Document:

ex10-49.htm

 

EXHIBIT 10.49

 

HOTEL LEASE AGREEMENT

EFFECTIVE  April 9, 2013

 

BETWEEN

 

Moody National HP G-Town Holding, LLC, a

Delaware limited liability company

 

AS LESSOR

 

AND

 

Moody National HP G-Town MT, LLC, a

Delaware limited liability company

 

AS LESSEE

  

 

  

HOTEL LEASE AGREEMENT

 

THIS HOTEL LEASE AGREEMENT (hereinafter called “Lease”), effective as of the 9th day of April, 2013, by and between Moody National HP G-Town Holding, LLC, a Delaware limited liability company (hereinafter called “Lessor”), and Moody National HP G-Town MT, LLC, a Delaware limited liability company (hereinafter called “Lessee”), provides as follows:

 

AGREEMENT:

 

Lessor, for and in consideration of the payment of rent by Lessee to Lessor, the covenants and agreements to be performed by Lessee, and upon the terms and conditions hereinafter stated, does hereby rent and lease unto Lessee, and Lessee does hereby rent and lease from Lessor, the Leased Property.

 

ARTICLE 1

LEASED PROPERTY; TERM

 

1.1           Leased Property. The Leased Property shall mean and is comprised of Lessor’s interest in the following:

 

(a)     the land described in Exhibit A attached hereto and by reference incorporated herein (the “Land”);

 

(b)     all buildings, structures and other improvements of every kind including, but not limited to, alleyways and connecting tunnels, sidewalks, utility pipes, conduits and lines (on-site and offsite), parking areas and roadways appurtenant to such buildings and structures presently situated upon the Land (collectively, the “Leased Improvements”);

 

(c)     all easements, rights and appurtenances relating to the Land and the Leased Improvements;

 

(d)     all equipment, machinery, fixtures, and other items of property required for or incidental to the use of the Leased Improvements as a hotel, including all components thereof, now and hereafter permanently affixed to or incorporated into the Leased Improvements, including, without limitation, all furnaces, boilers, heaters, electrical equipment, heating, plumbing, lighting, ventilating, refrigerating, incineration, air and water pollution control, waste disposal, air-cooling and air-conditioning systems and apparatus, sprinkler systems and fire and theft protection equipment, all of which to the greatest extent permitted by law are hereby deemed by the parties hereto to constitute real estate, together with all replacements, modifications, alterations and additions thereto (collectively, the “Fixtures”);

 

(e)     all furniture and furnishings and all other items of personal property (excluding Inventory and personal property owned by Lessee, if any) located on, and used in connection with, the operation of the Leased Improvements as a hotel, together with all replacements, modifications, alterations and additions thereto.

 

THE LEASED PROPERTY IS DEMISED IN ITS PRESENT CONDITION WITHOUT REPRESENTATION OR WARRANTY (EXPRESSED OR IMPLIED) BY LESSOR AND SUBJECT TO THE RIGHTS OF PARTIES IN POSSESSION, AND TO THE EXISTING STATE OF TITLE INCLUDING ALL COVENANTS, CONDITIONS, RESTRICTIONS, EASEMENTS AND OTHER MATTERS OF RECORD INCLUDING ALL APPLICABLE LEGAL REQUIREMENTS AND OTHER MATTERS WHICH WOULD BE DISCLOSED BY AN INSPECTION OF THE LEASED PROPERTY OR BY AN ACCURATE SURVEY THEREOF.

 

1.2           Term.  The term of this Lease (the “Term”) shall commence on the date hereof (the “Commencement Date”) and shall end on the tenth (10th) anniversary of the last day of the month in which the Commencement Date occurs, unless sooner terminated in accordance with the provisions hereof; provided, however, in the event that the Initial Loan is not repaid upon this termination date, the term of this Lease shall renew for a one-year extension from the initial termination date.

 

(a)      Option to Terminate Lease.  In the event Lessor enters into a contract to sell the Leased Property to a non-Affiliate, Lessor may terminate the Lease by giving not less than forty-five (45) days’ prior written notice of the election to terminate the Lease effective upon the consummation of such transaction.  Effective upon such termination date, the Lease shall terminate and be of no further force and effect as to any obligations of the parties existing as of

 

  

 

  

 

such date that survive termination of this Lease.  Lessor shall pay to Lessee, or reimburse Lessee for any assignment or termination fees or other liabilities arising the Management Agreement or any Franchise Agreement solely as a result of the termination or assignment of such agreements in connection with a termination of the Lease under this Section 1.2(a).

 

1.3           Transition Procedures. Upon the expiration or termination of the Term of this Lease, Lessor and Lessee shall do the following (and the provisions of this Section 1.3 shall survive the expiration or termination of this Lease until they have been fully performed) and, in general, shall cooperate in good faith to effect an orderly transition of the management and/or lease of the Hotel:

 

(a)      Transfer of Licenses. Lessee shall use reasonable efforts (i) to transfer to Lessor or Lessor’s nominee all licenses, operating permits and other governmental authorizations and all contracts, including contracts with governmental or quasi-governmental entities, that may be necessary for the operation of the Hotel (collectively, “Licenses”), or (ii) if such transfer is prohibited by law or Lessor otherwise elects, to cooperate with Lessor or Lessor’s nominee in connection with the processing by Lessor or Lessor’s nominee of any applications for, all Licenses; provided, in either case, that the costs and expenses of any such transfer or the processing of any such application shall be paid by Lessor or Lessor’s nominee.

 

(b)      Leases and Concessions. Lessee shall assign to Lessor or Lessor’s nominee simultaneously with the termination of this Lease, and the assignee shall assume, all leases and concession agreements in effect with respect to the Hotel then in Lessee’s name.

 

(c)      Books and Records. All books and records for the Hotel kept by Lessee pursuant to Section 4.2 shall be delivered promptly to Lessor or Lessor’s nominee, simultaneously with the termination of this Lease, but such books and records shall thereafter be available to Lessee at all reasonable times for inspection, audit, examination, and transcription for a period of one (1) year and Lessee may retain (on a confidential basis) copies or computer records thereof.

 

(d)      Receivables and Payables. Lessee shall be entitled to retain all cash, bank accounts and house banks, and to collect all Gross Revenues and accounts receivable accrued through the termination date.  In addition, Lessee shall be entitled to retain any amounts remaining of the monthly furniture and equipment funded by Lessee as required by the Loan Documents and/or the Management Agreement.  Lessee shall be responsible for the payment of Rent, all Gross Operating Expenses and all other obligations of Lessee accrued under this Lease as of the termination date, and Lessor or Lessor’s nominee shall be responsible for all Gross Operating Expenses of the Hotel accruing after the termination date.

 

(e)      Final Accounting. Lessee shall, within forty five (45) days after the expiration or termination of the Term, prepare and deliver to Lessor a final accounting statement, dated as of the date of the expiration or termination, along with a statement of any sums due from Lessee to Lessor pursuant hereto and payment of such funds.

 

(f)      Inventory. Lessee shall insure that the Leased Property, at the date of such termination or expiration, has Inventory of a substantially equivalent nature and amount as exists at the Leased Property on the Commencement Date, and Lessor or its designee shall acquire such Inventory from Lessee for a sale price equal to the fair market value of such Inventory to the extent that such Inventory is the personal property of the Lessee.

 

(g)      Surrender. Lessee will, upon the expiration or prior termination of the Term, vacate and surrender the Leased Property to Lessor in the condition in which the Leased Property was originally received from Lessor, except as repaired, rebuilt, restored, altered or added to as permitted or required by the provisions of this Lease and except for ordinary wear and tear (subject to the obligation of Lessee to maintain the Leased Property in good order and repair, as would a prudent owner, during the entire Term of the Lease), or damage by casualty or Condemnation (subject to the obligations of Lessee to restore or repair as set forth in the Lease)

 

The provisions of this Section 1.3 shall survive the expiration or termination of this Lease until they have been fully performed. Nothing contained herein shall limit Lessor’s rights and remedies.

 

1.4           Holding Over. If Lessee for any reason remains in possession of the Leased Property after the expiration or earlier termination of the Term, such possession shall be as a tenant at sufferance during which time 

 

  

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Lessee shall pay as rental each month 125% of the aggregate of (a) one-twelfth of the aggregate Base Rent and Percentage Rent payable with respect to the last Fiscal Year of the Term, (b) all Additional Charges accruing during the applicable month and (c) all other sums, if any, payable by Lessee under this Lease with respect to the Leased Property. During such period, Lessee shall be obligated to perform and observe all of the terms, covenants and conditions of this Lease, but shall have no rights hereunder other than the right, to the extent given by law to tenancies at sufferance, to continue its occupancy and use of the Leased Property. Nothing contained herein shall constitute the consent, express or implied, of Lessor to the holding over of Lessee after the expiration or earlier termination of this Lease.

 

1.5           Forfeiture.  In the event that any of Lessee’s Personal Property is retained by Lender in a foreclosure or otherwise due to Lessor’s failure to satisfy amounts due under the Loan Documents that are not an obligation of the Lessee pursuant to the terms of this Lease, Lessor shall pay to Lessee a fee in the amount of $100,000.

 

ARTICLE 2

 

DEFINITIONS

 

2.1           Definitions. For all purposes of this Lease, except as otherwise expressly provided or unless the context otherwise requires, (a) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular, (b) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles as are at the time applicable, (c) all references in this Lease to designated “Articles,” “Sections” and other subdivisions are to the designated Articles, Sections and other subdivisions of this Lease and (d) the words “herein,” “hereof” and “hereunder” and other words of similar import refer to this Lease as a whole and not to any particular Article, Section or other subdivision:

 

Additional Charges: As defined in Section 3.3.

 

Affiliate:  The term “Affiliate” of a Person shall mean (a) any Person that, directly or indirectly, controls or is controlled by or is under common control with such Person, (b) any other Person that owns, beneficially, directly or indirectly, ten percent (10%) or more of the outstanding capital stock, shares or equity interests of such Person, or (c) any officer, director, employee, partner, manager or trustee of such Person or any Person controlling, controlled by or under common control with such Person or any Person that owns, beneficially, directly or indirectly, ten percent (10%) or more of the outstanding capital stock, shares or equity interests of such Person (excluding trustees and Persons serving in similar capacities who are not otherwise an Affiliate of such Person). For the purposes of this definition, “control” (including the correlative meanings of the terms “controlled by” and “under common control with”), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, through the ownership of voting securities, partnership interests or other equity interests.

 

Annual Budget: The operating and capital budget prepared by Lessee and delivered to Lessor in accordance with Section 4.1.

 

Annual Revenues Computation: As defined in Subsection 3.1(b) and set forth on Exhibit C.

 

Base Rate: The rate of interest announced publicly by Citibank, N.A., in New York, New York, from time to time, as such bank’s base rate. If no such rate is announced or if such rate becomes discontinued, then such other rate as Lessor may reasonably designate.

 

Base Rent: As defined in Section 3.1(a).

 

Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which national banks in the City of Houston, Texas are closed.

 

CERCLA: The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended.

 

  

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Change of Control: The sale, conveyance, assignment, encumbering, pledging, hypothecation, granting a security interest in, granting of options with respect to, or other disposition of (directly or indirectly, voluntarily or involuntarily, by operation of law or otherwise, and whether or not for consideration) of any class stock or other equity interests in a Person (other than among existing holders of interests in such Person on the Commencement Date and/or family members of such holders and/or trusts for the benefit of any of the foregoing) that, upon a transfer of any portion thereof, will create in the transferee thereof, directly or indirectly, a majority of any class of stock or other equity interests of such Person.

 

Claims: As defined in Section 12.2.

 

COBRA: As defined in Subsection 8.2(b).

 

Code: The Internal Revenue Code of 1986, as amended.

 

Commencement Date: As defined in Section 1.2

 

Condemnation Proceeding:  Any action or proceeding brought by competent authority for the purpose of any taking of the fee of the Leased Property or any part thereof or estate therein as a result of the exercise of the power of eminent domain, including, but not limited to, a voluntary conveyance to such authority under either threat of or in lieu of condemnation or while such action or proceeding is pending.

 

Consolidated Financials: For any fiscal year or other accounting period for Lessee and its consolidated subsidiaries, if any, statements of earnings and retained earnings and of changes in financial position for such period and for the period from the beginning of the respective fiscal year to the end of such period and the related balance sheet as at the end of such period, together with the notes thereto, all in reasonable detail and setting forth in comparative form the corresponding figures for the corresponding period in the preceding fiscal year, and prepared in accordance with generally accepted accounting principles and audited by independent certified public accountants acceptable to Lessor in its sole discretion.

 

Date of Taking: As defined in Subsection 15.1(d).

 

Encumbrance: As defined in Section 22.1.

 

Environmental Audit: As defined in Subsection 8.3(b).

 

Environmental Authority: Any department, agency or other body or component of any Government that exercises any form of jurisdiction or authority under any Environmental Law.

 

Environmental Authorization: Any license, permit, order, approval, consent, notice, registration, filing or other form of permission or authorization required under any Environmental Law.

 

Environmental Laws: All applicable federal, state, local and foreign laws and regulations relating to pollution of the environment (including without limitation, ambient air, surface water, ground water, land surface or subsurface strata), including without limitation laws and regulations relating to emissions, discharges, Releases or threatened Releases of Hazardous Materials or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials. Environmental Laws include but are not limited to CERCLA, FIFRA, RCRA, SARA and TSCA.

 

Environmental Liabilities: Any and all obligations to pay the amount of any judgment or settlement, the cost of complying with any settlement, judgment or order for injunctive or other equitable relief, the cost of compliance or corrective action in response to any notice, demand or request from an Environmental Authority, the amount of any civil penalty or criminal fine, and any court costs and reasonable amounts for attorney’s fees, fees for witnesses and experts, and costs of investigation and preparation for defense of any claim or any Proceeding, regardless of whether such Proceeding is threatened, pending or completed, that may be or have been asserted against or imposed upon Lessor, Lessee, any Predecessor, the Leased Property or any property used therein and arising out of:

 

  

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(a)      Failure of Lessee, Lessor, any Predecessor or the Leased Property to comply at any time with all Environmental Laws;

 

(b)      Presence of any Hazardous Materials on, in, under, at or in any way affecting the Leased Property;

 

(c)      A Release at any time of any Hazardous Materials on, in, at, under or in any way affecting the Leased Property;

 

(d)      Identification of Lessee, Lessor or any Predecessor as a potentially responsible party under CERCLA or under any Environmental Law similar to CERCLA;

 

(e)      Presence at any time of any above-ground and/or underground storage tanks, as defined in RCRA or in any applicable Environmental Law on, in, at or under the Leased Property or any adjacent site or facility; or

 

(f)      Any and all claims for injury or damage to Persons or property arising out of exposure to Hazardous Materials originating or located at the Leased Property, or resulting from operation thereof or any adjoining property.

 

Event of Default: As defined in Section 16.1.

 

FIFRA: The Federal Insecticide, Fungicide, and Rodenticide Act, as amended.

 

Fiscal Year: The twelve (12) month period from January 1 to December 31, or any shorter period at the beginning or end of the Term.

 

Fixtures: As defined in Section 1.1.

 

Force Majeure: An Unavoidable Occurrence, generally affecting travel and/or the hotel or lodging business in the market and/or submarket in which the Hotel is located.

 

Franchise Agreement:   any franchise agreement or license agreement with a franchisor (such as Hyatt Place Franchising, L.L.C..) under which the Hotel is operated.

 

Furniture and Equipment: For purposes of this Lease, the terms “furniture and equipment” shall mean collectively all furniture, furnishings, wall coverings, fixtures and hotel equipment and systems located at, or used in connection with, the Hotel, together with all replacements therefor and additions thereto, including, without limitation, (i) all equipment and systems required for the operation of kitchens and bars, laundry and dry cleaning facilities, (ii) office equipment, (iii) material handling equipment, cleaning and engineering equipment, (iv) telephone and computerized accounting systems, and (v) vehicles.

 

Government: The United States of America, any state, district or territory thereof, any foreign nation, any state, district, department, territory or other political division thereof, or any agency or political subdivision of any of the foregoing.

 

Gross Operating Expenses: The term “Gross Operating Expenses” shall include (i) all costs and expenses of operating the Hotel included within the meaning of the term “Total Costs and Expenses” contained in the Uniform System and, (ii) without duplication, the following: all salaries and employee expense and payroll taxes (including salaries, wages, bonuses and other compensation of all employees of the Hotel, and benefits including life, medical and disability insurance and retirement benefits), expenditures described in Section 9.1, operational supplies, utilities, insurance to be provided by Lessee under the terms of this Lease, governmental fees and assessments, common area maintenance costs and other common area fees and assessments, food, beverages, laundry service expense, the cost of Inventories, license fees, advertising, marketing, reservation systems and any and all other operating expenses as are reasonably necessary for the proper and efficient operation of the Hotel and the Leased Property incurred by Lessee in accordance with the provisions hereof (excluding, however, (i) federal, state and municipal excise, sales and use taxes collected directly from patrons and guests or as a part of the sales price of any goods, services or displays, such as gross receipts, admissions, cabaret or similar or equivalent taxes paid over to federal, state or municipal governments, (ii) the cost of insurance to be provided under Article 13, (iii) expenditures by Lessor pursuant to Article 13 and (iv) payments on any Mortgage or other mortgage or security instrument on the Hotel); all determined in accordance with generally accepted accounting principles. No part of 

 

  

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Lessee’s central office overhead or general or administrative expense (as opposed to that of the Hotel), shall be deemed to be a part of Gross Operating Expenses, as herein provided. Reasonable out-of-pocket expenses of Lessee incurred for the account of or in connection with the Hotel operations, including but not limited to postage, telephone charges and reasonable travel expenses of employees, officers and other representatives and consultants of Lessee and its Affiliates, shall be deemed to be a part of Gross Operating Expenses and such Persons shall be afforded reasonable accommodations, food, beverages, laundry, valet and other such services by and at the Hotel without charge to such Persons or Lessee.

 

Gross Operating Profit: For any Fiscal Year, the excess of Gross Revenues for such Fiscal Year over Gross Operating Expenses for such Fiscal Year.

 

Gross Revenues: All revenues, receipts, and income of any kind derived directly or indirectly by Lessee from or in connection with the Hotel (including rentals or other payments from tenants, lessees, licensees or concessionaires but not including their gross receipts receipts) whether on a cash basis or credit, paid or collected, determined in accordance with generally accepted accounting principles, excluding, however: (i) funds furnished by Lessor, (ii) federal, state and municipal excise, sales, and use taxes collected directly from patrons and guests or as a part of the sales price of any goods, services or displays, such as gross receipts, admissions, cabaret or similar or equivalent taxes and paid over to federal, state or municipal governments, (iii) the amount of all credits, rebates or refunds to customers, guests or patrons, and all service charges, finance charges, interest and discounts attributable to charge accounts and credit cards, to the extent the same are paid to Lessee by its customers, guests or patrons, or to the extent the same are paid for by Lessee to, or charged to Lessee by, credit card companies, (iv) gratuities or service charges actually paid to employees, (v) proceeds of insurance and condemnation, (vi) proceeds from sales other than sales in the ordinary course of business, (vii) all loan proceeds from financing or refinancings of the Hotel or interests therein or components thereof, (viii) judgments and awards, except any portion thereof arising from normal business operations of the Hotel, and (ix) items constituting “allowances” under the Uniform System.

 

Hazardous Materials: All chemicals, pollutants, contaminants, wastes and toxic substances, including without limitation:

 

(a)      Solid or hazardous waste, as defined in RCRA or any other Environmental Law;

 

(b)      Hazardous substances, as defined in CERCLA or any other Environmental Law;

 

(c)      Toxic substances, as defined in TSCA or any other Environmental Law;

 

(d)      Insecticides, fungicides, or rodenticides, as defined in FIFRA or any other Environmental Law; and

 

(e)      Gasoline or any other petroleum product or byproduct, polychlorinated biphenyl, asbestos and urea formaldehyde.

 

Hotel: The hotel and/or other facility offering lodging and other services or amenities being operated or proposed to be operated on the Leased Property.

 

Impositions: Collectively, all taxes (including, without limitation, all ad valorem, sales and use, single business, gross receipts, transaction, privilege, rent or similar taxes as the same relate to or are imposed upon Lessee or its business conducted upon the Leased Property), assessments (including, without limitation, all assessments for public improvements or benefit, whether or not commenced or completed prior to the date hereof and whether or not to be completed within the Term), ground rents, water, sewer or other rents and charges, excises, tax inspection, authorization and similar fees and all other governmental charges, in each case whether general or special, ordinary or extraordinary, or foreseen or unforeseen, of every character in respect of the Leased Property or the business conducted thereon by Lessee (including all interest and penalties thereon caused by any failure in payment by Lessee), which at any time prior to, during or with respect to the Term hereof may be assessed or imposed on or with respect to or be a lien upon (a) Lessor’s interest in the Leased Property, (b) the Leased Property, or any part thereof or any rent therefrom or any estate, right, title or interest therein, or (c) any occupancy, operation, use or possession of, or sales from, or activity conducted on or in connection with the Leased Property, or the leasing or use of the Leased Property or any part thereof by Lessee. Nothing contained in this definition of Impositions shall be construed to require Lessee to pay (1) any tax based on net income (whether denominated as a franchise or capital

 

  

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stock or other tax) imposed on Lessor or any other Person, or (2) any net revenue tax of Lessor or any other Person, or (3) any tax imposed with respect to the sale, exchange or other disposition by Lessor of any Leased Property or the proceeds thereof, or (4) any single business, gross receipts (other than a tax on any rent received by Lessor from Lessee), transaction, privilege or similar taxes as the same relate to or are imposed upon Lessor, except to the extent that any tax, assessment, tax levy or charge that Lessee is obligated to pay pursuant to the first sentence of this definition and that is in effect at any time during the Term hereof is totally or partially repealed, and a tax, assessment, tax levy or charge set forth in clause (1) or (2) is levied, assessed or imposed expressly in lieu thereof.   Notwithstanding anything contained herein to the contrary, Lessor shall fund all tax escrows required to be reserved pursuant to the Loan Documents and Lessee shall not be responsible for the payment of such amounts.

 

Indemnified Party: Either of a Lessee Indemnified Party or a Lessor Indemnified Party.

 

Indemnifying Party: Any party obligated to indemnify an Indemnified Party pursuant to Sections 8.3 or 18.1.

