Development Agreement

CANDLEWOOD HOTEL COMPANY, L.L.C.


DEVELOPMENT AGREEMENT


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CANDLEWOOD HOTEL COMPANY, L.L.C.


DEVELOPMENT AGREEMENT


TABLE OF CONTENTS


Page No.
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Recitals ..................................................................................................... 1


Article 1 Grant of Options............................................................................ 1 Article 2 Development Fee; Franchise Application Fees................................................. 3 Article 3 Development Schedule and Manner of Exercising Options....................................... 3 Article 4 Term and Right of First Refusal............................................................. 4 Article 5 Duties of the Parties....................................................................... 5 Article 6 Default..................................................................................... 6 Article 7 Transferability............................................................................. 7 Article 8 Covenants................................................................................... 7 Article 9 Notices..................................................................................... 8 Article 10 Independent Contractor and Indemnification.................................................. 8 Article 11 Approvals................................................................................... 9 Article 12 Non-Waiver.................................................................................. 9 Article 13 Severability and Construction............................................................... 10 Article 14 Entire Agreement - Applicable Law........................................................... 10 Article 15 Remedies and Disputes....................................................................... 11 Article 16 Developer Acknowledgments................................................................... 13


Guaranty...................................................................................................... 15 Attachment A Assigned Area .............................................................................. A-1 Attachment B Development Sch dule ....................................................................... B-1 Attachment C Franchise Application....................................................................... C-1 Attachment D Franchise Agreement ........................................................................ D-1


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CANDLEWOOD HOTEL COMPANY, L.L.C.


DEVELOPMENT AGREEMENT


THIS DEVELOPMENT AGREEMENT (the or this "Agreement") made and entered into at Wichita, Kansas this _____ day of _____________________, 19___, by and between CANDLEWOOD HOTEL COMPANY, L.L.C., a Delaware limited liability company (hereinafter referred to as "CHC"), and ______________________________________ _________________________________________ (hereinafter referred to as "Developer"), whose principal business address is ____________________________ _________________________________________________.


RECITALS


A. CHC has developed and owns a concept and distinctive system (hereinafter, the "System") for the design, establishment, and operation of hotels under the name "Candlewood Hotel" and "Candlewood/A Studio Hotel" (such names and any other trade names, service marks, trademarks, logos, emblems, or other indication of origin as are now or hereafter designated by CHC as part of the System are hereinafter referred to as the "Proprietary Marks").


B. Developer wishes to obtain certain options for the development of Candlewood Hotels in the area described in this Agreement.


C. CHC is relying upon the business skill, financial capacity, and character of Developer and its principals, and the guarantee by the principals of Developer's obligations, if applicable, as attached to this Agreement.


NOW, THEREFORE, in consideration of the foregoing and of the promises contained herein, the parties agree as follows:


ARTICLE 1. GRANT OF OPTIONS.


A. CHC hereby grants to Developer, pursuant to the terms and conditions of this Agreement, options to obtain franchises to establish and operate _______ Candlewood Hotels


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(the "Hotels") under the System within the area described in Attachment A to this Agreement (hereinafter "Assigned Area").


B. Except as otherwise provided in this Agreement, CHC shall not establish, nor franchise another to establish, any Candlewood Hotel under the System (a "System Hotel") in the Assigned Area prior to the earlier of the expiration of the development schedule set forth in Attachment B hereto (the "Development Schedule") or Developer's default under this Agreement.


C. If at anytime prior to the earlier of the expiration of the Development Schedule or Developer's default under this Agreement, CHC acquires any hotels in the Assigned Area which it desires to convert to System Hotels (hereinafter, whether one or more, "Conversion Hotels"), CHC shall provide written notice to Developer within a reasonable time of its intent to convert the Conversion Hotels into System Hotels. Such notice shall provide Developer with a right of first refusal to acquire such Conversion Hotels from CHC on the terms provided below if the sale by CHC of such hotels to Developer is allowed by applicable law. Subject to the foregoing, Developer shall have the right and option, exercisable within 30 days after receipt of such written notification, to provide written notice to CHC that Developer desires to purchase the Conversion Hotels and to convert all of such hotels to Hotels under the System. In the event Developer elects to purchase and convert the Conversion Hotels, Developer must close on such purchase and execute a Franchise Agreement in the form attached hereto as Attachment D (which shall require payment of the initial franchise fee) within 60 days from the date of notice to CHC of Developer's election to purchase and convert. The purchase price to be paid by Developer for the Conversion Hotels shall be the cash equivalent of the fair value to CHC for each of the Conversion Hotels, as determined by an independent appraiser selected and retained by CHC in CHC's sole discretion. In the event Developer does not elect to purchase and convert the Conversion Hotels as provided in this Paragraph, Developer shall have no further right or option to acquire such Conversion Hotels, and CHC may sell such Conversion Hotels to another franchisee under the System or Franchisor or its affiliates may own and operate the Conversion Hotels under the System.


