar SUBURBAN LODGE System franchise owners; to adopt and use the Licensed Marks solely in the manner prescribed by SFS; to refrain from using the Licensed Marks to perform any activity or to incur any obligation or indebtedness in such a manner as may, in any way, subject SFS to liability therefore; to observe all laws with respect to the registration of trade names and assumed or fictitious names, to include in any application therefore a statement that Franchise Owner's use of the Licensed Marks is limited by the terms of this Agreement, and to provide SFS with a copy of any such application and other registration document(s); to observe such requirements with respect to trademark and service mark registrations and copyright notices as SFS may, from time to time, require, including, without limitation, affixing "SM", "TM", or (R) adjacent to all such Licensed Marks in any and all uses thereof; and, to utilize such other appropriate notice of ownership, registration and copyright as SFS may require.


(e) SFS reserves the right, in its sole discretion, to designate one or more new, modified or replacement Licensed Marks for use by franchise owners and to require the use by Franchise Owner of any such new, modified or replacement Licensed Marks in addition to or in lieu of any previously designated Licensed Marks. Any expenses or costs associated with the use by Franchise Owner of any such new, modified or replacement Licensed Marks shall be the sole responsibility of Franchise Owner.


7. STANDARDS OF DESIGN, CONSTRUCTION AND OPERATION


SFS shall establish and Franchise Owner shall maintain standards of quality, appearance and operation for the Franchised Business. For the purpose of enhancing the public image and reputation of businesses operating under the SUBURBAN LODGE System and for the purpose of increasing the demand for services and products provided by franchise owners and SFS, the parties agree as follows:


(a) In connection with the construction of the Unit at which the Franchised Business is to operate, Franchise Owner shall, at its expense, furnish to SFS for its approval the following:


(i) A proposed preliminary site plan for the Unit, adapted from SFS's standard plans by Franchise Owner's architect or engineer for use at the Premises, which shall be supplied to SFS before construction of the Unit is begun and which, if approved, shall not thereafter be materially changed without SFS's prior consent;


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(ii) Copies of Franchise Owner's plans and specifications for construction of the Unit, adapted from SFS's standard plans and specifications by Franchise Owner's architect or engineer for use at the Premises, in proposed final form with the stamp of Franchise Owner's architect or engineer affixed thereon, for approval by SFS, which, if approved, shall not thereafter be materially changed without SFS's prior consent. In addition, Franchise Owner shall furnish SFS copies for SFS's review of all commitments and plans for construction and permanent financing, the name, address and contact with respect to each lender (which information shall be kept current by Franchise Owner at all times hereunder), the name and address of the contractor, together with a copy of the construction contract, and such other additional information as SFS may from time to time request. Franchise Owner shall also furnish SFS throughout the period of the construction of Franchise Owner's Unit monthly inspection reports signed by Franchise Owner's architect or the lender's inspector certifying the general compliance of Franchise Owner's Unit, as constructed to the date of each such report, with the plans and specifications approved by SFS.


(iii) All such permits and certifications as may be required for the lawful construction and operation of the Unit, together with copies of all building inspection reports and certification from all governmental authorities having jurisdiction over the site that all necessary permits have been obtained, and that all requirements for construction have been met; and


(iv) A copy of the lease agreement, if the Premises are leased, and a copy of any billboard or off Premises sign leases, which agreements shall provide for SFS to have the right to enter the Premises or the property on which such billboards or off Premises signs are located to make any modifications necessary to protect the Marks, and the option to assume any such lease, with the right to sublease for all or any part of its term, both upon Franchise Owner's default or termination thereunder, and upon the termination or expiration of this Agreement.


(b) Prior to opening the Franchised Business to the public, Franchise Owner or, if applicable, its designated manager, shall have been certified by SFS as meeting SFS's qualifications for management at similar SUBURBAN LODGE System units. Franchise Owner agrees that the Franchised Business shall only be operated directly by Franchise Owner or by a trained manager employed by Franchise Owner, or by a ma ...