 

Insurance Requirements: All terms of any insurance policy required by this Lease and all requirements of the issuer of any such policy.

 

Initial Lender:  Ladder Capital Finance LLC, and its successors and assigns.

 

Initial Loan: The loan in the original principal amount of $7,800,000 made by the Initial Lender as assumed  by Lessor concurrently herewith.

 

Initial Loan Documents:  The Loan Agreement, Promissory Note, Cash Management Agreement, Assignment of Contract, Permits, Warranties and General Intangibles, Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, Assignment of Management Agreement and Subordination of Management Fees, Master Lease Subordination and Attornment Agreement, and Collateral Assignment of Leases and Rents and Security Agreement and other documents executed by Lessor, Lessee (where applicable) and Initial Lender evidencing the Loan.

 

Inventory: All “Inventories of Merchandise” and “Inventories of Supplies” as defined in the Uniform System, including without limitation linens, china, silver, glassware and other non-depreciable personal property, and including any property of the type described in Section 1221(1) of the Code.

 

Land: As defined in Section 1.1.

 

Lease: This Lease by and between the Lessor and Lessee.

 

Leased Improvements; Leased Property: Each as defined in Section 1.1.

 

Legal Requirements: All federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions affecting either the Leased Property or the maintenance, construction, use or alteration thereof (whether by Lessee or otherwise), whether now in force or hereafter enacted and in force, including (a) all laws, rules or regulations pertaining to the environment, occupational health and safety and public health, safety or welfare, and (b) any laws, rules or regulations that may (1) require repairs, modifications or alterations in or to the Leased Property or (2) in any way adversely affect the use and enjoyment thereof; and all permits, licenses and authorizations and regulations relating thereto and all covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or known to Lessee (other than encumbrances created by Lessor without the consent of Lessee), at any time in force affecting the Leased Property.

 

Lender:  The Initial Lender or any lender under a Permitted Mortgage.

 

Lessee: The Lessee designated in this Lease and its respective permitted successors and assigns.

 

Lessee Indemnified Party: Lessee, any Affiliate of Lessee, any other Person against whom any claim for indemnification may be asserted hereunder as a result of a direct or indirect ownership interest (including a stockholder’s or member’s interest) in Lessee, the officers, directors, stockholders, members, managers, employees,

 

  

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agents and representatives of Lessee, and the respective heirs, personal representatives, successors and assigns of any such officer, director, stockholder, member, manager, employee, agent or representative.

 

Lessee’s Personal Property: As defined in Section 6.2.

 

Lessor: The Lessor designated in this Lease and its respective successors and assigns.

 

Lessor Capital Improvements:  All capital expenditures attributable to the foundation, structural walls and the roof of the Leased Property, but excluding windows and plate glass, mechanical, electrical and plumbing systems and equipment, including conduit and ductware, and non-load bearing walls and parking lot surfaces.

 

Lessor Indemnified Party: Lessor, any Affiliate of Lessor, any other Person against whom any claim for indemnification may be asserted hereunder as a result of a direct or indirect ownership interest (including a stockholder’s or partnership interest) in Lessor, the officers, directors, stockholders, members, managers, employees, agents and representatives of the general partner of Lessor and any partner, agent, or representative of Lessor, and the respective heirs, personal representatives, successors and assigns of any such officer, director, stockholder, partner, member, manager, employee, agent or representative.

 

Licenses: As defined in Subsection 1.3(a).

 

Loan Documents:  The Initial Loan Documents or any documents comprising a Permitted Mortgage.

 

Management Agreement:  That certain Management Agreement dated  April ___, 2013 to which Moody National Hospitality Management, LLC and the Lessee are the current parties (as amended and assigned) or any agreement pursuant to which a successor manager operates the Hotel.

 

Manager:  Moody National Hospitality Management, LLC, or any successor manager that is retained by Lessee to operate the Hotel pursuant to this Lease and any Franchise Agreement

 

Notice: As defined in Article 26.

 

Officer’s Certificate: A certificate of Lessee reasonably acceptable to Lessor, signed by the chief financial officer or another officer authorized so to sign by the board of directors or other governing body of Lessee, or bylaws or limited liability company agreement of Lessee, or any other Person whose power and authority to act has been authorized by delegation in writing by any such officer.

 

Overdue Rate: On any date, a rate equal to the Base Rate plus 1.25% per annum, but in no event greater than the maximum rate then permitted under applicable law.

 

Payment Date: Any due date for the payment of any installment of Base Rent.

 

Percentage Rent: As defined in Subsection 3.1(b).

 

Permitted Mortgage:  The mortgage, deed of trust or other similar documents (“Mortgage”) securing the Initial Loan or any subsequent mortgage placed on the Leased Property by Lessor and Lessee in compliance with the terms of this Lease.

 

Person: Any Government, natural person, corporation, general or limited partnership, limited liability company, stock company or association, joint venture, association, company, trust, bank, trust company, land trust, business trust, or other entity.

 

Personal Property Taxes: All personal property taxes imposed on the furniture, furnishings or other items of personal property located on, and used in connection with, the operation of the Leased Improvements as a hotel (other than such Inventory and other personal property that is owned by Lessee), together with all replacement, modifications, alterations and additions thereto.

 

Predecessor: Any Person whose liabilities arising under any Environmental Law have or may have been retained or assumed by Lessor or Lessee, either contractually or by operation of law, relating to the Leased Property.

 

  

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Primary Intended Use: As defined in Subsection 7.2(b).

 

Proceeding: Any judicial action, suit or proceeding (whether civil or criminal), any administrative proceeding (whether formal or informal), any investigation by a governmental authority or entity (including a grand jury), and any arbitration, mediation or other non-judicial process for dispute resolution.

 

RCRA: The Resource Conservation and Recovery Act, as amended.

 

Real Estate Taxes: All real estate taxes, including general and special assessments, if any, which are imposed upon the Land, and any improvements thereon.

 

Release: A “Release” as defined in CERCLA or in any Environmental Law, unless such Release has been properly authorized and permitted in writing by all applicable Environmental Authorities or is allowed by such Environmental Law without authorizations or permits.

 

Rent:   Base Rent, Percentage Rent and Additional Charges, collectively.

 

Repositioning: As defined in Section 3.6.

 

Restoration:  The restoration, repair, replacement, rebuilding or alteration of the Leased Property following a casualty or a partial Taking (including, without limitation, the cost of all temporary repairs for the protection of property pending the completion of permanent restoration, repair, replacement, rebuilding or alteration), to a complete architectural unit of as nearly as possible the same value, condition and character that existed immediately prior to such casualty or Taking, to the extent permissible under applicable Legal Requirements, including without limitation, all zoning and use requirements and regulations.

 

SARA: The Superfund Amendments and Reauthorization Act of 1986, as amended.

 

Solvent: As to any Person, (a) the sum of the assets of such Person exceeds its liabilities and (b) such Person has sufficient capital with which to conduct its business as presently conducted and as proposed to be conducted.

 

State: The state or commonwealth in which the Hotel is located, namely Georgia.

 

Subsidiaries: Persons in which Lessee owns, directly or indirectly, more than fifty percent (50%) of the voting stock or control, as applicable.

 

Surplus.  As defined in Section 15.2(c).

 

Taking:  The event of vesting of title to the Project or any part thereof or estate therein in the condemning authority as the result of any Condemnation Proceeding.

 

Term: As defined in Section 1.2.

 

TSCA: The Toxic Substances Control Act, as amended.

 

Unavoidable Occurrence. The occurrence of strikes, lockouts, labor unrest, gasoline and other energy shortages, widespread disruption of air, auto or other travel, inability to procure materials or services, power or other utility failure, acts of God (such as hurricanes, tornadoes, earthquakes, floods and mud slides), governmental restrictions, war or other enemy or terrorist action, civil commotion, fire, casualty, condemnation or other similar causes, in each case, if such cause is beyond the reasonable control of Lessee; provided that (i) lack of funds shall not be deemed a cause beyond the reasonable control of either party hereto unless such lack of funds is caused by the failure of the other party hereto to perform any obligations of such party under this Lease or any guaranty of this Lease, and (ii) any such occurrence is an extraordinary, as opposed to a routine or cyclical, material event that was not reasonably foreseeable when the then-applicable Annual Budget was prepared.

 

  

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Uniform System: The Uniform System of Accounts for Hotels (9th Revised Edition, 1996) as published by the American Hotel and Lodging Association, with such later revisions as may be agreed to by both Lessor and Lessee.

 

Unsuitable for its Primary Intended Use: A state or condition of the Hotel such that, in the good faith judgment of Lessee, reasonably exercised and evidenced by the resolution of the board of directors or other governing body of Lessee, due to casualty damage or loss through Condemnation, the Hotel cannot function as an integrated hotel facility consistent with standards applicable to a well maintained and operated hotel.

 

Vesting Date.  The date of any Taking.

 

WARN Act: As defined in Subsection 8.2(b).

 

Working Capital: Funds reasonably necessary for the day-to-day operation of the Hotel’s business for a thirty (30) day period, including, without limitation, amounts sufficient for the maintenance of change and petty cash funds, operating bank accounts, payrolls, accounts payable, accrued current liabilities, and funds required to maintain Inventories.

 

ARTICLE 3

RENT; RENT ADJUSTMENTS

 

3.1            Rent.  Lessee will pay to Lessor in lawful money of the United States of America, in immediately available funds, at Lessor’s address set forth in Article 26 hereof or at such other place or to such other Person as Lessor from time to time may designate in a Notice, all Base Rent, Percentage Rent  and Additional Charges, during the Term, as follows:

 

(a)      Base Rent: The annual sum specified in Exhibit B, as adjusted pursuant to Subsection 3.1(e) hereof, payable in advance in equal, consecutive monthly installments, on or before the tenth day of each calendar month of the Term (“Base Rent”); provided, however, that the first monthly payment of Base Rent shall be payable during the second calendar month of the Term, and that the first and last monthly payments of Base Rent shall be pro rated as to any partial month (subject to adjustment as provided in Sections 14.4 and 15.3).  Within thirty (30) days prior to the fifth (5th) anniversary of the Commencement Date, Lessor and Lessee shall determine the Base Rent for the next five (5) years at a market rate mutually agreed upon by the parties.  If the parties cannot, within thirty (30) days, agree on the new Base Rent, either party may require that the matter be submitted to binding arbitration as set forth in Section 25.1.  On each subsequent five (5) year anniversary, Base Rent shall be determined as set forth in this Section 3.1(a).

 

(b)      Percentage Rent: For each year of the Term commencing with the Commencement Date, Lessee shall pay percentage rent (“Percentage Rent”), to the extent that such Percentage Rent is greater than the Base Rent due for such period.

 

Percentage Rent shall be an amount equal to the applicable Annual Revenues Computation (as set forth on Exhibit C) less an amount equal to the Base Rent paid with respect to such year.  The Annual Revenues Computation shall be adjusted beginning on the fifth (5th) anniversary of the Commencement Date, and each 5 year anniversary thereafter , in the same manner as Base Rent is adjusted pursuant to Section 3.1(a).  During the first year of the Lease, the Percentage Rent shall be calculated in November and May, and to the extent that any Percentage Rent is due, shall be payable within 15 days following the end of November and May.  Beginning on the first anniversary of the Commencement Date, Percentage Rent shall be payable each calendar month on or before the last day of the calendar month in an amount equal to the excess, if any, of the budgeted Percentage Rent payable with respect to the then current calendar month (which budgeted amount shall be equal to one-twelfth (1/12) of the annual estimate of Percentage Rent included in the Annual Budget for the year in which the calendar month occurs) over Base Rent for such calendar month.  In November and May of each year, the actual Percentage Rent due shall be calculated.

 

There shall be no reduction in the Base Rent regardless of the result of any Annual Revenues Computation.

 

  

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(c)      Reserved

 

(d)      Officer’s Certificates.  In May and November of each year of the Lease term, Lessee shall deliver to Lessor an Officer’s Certificate reasonably acceptable to Lessor setting forth the computation of the Percentage Rent that accrued for the specified semi-annual period.  If the Percentage Rent due and payable for such period exceeds the amount actually paid by Lessee for such year, Lessee shall pay such excess to Lessor at the time the Officer’s Certificate is delivered.  If the actual Percentage Rent due and payable is less than the amount actually paid for such period, Lessor, at its option, shall reimburse such amount to Lessee or credit such amount against subsequent months’ Base Rent.  Any credit to Base Rent shall not be applied for purposes of calculating Percentage Rent payable for any subsequent month.

 

The obligation to pay Percentage Rent shall survive the expiration or earlier termination of the Term, and a final reconciliation, taking into account, among other relevant adjustments, any adjustments which are accrued after such expiration or termination date but which related to Percentage Rent accrued prior to such termination date, and Lessee’s good faith best estimate of the amount of any unresolved contractual allowances, shall be made not later than two (2) years after such expiration or termination date, but Lessee shall advise Lessor within sixty (60) days after such expiration or termination date of Lessee’s best estimate at that time of the approximate amount of such adjustments, which estimate shall not be binding on Lessee or have any legal effect whatsoever.

 

(e)      Allocation of Rent. The parties hereto acknowledge and agree that the Base Rent paid or payable by Lessee to Lessor hereunder shall, to the extent relevant, be allocated between the personal property and real property constituting Leased Property hereunder in direct proportion to the then recognizable fair market value of such personal property and real property. Percentage Rent in excess of Base Rent shall be allocated solely to real property.

 

3.2           Confirmation of Percentage Rent. Lessee shall utilize, or cause to be utilized, an accounting system for the Leased Property in accordance with its usual and customary practices, and in accordance with generally accepted accounting principles, that will accurately record all data necessary to compute Percentage Rent, and Lessee shall retain, for at least four (4) years after the expiration of each semi-annual period (and in any event until the reconciliation described in Subsection 3.1(d) for such period has been made), reasonably adequate records conforming to such accounting system showing all data necessary to compute Percentage Rent for the applicable period. Lessor, at its expense (except as provided hereinbelow), shall have the right from time to time, upon prior written notice to Lessee and Manager, by its accountants or representatives to audit the information that formed the basis for the data set forth in any Officer’s Certificate provided under Subsection 3.1(d) and, in connection with such audits, to examine all Lessee’s records (including supporting data and sales and excise tax returns) reasonably required to verify Percentage Rent, subject to any prohibitions or limitations on disclosure of any such data under Legal Requirements; provided, however that Lessor may only inspect or audit records in Manager’s possession subject to the terms of Lessee’s access thereto under the Management Agreement. If any such audit discloses a deficiency in the payment of Percentage Rent, and either Lessee agrees with the result of such audit or the matter is otherwise determined or compromised, Lessee shall forthwith pay to Lessor the amount of the deficiency, as finally agreed or determined, together with interest at the Overdue Rate from the date when said payment should have been made to the date of payment thereof; provided, however, that as to any audit that is commenced more than two (2) years after the date Percentage Rent for any period is reported by Lessee to Lessor, the deficiency, if any, with respect to such Percentage Rent shall bear interest at the Overdue Rate only from the date such determination of deficiency is made unless such deficiency is the result of gross negligence or willful misconduct on the part of Lessee, in which case interest at the Overdue Rate will accrue from the date such payment should have been made to the date of payment thereof. If any such audit discloses that the Percentage Rent actually due from Lessee for any Fiscal Year exceed those reported by Lessee by more than three percent (3%), Lessee shall pay the cost of such audit and examination. Any proprietary information obtained by Lessor pursuant to the provisions of this Section shall be treated as confidential, except that such information may be used, subject to appropriate confidentiality safeguards, in any litigation between the parties and except further that Lessor may disclose such information to prospective lenders or as required to comply with applicable Legal Requirements, including without limitation, reporting requirements under state and federal securities laws. The obligations of Lessee contained in this Section shall survive the expiration or earlier termination of this Lease.

 

3.3           Additional Charges. In addition to the Base Rent and Percentage Rent, (a) Lessee also will pay and discharge as and when due and payable all other amounts, liabilities, obligations and Impositions that Lessee assumes or agrees to pay under this Lease, and (b) in the event of any failure on the part of Lessee to pay any of

 

  

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those items referred to in clause (a) of this Section 3.3, Lessee also will promptly pay and discharge every fine, penalty, interest and cost that may be added for non-payment or late payment of such items (the items referred to in clauses (a) and (b) of this Section 3.3 being additional rent hereunder and being referred to herein collectively as the “Additional Charges”), and Lessor shall have all legal, equitable and contractual rights, powers and remedies provided either in this Lease or by statute or otherwise in the case of non-payment of the Additional Charges as in the case of non-payment of the Base Rent. If any installment of Base Rent and Percentage Rent or Additional Charges (but only as to those Additional Charges that are payable directly to Lessor) shall not be paid on its due date, Lessee will pay Lessor on demand, as Additional Charges, a late charge (to the extent permitted by law) computed at the Overdue Rate on the amount of such installment, from the due date of such installment to the date of payment thereof. To the extent that Lessee pays any Additional Charges to Lessor pursuant to any requirement of this Lease, Lessee shall be relieved of its obligation to pay such Additional Charges to the entity to which they would otherwise be due and Lessor shall pay same from monies received from Lessee.

 

3.4           Net Lease.  The Rent shall be paid absolutely net to Lessor, so that this Lease shall yield to Lessor the full amount of the installments of Base Rent, Percentage Rent and Additional Charges throughout the Term, all as more fully set forth in Article 5, but subject to any other provisions of this Lease that expressly provide for adjustment or abatement of Rent or other charges or expressly provide that certain expenses or maintenance shall be paid or performed by Lessor.

 

3.5           No Termination or Abatement.  Except as otherwise specifically provided in this Lease, and except for loss of the Management Agreement solely by reason of any action or inaction by Lessor, Lessee, to the extent permitted by law, shall remain bound by this Lease in accordance with its terms and shall neither take any action without the written consent of Lessor (which shall not be unreasonably withheld or delayed) to modify, surrender or terminate the same, nor seek nor be entitled to any abatement, deduction, deferment or reduction of the Rent, or setoff against the Rent, nor shall the obligations of Lessee be otherwise affected by reason of (a) any damage to, or destruction of, any Leased Property or any portion thereof from whatever cause or any Taking of the Leased Property or any portion thereof, (b) the lawful or unlawful prohibition of, or restriction upon, Lessee’s use of the Leased Property, or any portion thereof, or the interference with such use by any Person other than Lessor, (c) any claim which Lessee has or might have against Lessor by reason of any default or breach of any warranty by Lessor under this Lease or any other agreement between Lessor and Lessee, or to which Lessor and Lessee are parties, (d) any bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution, winding up or other proceedings affecting Lessor or any assignee or transferee of Lessor, or (e) for any other cause whether similar or dissimilar to any of the foregoing other than a discharge of Lessee from any such obligations as a matter of law. Lessee hereby specifically waives all rights, arising from any occurrence whatsoever, which may now or hereafter be conferred upon it by law to (1) modify, surrender or terminate this Lease or quit or surrender the Leased Property or any portion thereof, or (2) entitle Lessee to any abatement, reduction, suspension or deferment of the Rent or other sums payable by Lessee hereunder, except as otherwise specifically provided in this Lease. The obligations of Lessee hereunder shall be separate and independent covenants and agreements and the Rent and all other sums payable by Lessee hereunder shall continue to be payable in all events unless the obligations to pay the same shall be terminated pursuant to the express provisions of this Lease or by termination of this Lease other than by reason of an Event of Default.

 

3.6           Rent Adjustment: Change in Franchise Affiliation or Change in Scope of Work.  Except to the extent that doing so would cause Lessor to recognize income other than “rents from real property” as defined in Section 856(d) of the Code, notwithstanding anything herein (other than Article 19) to the contrary, if (i) the facts and circumstances underlying the documented, basic assumptions upon which both Lessor and Lessee have relied in determining the Base Rent and the Percentage Rent payable hereunder become materially incorrect solely as a result of (A) a decision to re-brand the Hotel that is made after the Commencement Date, (B) the scope or cost of substantial renovations or other capital improvements to the Hotel (that were not planned as of the Commencement Date)l, or (C) the implementation of any other hotel repositioning strategies (that were not planned as of the Commencement Date) resulting in significant disruption of the operations of the Hotel (collectively, a “Repositioning”), and (ii) Lessor and Lessee so agree in writing, then Lessor and Lessee shall, in good faith, negotiate modifications to the Base Rent and Percentage Rent to adjust (i.e., increase, decrease or reallocate among revenue categories) such Base Rent and Percentage Rent to reflect such change in basic assumptions for the affected periods, using the same methodology and other basic assumptions as were initially utilized in determining the Base Rent and Percentage Rent hereunder. If Lessor and Lessee are unable to agree, within thirty (30) days after the date 

 

  

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of written certification from either Lessee or Lessor to the other party that a good faith dispute exists, as to the existence of the occurrence of a Repositioning or the adjustments to be made to the amounts or percentages for the Base Rent and Percentage Rent hereunder as a result of any repositioning, the dispute may be submitted by either party to arbitration under Section 25.1 hereof for resolution (during which period Lessee shall continue to pay Base Rent and Percentage Rent as required under Section 3.1 of this Lease).

 

ARTICLE 4

BUDGETS; BOOKS AND RECORDS

 

4.1           Annual Budget. Not later than twenty (20) days prior to the commencement of each Fiscal Year, Lessee shall submit the Annual Budget to Lessor. The Annual Budget shall contain the following, to the extent included in the operating budgets and capital budgets provided to Lessee by Manager under the Management Agreement for the Hotel:

 

(a)      Lessee’s reasonable estimate of Gross Revenues (including room rates and Room Revenues), Gross Operating Expenses, and Gross Operating Profits for the forthcoming Fiscal Year itemized on schedules on a monthly basis as approved by Lessor and Lessee, as same may be revised or replaced from time to time by Lessee and approved by Lessor, together with the assumptions, forming the basis of such schedules.

 

(b)      An estimate of the amounts to be spent for  the repair, replacement, or refurbishment of Furniture and Equipment and/or Fixtures or otherwise.

 

(c)      An estimate of any amounts Lessor will be required to provide for required or desirable capital improvements to the Hotel or any of its components.

 

(d)      A cash flow projection.

 

(e)      A business plan, which shall describe business objectives and strategies for the forthcoming Fiscal Year, and shall include without limitation an analysis of the market area in which the Hotel competes, a comparison of the Hotel and its business with competitive hotels, an analysis of categories of potential guests, and a description of sales and marketing activities designed to achieve and implement identified objectives and strategies.