D. Notwithstanding Paragraph B and Paragraph C of this Article, Developer acknowledges and agrees that CHC's members and the subsidiaries and affiliates, shareholders, and owners of CHC and its members including without limitation Doubletree Corporation, a Delaware corporation, and its affiliates (hereinafter, the "Affiliated Companies") have and retain the right to develop, acquire, participate in, and operate and license others to develop, acquire, participate in, and operate hotels, lodging facilities, or other business operations of any type whatsoever, including locations within the Assigned Area and locations adjacent, adjoining, or proximate to the Assigned Area, including, without limitation, hotels using any of the Proprietary Marks or any other trade name including, but not limited to, any of the following specific trade names: Doubletree, Doubletree Guest Suites, Club Hotels by Doubletree, Residence Inn by Marriott, and The Residence Inn. Notwithstanding anything to the contrary


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in the foregoing CHC may operate within the Assigned Area any hotel, motel, or other business that provides lodging accommodations on a daily-stay basis with kitchen facilities and limited (not on a daily basis) maid service at a moderate to economy price when an option has been declined by Developer under Paragraph C of Article 1 or Paragraph B of Article 4, or as otherwise provided in this Agreement. Developer also agrees that CHC and the Affiliated Companies are not restricted from using the System or engaging in or licensing any business activity including System Hotels or other hotels at any location not within the Assigned Area. Developer understands that such business operations may compete with and adversely affect the operation of any Hotels developed by Developer pursuant to this Agreement. Developer agrees that CHC and the Affiliated Companies may exercise any and all such rights from time to time without notice to Developer and Developer covenants that it shall not take any action, including a cause of action in a court of law or equity, which may interfere with the exercise of such rights by either CHC or any of the Affiliated Companies.


ARTICLE 2. DEVELOPMENT FEE; FRANCHISE APPLICATION FEES.


In consideration of the development rights granted herein, Developer shall pay to CHC upon execution of this Agreement a development fee of $1.00. For each Hotel developed pursuant to this Agreement, Developer shall pay by certified check a franchise application fee equal to the greater of (a) $40,000 or (b) $400 times the number of rooms of the Hotel as specified in the Franchise Application for the Hotel. Upon payment by Developer of the franchise application fee upon submission of the Franchise Application, the initial franchise fee for the Hotel set forth in Section 4.1.A of the Franchise Agreement shall be deemed paid in full, unless the number of rooms of the Hotel specified in Exhibit A to the Franchise Agreement exceeds the number of rooms of the Hotel specified in the Franchise Application for the Hotel, and in such case, the balance of the initial franchise fee shall be paid to CHC by Developer contemporaneously with Developer's execution and delivery of the Franchise Agreement for the Hotel.


ARTICLE 3. DEVELOPMENT SCHEDULE AND MANNER OF EXERCISING OPTIONS.


A. Developer shall exercise each development option granted hereunder in the manner specified in Paragraph B below. Recognizing that time is of the essence, Developer agrees to exercise its options in accordance with the Development Schedule set forth in Attachment B hereto. Any failure by Developer to exercise any option within the time specified for such option in the Development Schedule shall constitute a material default under this Agreement allowing CHC to terminate this Agreement under Article 6.