 

4.2           Books and Records. Lessee shall keep full and adequate books of account and other records reflecting the results of operation of the Hotel on an accrual basis, all in accordance with generally accepted accounting principles and the obligations of Lessee under this Lease. The books of account and all other records relating to or reflecting the operation of the Hotel shall be kept either at the Hotel or at Lessee’s offices in Houston, Texas or at Manager’s central offices, and shall be available to Lessor and its representatives and its auditors or accountants, at all reasonable times, upon prior written notice to Lessee and Manager, for examination, audit, inspection, and transcription; provided, however that Lessor may only inspect or audit records in Manager’s possession subject to the terms of Lessee’s access thereto under the Management Agreement. All of such books and records pertaining to the Hotel including, without limitation, books of account, guest records and front office records, at all times shall be the property of Lessor and shall not be removed from the Hotel or Lessee’s offices or Manager’s central offices (but may be moved among any of the foregoing) by Lessee without Lessor approval.

 

ARTICLE 5

IMPOSITIONS AND OTHER COSTS

 

5.1            Payment of Impositions. Subject to Article 12 (relating to permitted contests), Lessee will pay, or cause to be paid, all Impositions, provided that such Impositions shall not include any taxes for which Lessor is required to reserve funds pursuant to the Loan Documents, before any fine, penalty, interest or cost may be added for non-payment, such payments to be made directly to the taxing or other authorities where feasible, and will promptly furnish to Lessor copies of official receipts or other satisfactory proof evidencing such payments. Lessee’s obligation to pay such Impositions shall be deemed absolutely fixed upon the date such Impositions become a lien upon the Leased Property or any part thereof. If any such Imposition may, at the option of the taxpayer, lawfully be paid in installments (whether or not interest shall accrue on the unpaid balance of such Imposition), Lessee may exercise the option to pay the same (and any accrued interest on the unpaid balance of such Imposition) in installments and in such event, shall pay such installments during the Term hereof (subject to Lessee’s right of 

 

  

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contest pursuant to the provisions of Article 12) as the same respectively become due and before any fine, penalty, premium, further interest or cost may be added thereto. Lessor, at its expense, shall, to the extent required or permitted by applicable law, prepare and file all tax returns in respect of Lessor’s net income, gross receipts, sales and use, single business, transaction privilege, rent, ad valorem, franchise taxes, Real Estate Taxes, Personal Property Taxes and taxes on its capital stock, and Lessee, at its expense, shall, to the extent required or permitted by applicable laws and regulations, prepare and file all other tax returns and reports in respect of any Imposition as may be required by governmental authorities. If any refund shall be due from any taxing authority in respect of any Imposition paid by Lessee, the same shall be paid over to or retained by Lessee if no Event of Default shall have occurred hereunder and be continuing. If an Event of Default shall have occurred and be continuing, any such refund shall be paid over to or retained by Lessor. Any such funds retained by Lessor due to an Event of Default shall be applied as provided in Article 16. Lessor and Lessee shall, upon request of the other, provide such data as is maintained by the party to whom the request is made with respect to the Leased Property as may be necessary to prepare any required returns and reports. Lessee shall file all Personal Property Tax returns in such jurisdictions where it is legally required so to file. Lessor, to the extent it possesses the same, and Lessee, to the extent it possesses the same, will provide the other party, upon request, with cost and depreciation records necessary for filing returns for any property classified as personal property. Where Lessor is required to file Personal Property Tax returns, Lessee shall provide Lessor with copies of assessment notices in sufficient time for Lessor to file a protest. Lessor may, upon Notice to Lessee, at Lessor’s option and at Lessor’s sole expense, protest, appeal, or institute such other proceedings (in its or Lessee’s name) as Lessor may deem appropriate to effect a reduction of real estate or personal property assessments for those Impositions to be paid by Lessor, and Lessee, at Lessor’s expense as aforesaid, shall fully cooperate with Lessor in such protest, appeal, or other action. Lessor hereby agrees to indemnify, defend, and hold harmless Lessee from and against any claims, obligations, liabilities and loss against or incurred by Lessee in connection with such cooperation.   Billings by Lessor to Lessee for reimbursement of any Personal Property Taxes paid by Lessor shall be accompanied by copies of a bill therefor and payments thereof which identify the personal property with respect to which such payments are made. Lessor, however, reserves the right to effect any such protest, appeal or other action and, upon Notice to Lessee, shall control any such activity, which shall then go forward at Lessor’s sole expense. Upon such Notice, Lessee, at Lessor’s expense, shall cooperate fully with such activities.

 

5.2            Notice of Impositions. Lessor shall give prompt Notice to Lessee of all Impositions payable by Lessee hereunder of which Lessor at any time has knowledge, provided that Lessor’s failure to give any such Notice shall in no way diminish Lessee’s obligations hereunder to pay such Impositions, but such failure to provide notice shall obviate  any default hereunder for a reasonable time after Lessee receives Notice of any Imposition which it is obligated to pay during the first taxing period applicable thereto.

 

5.3            Adjustment of Impositions. Impositions imposed in respect of any taxing period during which the Term terminates shall be adjusted and prorated between Lessor and Lessee, whether or not such Imposition is imposed before or after such termination, and Lessee’s obligation to pay its prorated share thereof after termination shall survive such termination.

 

5.4            Utility Charges. Lessee will be solely responsible for obtaining and maintaining utility services to the Leased Property and will pay or cause to be paid all charges for electricity, gas, oil, water, sewer and other utilities used in the Leased Property during the Term.

 

5.5            Insurance Premiums. Lessee will pay or cause to be paid all premiums for the insurance coverage’s required to be maintained by Lessee under Article 13.   Lessor will pay all premiums for the insurance coverage’s required to be maintained by Lessor under Article 13.

 

5.6            Management or Franchise Fees. Lessee will maintain in full force and effect, and pay or cause to be paid all fees and other charges payable pursuant to the Franchise Agreement and any Management Agreement with respect to the Hotel.

 

ARTICLE 6

LEASED PROPERTY; PERSONAL PROPERTY

 

  

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6.1            Ownership of the Leased Property. Lessee acknowledges that the Leased Property is the property of Lessor and that Lessee has only the right to the possession and use of the Leased Property upon the terms and conditions of this Lease.

 

6.2            Lessee’s Personal Property. Lessee may acquire and maintain throughout the Term such Inventory as is required to operate the Leased Property in the manner contemplated by this Lease, in addition to any Inventory that is part of the Leased Property owned by Lessor or purchased by reserved funds of the Lessor. Lessee may (and shall as provided hereinbelow), at its expense, install, affix or assemble or place on any parcels of the Land or in any of the Leased Improvements, any items of personal property (including Inventory) owned by Lessee. Lessee, at the commencement of the Term, and from time to time thereafter, shall provide Lessor with an accurate list of all such items of Lessee’s personal property (collectively, the “Lessee’s Personal Property”). Lessee may, subject to the first sentence of this Section 6.2 and the conditions set forth below, remove any of Lessee’s Personal Property set forth on such list at any time during the Term or upon the expiration or any prior termination of the Term. All of Lessee’s Personal Property, other than Inventory, not removed by Lessee within ten (10) days following the expiration or earlier termination of the Term shall be considered abandoned by Lessee and may be appropriated, sold, destroyed or otherwise disposed of by Lessor without first giving Notice thereof to Lessee, without any payment to Lessee and without any obligation to account therefor. Lessee will, at its expense, restore the Leased Property to its original condition (ordinary wear and tear excepted), including repair of all damage to the Leased Property caused by the removal of Lessee’s Personal Property, whether effected by Lessee or Lessor. Upon the expiration or earlier termination of the Term, Lessor or its designee shall have the option to purchase all Inventory on hand at the Leased Property at the time of such expiration or termination for a sale price equal to the fair market value of such Inventory. Lessee may make such financing arrangements, title retention agreements, leases or other agreements with respect to Lessee’s Personal Property as it sees fit provided that Lessee first advises Lessor of any such arrangement and such arrangement expressly provides that in the event of Lessee’s default thereunder, Lessor (or its designee) may assume Lessee’s obligations and rights under such arrangement.  Notwithstanding anything in this Section 6.2 to the contrary, Lessee shall not remove any of Lessee’s Personal Property and/or enter into any financing arrangements, title retention agreements, leases or other agreements with respect to Lessee’s Personal Property to the extent such actions violate the Loan Documents.

 

6.3           Lessor’s Option to Purchase Assets of Lessee. Effective on not less than ninety (90) days’ prior Notice given at any time within one hundred eighty (180) days before the expiration of the Term, but not later than ninety (90) days prior to such expiration, or upon such shorter Notice period as shall be appropriate if this Lease is terminated prior to its expiration date, Lessor shall have the option to purchase all (but not less than all) of the assets of Lessee, tangible and intangible, relating to the Leased Property (other than this Lease), at the expiration or termination of this Lease for an amount (payable in cash on the expiration date of this Lease) equal to the fair market value thereof.  In the event that Lessor and Lessee cannot agree upon the fair market value of such property, the fair market value shall be determined by binding arbitration pursuant to Section 25.1.

 

ARTICLE 7

CONDITION AND USE OF LEASED PROPERTY

 

7.1           Condition of the Leased Property. Lessee acknowledges receipt and delivery of possession of the Leased Property. Lessee has examined and otherwise has knowledge of the condition of the Leased Property and has found the same to be satisfactory for its purposes hereunder. Lessee is leasing the Leased Property “as is” in its present condition. Lessee waives any claim or action against Lessor in respect of the condition of the Leased Property. LESSOR MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED PROPERTY, OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY LESSEE. LESSEE ACKNOWLEDGES THAT THE LEASED PROPERTY HAS BEEN INSPECTED BY LESSEE AND IS SATISFACTORY TO IT. Provided, however, to the extent permitted by law, Lessor hereby assigns to Lessee all of Lessor’s rights, if any, to proceed against any predecessor in title (other than any Affiliate of Lessee, which conveyed the Property to Lessor) for breaches of warranties or representations or for latent defects in the Leased Property. Lessor shall fully cooperate with Lessee in the prosecution of any such claim, in Lessor’s or Lessee’s name, all at Lessee’s sole cost and expense. Lessee 

 

  

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hereby agrees to indemnify, defend and hold harmless Lessor from and against any claims, obligations and liabilities against or incurred by Lessor in connection with such cooperation.

 

7.2            Use of the Leased Property.

 

(a)      Lessee covenants that it will exercise reasonable efforts to obtain and to maintain all approvals needed to use and operate the Leased Property for its Primary Intended Purpose, as defined in Section 7.2(b) below, and applicable Legal Requirements.

 

(b)      Lessee shall use or cause to be used the Leased Property only as a Hyatt Place hotel facility, and for such other uses as may be necessary or incidental to such use or such other use as otherwise approved by Lessor (the “Primary Intended Use”).  Lessee shall not use the Leased Property or any portion thereof for any other use without the prior written consent of Lessor, which consent may be granted, denied or conditioned in Lessor’s sole discretion. No use shall be made or permitted to be made of the Leased Property, and no acts shall be done, which will cause the cancellation or increase the premium of any insurance policy covering the Leased Property or any part thereof (unless another adequate policy satisfactory to Lessor is available and Lessee pays any premium increase), nor shall Lessee sell or permit to be kept, used or sold in or about the Leased Property any article which may be prohibited by law or fire underwriter’s regulations. Lessee shall, at its sole cost, comply with all of the requirements pertaining to the Leased Property of any insurance board, association, organization or company necessary for the maintenance of insurance, as herein provided, covering the Leased Property and Lessee’s Personal Property.

 

(c)      Subject to the provisions of Articles 14, 15, 18 and 21, Lessee covenants and agrees that during the Term it will (1) operate continuously the Leased Property as a hotel facility, (2) keep in full force and effect and comply with all the provisions of the Franchise Agreement, (3) not terminate or amend the Franchise Agreement,  without the consent of Lessor (which shall not be unreasonably withheld or delayed), and (4) maintain appropriate certifications and Licenses for such use.

 

(d)      Lessee shall not commit or suffer to be committed any waste on the Leased Property, or in the Hotel, nor shall Lessee cause or permit any nuisance thereon.

 

(e)      Lessee shall neither suffer nor permit the Leased Property or any portion thereof, or Lessee’s Personal Property, to be used in such a manner as (1) might reasonably tend to impair Lessor’s (or Lessee’s, as the case may be) title thereto or to any portion thereof, or (2) may reasonably make possible a claim or claims of adverse usage or adverse possession by the public, as such, or of implied dedication of the Leased Property or any portion thereof, except as necessary in the ordinary and prudent operation of the Hotel on the Leased Property.

 

7.3            Lessor to Grant Easements, Etc.  Subject to the terms of the Loan Documents, Lessor will, from time to time, so long as no Event of Default has occurred and is continuing, at the request of Lessee and at Lessee’s cost and expense (but subject to the approval of Lessor, which approval shall not be unreasonably withheld or delayed), (a) grant easements and other rights in the nature of easements with respect to the Leased Property to third parties, (b) release existing easements or other rights in the nature of easements which are for the benefit of the Leased Property, (c) dedicate or transfer unimproved portions of the Leased Property for road, highway or other public purposes, (d) execute petitions to have the Leased Property annexed to any municipal corporation or utility district, (e) execute amendments to any covenants and restrictions affecting the Leased Property and (f) execute and deliver to any Person any instrument appropriate to confirm or effect such grants, releases, dedications, transfers, petitions and amendments (to the extent of its interests in the Leased Property), but only upon delivery to Lessor of an Officer’s Certificate stating that such grant, release, dedication, transfer, petition or amendment does not interfere with the proper conduct of the business of Lessee on the Leased Property and does not materially reduce the value of the Leased Property.

 

7.4            Engagement of a Manager.  Lessee shall not engage a Manager for the Leased Property other than a qualified manager without the written consent of the Lessor, which may be given or withheld in Lessor’s reasonable discretion.  The parties hereby agree that Moody National Hospitality Management, LLC is a qualified manager.  Any management contract, agreement or other arrangement entered into by Lessee shall not relieve Lessee of any of Lessee’s obligation hereunder and any such agreement shall be expressly subordinate to the terms and conditions of this Lease.

 

  

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7.5            Change in Franchise Affiliation. Lessee shall not, without the prior written consent of Lessor, which consent may be granted or withheld in Lessor’s sole discretion, replace the existing franchise affiliation.

 

ARTICLE 8

LESSEE’S COMPLIANCE WITH LEGAL REQUIREMENTS AND INSURANCE REQUIREMENTS

 

8.1            Compliance with Legal and Insurance Requirements, Etc. Subject to Section 8.3(b) below and Section 12.2 (relating to permitted contests), Lessee, at its expense, will promptly (a) comply with all applicable Legal Requirements and Insurance Requirements in respect of the use, operation, maintenance, repair and restoration of the Leased Property, and (b) procure, maintain and comply with all appropriate Licenses and other authorizations required for any use of the Leased Property and Lessee’s Personal Property then being made, and for the proper erection, installation, operation and maintenance of the Leased Property or any part thereof.

 

8.2             Legal Requirement Covenants.

 

(a)      Subject to Section 8.3 below, Lessee covenants and agrees that the Leased Property and Lessee’s Personal Property, if any, shall not be used for any unlawful purpose, and that Lessee shall not permit or suffer to exist any unlawful use of the Leased Property by others. Lessee shall acquire and maintain all appropriate licenses, certifications, permits and other authorizations and approvals needed to operate the Leased Property in its customary manner for the Primary Intended Use, and any other lawful use conducted on the Leased Property as may be permitted from time to time hereunder. Lessee further covenants and agrees that Lessee’s use of the Leased Property and maintenance, alteration, and operation of the same, and all parts thereof, shall at all times conform to all Legal Requirements, unless the same are finally determined by a court of competent jurisdiction to be unlawful (and Lessee shall cause all sub-tenants, invitees or others within its control so to comply with all Legal Requirements). Lessee may, however, upon prior Notice to Lessor, contest the legality or applicability of any such Legal Requirement or any licensure or certification decision if Lessee maintains such action in good faith, with due diligence, without prejudice to Lessor’s rights hereunder, and at Lessee’s sole expense. If by the terms of any such Legal Requirement compliance therewith pending the prosecution of any such proceeding may legally be delayed without the occurrence of any charge or liability of any kind, or the filing of any lien, against the Hotel or Lessee’s leasehold interest therein and without subjecting Lessee or Lessor to any liability, civil or criminal, for failure so to comply therewith, Lessee may delay compliance therewith until the final determination of such proceeding. If any lien, charge or civil or criminal liability would be incurred by reason of any such delay, Lessee, on the prior written consent of Lessor, which consent shall not be unreasonably withheld or delayed, may nonetheless contest as aforesaid and delay as aforesaid provided that such delay would not subject Lessor to criminal liability and Lessee both (a) furnishes to Lessor security reasonably satisfactory to Lessor against any loss or injury by reason of such contest or delay and (b) prosecutes the contest with due diligence and in good faith.

 

(b)      As between Lessor and Lessee, Lessee is solely responsible for all liabilities or obligations of any kind with respect to employees at the Leased Property during the Term. Without limiting the generality of the foregoing sentence, Lessee is solely responsible for any required compliance with the Worker Adjustment, Retraining and Notification Act of 1988 (the “WARN Act”) or any similar state law applicable to the Leased Property; any required compliance with the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”); and all alleged and actual obligations and claims arising from or relating to any employment agreement, collective bargaining agreement or employee benefit plans, any grievances, arbitration’s, or unfair labor practice charges, and relating to compliance with any applicable state or federal labor employment law, including but not limited to all laws pertaining to discrimination, workers’ compensation, unemployment compensation, occupational safety and health, unfair labor practices, family and medical leave, and wages, hours or employee benefits. Lessee agrees to indemnify and defend and hold harmless Lessor from and against any claims relating to any of the foregoing matters. Lessee further agrees to reimburse Lessor for any and all losses, damages, costs, expenses, liabilities and obligations of any kind, including without limitation reasonable attorney’s fees and other legal costs and expenses, incurred by Lessor in connection with any of the foregoing matters.

 

8.3             Environmental Covenants. Lessor and Lessee additionally covenant and agree as follows:

 

  

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(a)      At all times hereafter until the later of (i) such time as all liabilities, duties or obligations of Lessee to Lessor under the Lease have been satisfied in full and (ii) such time as Lessee completely vacates the Leased Property and surrenders possession of the same to Lessor, Lessee shall fully comply with all Environmental Laws applicable to the Leased Property and the operations thereon. Lessee agrees to give Lessor prompt Notice of (1) all Environmental Liabilities; (2) all pending, threatened or anticipated Proceedings, and all notices, demands, requests or investigations, relating to any Environmental Liability or relating to the issuance, revocation or change in any Environmental Authorization required for operation of the Leased Property; (3) all Releases at, on, in, under or in any way affecting the Leased Property, or any Release known by Lessee at, on, in or under any property adjacent to the Leased Property; and (4) all facts, events or conditions that could reasonably lead to the occurrence of any of the above-referenced matters.

 

(b)      Lessor hereby agrees to defend, indemnify and save harmless any and all Lessee Indemnified Parties from and against any and all Environmental Liabilities other than (i) Environmental Liabilities resulting from conditions disclosed in any environmental audit obtained by Lessor and provided to Lessee prior to the execution of this Lease (the “Environmental Audit”), and (ii) Environmental Liabilities which were caused by the acts or grossly negligent failures to act of Lessee.

 

(c)      Lessee hereby agrees to defend, indemnify and save harmless any and all Lessor Indemnified Parties from and against any and all Environmental Liabilities which were (i) resulting from conditions disclosed in the Environmental Audit, and (ii) caused by the acts or grossly negligent failures to act of Lessee.

 

(d)      If any Proceeding is brought against any Indemnified Party in respect of an Environmental Liability with respect to which such Indemnified Party may claim indemnification under either Subsection 8.3(b) or (c), the Indemnifying Party, upon request, shall at its sole expense resist and defend such Proceeding, or cause the same to be resisted and defended by counsel designated by the Indemnified Party and approved by the Indemnifying Party, which approval shall not be unreasonably withheld or delayed; provided, however, that such approval shall not be required in the case of defense by counsel designated by any insurance company undertaking such defense pursuant to any applicable policy of insurance. Each Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel will be at the sole expense of such Indemnified Party unless such counsel has been approved by the Indemnifying Party, which approval shall not be unreasonably withheld or delayed. The Indemnifying Party shall not be liable for any settlement of any such Proceeding made without its consent, which shall not be unreasonably withheld or delayed, but if settled with the consent of the Indemnifying Party, or if settled without its consent (if its consent shall be unreasonably withheld or delayed), or if there be a final, nonappealable judgment for an adversary party in any such Proceeding, the Indemnifying Party shall indemnify and hold harmless the Indemnified Parties from and against any liabilities and loss incurred by such Indemnified Parties by reason of such settlement or judgment.

 

(e)      At any time any Indemnified Party has reason to believe circumstances exist which could reasonably result in an Environmental Liability, upon reasonable prior Notice to Lessee and Manager stating such Indemnified Party’s basis for such belief, an Indemnified Party shall be given immediate access to the Leased Property (including, but not limited to, the right to enter upon, investigate, drill wells, take soil borings, excavate, monitor, test, cap and use available land for the testing of remedial technologies), Lessee’s employees, and to all relevant documents and records regarding the matter as to which a responsibility, liability or obligation is asserted or which is the subject of any Proceeding; provided that such access may he conditioned or restricted as may be reasonably necessary to ensure compliance with law and the safety of personnel and facilities or to protect confidential or privileged information. All Indemnified Parties requesting such immediate access and cooperation shall endeavor to coordinate such efforts to result in as minimal interruption of the operation of the Leased Property as practicable.

 

(f)      The indemnification rights and obligations provided for in this Article 8 shall be in addition to any indemnification rights and obligations provided for elsewhere in this Lease.

 

(g)      The indemnification rights and obligations provided for in this Article 8 shall survive the termination of this Lease.

 

For purposes of this Section 8.3, all amounts for which any Indemnified Party seeks indemnification shall be computed net of (a) any actual income tax benefit resulting therefrom to such Indemnified Party, (b) any

 

  

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insurance proceeds received (net of tax effects) with respect thereto, and (c) any amounts recovered (net of tax effects) from any third parties based on claims the Indemnified Party has against such third parties which reduce the damages that would otherwise be sustained; provided that in all cases, the timing of the receipt or realization of insurance proceeds or income tax benefits or recoveries from third parties shall be taken into account in determining the amount of reduction of damages. Each Indemnified Party agrees to use its reasonable efforts to pursue, or assign to Lessee or Lessor, as the case may be, any claims or rights it may have against any third party that would materially reduce the amount of damages otherwise incurred by such Indemnified Party.

 

Notwithstanding anything to the contrary contained in this Lease, if Lessor shall become entitled to the possession of the Leased Property by virtue of the termination of the Lease or repossession of the Leased Property, then Lessor may assign its indemnification rights under this Section 8.3 (but not any other rights under this Section 8.3) to any Person to whom Lessor subsequently transfers the Leased Property, subject to the following conditions and limitations, each of which shall be deemed to be incorporated into the terms of such assignment, whether or not specifically referred to therein:

 

(i) The indemnification rights referred to in this section may be assigned only if a known Environmental Liability then exists or if a Proceeding is then pending or, to the knowledge of Lessee or Lessor, then threatened with respect to the Leased Property;

 

(ii) Such indemnification rights shall be limited to Environmental Liabilities relating to or specifically affecting the Leased Property; and

 

(iii) Any assignment of such indemnification rights shall be limited to the immediate transferee of Lessor, and shall not extend to any such transferee’s successors or assigns.

 

ARTICLE 9

MAINTENANCE AND REPAIRS

 

9.1             Maintenance and Repairs.

 

(a)      Lessee, at its sole expense, will keep the Leased Property, and all private roadways, sidewalks and curbs appurtenant thereto that are under Lessee’s control, including windows and plate glass, mechanical, electrical and plumbing systems and equipment (including conduit and ductware), and non-load bearing interior walls, and parking lot surfaces, in good order and repair, except (i) for ordinary wear and tear (whether or not the need for such repairs occurred as a result of Lessee’s use, any prior use, the elements or the age of the Leased Property, or any portion thereof) and (ii) to the extent of damage caused by Lessor’s gross negligence or willful misconduct or that of its employees or agents, and, except as otherwise provided in Subsection 9.1(b), Article 14 or Article 15, with reasonable promptness, make all necessary and appropriate repairs replacements, and improvements thereto of every kind and nature, whether interior or exterior ordinary or extraordinary, foreseen or unforeseen or arising by reason of a condition existing prior to the commencement of the Term of this Lease (concealed or otherwise), or required by any governmental agency having jurisdiction over the Leased Property, except as to the roof, structural walls or foundation of the Leased Improvements.  Lessee will not take or omit to take any action, the taking or omission of which might materially impair the value or the usefulness of the Leased Property or any part thereof for its Primary Intended Use.

 

(b)      Notwithstanding Lessee’s obligations under Subsection 9.1(a) above, except to the extent of damage caused by Lessee’s negligence or willful misconduct or that of its employees or agents, Lessor shall be required to bear the cost of maintaining any of the roof, structural walls or foundation of the Leased Improvements, but excluding windows and plate glass, mechanical, electrical and plumbing systems and equipment, including conduit and ductware, and non-load bearing walls, and parking lot surfaces.  Except as set forth in the preceding sentence and in Section 10.3, Lessor shall not under any circumstances be required to build or rebuild any improvement on the Leased Property, or to make any repairs, replacements, alterations, restorations or renewals of any nature or description to the Leased Property, whether ordinary or extraordinary, foreseen or unforeseen, or to make any expenditure whatsoever with respect thereto, in connection with this Lease, or to maintain the Leased Property in any way. Lessee hereby waives, to the extent permitted by law, the right to make repairs at the expense of Lessor, pursuant to any law in effect at the time of the execution of this Lease or hereafter enacted, except following default by Lessor under this Lease, to the extent of repairs (for which Lessor is obligated hereunder) required to be 

 

  

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made in order for the Hotel, and Lessee’s use thereof, to comply with Lessee’s obligations under the Management Agreement or any Franchise Agreement, as applicable.  Lessor shall have the right to give, record and post, as appropriate, notices of nonresponsibility under any mechanic’s lien laws now or hereafter existing.

 

(c)      Nothing contained in this Lease and no action or inaction by Lessor shall be construed as (i) constituting the request of Lessor, expressed or implied, to any contractor, subcontractor, laborer, materialman or vendor to or for the performance of any labor or services or the furnishing of any materials or other property for the construction, alteration, addition, repair or demolition of or to the Leased Property or any part thereof, or (ii) giving Lessee any right, power or permission to contract for or permit the performance of any labor or services or the furnishing of any materials or other property in such fashion as would permit the making of any claim against Lessor in respect thereof or to make any agreement that may create, or in any way be the basis for any right, title, interest, lien, claim or other encumbrance upon the estate of Lessor in the Leased Property, or any portion thereof.

 

9.2            Encroachments, Restrictions, Etc. Lessor represents and warrants that the Leased Improvements do not materially encroach upon any property, street or right-of-way adjacent to the Leased Property, or violate the agreements or conditions contained in any lawful restrictive covenant or other agreement affecting the Leased Property, or any part thereof, or impair the rights of others under any easement or right-of-way to which the Leased Property is subject.  Except to the extent that such representation and warranty is breached by Lessor, if any of the Leased Improvements, at any time hereafter, materially encroach upon any property, street or right-of-way adjacent to the Leased Property, or violate the agreements or conditions contained in any lawful restrictive covenant or other agreement affecting the Leased Property, or any part thereof, or impair the rights of others under any easement or right-of-way to which the Leased Property is subject, then promptly upon the request of Lessor or at the behest of any Person affected by any such encroachment, violation or impairment, Lessee shall, at its expense, subject to its right to contest the existence of any encroachment, violation or impairment and in such case, in the event of an adverse final determination, either (a) obtain valid and effective waivers or settlements of all claims, liabilities and damages resulting from each such encroachment, violation or impairment, whether the same shall affect Lessor or Lessee or (b) make such changes in the Leased Improvements, and take such other actions, as Lessee in the good faith exercise of its judgment deems reasonably practicable to remove such encroachment, and to end such violation or impairment, including, if necessary, the alteration of any of the Leased Improvements, and in any event take all such actions as may be necessary in order to be able to continue the operation of the Leased Improvements for the Primary Intended Use substantially in the manner and to the extent the Leased Improvements were operated prior to the assertion of such violation, impairment or encroachment. Any such alteration shall be made in conformity with the applicable requirements of Article 10. Lessee’s obligations under this Section 9.2 shall be in addition to and shall in no way discharge or diminish any obligation of any insurer under any policy of title or other insurance held by Lessor.

 

ARTICLE 10

ALTERATIONS AND IMPROVEMENTS; FF&E RESERVE

 

10.1           Alterations. After receiving approval of Lessor, which approval shall not be unreasonably withheld or delayed, Lessee shall have the right to make such additions, modifications or improvements to the Leased Property from time to time as Lessee deems desirable for its permitted uses and purposes, provided that such action will not significantly alter the character or purposes or significantly detract from the value or operating efficiency thereof and will not significantly impair the revenue-producing capability of the Leased Property or adversely affect the ability of Lessee to comply with the provisions of this Lease. The cost of such additions, modifications or improvements to the Leased Property shall be paid by Lessee, and all such additions, modifications and improvements shall, without payment by Lessor at any time, be included under the terms of this Lease and upon expiration or earlier termination of this Lease shall pass to and become the property of Lessor.

 

10.2           Salvage. All materials which are scrapped or removed in connection with the making of repairs required by Articles 9 or 10 shall be or become the property of Lessor or Lessee depending on which party is paying for or providing the financing for such work.

 

10.3           Furniture, Fixture and Equipment Allowance.  Upon the execution of this Lease, Lessor shall have funded a $0  reserve (“PIP Reserve”) as required under the Initial Loan Documents to meet the requirements for periodic repair, replacement  or refurbishing of furniture, fixtures and equipment that constitute Leased Property.  Additional monthly reserves for such purpose required to meet the terms of the Loan Documents shall be the

 

  

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obligation of the Lessor.  Any requirements in addition to the Loan Documents pursuant to the Management Agreement (or Franchise Agreement, if applicable) shall be the obligation of the Lessee.  Subject to the provisions of the Loan Documents, the PIP Reserve shall be made available by Lessor for use by Lessee for replacement or refurbishing of furniture, fixtures and equipment that constitute Leased Property in connection with the Primary Intended Use; provided, however, that no amounts made available under this Article shall be used to purchase property (other than “real property” within the meaning of Treasury Regulations Section 1.856-3(d)), to the extent that doing so would cause Lessor to recognize income other than “rents from real property” as defined in Section 856(d) of the Code. Lessor’s obligation shall be cumulative, but not compounded, and any amounts that have accrued hereunder shall be payable in future periods for such uses and in accordance with the procedure set forth herein. Lessee shall have no interest in any accrued obligation of Lessor hereunder after the termination of this Lease.

 

ARTICLE 11

COMPLIANCE WITH OTHER AGREEMENTS

 

11.1           Compliance with Franchise Agreement and Management Agreement. To the extent any of the provisions of the Management Agreement or Franchise Agreement, as applicable, impose a greater obligation on Lessee than the corresponding provisions of the Lease, then Lessee shall be obligated to comply with, and to take all reasonable actions necessary to prevent breaches or defaults under, the provisions of the Franchise Agreement and the Management Agreement, as applicable.  It is the intent of the parties hereto that Lessee shall comply in every respect with the provisions of the Management Agreement or any Franchise Agreement so as to avoid any material default thereunder during the term of this Lease. Lessee shall not terminate, extend or enter into any material modification of the Management Agreement or Franchise Agreement, as applicable, without in each instance first obtaining Lessor’s prior written consent, which shall not be unreasonably withheld, and consent of the Lender, if required by the Loan Documents.  Lessor and Lessee agree to cooperate with each other in the event it becomes necessary to obtain a Management Agreement extension or modification (or, at Lessor’s option, a new franchise) for the Leased Property, and in any transfer of the Management Agreement or any Franchise Agreement to Lessor or any designee of Lessor or any successor to Lessee upon the termination of this Lease.  In the event of expiration or termination of the Management Agreement or any Franchise Agreement, for whatever reason, Lessor will have the right, in the exercise of its sole discretion, to approve any new Franchise Agreement or Management Agreement for the Hotel and such new Franchise Agreement or Management Agreement shall also be subject to the consent of the Lender, if required by the Loan Documents.

 

ARTICLE 12

PERMITTED LIENS AND CONTESTS

 

12.1           Liens. Subject to the provisions of Section 12.2 relating to permitted contests, Lessee will not directly or indirectly create or allow to remain and will promptly discharge at its expense any lien, encumbrance, attachment, title retention agreement or claim upon the Leased Property or any attachment, levy, claim or encumbrance in respect of the Rent, not including, however, (a) this Lease, (b) the matters included as exceptions in the title policy insuring Lessor’s interest in the Leased Property, (c) restrictions, liens and other encumbrances which are consented to in writing by Lessor or any easements granted pursuant to the provisions of Section 7.3 of this Lease, (d) liens for those taxes upon Lessor or the Leased Property which Lessee is not required to pay hereunder, (e) subleases permitted by Article 20 hereof, (f) liens for Impositions or for sums resulting from noncompliance with Legal Requirements so long as (1) the same are not yet payable or are payable without the addition of any fine or penalty or (2) such liens are in the process of being contested as permitted by Section 12.2, (g) liens of mechanics, laborers, materialmen, suppliers or vendors for sums either disputed or not yet due provided that (1) the payment of such sums shall not be postponed under any related contract for more than sixty (60) days after the completion of the action giving rise to such lien and such reserve or other appropriate provisions as shall be required by law or generally accepted accounting principles shall have been made therefor or (2) any such liens are in the process of being contested as permitted by Section 12.2 hereof, and (h) any liens which are the responsibility of Lessor pursuant to the provisions of Article 22 of this Lease.

 

12.2           Permitted Contests. Lessee shall have the right to contest the amount or validity of any Imposition to be paid by Lessee or any Legal Requirement or Insurance Requirement or any lien, attachment, levy, encumbrance, charge or claim (“Claims”) not otherwise permitted by Section 12.1, by appropriate legal proceedings in good faith and with due diligence (but this shall not be deemed or construed in any way to relieve, modify or 

 

  

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extend Lessee’s covenants to pay or its covenants to cause to be paid any such charges at the time and in the manner as in this Section provided), on condition, however, that such legal proceedings shall not operate to relieve Lessee from its obligations hereunder and shall not cause the sale or risk the loss of any portion of the Leased Property, or any part thereof, or cause Lessor or Lessee to be in default under any mortgage, deed of trust, security deed or other agreement encumbering the Leased Property or any interest therein. Upon the request of Lessor, Lessee shall either (a) provide a bond or other assurance reasonably satisfactory to Lessor that all Claims which may be assessed against the Leased Property together with interest and penalties, if any, thereon will be paid, or (b) deposit within the time otherwise required for payment with a bank or trust company as trustee upon terms reasonably satisfactory to Lessor, as security for the payment of such Claims, money in an amount sufficient to pay the same, together with interest and penalties in connection therewith, as to all Claims which may be assessed against or become a Claim on the Leased Property, or any part thereof, in said legal proceedings. Lessee shall furnish Lessor and any lender of Lessor with reasonable evidence of such deposit within five (5) days of the same. Lessor agrees to join in any such proceedings if the same be required legally to prosecute such contest of the validity of such Claims; provided, however, that Lessor shall not thereby be subjected to any liability or loss for the payment of any costs or expenses in connection with any proceedings brought by Lessee; and Lessee covenants to indemnify and save harmless Lessor from any such liabilities, losses, costs or expenses. Lessee shall be entitled to any refund of any Claims and such charges and penalties or interest thereon which have been paid by Lessee or paid by Lessor and for which Lessor has been fully reimbursed. In the event that Lessee fails to pay any Claims when due or to provide the security therefor as provided in this Section and diligently to prosecute any contest of the same, Lessor may, upon ten (10) days’ advance Notice to Lessee, and Lessee’s failure to correct the same within such ten (10) day period, pay such charges together with any interest and penalties and the same shall be repayable by Lessee to Lessor as Additional Charges at the next Payment Date provided for in this Lease; provided, however, that should Lessor reasonably determine that the giving of such Notice would risk loss to the Leased Property or cause damage to Lessor, then Lessor shall give such Notice as is practical under the circumstances. Lessor reserves the right to contest any of the Claims at its expense not pursued by Lessee. Lessor and Lessee agree to cooperate in coordinating the contest of any Claims.

 

ARTICLE 13

INSURANCE REQUIREMENTS

 

13.1           General Insurance Requirements. During the Term of this Lease, Lessee shall at all times keep the Leased Property insured with the kinds and amounts of insurance described below, or such other insurance coverage(s) as may be required by the Management Agreement and the Loan Documents; provided, however, all insurance coverage for which Lessor is required to reserve funds pursuant to the Loan Documents shall be the obligation of the Lessor.  This insurance shall be written by companies authorized to issue insurance in the State. The policies must name Lessor and/or Lessee, as applicable, as the insured or as an additional named insured, as the case may be. Losses shall be payable to Lessor or Lessee as provided in this Lease. Any loss adjustment shall require the written consent of Lessor and Lessee, each acting reasonably and in good faith. Evidence of insurance shall be deposited with Lessor. The policies on the Leased Property, including the Leased Improvements, Fixtures and Lessee’s Personal Property, if any, shall include the following:

 

(i)      All Risks Property insurance on the Leased Improvements in an amount not less than 100% of the full replacement cost of the Leased Improvements with a Replacement Cost Endorsement.  “Full replacement cost” as used herein means the cost of replacing the Leased Improvements (exclusive of the cost of excavations, foundation and footings below the lowest basement floor) without deduction for physical depreciation thereof;

 

(ii)      Boiler and Machinery insurance as may reasonably be required to cover physical damage to the Improvements and to the major components of any central hearing, air-conditioning or ventilation systems;

 

   (iii)     Provided that the Leased Property, or any portion thereof, is located in an area designated as a flood prone area participating in the National Flood Insurance Program, flood insurance in an amount equal to the full replacement cost or the maximum amount then available, unless neither the Leased Property, nor any portion thereof, is located within a 100 year flood plain as determined by the Federal Insurance Administration;

 

  

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    (iv)    During any changes or alternations of the Leased Property or any part thereof and during any Restoration following a Taking or a casualty, all risk builder’s risk insurance in an amount not less than 100% of the full replacement cost of the Improvements;

 

    (v)     Insurance against loss of profits or rental under a business interruption insurance policy or under a rental value insurance policy covering risk of loss due to the occurrence of any of the hazards covered by the policies described in (i), (ii), and (iii) above, and (to the extent insurance covering hazards is generally obtainable) in (iv) in an amount not less than the aggregate requirements for the period of 12 months following the occurrence of the insured casualty for: (i) Base Rent and Percentage Rent, and (ii) Additional Charges, including premiums on insurance required to be carried pursuant to this Section;

 

    (vi)    Comprehensive general liability insurance including contractual liability insurance specifically covering the indemnification obligations of Lessee under this Lease, on an occurrence basis against claims for personal injury, (including, without limitation, elevators and/or escalators) and the sidewalks, driveways and curbs adjacent thereto with limits not less than $1,000,000 combined single limit and $2,000,000 in the annual aggregate in the event of bodily injury or death to any number of persons in any accident; and

 

    (vii)   Any other insurance or coverages applicable to the Leased Property which are required to be maintained by the owner or operator of the Leased Property pursuant to the terms of any Permitted Mortgage; provided that such insurance shall only be required to be maintained by Lessee during the term of the Permitted Mortgage.

 

13.2           Reserved.

 

13.3           Waiver of Subrogation. All insurance policies carried by Lessor or Lessee covering the Leased Property, the Fixtures, the Hotel or Lessee’s Personal Property, including, without limitation, contents, fire and casualty insurance, shall expressly waive any right of subrogation on the part of the insurer against the other party. The parties hereto agree that their policies will include such waiver clause or endorsement so long as the same are obtainable without extra cost, and in the event of such an extra charge the other party, at its election, may pay the same, but shall not be obligated to do so.  Each party agrees to seek recovery from any applicable insurance coverage prior to seeking recovery against the other.

 

13.4           Form Satisfactory, Etc.

 

(a)      All of the policies of insurance referred to in this Article 13 to be maintained by Lessee shall be written in a form, with deductibles and by insurance companies satisfactory to Lessor. Lessee shall pay all of the premiums therefor, and deliver such policies or certificates thereof to Lessor prior to their effective date (and, with respect to any renewal policy, thirty (30) days prior to the expiration of the existing policy), and in the event of the failure of Lessee either to effect such insurance as herein called for or to pay the premiums therefor, or to deliver such policies or certificates thereof to Lessor at the times required, Lessor shall be entitled, but shall have no obligation, to effect such insurance and pay the premiums therefor, and Lessee shall reimburse Lessor for any premium or premiums paid by Lessor for the coverages required of Lessee under this Article 13 upon written demand therefor, and Lessee’s failure to repay the same within thirty (30) days after Notice of such failure from Lessor shall constitute an Event of Default within the meaning of Section 16.1. Each insurer mentioned in this Article 13 shall agree, by endorsement to the policy or policies issued by it, or by independent instrument furnished to Lessor, that it will give to Lessor thirty (30) days’ written notice before the policy or policies in question shall be materially altered, allowed to expire or canceled.

 

(b)      All of the policies of insurance referred to in this Article 13 to be maintained by Lessor shall be written in a form, with deductibles and by insurance companies satisfactory to Lessee. Lessor shall pay all of the premiums therefor, and deliver such policies or certificates thereof to Lessee prior to their effective date (and, with respect to any renewal policy, thirty (30) days prior to the expiration of the existing policy), and in the event of the failure of Lessor either to effect such insurance as herein called for or to pay the premiums therefor, or to deliver such policies or certificates thereof to Lessee at the times required, Lessee shall be entitled, but shall have no obligation, to effect such insurance and pay the premiums therefor, and Lessor shall reimburse Lessee for any premium or

 

  

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premiums paid by Lessee for the coverages required under this Section upon written demand therefor. Each insurer mentioned in this Article 13 shall agree, by endorsement to the policy or policies issued by it, or by independent instrument furnished to Lessee, that it will give to Lessee thirty (30) days’ written notice before the policy or policies in question shall be materially altered, allowed to expire or canceled.

 

13.5           Increase in Limits. If either Lessor or Lessee at any time deems the limits of the personal injury or property damage under the comprehensive public liability insurance then carried to be either excessive or insufficient, Lessor and Lessee shall endeavor in good faith to agree on the proper and reasonable limits for such insurance to be carried and such insurance shall thereafter be carried with the limits thus agreed on until further change pursuant to the provisions of this Article 13.

 

13.6           Blanket Policy. Notwithstanding anything to the contrary contained in this Article 13. Lessee or Lessor may bring the insurance provided for herein within the coverage of a so-called blanket policy or policies of insurance carried and maintained by Lessee (or Manager) or Lessor; provided, however, that the coverage afforded to Lessor and Lessee will not be reduced or diminished or otherwise be different from that which would exist under a separate policy meeting all other requirements of this Lease by reason of the use of such blanket policy of insurance, and provided further that the requirements of this Article 13 are otherwise satisfied.

 

13.7           No Separate Insurance. Lessee shall not, on Lessee’s own initiative or pursuant to the request or requirement of any third party, take out separate insurance concurrent in form or contributing in the event of loss with that required in this Article to be furnished, or increase the amount of any then existing insurance by securing an additional policy or additional policies, unless all parties having an insurable interest in the subject matter of the insurance, including in all cases Lessor, are included therein as additional insured, and the loss is payable under such additional separate insurance in the same manner as losses are payable under this Lease. Lessee shall immediately notify Lessor of any such separate insurance that Lessee has obtained or of the increase of any of the amounts of the then existing insurance.

 

13.8           Reports On Insurance Claims. Lessee shall promptly investigate and make a complete and timely written report to the appropriate insurance company as to all accidents, claims for damage relating to the ownership, operation, and maintenance of the Hotel, any damage or destruction to the Hotel and the estimated cost of repair thereof and shall prepare any and all reports required by any insurance company in connection therewith. All such reports shall be timely filed with the insurance company as required under the terms of the insurance policy involved, and a final copy of such report shall be furnished to Lessor. Lessee shall be authorized to adjust, settle, or compromise any insurance loss, or to execute proofs of such loss, in the aggregate amount of $30,000 or less, with respect to any single casualty or other event.