B. To exercise a development option for a site in the Assigned Area, Developer shall submit to CHC for its approval a Franchise Application, in the form attached hereto as


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Attachment C, together with a market feasibility study for the site as described in the Franchise Application, and such other information or materials as CHC may reasonably require, including, but not limited to, a copy of a letter of intent or other evidence satisfactory to CHC which confirms Developer's favorable prospects for obtaining the site. The Franchise Application shall also be accompanied by the franchise application fee for the Hotel. CHC shall have 30 days after receipt of the Franchise Application and all other such information and materials required by CHC to approve or disapprove the Franchise Application for any reason. If CHC rejects the Franchise Application, CHC shall retain $5,000 of the franchise application fee to compensate CHC for its administrative and other expenses in reviewing the Franchise Application, and shall return the balance of the franchise application fee to Developer and Developer shall have 90 days to submit and obtain approval of another Franchise Application for the exercise of that option. If a second Franchise Application is submitted, it will be subject to the same terms and conditions stated above, including payment of the full Franchise Application Fee, and will be approved or disapproved under the same terms and conditions described above. Franchisor shall have no obligation to consider more than two Franchise Applications for any hotel required by the development schedule. No extensions under this Paragraph shall extend any other time periods specified in the Development Schedule for the exercise of options by Developer. Within ten days of obtaining CHC's approval of the Franchise Application, Developer shall provide CHC an originally executed Franchise Agreement in the form of Attachment D hereto for the site approved in the Franchise Application. Developer acknowledges that CHC's approval of the Franchise Application and the site does not in any way guarantee that the site will become a profitable Hotel. Developer expressly acknowledges that CHC's approval of the Franchise Application and the site shall not be deemed to be or construed as a warranty or guarantee, express or implied, as to the potential volume, profits, or success of the Hotel to be located on the site.


ARTICLE 4. TERM AND RIGHT OF FIRST REFUSAL.


A. Unless sooner terminated in accordance with the terms of this Agreement, the term of this Agreement and all rights granted hereunder (except for the right of first refusal provided in Paragraph B of this Article) shall expire on the date of CHC's acceptance and execution of a Franchise Agreement for the last of the Hotels to be established pursuant to the Development Schedule.


B. If at any time within 5 years following the expiration of the Development Schedule, CHC determines that it is desirable to establish additional Hotels under the System in the Assigned Area, and provided that Developer has opened all of the Hotels described in the Development Schedule and is then in compliance with all terms and conditions of all Franchise Agreements between Developer and CHC, Developer shall have a right of first refusal to purchase the options to establish such additional Hotels upon CHC's then-current terms and conditions. In that event, CHC shall submit to Developer a development agreement offering


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such options, which agreement shall supersede in all respects this Agreement, and Developer shall have 30 days after receipt to execute and return the agreement to CHC. In the event that Developer does not exercise this right of first refusal, CHC may thereafter elect to establish additional Hotels itself or grant options to others to do so in the Assigned Area.


ARTICLE 5. DUTIES OF THE PARTIES.


A. CHC shall furnish to Developer the following:


1. A Development Manual, on loan, setting forth site selection
guidelines, and containing a set of prototype plans and specifications
(not for construction) for a System Hotel.


2. On-site evaluation as CHC deems advisable in response to
Developer's request for site approval; provided, however, the CHC shall
not provide on-site evaluation for any proposed site prior to its
receipt from Developer of a market feasibility study for such site
prepared by Developer pursuant to Paragraph B of Article 3 of this
Agreement.


B. Developer accepts the following obligations:


1. Developer shall comply with all terms and conditions set
forth in this Agreement.


2. Developer shall at all times preserve in confidence the
Development Manual and any and all materials and information furnished
or disclosed to Developer by CHC and designated by CHC as confidential,
and Developer shall disclose such information or materials only to such
of its employees or agents who must have access to it in connection
with their employment. Developer shall not at any time, without CHC's
prior written consent, copy, duplicate, record, or otherwise reproduce
the Development Manual or other materials or information, in whole or
in part, nor otherwise make the same available to any unauthorized
person.


3. Developer shall comply with all requirements of federal,
state, and local laws, rules, ordinances, and regulations.


4. Developer shall comply with all terms and conditions set
forth in any Franchise Agreement, and any other related agreement or
instrument entered into by Developer in connection with any Hotel.


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ARTICLE 6. DEFAULT.


A. The options and territorial rights granted to De ...