 

ARTICLE 14

DAMAGE OR DESTRUCTION

 

14.1           Insurance Proceeds. Subject to the provisions of Section 14.4, all proceeds payable by reason of any loss or damage to the Leased Property, or any portion thereof, insured under any policy of insurance required by Article 13 of this Lease, shall be paid to Lessor and held in trust by Lessor in an interest-bearing account, shall be made available, if applicable, for reconstruction or repair, as the case may be, of any damage to or destruction of the Leased Property, or any portion thereof, and, if applicable, shall be paid out by Lessor from time to time for the reasonable costs of such reconstruction or repair upon satisfaction of reasonable terms and conditions specified by Lessor; provided, however, if the Loan secured by the Leased Property requires that such funds be held by the Lender, any such proceed shall be held and applied in accordance with the terms of the Loan Documents. Any excess proceeds of insurance (and accrued interest) remaining after the completion of the restoration or reconstruction of the Leased Property, as hereinafter set forth, shall be paid to Lessee, except for any excess funds attributable to Lessor Capital Improvements which shall be retained by Lessor.  If neither Lessor nor Lessee is required or elects to repair and restore, and the Lease is terminated without purchase by Lessee as described in Section 14.2, all such insurance proceeds shall be retained by Lessor. All salvage resulting from any risk covered by insurance shall belong to Lessor.

 

14.2           Material Casualty.  In the event of any material casualty to the Project, Lessee shall promptly give written notice to Lessor thereof.  Except as set forth herein, Lessee shall be responsible for the Restoration of the Leased Property and Lessee shall be entitled to the use of all available proceeds from any insurance for purposes of

 

  

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completing the Restoration.  In such event this Agreement shall continue in full force and effect, without abatement, unless otherwise set forth below.  If the proceeds from any casualty insurance are insufficient to complete the Restoration, Lessee shall fund any excess required to complete the Restoration except for funds attributed to Lessor Capital Improvements.  Lessor shall provide Lessee with the funds necessary to fund any costs to complete the Restoration for Lessor Capital Improvements.  Absent receipt of Lessor’s agreement to fund such excess amounts within 30 days, Lessee may elect to terminate this Lease upon notice to Lessor within 20 days after the expiration of the 30 day period.

 

14.3           Lessee’s Property. All insurance proceeds payable by reason of any loss of or damage to any of Lessee’s Personal Property shall be paid to Lessee; provided, however, no such payments shall diminish or reduce the insurance payments otherwise payable to or for the benefit of Lessor hereunder.

 

14.4           Abatement of Rent.   In the event that this Agreement is terminated pursuant to this Section 14, then the rental payments and other charges due under this Lease shall be prorated to the date of termination.  In the event that some or all of the Leased Property cannot be restored, and Lessor and Lessee elect not to terminate this Lease, then the Base Rent and Percentage Rent shall be reduced by an amount reasonably determined by Lessor and Lessee.  If Lessor and Lessee cannot, within 30 days, agree on the new Base Rent and Percentage Rent, either may require that the matter be settled by arbitration as set forth in Section 25.1.  Except as provided herein, no destruction of or damage to the Leased Property or any part thereof by fire or any other casualty shall permit Lessee to surrender this Lease or shall relieve Lessee from Lessee’s liability to pay the full Base Rent and Percentage Rent and other charges due under this Lease or from any of Lessee’s other obligations under this Lease.

 

14.5           Damage Near End of Term. Notwithstanding any other provisions of this Section 14 to the contrary, if damage to or destruction of the Hotel rendering it unsuitable for its Primary Intended Use occurs during the last twenty-four (24) months of the Term, then Lessee shall have the right to terminate this Lease by giving Notice to Lessor within thirty (30) days after the date of damage or destruction, whereupon all accrued Rent shall be paid immediately, and this Lease shall automatically terminate five (5) days after the date of such Notice.  Notwithstanding the foregoing, Lessee may not elect to terminate this Lease pursuant to the preceding sentence if such termination would constitute a default under the Loan, or if Restoration is otherwise required by the Loan Documents, Lessee shall complete the Restoration in accordance with the terms of this Section.

 

14.6           Waiver.  Lessee waives any rights now or hereafter conferred upon Lessee by statute or otherwise to quit or surrender this Lease or the Leased Property or any part thereof, or to any suspension, diminution, abatement or reduction of rent on account of any such destruction or damage except as expressly set forth herein.

 

ARTICLE 15

CONDEMNATION; AWARD ALLOCATION

 

15.1           Total Taking.  Subject to any Loan Documents, in case of a Taking of all of the Leased Property, this Lease shall terminate and expire as of the Vesting Date and the Base Rent, Percentage Rent and Additional Charges under this Agreement shall be apportioned and paid to the Vesting Date.

 

15.2           Partial Taking.  Subject to any Loan Documents, in case of a Taking of less than all of the Leased Property, Lessor shall receive the entire award for the Taking and, except as specifically set forth in this Section, no claim or demand of any kind shall be made by Lessee against Lessor or any other party who could, by virtue of a claim against it, make a claim against Lessor by reason of such Taking.

 

(a)      In the case of a Taking of a portion, but less than all, of the Leased Property, Lessee shall determine, in Lessee’s reasonable discretion, whether the remaining Project (after Restoration referred to in (c), below (i) can be used for the Primary Intended Use and (ii) will allow Lessee to complete the Restoration for an amount not to exceed the proceeds from the Taking.  If it is determined by Lessee that the remaining Leased Property cannot be used for the Primary Intended Use, then and in such event this Lease shall terminate as of the Vesting Date and the Base Rent, Percentage Rent and Additional Charges shall be apportioned and paid to the date of termination and no other claim or demand of any kind shall be made by Lessor against Lessee by reason of such termination.  If it is determined that Lessee cannot complete the Restoration for an amount that is less than or equal to the proceeds from 

 

  

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the Taking then and in such event Lessee can elect to terminate this Lease as of the Vesting Date and the Base Rent, Percentage Rent and Additional Charges shall be apportioned and paid to the date of termination and no other claim or demand of any kind shall be made by Lessor against Lessee by reason of such termination; provided, however, that if there is at least 24 months remaining in the Term, Lessor may agree to pay the excess Restoration expenses in which case this Lease shall not terminate and Lessee shall undertake the Restoration of the Project in accordance with the terms of (c), below.

 

(b)      If, in the case of a Taking of less than all of the Leased Property, this Lease is not terminated in accordance with the provisions of (a) above, this Lease shall continue in full force and effect as to the remaining portion of the Leased Property without any reduction in the Base Rent and Percentage Rent, except as expressly provided in Section 15.3.  No such partial taking shall operate as or be deemed an eviction of Lessee from that portion of the Leased Property not affected by such partial Taking or in any way terminate, diminish, suspend, abate or impair the obligation of Lessee to observe and perform fully all the covenants of this Lease on the part of Lessee to be performed with respect to the remainder of the Leased property unaffected by the partial Taking, except as to any reduction (if any) in the Base Rent and Percentage Rent as expressly provided in Section 15.3.

 

(c)      If, in the case of a Taking of less than all of the Leased Property, this Lease is not terminated in accordance with the provisions of (a) above, Lessee shall, prior to the expiration of the Term of this Lease, commence and proceed with reasonable diligence to complete the Restoration provided, however, that Lessor shall, in this case, make the award in the Condemnation Proceedings and, in the case of (a) above, such award plus any excess funds due from Lessor, available to Lessee to be utilized for Restoration of the Leased Property in the following manner, and subject to the following conditions and provisions.  Lessor shall be entitled to receive and retain the remainder of the award not needed to complete the Restoration (the “Surplus”)

 

15.3           Rent Reduction.  In case of a Taking of less than all of the Leased Property and if (i) this Lease shall not terminate as provided in Section 15.2 (a), and (ii) Restoration has been undertaken by Lessee pursuant to the provisions of Section 15.2(c), then commencing as of the Vesting Date, the amount of the Base Rent and Percentage Rent payable by Lessee under this Lease shall be reduced (and Lessee shall be credited for prior overpayments) by an amount reasonably determined by Lessor and Lessee.  If Lessor and Lessee cannot, within 30 days, agree on the new Base Rent and Percentage Rent, either may require that the matter be submitted to Binding Arbitration as set forth in Section 25.1.  The new Base Rent and Percentage Rent shall be established to provide Lessee and Lessor with the same economic return that each were entitled to prior to the Taking.

 

15.4           Notice of Condemnation.  Each of Lessor and Lessee shall promptly deliver to the other any notices it receives with respect to a Condemnation Proceeding or threatened Condemnation Proceeding.

 

15.5           Additional Lender Provision.  Notwithstanding anything herein to the contrary, Lessee’s and Lessor’s rights and obligations in and to any Condemnation Proceeding or related proceeds derived therefrom shall, in all cases, be subject to the rights of the holder of any Permitted Mortgage.

 

ARTICLE 16

LESSEE EVENTS OF DEFAULT; LESSOR REMEDIES

 

16.1           Events of Default. If any one or more of the following events (individually, an “Event of Default”) occurs:

 

(a)      if Lessee fails to make payment of the Base Rent within fifteen (15) days after the same becomes due and payable; or

 

(b)      if Lessee fails to make payment of Percentage Rent within fifteen (15) days after the same becomes due and payable and such condition continues for a period of thirty (30) days after the end of the applicable period; or

 

(c)      if Lessee fails to observe or perform any other term, covenant or condition of this Lease and such failure is not cured by Lessee within a period of thirty (30) days after receipt by Lessee of Notice thereof from Lessor, unless such failure cannot with due diligence be cured within a period of thirty (30) days, in which case it shall not be deemed an Event of Default if Lessee proceeds promptly and with due diligence to cure the failure and diligently

 

  

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completes the curing thereof provided, however, in no event shall such cure period extend beyond ninety (90) days after such Notice; or

 

(d)      if Lessee shall file a petition in bankruptcy or reorganization for an arrangement pursuant to any federal or state bankruptcy law or any similar federal or state law, or shall be adjudicated a bankrupt or shall make an assignment for the benefit of creditors or shall admit in writing its inability to pay its debts generally as they become due, or if a petition or answer proposing the adjudication of Lessee as a bankrupt or its reorganization pursuant to any federal or state bankruptcy law or any similar federal or state law shall be filed in any court and Lessee shall be adjudicated a bankrupt and such adjudication shall not be vacated or set aside or stayed within sixty (60) days after the entry of an order in respect thereof, or if a receiver of Lessee or of the whole or substantially all of the assets of Lessee shall be appointed in any proceeding brought by Lessee or if any such receiver, trustee or liquidator shall be appointed in any proceeding brought against Lessee and shall not be vacated or set aside or stayed within sixty (60) days after such appointment; or

 

(e)      if Lessee is liquidated or dissolved, or begins proceedings toward such liquidation or dissolution, or, in any manner, permits the sale or divestiture of substantially all of its assets; or

 

(f)      if the estate or interest of Lessee in the Leased Property or any part thereof is voluntarily or involuntarily transferred, assigned, conveyed, levied upon or attached in any proceeding (unless Lessee is contesting such lien or attachment in good faith in accordance with Section 12.2 hereof) or there is a Change of Control of Lessee; or

 

(g)      if, except as a result of damage, destruction or a partial or complete Condemnation as contemplated by this Lease, Lessee voluntarily ceases operations on the Leased Property for a period in excess of thirty (30) days; or

 

(h)      if an event of default has been declared by franchisor under any Franchise Agreement with respect to the Hotel as a result of any action or failure to act by Lessee or any Person with whom Lessee contracts for management services at the Hotel, and such default is not cured by the earlier of (A) ten (10) days following notice from Lessor or (B) such earlier date as is required for Lessee to avoid termination of the Franchise Agreement by the franchisor, as applicable;

 

then, and in any such event, Lessor may exercise one or more remedies available to it herein or at law or in equity, including but not limited to its right to terminate this Lease by giving Lessee not less than ten (10) days’ Notice of such termination.

 

If litigation is commenced with respect to any alleged default under this Lease, the prevailing party in such litigation shall receive, in addition to its damages incurred, such sum as the court shall determine as its reasonable attorneys’ fees, and all costs and expenses incurred in connection therewith.

 

No Event of Default (other than a failure to make a payment of money) shall be deemed to exist under clause (d) during any time the curing thereof is prevented by an Unavoidable Delay, provided that upon the cessation of such Unavoidable Delay, Lessee remedies such default or Event of Default without further delay.

 

16.2           Surrender. If an Event of Default occurs (and the event giving rise to such Event of Default has not been cured within the curative period relating thereto as set forth in Section 16.1) and is continuing, whether or not this Lease has been terminated pursuant to Section 16.1, Lessee shall, if requested by Lessor so to do, immediately surrender to Lessor the Leased Property including, without limitation, any and all books, records, files, licenses, permits and keys relating thereto, and quit the same and Lessor may enter upon and repossess the Leased Property by summary proceedings, ejectment or otherwise, and may remove Lessee and all other Persons and any and all personal property from the Leased Property, subject to rights of any hotel guests and to any requirement of law. Lessee hereby waives any and all requirements of applicable laws for service of notice to re-enter the Leased Property. Lessor shall be under no obligation to, but may if it so chooses, relet the Leased Property or otherwise mitigate Lessor’s damages.

 

16.3           Damages. Neither (a) the termination of this Lease, (b) the repossession of the Leased Property, (c) the failure of Lessor to relet the Leased Property, nor (d) the reletting of all or any portion thereof, shall relieve

 

  

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Lessee of its liability and obligations hereunder, all of which shall survive any such termination, repossession or reletting. In the event of any such termination, Lessee shall forthwith pay to Lessor all Rent due and payable with respect to the Leased Property to and including the date of such termination.   Damages shall also consist of all reasonable and documented legal expenses and other related reasonable and documented out-of-pocket costs incurred by Lessor following the Event of Default, all reasonable and documented out-of-pocket costs incurred by Lessor in restoring the Leased Property to good order and condition; and any other damages available to Lessor under applicable law. 

 

16.4           Waiver. If this Lease is terminated pursuant to Section 16.1, Lessee waives, to the extent permitted by applicable law, (a) any right to a trial by jury in the event of summary proceedings to enforce the remedies set forth in this Article 16, and (b) the benefit of any laws now or hereafter in force exempting property from liability for rent or for debt.

 

16.5           Application of Funds. Any payments received by Lessor under any of the provisions of this Lease during the existence or continuance of any Event of Default shall be applied to Lessee’s obligations in the order that Lessor may determine or as may be prescribed by the laws of the State.

 

16.6           Lessor’s Right to Cure Lessee’s Default. If Lessee fails to make any payment or to perform any act required to be made or performed under this Lease, including, without limitation, Lessee’s failure to comply with the terms of the Management Agreement or any Franchise Agreement, and fails to cure the same within the relevant time periods provided in Section 16.1, Lessor, without waiving or releasing any obligation of Lessee, and without waiving or releasing any obligation or default, may (but shall be under no obligation to) at any time thereafter make such payment or perform such act for the account and at the expense of Lessee, and may, to the extent permitted by law, enter upon the Leased Property for such purpose and, subject to Section 16.4, take all such action thereon as, in Lessor’s opinion, may be necessary or appropriate therefor. No such entry shall be deemed an eviction of Lessee. All sums so paid by Lessor and all costs and expenses (including, without limitation, reasonable attorneys’ fees and expenses, in each case to the extent permitted by law) so incurred, together with a late charge thereon (to the extent permitted by law) at the Overdue Rate from the date on which such sums or expenses are paid or incurred by Lessors, shall be paid by Lessee to Lessor on demand. The obligations of Lessee and rights of Lessor contained in this Article shall survive the expiration or earlier termination of this Lease.

 

ARTICLE 17

LESSOR EVENTS OF DEFAULT; LESSEE’S REMEDIES

 

17.1           Breach by Lessor. It shall be a breach of this Lease if Lessor fails to observe or perform any term, covenant or condition of this Lease on its part to be performed and such failure continues for a period of thirty (30) days after Notice thereof from Lessee, unless such failure cannot with due diligence be cured within a period of thirty (30) days, in which case such failure shall not be deemed to continue if Lessor, within such thirty (30) day period, proceeds promptly and with due diligence to cure the failure and diligently completes the curing thereof; provided, however, that such default shall be cured by Lessor in any event prior to the date on which the default becomes an event of default under the terms of  any Franchise Agreement for the Hotel.  The time within which Lessor shall be obligated to cure any such failure also shall be subject to extension of time due to the occurrence of any Unavoidable Delay.

 

17.2           Lessee’s Right to Cure. Subject to the provisions of Section 17.1, if Lessor breaches any covenant to be performed by it under this Lease, Lessee, after Notice to and demand upon Lessor, without waiving or releasing any obligation hereunder, and in addition to all other remedies available to Lessee, may (but shall be under no obligation at any time thereafter to) make such payment or perform such act for the account and at the expense of Lessor. All sums so paid by Lessee and all costs and expenses (including, without limitation, reasonable attorneys’ fees) so incurred, together with interest thereon at the Overdue Rate from the date on which such sums or expenses are paid or incurred by Lessee, shall be paid by Lessor to Lessee on demand or, following entry of a final, nonappealable judgment against Lessor for such sums, may be offset by Lessee against the Base Rent and/or Percentage Rent payments next accruing or coming due. The rights of Lessee hereunder to cure and to secure payment from Lessor in accordance with this Section 17.2 shall survive the termination of this Lease with respect to the Leased Property.

 

  

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ARTICLE 18

INDEMNIFICATION

 

18.1           Indemnification.

 

(a)      Notwithstanding the existence of any insurance, and without regard to the policy limits of any such insurance or self-insurance, but subject to Section 13.3 and Section 8.3, Lessee will protect, indemnify, hold harmless and defend Lessor from and against all liabilities, losses, obligations, claims, damages, penalties, causes of action, costs and expenses (including, without limitation, reasonable attorneys’ fees and expenses), to the extent permitted by law, imposed upon or incurred by or asserted against Lessor Indemnified Parties by reason of: (a) any accident, injury to or death of persons or loss of or damage to property occurring on or about the Leased Property or adjoining sidewalks, including without limitation any claims under liquor liability, “dram shop” or similar laws, (b) any use, misuse, non-use, condition, management, maintenance or repair by Lessee or any of its agents, employees or invitees of the Leased Property or Lessee’s Personal Property during the Term or any litigation, proceeding or claim by governmental entities or other third parties to which a Lessor Indemnified Party is made a party or participant related to such use, misuse, non-use, condition, management, maintenance, or repair thereof by Lessee or any of its agents, employees or invitees, including any failure of lessee or any of its agents, employees or invitees to perform any obligations under this Lease or imposed by applicable law (other than arising out of Condemnation proceedings), (c) any Impositions that are the obligations of Lessee pursuant to the applicable provisions of this Lease, (d) any failure on the part of Lessee to perform or comply with any of the terms of this Lease, and (e) the non-performance of any of the terms and provisions of any and all existing and future subleases of the Leased Property to be performed by the landlord thereunder.

 

(b)      Notwithstanding the existence of any insurance, and without regard to the policy limits of any such insurance or self-insurance, but subject to Section 13.3 and Section 8.3, Lessor shall indemnify, save harmless and defend Lessee Indemnified Parties from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses imposed upon or incurred by or asserted against Lessee Indemnified Parties as a result of (a) the gross negligence or willful misconduct of Lessor arising in connection with this Lease or (b) any failure on the part of Lessor to perform or comply with any of the terms of this Lease. In addition, to the extent that Lender applies Lessee’s funds to the payment of obligations of Lessor under the Loan Documents, such funds, to the extent then owed to Lessor under this Lease, will be deemed paid to Lessor in satisfaction of such obligation of Lessee to Lessor and Lessor shall indemnify Lessee for any appropriation by Lender of Lessee’s funds in excess of amounts then owed to Lessor under this Lease.  Any amounts that become payable by an Indemnifying Party under this Section shall be paid within ten (10) days after liability therefor on the part of the Indemnifying Party is determined by litigation or otherwise, and if not timely paid, shall bear a late charge (to the extent permitted by law) at the Overdue Rate from the date of such determination to the date of payment. An Indemnifying Party, at its expense, shall contest, resist and defend any such claim, action or proceeding asserted or instituted against the Indemnified Party. The Indemnified Party, at its expense, shall be entitled to participate in any such claim, action, or proceeding, and the Indemnifying Party may not compromise or otherwise dispose of the same without the consent of the Indemnified Party, which may not be unreasonably withheld or delayed. Nothing herein shall be construed as indemnifying a Lessor Indemnified Party against its own (or Lessor’s) grossly negligent acts or omissions or willful misconduct.

 

(c)      Lessee’s or Lessor’s liability for a breach of the provisions of this Article shall survive any termination of this Lease.

 

ARTICLE 19

REIT REQUIREMENTS AND RESTRICTIONS

 

19.1           Personal Property Limitation. Anything contained in this Lease to the contrary notwithstanding, the average of the fair market value of the items of personal property that are leased to Lessee under this Lease at the beginning and at the end of any Fiscal Year shall not exceed fifteen percent (15%) of the average of the aggregate fair market value of the Leased Property at the beginning and at the end of such Fiscal Year (“Personal Property Limitation”).  If Lessor anticipates that the  Personal Property Limitation will be exceeded with respect to the Leased Property for any Fiscal Year, Lessor shall notify Lessee and Lessee shall purchase at fair market value any personal property anticipated to be in excess of the Personal Property Limitation and the rent obligation shall be equitably adjusted.  This Section 19.1 is intended to ensure that the Rent qualifies as “rents from real property,” 

 

  

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within the meaning of Section 856(d) of the Code, or any similar or successor provisions thereto, and shall be interpreted in a manner consistent with such intent.

 

19.2           Sublease Rent Limitation. Anything contained in this Lease to the contrary notwithstanding, Lessee shall not sublet the Leased Property on any basis such that the rental to be paid by the sublessee thereunder would be based, in whole or in part, on either (a) the income or profits derived by the business activities of the sublessee, or (b) any other formula such that any portion of the Rent would fail to qualify as “rents from real property” within the meaning of Section 856(d) of the Code, or any similar or successor provision thereto.

 

19.3           Sublease Tenant Limitation. Anything contained in this Lease to the contrary notwithstanding, Lessee shall not sublease the Leased Property to any Person in which Lessor owns, directly or indirectly, a ten percent (10%) or more interest, within the meaning of Section 856(d)(2)(B) of the Code, or any similar or successor provisions thereto.

 

19.4           Lessee Officer and Employee Limitation. If a Person serves as both (a) a director of Lessee (or any Person who furnishes or renders services to the tenants of the Leased Property, or manages or operates the Leased Property) and (b) an officer (or employee) of the Lessor that Person shall not receive any compensation for serving as a director of Lessee (or any Person who furnishes or renders services to the tenants of the Leased Property, or manages or operates the Leased Property). Furthermore, if a Person serves as both (a) a director of the Lessor and (b) an officer (or employee) of Lessee (or any Person who furnishes or renders services to the tenants of the Leased Property, or manages or operates the Leased Property), that Person shall not receive any compensation for serving as a director of the Lessor.

 

19.5           Payments to Affiliates of Lessee. During the Term, Lessee shall not pay, or become obligated to pay, any fees to any Affiliate of Lessee in connection with the Hotel, other than fees that are subordinated to the payments that are required to be made to Lessor pursuant to this Lease.

 

19.6           Taxable REIT Subsidary.  Lessee, or the owner of Lessee to the extent Lessee is a disregarded entity for tax purposes, agrees to make an election to be, and to operate as a taxable REIT subsidiary of Moody National REIT I, Inc., within the meaning of Section 856(e) of the Code, or any similar or successor provision thereto.

 

19.7           Construction of Lease.  Both parties agree that no provision of this Lease shall be construed so as to cause Moody National REIT I, Inc. to fail to qualify as a real estate investment trust.

 

ARTICLE 20

SUBLETTING AND ASSIGNMENT

 

20.1           Subletting and Assignment. Subject to the provisions of Article 19 and Section 20.2 and any other express conditions or limitations set forth herein, Lessee may (a) assign this Lease or sublet all or any part of the Leased Property to an Affiliate of Lessee, or (b) sublet any retail or restaurant portion of the Leased Improvements in the normal course of the Primary Intended Use; provided that any subletting to any party other than an Affiliate of Lessee shall not individually as to any one such subletting, or in the aggregate, materially diminish the actual or potential Percentage Rent payable under this Lease. In the case of a subletting, the sublessee shall comply with the provisions of Section 20.2, and in the case of an assignment, the assignee shall assume in writing and agree to keep and perform all of the terms of this Lease on the part of Lessee to be kept and performed and shall be, and become, jointly and severally liable with Lessee for the performance thereof. Notwithstanding the above, Lessee may assign the Lease to an Affiliate without the consent of Lessor; provided that any such assignee assumes in writing and agrees to keep and perform all of the terms of the Lease on the part of Lessee to be kept and performed and shall be and become jointly and severally liable with Lessee for the performance thereof. In case of either an assignment or subletting made during the Term, Lessee shall remain primarily liable, as principal rather than as surety, for the prompt payment of the Rent and for the performance and observance of all of the covenants and conditions to be performed by Lessee hereunder. An original counterpart of each such sublease and assignment and assumption, duly executed by Lessee and such sublessee or assignee, as the case may be, in form and substance satisfactory to Lessor, shall be delivered promptly to Lessor.  Notwithstanding the foregoing, any such assignment or sublet shall be subject to the terms of the Loan Documents.  Any sublet or assignment in violation of the requirements of this Article 20 shall be null and void.

 

  

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20.2           Attornment. Lessee shall insert in each sublease permitted under Section 20.1 provisions to the effect that (a) such sublease is subject and subordinate to all of the terms and provisions of this Lease and to the rights of Lessor hereunder, (b) if this Lease terminates before the expiration of such sublease, the sublessee thereunder will, at Lessor’s option, attorn to Lessor and waive any right the sublessee may have to terminate the sublease or to surrender possession thereunder as a result of the termination of this Lease, and (c) if the sublessee receives a Notice from Lessor or Lessor’s assignees, if any, stating that an uncured Event of Default exists under this Lease, the sublessee shall thereafter be obligated to pay all rentals accruing under said sublease directly to the party giving such Notice, or as such party may direct. All rentals received from the sublessee by Lessor or Lessor’s assignees, if any, as the case may be, shall be credited against the amounts owing by Lessee under this Lease.

 

20.3           Conveyance by Lessor. Lessor may assign this Lease to any purchaser of the Leased Property. If Lessor or any successor owner of the Leased Property conveys the Leased Property in accordance with the terms hereof other than as security for a debt, and the grantee or transferee of the Leased Property expressly assumes all obligations of Lessor hereunder arising or accruing from and after the date of such conveyance or transfer, Lessor or such successor owner, as the case may be, shall thereupon be released from all future liabilities and obligations of Lessor under this Lease arising or accruing from and after the date of such conveyance or other transfer as to the Leased Property and all such future liabilities and obligations shall thereupon be binding upon the new owner.

 

ARTICLE 21

QUIET ENJOYMENT; RISK OF LOSS

 

21.1           Quiet Enjoyment. So long as Lessee pays all Rent as the same becomes due and complies with all of the terms of this Lease and performs its obligations hereunder, in each case within the applicable grace periods, if any, Lessee shall peaceably and quietly have, hold and enjoy the Leased Property for the Term hereof, free of any claim or other action by Lessor or anyone claiming by, through or under Lessor, but subject to all liens and encumbrances subject to which the Leased Property was conveyed to Lessor, to the extent not released in connection with the transactions contemplated by this Lease, or hereafter consented to by Lessee or provided for herein. Notwithstanding the foregoing, Lessee shall have the right by separate and independent action to pursue any claim it may have against Lessor as a result of a breach by Lessor of the covenant of quiet enjoyment contained in this Section.

 

21.2           Risk of Loss. During the Term, the risk of loss or of decrease in the enjoyment and beneficial use of the Leased Property in consequence of the damage or destruction thereof by fire, the elements, casualties, thefts, riots, wars or otherwise, or in consequence of foreclosures, attachments, levies or executions (other than those caused by Lessor and those claiming from, through or under Lessor) is assumed by Lessee, and, in the absence of gross negligence, willful misconduct or breach of this Lease by Lessor pursuant to Section 17.1, Lessor shall in no event be answerable or accountable therefor, nor shall any of the events mentioned in this Section entitle Lessee to any abatement of Rent except as specifically provided in this Lease.

 

ARTICLE 22

LESSOR MORTGAGES; SUBORDINATION OF LEASE

 

22.1           Lessor May Grant Liens. Without the consent of Lessee, Lessor may, subject to the terms and conditions set forth below in this Section 22.1, from time to time, directly or indirectly, create or otherwise cause to exist any lien, encumbrance or title retention agreement (“Encumbrance”) upon the Leased Property, or any portion thereof or interest therein, whether to secure any borrowing or other means of financing or refinancing. Upon the request of Lessor, Lessee shall subordinate this Lease to the lien of a new mortgage on the Leased Property, on the condition that the proposed mortgagee executes a non-disturbance agreement recognizing this Lease in accordance with the provisions of Section 22.2, and agreeing, for itself and its successors and assigns, to comply with the provisions of this Article 22.

 

22.2           Subordination of Lease. This Lease and Lessee’s interest hereunder shall at all times be subject and subordinate to the lien and security title of any deeds to secure debt, deeds of trust, mortgages, or other Encumbrances heretofore or hereafter granted by Lessor or which otherwise encumber or affect the Leased Property and to any and all advances to be made thereunder and to all renewals, modifications, consolidations, replacements, substitutions, and extensions thereof; provided, however, that with respect to any Mortgage hereafter granted, such subordination is conditioned upon delivery to Lessee of a non-disturbance agreement which provides that Lessee

 

  

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shall not be disturbed in its possession of the Leased Property hereunder following a foreclosure of such Mortgage (or delivery of a deed-in-lieu-of-foreclosure) and that the holder of such Mortgage or the purchaser at a foreclosure sale (or grantee under such deed-in-lieu-of-foreclosure) shall perform all obligations of Lessor under this Lease. In confirmation of such subordination, however, Lessee shall, at Lessor’s request, promptly execute, acknowledge and deliver any instrument which may be required to evidence subordination to any Mortgage and to the holder thereof. In the event of Lessee’s failure to deliver such subordination and if the Mortgage does not change any term of the Lease, Lessor may, in addition to any other remedies for breach of covenant hereunder, execute, acknowledge, and deliver the instrument as the agent or attorney-in-fact of Lessee, and Lessee hereby irrevocably constitutes Lessor its attorney-in-fact for such purpose, Lessee acknowledging that the appointment is coupled with an interest and is irrevocable.

 

ARTICLE 23

ESTOPPEL CERTIFICATES; FINANCIAL STATEMENTS; INSPECTION RIGHTS

 

23.1           Estoppel Certificates; Financial Statements.

 

(a)      At any time and from time to time upon not less than ten (10) days Notice by Lessor, Lessee will furnish to Lessor an Officer’s Certificate certifying that this Lease is unmodified and in full force and effect (or that this Lease is in full force and effect as modified and setting forth the modifications), the date to which the Rent has been paid, whether to the knowledge of Lessee there is any existing default or Event of Default exists thereunder by Lessor or Lessee, and such other information as may be reasonably requested by Lessor. Any such certificate furnished pursuant to this Section may be relied upon by Lessor, any lender and any prospective purchaser of the Leased Property.

 

(b)      Lessee will furnish the following statements to Lessor:

 

(i)      with reasonable promptness, such information respecting the financial condition and affairs of Lessee including audited financial statements prepared by the same certified independent accounting firm that prepares the returns for Lessor or such other accounting firm as may be approved by Lessor, as Lessor may request from time to time; and

 

(ii)      the most recent Consolidated Financials of Lessee within forty-five (45) days after each quarter of any Fiscal Year (or, in the case of the final quarter in any Fiscal Year, the most recent audited Consolidated Financials of Lessee within ninety (90) days); and

 

(iii)     on or about the 20th day of each month, a detailed profit and loss statement for the Leased Property for the preceding month, a balance sheet for the Leased Property as of the end of the preceding month, and a detailed accounting of revenues for the Leased Property for the preceding month, each in form acceptable to Lessor.

 

Lessee will permit the inclusion of such statements in any filings required to be made by Lessor under the Securities Act of 1933 and the Securities Exchange Act of 1934.

 

(c)      At any time and from time to time upon not less than ten (10) days Notice by Lessee, Lessor will furnish to Lessee or to any Person designated by Lessee an estoppel certificate certifying that this Lease is unmodified and in full force and effect (or that this Lease is in full force and effect as modified and setting forth the modifications), the date to which Rent has been paid, whether to the knowledge of Lessor there is any existing default or Event of Default on Lessee’s part hereunder, and such other information as may be reasonably requested by Lessee.

 

23.2           Lessor’s Right to Inspect. Lessee shall permit Lessor and its authorized representatives as frequently as reasonably requested by Lessor to inspect the Leased Property and Lessee’s accounts and records pertaining thereto and make copies thereof, during usual business hours upon reasonable advance Notice, subject only to any business confidentiality requirements reasonably requested by Lessee.

 

  

33

  

 

ARTICLE 24

LEASEHOLD MORTGAGES

 

24.1           Leasehold Mortgages.  To the extent any provision in this Article 24 conflict or are inconsistent with any other provision of this Lease, the provisions of this Article 24 shall control.

 

(a)      Lessee, and its successors and assigns, shall have the unconditional right to mortgage, pledge and/or assign this Lease without having to obtain the consent of Lessor.  Lessee, and its successors and assigns, shall have the unconditional right to sublet all or a portion of the Leased Property without having to obtain the consent of Lessor.  Any pledge or assignment of any interests in Lessee shall be permitted without having to obtain the consent of Lessor.

 

(b)      If Lessee, or Lessee’s successors or assigns, shall mortgage this Lease in compliance with the provisions of this Section, then so long as any such mortgage shall remain unsatisfied of record, the following provisions shall apply:

 

(i)      Lessor, upon serving Lessee with any notice of default, or any other notice under the provisions of or with respect to this Lease, shall also serve a copy of such notice upon the holder of such mortgage, at the address provided for in clause (vi) of this Section 24.1(b), and no notice by Lessor to Lessee hereunder shall be deemed to have been duly given unless and until a copy thereof has been so served.

 

(ii)      Any holder of such mortgage, in case Lessee shall be in default hereunder, shall, within the period and otherwise as herein provided, have the right to remedy such default, or cause the same to be remedied, and Lessor shall accept such performance by or at the instance of such holder as if the same had been made by Lessee.

 

(iii)     For the purposes of this Article, no event of default shall be deemed to exist in respect of the performance of work required to be performed, or of acts to be done, or of conditions to be remedied, if steps shall in good faith, have been commenced within the time permitted therefor to rectify the same and shall be prosecuted to completion with diligence and continuity.

 

(iv)    Notwithstanding anything herein contained to the contrary, upon the occurrence of any event of default, Lessor shall take no action to effect a termination of this Lease without first giving to the holder of such mortgage written notice thereof and a reasonable time thereafter within which either (x) to obtain possession of the mortgaged property (including possession by a receiver) or (y) to institute, prosecute and complete foreclosure proceedings or otherwise acquire Lessee’s interest under this Lease.  Provided, however, that:  (x) such holder shall not be obligated to continue such possession or to continue such foreclosure proceedings after such defaults shall have been cured and (y) such holder shall agree with Lessor in writing to comply during the period of such forbearance with such of the terms, conditions and covenants of this Lease as are reasonably susceptible of being complied with by such holder.  Any default by Lessee, not reasonably susceptible of being cured by such holder shall be deemed to have been waived by Lessor upon completion of such foreclosure proceedings or upon such acquisition of Lessee’s interest in this Lease, except that any of such events of default which are reasonably susceptible of being cured after such completion and acquisition shall then be cured with reasonable diligence.  Such holder, or his designee, or other purchaser in foreclosure proceedings may become the legal owner and holder of this Lease through such foreclosure proceedings or by assignment of this Lease in lieu of foreclosure.

 

(v)      In the event of the termination of this Lease prior to the expiration of the Term (including, without limitation, in connection with a rejection of this Lease in the event of a bankruptcy of Lessee), Lessor shall serve upon the holder of such mortgage written notice that the Lease has been terminated together with a statement of any and all sums which would at that time be due under this Lease but for such termination, and of all other defaults, if any, under this Lease then known to Lessor.  Such holder shall thereupon have the option to obtain a new Lease in accordance with and upon the following terms and conditions:

 

  

34

  

 

(A)           Upon the written request of the holder of such mortgage, within thirty (30) days after service of such notice that the Lease has been terminated, Lessor shall enter into a new lease of the Leased Property with such holder, or his designee, as follows:

 

(B)           Such new lease shall be effective as at the date of termination of this Lease, and shall be for the remainder of the term of this Lease and at the rent and upon all the agreements, terms, covenants and conditions hereof, including any applicable rights of renewal.  Upon the execution of such new lease, Lessor shall allow to the tenant named therein and such tenant shall be entitled to an adjustment in an amount equal to the net income derived by Lessor from the Leased Property during the period from the date of termination of this Lease to the date of execution of such new lease.

 

(vi)    Any notice or other communication which Lessor shall desire or is required to give to or serve upon the holder of a mortgage on this Lease shall be in writing and shall be served by registered mail, addressed to such holder at his address as set forth in such mortgage.  Any notice or other communication which the holder of a mortgage on this Lease shall desire or is required to give to or serve upon Lessor shall be deemed to have been duly given or served if sent in duplicate by registered mail addressed to Lessor at Lessor’s address as set forth in this Lease or at such other addresses as shall be designated by Lessor by notice in writing given to such holder by registered mail.

 

(vii)   Effective upon the commencement of the term of any new lease executed pursuant to paragraph (v) of this Section, all subleases shall be assigned and transferred without recourse by Lessor to the tenant under such new lease, and all moneys on deposit with Lessor which Lessee would have been entitled to use but for the termination or expiration of this Lease may be used by the tenant under such new lease for the purposes of and in accordance with the provisions of such new lease.  If the holders of more than one such leasehold mortgage shall make written requests upon Lessor for a new lease in accordance with the provisions of this Section, the new lease shall be entered into pursuant to the request of the holder whose leasehold mortgage shall be prior in lien thereto and thereupon the written requests for a new lease of each holder of a leasehold mortgage junior in lien shall be and be deemed to be void and of no force or effect.

 

        (viii)  No agreement between Lessor and Lessee modifying, canceling or surrendering this Lease shall be effective without the prior written consent of the leasehold mortgagee.

 

        (ix)    The fee title to the Leased Property and the leasehold estate created therein pursuant to the provisions of this Lease shall not merge but shall always be kept separate and distinct, notwithstanding the union of such estates in Lessee, Lessor, or in any other person by purchase, operation of law or otherwise.

 

(c)      If any leasehold mortgagee shall acquire title to Lessee’s interest in this Lease, by foreclosure of a mortgage thereon or by assignment in lieu of foreclosure or by an assignment from a designee or wholly owned subsidiary corporation of such mortgagee, or under a new lease pursuant to this Article, such mortgagee may assign such lease and shall thereupon be released from all liability for the performance or observance of the covenants and conditions in such lease contained on tenant’s part to be performed and observed from and after the date of such assignment, provided that such assignee assumes the obligations of Lessee hereunder.

 

(d)      Lessor hereby agrees to deliver to Lessee a ground lessor estoppel certificate in the form reasonably required by any leasehold mortgagee of Lessee.

 

ARTICLE 25

BINDING ARBITRATION

 

25.1           Binding Arbitration.  Any controversy between the parties hereto arising out of or related to this Lease or the breach thereof shall be settled by arbitration in Harris County, Texas, unless otherwise agreed to by the parties thereto, in accordance with the rules of the American Arbitration Association, and judgment entered upon the aware rendered may be enforced by appropriate judicial action.  The arbitration panel shall consist of one member, 

 

  

35

  

 

which shall be the mediator if mediation has occurred or shall be a person agreed to by each party to the dispute within 30 days following notice by one party that he or she desires that a matter be arbitrated.  If there was no mediation and the parties are unable within such 30 day period to agree upon an arbitrator, then the panel shall be one arbitrator selected by the Harris County office of The American Arbitration Association, which arbitrator shall be experienced in the area of real estate and who shall be knowledgeable with respect to the subject matter area of the dispute.  The losing party shall bear any fees and expenses of the arbitrator, other tribunal fees and expenses, reasonable attorneys’ fees of both parties, any costs of producing witnesses and any other reasonable costs or expenses incurred by the losing party or the prevailing party or such costs shall be allocated by the arbitrator.  The arbitration panel shall render a decision within 30 days following the close of presentation by the parties of their cases and any rebuttal.  The parties shall agree within 30 days following selection of the arbitrator to any prehearing procedures or further procedures necessary for the arbitration to proceed, including interrogatories or other discovery.

 

ARTICLE 26

NOTICES

 

26.1           Notices. All notices, demands, requests, consents approvals and other communications (“Notice” or “Notices”) hereunder shall be in writing and hand-delivered, sent by FedEx or other nationally recognized overnight courier service, or mailed (by registered or certified mail, return receipt requested and postage prepaid), if to Lessor at  6363 Woodway, Suite 110, Houston, Texas 77057, Attn:  Brett C. Moody and if to Lessee at 6363 Woodway, Suite 110, Houston, Texas  77057, Attn:  Brett C. Moody or to such other address or addresses as either party may hereafter designate. Personally delivered Notice shall be effective upon receipt, and Notice given by overnight courier service or by mail shall be complete at the time of deposit with the courier service or in the U.S. Mail system, respectively, but any prescribed period of Notice and any right or duty to do any act or make any response within any prescribed period or on a date certain after the service of such Notice given by overnight courier service shall be extended one (1) day and by mail shall be extended five (5) days.

 

ARTICLE 27

GENERAL PROVISIONS

 

27.1           No Waiver. No failure by Lessor or Lessee to insist upon the strict performance of any term hereof or to exercise any right, power or remedy consequent upon a breach thereof, and no acceptance of full or partial payment of Rent during the continuance of any such breach, shall constitute a waiver of any such breach or of any such term. To the extent permitted by law, no waiver of any breach shall affect or alter this Lease, which shall continue in full force and effect with respect to any other then existing or subsequent breach.

 

27.2           Remedies Cumulative. To the extent permitted by law and unless otherwise provided herein to the contrary, each legal, equitable or contractual right, power and remedy of Lessor or Lessee now or hereafter provided either in this Lease or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power and remedy and the exercise or beginning of the exercise by Lessor or Lessee of any one or more of such rights, powers and remedies shall not preclude the simultaneous or subsequent exercise by Lessor or Lessee of any or all of such other rights, powers and remedies.

 

27.3           Waiver of Trial by Jury. LESSOR AND LESSEE EACH WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A TRIAL BY JURY IN THE EVENT OF A PROCEEDING WITH RESPECT TO THIS LEASE, INCLUDING, WITHOUT LIMITATION, SUMMARY PROCEEDINGS TO ENFORCE THE REMEDIES SET FORTH IN ARTICLE 16.

 

27.4           Acceptance of Surrender. No surrender to Lessor of this Lease or of the Leased Property or any part thereof, or of any interest therein, shall be valid or effective unless agreed to and accepted in writing by Lessor and no act by Lessor or any representative or agent of Lessor, other than such a written acceptance by Lessor, shall constitute an acceptance of any such surrender.

 

27.5           No Merger of Title. There shall be no merger of this Lease or of the leasehold estate created hereby by reason of the fact that the same Person may acquire, own or hold, directly or indirectly: (a) this Lease or the leasehold estate created hereby or any interest in this Lease or such leasehold estate and (b) the fee estate in the Leased Property.

 

  

36

  

 

27.6           Waiver of Presentment, Etc. Lessee waives all presentments, demands for payment and for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, and notices of acceptance and waives all notices of the existence, creation, or incurring of new or additional obligations, except as expressly granted herein.

 

27.7           Action for Damages. Except as otherwise expressly provided herein, in any suit or other claim brought by either party seeking damages against the other party for breach of its obligations under this Lease, the party against whom such claim is made shall be liable to the other party only for actual damages and not for consequential, punitive or exemplary damages.

 

27.8           Lease Assumption in Bankruptcy Proceeding. If an Event of Default occurs and Lessee has filed or has had filed against it a petition in bankruptcy or for reorganization or other relief pursuant to the federal bankruptcy code, Lessee shall promptly move the court presiding over the proceeding to assume this Lease pursuant to 11 U.S.C. §365, without seeking an extension of the time to file said motion.

 

27.9           Enforceability. Anything contained in this Lease to the contrary notwithstanding, all claims against, and liabilities of, Lessee or Lessor arising prior to any date of termination of this Lease shall survive such termination. If any term or provision of this Lease or any application thereof is invalid or unenforceable, the remainder of this Lease and any other application of such term or provisions shall not be affected thereby. If any late charges or any interest rate provided for in any provision of this Lease are based upon a rate in excess of the maximum rate permitted by applicable law, the parties agree that such charges shall be fixed at the maximum permissible rate. Neither this Lease nor any provision hereof may be changed, waived, discharged or terminated except by a written instrument in recordable form signed by Lessor and Lessee. All the terms and provisions of this Lease shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. The headings in this Lease are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. This Lease shall be governed by and construed in accordance with the laws of the State, but not including its conflicts of laws rules.

 

27.10         Memorandum of Lease. Lessor and Lessee shall promptly, upon the request of either party, enter into a short form memorandum of this Lease, in form suitable for recording under the laws of the State in which reference to this Lease, and all options contained herein, shall be made. Lessor shall pay all costs and expenses of recording such memorandum of this Lease.

 

27.11         Governing Law.  This Lease shall be governed by and construed in accordance with the laws of the State, without regard to any applicable conflicts of laws principles that would require the application of the law of any other jurisdiction and venue with respect to any action to construe or enforce this Lease shall be laid in the State where the Leased Property is located.

 

27.12         Counterparts.  This Agreement may be executed in two or more counterparts, and all such counterparts shall be deemed to constitute but one and the same instrument.

 

27.13         Special Lender Provisions.

 

(a)     Each of Lessor and Lessee hereby acknowledges and agrees that Initial Lender has made the Initial Loan to be secured by a mortgage or deed of trust upon the Leased Property and that for all purposes hereunder such mortgage or deed of trust shall qualify as and be the first lien mortgage or deed of trust encumbering the Leased Property.

 

(b)     Lessee agrees that it will comply with the provisions of the Initial Loan Documents and will operate the Leased Property in accordance therewith.

 

(c)      While the obligations under the Initial Loan remain outstanding, the Initial Lender will have the right to participate in any arbitration proceeding relating to the termination or amendment of this Lease or with respect to any matter that affects the Initial Lender’s rights under the Initial Loan Documents.

 

[SIGNATURES ON NEXT PAGE]

  

37

  

IN WITNESS WHEREOF, the parties have executed this Lease by their duly authorized officers as of the date first above written.

 

	 	
“LESSOR”

	 	 
	 	
Moody National HP G-Town Holding, LLC, a Delaware limited liability company

	 	 	 
	
 

	
By: 

	/s/ Brett C. Moody
	 	Name: 	
Brett C. Moody

	 	Title: 	
President

 

	 	
“LESSEE”

	 	 
	 	
Moody National HP G-Town MT, LLC, a Delaware limited liability company

	 	 	 
	
 

	
By: 

	/s/ Brett C. Moody
	 	Name: 	
Brett C. Moody

	 	Title: 	
President

  

38

  

Exhibit A

 

Leased Property

  

39

  

EXHIBIT B

 

BASE RENT

	
Year

	 	
Annual Rent

	 	 	
Monthly

	 
	  	 	 	 	 	 	 
	
Year 1

	 	$	1,332,000	 	 	$	111,000.00	 
	
Year 2

	 	$	1,332,000	 	 	$	111,000.00	 
	
Year 3

	 	$	1,332,000	 	 	$	111,000.00	 
	
Year 4

	 	$	1,332,000	 	 	$	111,000.00	 
	
Year 5

	 	$	1,332,000	 	 	$	111,000.00	 

 

Base Rent shall be adjusted for Year 6 as set forth in Section 3.1(a), and shall be adjusted every 5 years thereafter until the termination of the Lease.

  

40

  

EXHIBIT C

 

PERCENTAGE RENT

 

The Annual Revenue Computation is equal to the amount obtained by multiplying the Gross Revenue (“x”) from the prior twelve months by a factor (“y) as set forth below:

	
Gross Revenue (x)

	 	  Factor (y)
	  	 	  
	
$0 - $3,600,000                                                                                                                         

	 	
37.0%

	
Over $3,600,000 - $3,800,000                                                                                                

	 	
38.0%

	
Over $3,800,000 - $4,000,000                                                                                                

	 	
39.0%

	
Over $4,000,000 - $4,200,000                                                                                                

	 	
40.0%

	
Over $4,200,000                                                                                                                       

	 	
41.0%

The Annual Revenue Computation shall be adjusted for Year 6 as set forth in Section 3.1(b), and shall be adjusted every 5 years thereafter until the termination of the Lease.

 

41ex10-50.htm

 

Exhibit 10.50

 

HYATT PLACE HOTEL

FRANCHISE AGREEMENT

 

between

 

MOODY NATIONAL HP G-TOWN MT, LLC.

 

and

 

HYATT PLACE FRANCHISING, L.L.C.

 

DATED: April 9, 2013

 

Hyatt Place 2012-2013 FA

EAST\47813269.4

  

  

  

 

TABLE OF CONTENTS

	  	  	  	  	  	  
	
ARTICLE

	  	  	
Page

	  	  	  	  	  	  
	
I

	
GRANT OF FRANCHISE, TERM AND AREA OF PROTECTION

	  	
1

	  
	  	
1.1

	
Grant of Franchise and Guaranty

	  	
1

	  
	  	
1.2

	
Term

	  	
1

	  
	  	
1.3

	
Rights in Area of Protection During AOP Term

	  	
1

	  
	  	
1.4

	
No Other Restrictions

	  	
2

	  
	  	  	  	  	  
	
II

	
DEVELOPMENT AND OPENING OF THE HOTEL

	  	
3

	  
	  	
2.1

	
Hotel Development-New Development

	  	
3

	  
	  	
2.2

	
Hotel Development-Conversion of an Existing Facility

	  	
4

	  
	  	
2.3

	
Opening the Hotel

	  	
4

	  
	  	
2.4

	
Hyatt’s Role as an Advisor

	  	
5

	  
	  	
2.5

	
Comfort Letter

	  	
6

	  
	  	
2.6

	
Hyatt Place Hotels and the Hotel System Outside the United States

	  	
6

	  
	  	  	  	  	  	  
	
III

	
TRAINING, GUIDANCE AND ASSISTANCE

	  	
6

	  
	  	
3.1

	
Orientation and Training

	  	
6

	  
	  	
3.2

	
Manual

	  	
7

	  
	  	
3.3

	
CRS, GDS, ADS, National Directory and IT Services

	  	
8

	  
	  	
3.4

	
General Guidance and Assistance

	  	
8

	  
	  	
3.5

	
Other Arrangements and Delegation

	  	
8

	  
	  	
3.6

	
Annual Conventions

	  	
8

	  
	  	  	  	  	  	  
	
IV

	
OPERATION OF THE HOTEL

	  	
9

	  
	  	
4.1

	
Marketing, Central Reservations and Technology Fund

	  	
9

	  
	  	
4.2

	
Management of the Hotel

	  	
11

	  
	  	
4.3

	
System Standards

	  	
12

	  
	  	
4.4

	
Uses and Sources of FF&E and Other Products and Services

	  	
13

	  
	  	
4.5

	
CRS, GDS, ADS and Guest Room Rates

	  	
14

	  
	  	
4.6

	
Upgrading the Hotel and CapEx Account

	  	
14

	  
	  	
4.7

	
Inspections/Compliance Assistance and Quality Assurance Program

	  	
15

	  
	  	
4.8

	
Compliance With Laws

	  	
15

	  
	  	
4.9

	
No Diverting Business

	  	
16

	  
	  	
4.10

	
Data Privacy and Data Security

	  	
16

	  
	  	
4.11

	
No Brand Owners

	  	
17

	  
	  	  	  	  	  	  
	
V

	
ADVERTISING AND MARKETING

	  	
17

	  
	  	
5.1

	
Pre-Opening Marketing

	  	
17

	  
	  	
5.2

	
Participation in Advertising and Marketing

	  	
17

	  
	  	
5.3

	
Approval of Marketing Programs

	  	
17

	  
	  	
5.4

	
Websites

	  	
18

	  
	  	
5.5

	
Cooperative Advertising Programs

	  	
18

	  
	  	  	  	  	  	  
	
VI

	
FEES AND PAYMENTS

	  	
19

	  
	  	
6.1

	
Application Fee

	  	
19

	  
	  	
6.2

	
Data Installation Services Fee

	  	
19

	  

 

	
Hyatt Place 2012-2013 FA

	  
	
EAST\47813269.4

	
 

  

i

  

 

TABLE OF CONTENTS

(continued)

	
ARTICLE

	  	  	
Page

	  	  	  	  	  	  
	  	
6.3

	
Monthly Fees to Hyatt

	  	
19

	  
	  	
6.4

	
Payments to Other Parties

	  	
20

	  
	  	
6.5

	
Late Fee and Late Payment Interest

	  	
20

	  
	  	
6.6

	
Electronic Funds Transfer

	  	
20

	  
	  	
6.7

	
Application of Payments

	  	
21

	  
	  	
6.8

	
Taxes on Franchisee’s Payments

	  	
21

	  
	  	
6.9

	
Non-Refundability

	  	
21

	  
	  	  	  	  	  	  
	
VII

	
BOOKS AND RECORDS, AUDITS AND REPORTING

	  	
21

	  
	  	
7.1

	
Financial Reports

	  	
21

	  
	  	
7.2

	
Notification

	  	
22

	  
	  	
7.3

	
Preparation and Maintenance of Books and Records

	  	
22

	  
	  	
7.4

	
Audit

	  	
22

	  
	  	  	  	  	  	  
	
VIII

	
RELATIONSHIP OF THE PARTIES AND INDEMNIFICATION

	  	
23

	  
	  	
8.1

	
Relationship of the Parties

	  	
23

	  
	  	
8.2

	
Franchisee’s Notices to Public Concerning Independent Status

	  	
23

	  
	  	
8.3

	
Franchisee’s Indemnification and Defense of Hyatt

	  	
23

	  
	  	
8.4

	
Hyatt’s Indemnification and Defense of Franchisee

	  	
25

	  
	  	
8.5

	
Guarantor Net Worth Threshold

	  	
26

	  
	  	  	  	  	  	  
	
IX

	
INSURANCE

	  	
26

	  
	  	  	  	  	  	  
	
X

	
CONDEMNATION AND DAMAGE

	  	
29

	  
	  	
10.1

	
Condemnation

	  	
29

	  
	  	
10.2

	
Damage

	  	
30

	  
	  	
10.3

	
Extension of Term

	  	
30

	  
	  	  	  	  	  	  
	
XI

	
PROPRIETARY RIGHTS

	  	
31

	  
	  	
11.1

	
Ownership and Goodwill of Proprietary Marks, Copyrighted Materials, and Confidential Information

	  	
31

	  
	  	
11.2

	
Limitations on Franchisee’s Use of Proprietary Marks

	  	
31

	  
	  	
11.3

	
Notification of Infringements and Claims

	  	
32

	  
	  	
11.4

	
Discontinuing Use of Proprietary Marks

	  	
32

	  
	  	
11.5

	
Confidential Information

	  	
32

	  
	  	
11.6

	
Innovations

	  	
33

	  
	  	  	  	  	  	  
	
XII

	
TRANSFER

	  	
33

	  
	  	
12.1

	
Transfer by Hyatt

	  	
33

	  
	  	
12.2

	
Transfer by Franchisee – Defined

	  	
34

	  
	  	
12.3

	
Non-Control Transfers

	  	
34

	  
	  	
12.4

	
Control Transfers

	  	
35

	  
	  	
12.5

	
Permitted Transfers

	  	
36

	  
	  	
12.6

	
Transfers of Equity Interest Upon Death

	  	
36

	  
	  	
12.7

	
Registration of a Proposed Transfer of Equity Interests

	  	
37

	  
	  	
12.8

	
Non-Waiver of Claims

	  	
37

	  

 

	
Hyatt Place 2012-2013 FA

EAST\47813269.4

	
 

  

ii

  

 

TABLE OF CONTENTS

(continued)

	
ARTICLE

	  	  	
Page

	  	  	  	  	  	  
	
XIII

	
SUCCESSOR FRANCHISE

	  	
37

	  
	  	
13.1

	
Right to a Successor Franchise Agreement

	  	
37

	  
	  	
13.2

	
Grant of a Successor Franchise

	  	
38

	  
	  	
13.3

	
Agreements/Releases

	  	
39

	  
	  	  	  	  	  	  
	
XIV

	
DISPUTE RESOLUTION

	  	
40

	  
	  	
14.1

	
Arbitration

	  	
40

	  
	  	
14.2

	
Governing Law

	  	
41

	  
	  	
14.3

	
Consent to Jurisdiction

	  	
42

	  
	  	
14.4

	
Attorneys’ Fees

	  	
42

	  
	  	
14.5

	
Waiver Of Punitive Damages And Jury Trial

	  	
42

	  
	  	
14.6

	
Limitations of Claims

	  	
42

	  
	  	  	  	  	  	  
	
XV

	
DEFAULT AND TERMINATION

	  	
43

	  
	  	
15.1

	
Termination by Hyatt After Opportunity to Cure

	  	
43

	  
	  	
15.2

	
Termination by Hyatt Without Opportunity to Cure

	  	
44

	  
	  	
15.3

	
Suspension of Rights and Services

	  	
46

	  
	  	
15.4

	
General Provisions Concerning Default and Termination

	  	
46

	  
	  	  	  	  	  	  
	
XVI

	
RIGHTS AND OBLIGATIONS UPON EXPIRATION OR TERMINATION

	  	
47

	  
	  	
16.1

	
De-Identification

	  	
47

	  
	  	
16.2

	
Pay Amounts Owed

	  	
48

	  
	  	
16.3

	
Contacting Customers

	  	
48

	  
	  	
16.4

	
Survival

	  	
48

	  
	  	
16.5

	
Liquidated Damages

	  	
49

	  
	  	  	  	  	  	  
	
XVII

	
NOTICES

	  	
50

	  
	  	  	  	  	  	  
	
XVIII

	
GENERAL

	  	
50

	  
	  	
18.1

	
The Exercise of Hyatt’s Judgment

	  	
50

	  
	  	
18.2

	
Severability and Interpretation

	  	
51

	  
	  	
18.3

	
Waiver of Obligations and Force Majeure

	  	
51

	  
	  	
18.4

	
Binding Effect

	  	
52

	  
	  	
18.5

	
Entire Agreement and Construction

	  	
52

	  
	  	
18.6

	
Hyatt’s Withholding of Consent

	  	
52

	  
	  	
18.7

	
Cumulative Remedies

	  	
53

	  
	  	  	  	  	  	  
	
XIX

	
ACKNOWLEDGEMENTS

	  	
53

	  

 

	
EXHIBITS

	
Exhibit A         –          DEFINED TERMS

	
Exhibit B          –          BASIC TERMS

	
Exhibit C          –          RIGHT OF FIRST OFFER FOR STRATEGIC MARKETS

	
Exhibit D          –          PROPERTY IMPROVEMENT PLAN (“PIP”) (if applicable)

GUARANTY AND ASSUMPTION OF OBLIGATIONS

	  	  
	
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HYATT PLACE HOTEL

FRANCHISE AGREEMENT

 

        THIS FRANCHISE AGREEMENT is made and entered into as of April 9, 2013 (this “Agreement”) by and between MOODY NATIONAL HP G-TOWN MT, LLC, a Delaware limited liability company (“Franchisee”) and HYATT PLACE FRANCHISING, L.L.C., a Delaware limited liability company (“Hyatt”).

 

PRELIMINARY STATEMENT

 

        Franchisee is the owner of, or has the right to occupy, certain real property located at Germantown, Tennessee that is more particularly described in Exhibit B hereto (the “Site”). Hyatt has the right to grant franchises for the establishment and operation of hotels under the name “HYATT PLACE®” and other Proprietary Marks (defined in Exhibit A) and the Hotel System (defined in Exhibit A) (collectively, “Hyatt Place Hotels”). Hyatt and its Affiliates (defined in Exhibit A) have designed the Hotel System so that the public associates Hyatt Place Hotels with high quality standards. Following Franchisee’s investigation and recognizing the benefits that Franchisee may derive from being identified with the Hotel System, Franchisee wishes to enter into this Agreement to obtain a franchise to use the Hotel System to operate a Hyatt Place Hotel located at the Site. In addition to other terms defined in this Agreement, the initial capitalized terms shall have the meanings set forth in Exhibit A.

 

        NOW, THEREFORE, Franchisee and Hyatt agree as follows:

 

ARTICLE I

 

GRANT OF FRANCHISE, TERM AND AREA OF PROTECTION

 

        1.1 Grant of Franchise and Guaranty. Hyatt grants Franchisee, and Franchisee accepts, the non-exclusive right and obligation to use the Hotel System during the Term (defined below in Section 1.2) to build or convert, and operate, the Hotel at the Site under the Proprietary Marks in accordance with this Agreement’s terms. Franchisee must ensure that each Controlling Owner, whether that person or entity owns its interest as of the Effective Date or acquires that interest during the Term (subject to Hyatt’s rights and Franchisee’s obligations under Article XII), signs Hyatt’s required form of Guaranty and Assumption of Obligations (the “Guaranty”).

 

        1.2 Term. The term of this Agreement (the “Term”) will commence on the Effective Date and expire without notice on the date which is twenty (20) years after the Opening Date, subject to its earlier termination as set forth in this Agreement.

 

        1.3 Rights in Area of Protection During AOP Term. The “Area of Protection” is the geographic area described in Exhibit B. Subject to the one exception below, during the limited period of time set forth in Exhibit B (the “AOP Term”), neither Hyatt nor any of its Affiliates will open and operate, or authorize any other party to open and operate, any other Hyatt Place Hotels the physical premises of which are located within the Area of Protection. The one exception to this restriction is that, if Hyatt or any of its Affiliates acquire (whether through

	  	  
	
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purchase, sale, merger, consolidation, or other transaction) during the AOP Term another chain, franchise system, group or portfolio of at least four (4) hotels, or acquire the right to operate or manage another chain, franchise system, group or portfolio of at least four (4) hotels, one (1) or more of which hotels are located, or are under contract or construction to be located, in the Area of Protection (as Hyatt and its Affiliates have the right to do), Hyatt and/or its Affiliates then will have the unrestricted right to convert, or cause to be converted, the acquired hotel(s) within the Area of Protection from its (or their) original trade identity to the Hotel System and then to operate, or authorize any other party to operate, such hotel(s) as Hyatt Place Hotels using the Hotel System, even if one (1) or more of the other acquired hotels, whether operating within or outside the Area of Protection, are not converted to Hyatt Place Hotels.

 

        Franchisee acknowledges that its rights in the Area of Protection apply only during the AOP Term. Following the AOP Term, Franchisee will have no territorial rights or protection whatsoever, whether within or outside the Area of Protection, and Hyatt and its Affiliates may open and operate, and authorize any other parties to open and operate, other Hyatt Place Hotels the physical premises of which are located within the Area of Protection, including pursuant to franchise agreements and other agreements signed during the AOP Term.

 

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

 

        Franchisee acknowledges that Hyatt’s Affiliates currently operate other franchised and non-franchised systems for lodging facilities (including full service and select service hotels, time-share or interval ownership facilities, and vacation clubs) that use different brand names, trademarks, and service marks, including those with the “Hyatt” name as part of their brand name, some of which might operate and have facilities in the Area of Protection during the AOP Term, that will compete directly with Franchisee. Except as expressly described in Section 1.3, none of those activities, even other uses of the “Hyatt” name, will constitute a violation of this Agreement. Only the operation of a Hyatt Place Hotel the physical premises of which are located within the Area of Protection during the AOP Term would constitute a violation of this Agreement, unless the one exception noted above applies.

	  	  
	
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ARTICLE II

 

DEVELOPMENT AND OPENING OF THE HOTEL

 

Franchisee acknowledges that every detail of the Hotel System is important to Hyatt to develop and maintain the Hotel System’s standards and public image. Franchisee agrees to comply strictly with the Hotel System’s details, as set forth in the Manual or otherwise in writing. Franchisee must bear the entire cost of developing and constructing the Hotel, including professional services, financing, insurance, licensing, contractors, permits, equipment, and furnishings.

 

        2.1 Hotel Development-New Development. This Section 2.1 applies only if Franchisee is constructing a new Hotel at the Site.

 

          (a) Franchisee’s managing owner or senior operations officer shall attend at Franchisee’s expense a briefing at Hyatt’s headquarters in Chicago, Illinois to acquaint Franchisee with Hyatt’s building process and support structure within six (6) months after the Effective Date.

 

          (b) Franchisee must prepare and submit to Hyatt for its approval within four (4) months after the Effective Date preliminary plans for the Hotel, including site layout and outline specifications (the “Preliminary Plans”). The Preliminary Plans must comply with the Design Standards, Hotel System and System Standards.

 

          (c) Franchisee must prepare and submit to Hyatt for its approval within six (6) months after the Effective Date complete working drawings and specifications for the Hotel, with such detail and containing such information that Hyatt requires, covering: the Hotel property; all structural, mechanical, electrical, plumbing, heating, ventilating, air conditioning and life safety equipment and systems; major architectural features and systems, including site layout and outline specifications; and all proposed FF&E (the “Detailed Plans”). The Detailed Plans must comply with the Preliminary Plans (and any comments that Hyatt provided to the Preliminary Plans) and the Design Standards, Hotel System and System Standards.

 

          (d) Construction of the Hotel may not begin until Hyatt has approved the Detailed Plans in writing. For purposes of this Agreement, construction of the Hotel is deemed to have begun upon pouring concrete for the Hotel’s foundation or finished slab. After Hyatt approves the Detailed Plans, Franchisee may not make any material changes to them without Hyatt’s prior written consent, which Hyatt will not unreasonably withhold. If material changes in the Detailed Plans are required during the course of construction, Franchisee must notify Hyatt and seek Hyatt’s consent immediately.

 

          (e) Construction must begin within twelve (12) months after the Effective Date. Franchisee shall notify Hyatt within (5) days after Franchisee commences construction. Construction shall continue uninterrupted (unless interrupted by Force Majeure) until the Hotel is completed. Franchisee must construct the Hotel according to

	  	  
	
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the approved Detailed Plans and the Design Standards, Hotel System and System Standards.

 

        2.2 Hotel Development-Conversion of an Existing Facility. This Section 2.2 applies only if Franchisee is not constructing a new Hotel at the Site but instead is converting an existing hotel at the Site to a Hyatt Place Hotel.

 

          (a) Franchisee’s managing owner or senior operations officer shall attend at Franchisee’s expense a briefing at Hyatt’s headquarters in Chicago, Illinois to acquaint Franchisee with Hyatt’s building process and support structure within three (3) months after the Effective Date.

 

          (b) Franchisee agrees to renovate the Hotel in strict accordance with, and within the time frames set forth on, the attached PIP (Exhibit D) and in accordance with Franchisee’s renovation plans for the Hotel (the “Renovation Plans”). At Hyatt’s request, Franchisee agrees to submit the proposed Renovation Plans to Hyatt for Hyatt’s approval. The Renovation Plans must comply with the attached PIP, the Hotel System and System Standards. If Hyatt requires Franchisee to submit the proposed Renovation Plans, renovations may not begin until Hyatt approves the Renovation Plans in writing. After Hyatt approves the Renovation Plans, Franchisee may not make any material changes to them without Hyatt’s prior written consent, which Hyatt will not unreasonably withhold.

 

          (c) If this Agreement anticipates Franchisee’s conversion of an existing franchised or managed facility to a Hyatt Place Hotel, then before any Proprietary Marks (including signage) are installed or displayed at the Site, and before the Hotel is authorized to open as a Hyatt Place Hotel, Franchisee must submit evidence reasonably satisfactory to Hyatt of the termination of Franchisee’s previous franchise or management agreement in accordance with applicable legal requirements.

 

        2.3 Opening the Hotel.

 

                   2.3.1 Opening Deadline and Extension. The Hotel must be ready to open for business (a) within twenty-four (24) months after the Effective Date if Franchisee is constructing a new Hotel at the Site pursuant to Section 2.1, or (b) within six (6) months after the Effective Date (unless otherwise provided in the PIP) if Franchisee is not constructing a new Hotel at the Site but instead is converting an existing hotel at the Site to a Hyatt Place Hotel pursuant to Section 2.2 (as applicable, the “Opening Deadline”). If Franchisee wants to request an extension of the Opening Deadline, Franchisee must submit a written request and a Ten Thousand Dollar ($10,000) extension fee to Hyatt before the Opening Deadline. If Hyatt approves the extension, Hyatt will set a new Opening Deadline, and the extension fee will be non-refundable. If Hyatt denies the extension, Hyatt will refund the extension fee.

 

                   2.3.2 Conditions for Opening. Franchisee must not open the Hotel for business and begin operating the Hotel under the Proprietary Marks until: (a) Franchisee has properly developed and equipped the Hotel according to this Agreement and in compliance with all applicable laws, rules and regulations; (b) all pre-opening training for the Hotel’s personnel

	  	  
	
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has been completed to Hyatt’s satisfaction; (c) all amounts then due to Hyatt have been paid; (d) Franchisee has obtained all required certificates of occupancy, licenses and permits to operate the Hotel; (e) Franchisee has given Hyatt copies of all insurance policies required under this Agreement, or such other evidence of insurance coverage and payment of premiums as Hyatt requests; (f) Franchisee has submitted to Hyatt a written certification that the Hotel is in compliance with the approved Detailed Plans or Renovation Plans (as applicable), was constructed in compliance with the PIP (if applicable), Design Standards, Hotel System and System Standards, and is in compliance with all applicable laws, together with other certifications from Franchisee’s architect and/or other professionals pursuant to Section 2.4; and (g) Hyatt has conducted a final pre-opening inspection and given Franchisee its written authorization to open the Hotel. Within ten (10) days after the Hotel is ready to open for business, Franchisee must ask Hyatt to conduct a final inspection, which Hyatt shall promptly conduct. Franchisee agrees to open the Hotel under the Proprietary Marks within ten (10) days after Hyatt’s authorization, which Hyatt will not unreasonably withhold or delay. Hyatt’s determination that Franchisee has met all of Hyatt’s pre-opening requirements will not constitute a representation or warranty, express or implied, that the Hotel complies with any laws or a waiver of Franchisee’s non-compliance, or of Hyatt’s right to demand full compliance, with such pre-opening requirements. Franchisee shall indemnify Hyatt for all costs and expenses that Hyatt incurs directly or indirectly as a result of Franchisee’s failure to open the Hotel on or before the anticipated Opening Date specified by Franchisee or the Opening Deadline, whichever is earlier, including any amounts that Hyatt pays with respect to customers whose reservations at the Hotel were cancelled due to Franchisee’s failure to open the Hotel by that date.

 

        2.4 Hyatt’s Role as an Advisor. Hyatt agrees to use reasonable efforts in connection with its review and approval of the Preliminary Plans and Detailed Plans or the Renovation Plans (as applicable) and its approval to open the Hotel, including by making a reasonable number of visits to the Hotel’s site and providing reasonable guidance and advice relating to the Hotel’s development or conversion. Hyatt’s review and approval of the Preliminary Plans and Detailed Plans or the Renovation Plans (as applicable), providing construction, design, architectural, planning and/or related services in connection with the Hotel (whether before or after signing this Agreement), and/or approval to open the Hotel are intended only to determine compliance with Hyatt’s pre-opening requirements. Hyatt will have no liability to Franchisee for the Hotel’s construction or renovation. It is Franchisee’s responsibility to make sure that the Hotel complies with Hyatt’s requirements, the Americans with Disabilities Act and similar rules, other applicable ordinances, building codes, and permit requirements. Franchisee acknowledges that Hyatt acts only in an advisory capacity and is not responsible for the adequacy or coordination of any plans or specifications, the integrity of any structures, compliance with applicable laws (including the Americans with Disabilities Act), any building code of any governmental authority, or any insurance requirement or for obtaining necessary permits, all of which shall be Franchisee’s sole responsibility and risk. Franchisee shall give Hyatt a written certificate or opinion from Franchisee’s architect, licensed professional engineer, or recognized expert consultant on the Americans with Disabilities Act stating that the Hotel conforms to the Design Standards, requirements of the Americans with Disabilities Act, related federal regulations, and all other applicable state and local laws, regulations, and other requirements governing public accommodations for persons with disabilities. At Hyatt’s request, Franchisee must give Hyatt copies of all other certificates of architects, contractors, engineers, and designers and such other similar verifications and information Hyatt reasonably requests.

	  	  
	
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        2.5 Comfort Letter. Franchisee must cause each Lender, Ground Lessor, owner of fee simple title to the Hotel’s real property and improvements, or other entity with an interest (or any power or right, conditional or otherwise, to acquire an interest) in the Hotel’s real property and improvements (each a “Comfort Letter Party”) to sign a comfort letter or other agreement that Hyatt reasonably specifies under which such Comfort Letter Party agrees to assume Franchisee’s obligations under this Agreement (subject to Hyatt’s rights under Article XII) if the Comfort Letter Party or any of its Affiliates acquires title or otherwise assumes possession, or the right to sell or direct the disposition of, the Hotel’s real property and improvements. Franchisee shall pay Hyatt its then current comfort letter fee for each comfort letter that Hyatt negotiates relating to the Hotel.

 

        2.6 Hvatt Place Hotels and the Hotel System Outside the United States. Franchisee acknowledges that Hyatt and its Affiliates may operate, and authorize others to operate, Hyatt Place Hotels outside the United States providing additional, fewer and/or different amenities and services to guests than Hyatt Place Hotels in the United States, and that Hyatt may establish and periodically modify the Hotel System and System Standards for Hyatt Place Hotels in the United States in a manner that is different from the Hotel System and System Standards that apply to some or all Hyatt Place Hotels outside the United States. Franchisee agrees to comply strictly with the Hotel System and System Standards, as Hyatt may periodically develop and modify them for Hyatt Place Hotels in the United States. All references in this Agreement to the Hotel System or System Standards shall refer to the Hotel System and System Standards as Hyatt (in its sole judgment) determines and periodically modifies them for the Hotel.

 

ARTICLE III

 

TRAINING, GUIDANCE AND ASSISTANCE

 

        3.1 Orientation and Training.

 

                   3.1.1 Owner/Management Orientation. Within one hundred eighty (180) days after the Effective Date, Franchisee’s managing owner or senior operations officer must attend an owner/management orientation program at Hyatt’s headquarters in Chicago, Illinois. Hyatt does not charge for this orientation program.

 

                   3.1.2 General Manager and Sales Director Training Programs. Before opening the Hotel for business under the Proprietary Marks, the Hotel’s general manager and sales director must attend and successfully complete Hyatt’s training programs and curriculum for their respective positions. Franchisee (or the Management Company in accordance with Section 4.2) must hire the Hotel’s sales director and ensure that he or she begins working on his or her full-time duties for the Hotel at least six (6) months before the Hotel opens If Franchisee or the Management Company replaces the Hotel’s general manager or sales director during the Term, his or her replacement must attend and successfully complete the applicable training programs that Hyatt reasonably specifies within ninety (90) days (or such other period Hyatt periodically designates) after assuming his or her position. Hyatt will designate the dates, locations, and duration of all training. Franchisee must pay Hyatt’s then current fees for the initial and any additional general manager, sales director and other training programs that the Hotel’s personnel attend.

	  	  
	
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                    3.1.3 Training for Other Hotel Personnel. Franchisee or the Management Company must designate the general manager or other member of the Hotel management team whom Hyatt approves as the Hotel’s certified trainer. That person must attend and successfully complete Hyatt’s training program for certified hotel trainers before opening the Hotel for business. If Franchisee or the Management Company replaces the Hotel’s certified trainer during the Term, his or her replacement must attend and successfully complete the applicable training programs that Hyatt reasonably specifies within ninety (90) days (or such other period Hyatt periodically designates) after assuming his or her position. Hyatt will designate the dates, locations, and duration of training. Once the Hotel’s certified trainer has successfully completed Hyatt’s training program, that certified trainer must at Franchisee’s expense administer and implement a training program for all Hotel personnel in accordance with the System Standards.

 

                    3.1.4 On-Site Training. Hyatt will send one (1) or two (2) trainers (at Hyatt’s option) to assist with training the Hotel staff and otherwise provide assistance in connection with the Hotel’s grand opening. Franchisee must pay Hyatt’s then current fee and the trainer(s)’ travel and living expenses associated with this training. The trainer(s) will arrive at or before the Hotel’s grand opening and stay for the period that Hyatt specifies. Hyatt may (at its option) conduct this training on more than one visit. The trainer(s) will generally assist and train Hotel staff with aspects of day-to-day operations, including laundry, customer service, food and beverage, and Gallery Host Stand operations.

 

                    3.1.5 Supplemental and Optional Training. Hyatt may, at such times and places as it deems best, require the Hotel’s Core Management and other personnel Hyatt specifies to attend and successfully complete supplemental training courses in connection with Hotel System modifications, other aspects of the Quality Assurance Program (defined in Section 4.7), and other aspects of Hotel operations. These individuals must attend any supplemental training within the time period that Hyatt reasonably specifies after Franchisee receives notice from Hyatt that such training is required. Hyatt also may, at its option, offer various optional training programs from time to time during the Term. Supplemental and optional training may be conducted by, and tuition and other fees may be payable to, Hyatt, its Affiliates, or third parties that Hyatt designates.

 

                    3.1.6 Training Expenses. Besides the training fees Hyatt charges for the training discussed above, Franchisee is responsible for all costs of transportation, meals, lodging, salaries, and other compensation for Hotel personnel incurred in connection with training. If Hyatt holds any training at the Hotel, Franchisee must provide free lodging for Hyatt’s representatives.

 

3.2 Manual. Hyatt shall provide Franchisee access to the Manual during the Term. Franchisee must comply with the terms of the Manual, as Hyatt periodically modifies it (other than any personnel and security-related policies and procedures, which are for Franchisee’s optional use). The Manual may include audiotapes, videotapes, compact disks, computer software, other electronic media, and/or written materials. It contains System Standards and information on Franchisee’s other obligations under this Agreement. Hyatt may modify the Manual periodically to reflect changes in System Standards. Franchisee agrees to keep its copy of the Manual current and in a secure location at the Hotel. If there is a dispute over its contents,

	  
	
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Hyatt’s master copy of the Manual controls. Franchisee agrees that the Manual’s contents are part of the Confidential Information.

 

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

 

3.3 CRS, GPS, ADS, National Directory and IT Services. Franchisee shall have access to the CRS, listings in advertising publications that Hyatt periodically specifies, and the National Directory during the Term. Hyatt or its representative also will provide data installation services relating to the initial set-up of the CRS, CDS and ADS at the Hotel and IT project management implementation services and other services relating to the computing equipment and other technology at the Hotel. Franchisee must pay Hyatt’s reasonable fees and reimburse Hyatt’s expenses in connection with such assistance.

 

3.4 General Guidance and Assistance. During the Term, Hyatt may advise Franchisee from time to time regarding the Hotel’s operation based on Franchisee’s reports or Hyatt’s evaluations and inspections, and may guide Franchisee with respect to (a) System Standards that Hyatt Place Hotels use, (b) purchasing required and authorized FF&E and other items and arranging for their distribution to Franchisee, (c) advertising and marketing materials and programs, (d) employee training, and (e) administrative, recordkeeping, and accounting procedures. Hyatt may guide Franchisee in the Manual, in bulletins or other written materials, by electronic media, by telephone consultations, and/or at Hyatt’s headquarters or the Hotel. If Franchisee requests, and Hyatt agrees to provide, additional or special guidance, assistance, or training, Franchisee agrees to pay Hyatt’s then applicable charges, including Hyatt’s personnel’s per diem charges and travel and living expenses.

 

3.5 Other Arrangements and Delegation. Hyatt may arrange for development, marketing, operations, administration, technical, and support functions, facilities, services, and/or personnel with any other entity. Hyatt and its Affiliates also may use any functions, facilities, programs, services, and/or personnel used in connection with the Hotel System in Hyatt’s and its Affiliates’ other business activities, even if these other business activities compete with the Hotel or the Hotel System. Franchisee agrees that Hyatt has the right to delegate the performance of any portion or all of its obligations under this Agreement to third party designees, whether these designees are its Affiliates, agents, or independent contractors with whom Hyatt contracts to perform these obligations. If Hyatt does so, the third party designees will be obligated to perform the delegated functions for Franchisee in compliance with this Agreement. However, unless Hyatt notifies Franchisee in writing of its delegation of any such obligations or transfers this Agreement pursuant to Section 12.1, Franchisee agrees that it shall look only to Hyatt and not to any other person or entity (including an Affiliate of Hyatt) for the performance of such obligations, as only Hyatt (and not any of Hyatt’s Affiliates or any other person or entity) have undertaken such obligation.

	  
	
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3.6 Annual Conventions. Hyatt may, at its option, hold an annual convention for Hyatt Place Hotels, all Select Hotels Group hotels (which currently include Hyatt Place Hotels and “Hyatt House” hotels and may include other hotel brands in the future), and/or all or certain other Hyatt-affiliated hotels (the “Annual Convention”) at a location Hyatt designates. Hyatt may require the Hotel’s general manager and other key Hotel personnel to attend the Annual Convention. Franchisee must pay Hyatt’s then current attendance fee for each person from the Hotel who attends the Annual Convention. Franchisee also must pay all expenses that its attendees incur to attend the Annual Convention.

 

ARTICLE IV

 

OPERATION OF THE HOTEL

 

4.1 Marketing, Central Reservations and Technology Fund. Hyatt or its designee will administer a Marketing, Central Reservations and Technology Fund for the Hyatt Place Hotel network (the “Fund”). Franchisee must make Contributions to the Fund according to Section 6.3(b). The Fund may, as Hyatt periodically determines, cover the Hotel and other Hyatt Place Hotels operating in any geographic area that Hyatt deems appropriate, such as, for example, Hyatt Place Hotels operating only in the United States, in a larger international region that Hyatt periodically defines, or globally. For administrative convenience, Hyatt may (but is not required to) collect the Contributions before passing them on to the Fund. Hyatt Place Hotels that Hyatt or its Affiliates own and operate in the geographic area that the Fund covers will contribute to the Fund on the same percentage basis as franchisees. Hyatt also has the right to collect for deposit into the Fund any advertising, marketing, or similar allowances paid to Hyatt by suppliers who deal with Hyatt Place Hotels and with whom Hyatt agrees to so deposit these allowances.

 

Hyatt will determine and direct all programs that the Fund finances, with sole control over the creative concepts, materials, and endorsements used and their geographic, market, and media placement and allocation, including by determining on its own the amounts to be spent for the various purposes identified in this Section 4.1. The Fund may pay for preparing and producing video, audio, and written materials and electronic media; developing, implementing, maintaining and improving the Hyatt Place Hotel network’s website and/or related strategies; developing, implementing, operating, maintaining and improving the CRS, CDS, ADS, and National Directory and any other related or successor programs or systems; developing, implementing, maintaining and improving any video, computer-related or other technology for use or sale by Hyatt Place Hotels; planning, coordinating and conducting various sales efforts for Hyatt Place Hotels; market research and other research and development activities relating to improving the Hotel System; administering regional and multi-regional marketing, advertising and promotional programs, including purchasing trade journal and other media advertising and using advertising, promotion, and marketing agencies and other advisors to provide assistance; and supporting public relations and other advertising, promotion, and marketing activities. The Fund periodically will give Franchisee samples of advertising, marketing, and promotional formats and materials at no cost. Hyatt will sell Franchisee multiple copies of these materials at Hyatt’s direct cost of producing them, plus any related shipping, handling, and storage charges.

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

 

The Fund will not be Hyatt’s asset. Although the Fund is not a trust, Hyatt will hold all Contributions for the benefit of the contributors and use Contributions only for the purposes described in this Section 4.1. Hyatt does not owe any fiduciary obligation to Franchisee for administering the Fund or any other reason. The Fund may spend in any fiscal year more or less than the total Contributions in that year, borrow from Hyatt or others (paying reasonable interest) to cover deficits, or invest any surplus for future use. Hyatt will use all interest (if any) earned on Contributions to pay costs before using the Fund’s other assets.

 

Hyatt will prepare an annual, unaudited statement of Fund collections and expenses and give Franchisee a copy of the statement upon written request. Hyatt may have the Fund audited periodically, at the Fund’s expense, by an independent certified public accountant. Hyatt may incorporate the Fund or operate it through a separate entity whenever Hyatt deems appropriate. The successor entity will have all of the rights and duties specified in this Section 4.1.

 

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

 

Hyatt has the right, but no obligation, to use collection agents and institute legal proceedings at the Fund’s expense to collect Contributions. Hyatt also may forgive, waive, settle, and compromise all claims by or against the Fund. Except as expressly provided in this Section 4.1, Hyatt assumes no direct or indirect liability or obligation to Franchisee for collecting amounts due to, maintaining, directing, or administering the Fund.

 

Hyatt may at any time defer or reduce Contributions of a Hyatt Place Hotel franchisee and, upon thirty (30) days’ prior written notice to Franchisee, reduce or suspend Contributions and operations for one or more periods of any length and terminate (and, if terminated, reinstate) the Fund. If Hyatt terminates the Fund, Hyatt will distribute all unspent monies to Hyatt’s then

	  
	
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existing franchisees, and to Hyatt and its Affiliates, in proportion to their and Hyatt’s respective Contributions during the preceding twelve (12)-month period.

 

4.2 Management of the Hotel. Unless Hyatt approves pursuant to this Section 4.2 or otherwise in writing, Franchisee must at all times retain and exercise direct management control over all aspects of the Hotel’s business and must be the employer of the Hotel’s Core Management and other personnel.

 

                    4.2.1 Management Arrangements. Franchisee may not enter into a Management Arrangement without Hyatt’s prior written consent, which Hyatt will not unreasonably withhold if the Management Company meets Hyatt’s minimum qualifications, attends and satisfactorily completes required training programs, agrees to sign the documents Hyatt requires to protect the Proprietary Marks, Copyrighted Materials, and Confidential Information, and agrees to perform its management responsibilities and otherwise operate the Hotel in compliance with this Agreement. Nevertheless, Hyatt may refuse to approve a Management Company which is a Brand Owner. If Hyatt approves a Management Arrangement as of the Effective Date, the Management Company’s name is listed in Exhibit B. Even after Hyatt approves a Management Arrangement, if the Management Company at any time becomes a Brand Owner or otherwise fails to meet Hyatt’s minimum qualifications or to comply with this Agreement, then, without limiting Hyatt’s other rights and remedies under this Agreement and applicable law, Hyatt may revoke its approval of a Management Arrangement, and Franchisee must then promptly terminate the Management Arrangement and either assume direct control of the Hotel’s management and operation or engage another Management Company under a Management Arrangement that Hyatt has approved in writing.

 

                    4.2.2 General Manager Qualification, Approval and Removal. Franchisee or the Management Company (as applicable) is solely responsible for hiring the Core Management and other Hotel personnel and determining the terms and conditions of their employment. Before any general manager for the Hotel is engaged, Franchisee must submit to Hyatt the identity and qualifications of the proposed candidate, including resume, work history, experience, references, background verifications and other information that Hyatt reasonably requests. Hyatt shall have the right to conduct an in-person interview of the proposed general manager and Franchisee shall reimburse Hyatt for all related travel and other expenses. Franchisee or the Management Company (as applicable) shall not engage any general manager for the Hotel unless he or she has been approved by Hyatt, which approval Hyatt will not unreasonably withhold or delay. Even after Hyatt approves a general manager for the Hotel, Hyatt may, at its option and without limiting its other rights and remedies, revoke that approval if that general manager fails to ensure that the Hotel satisfies Hyatt’s quality assurance requirements or other operational standards. If Hyatt revokes its approval of the Hotel’s general manager, then Franchisee or the Management Company (as applicable) must hire a replacement general manager that Hyatt approves in accordance with this Section 4.2.2 within thirty (30) days after receiving Hyatt’s notice.

 

                    4.2.3 Core Management Staffing. Franchisee or the Management Company (as applicable) must hire and properly train all Core Management and have a Core Management in place at the Hotel at all times. Franchisee must ensure that each member of the Hotel’s Core Management: (a) spends at least forty (40) hours per week at the Hotel fulfilling his or her

	  
	
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management and operational responsibilities; and (b) does not concurrently maintain a position at another lodging facility or in any other capacity related to the lodging industry.

 

4.3 System Standards. Subject to Article X, Franchisee must operate the Hotel twenty-four (24) hours a day, every day, and use the Hotel premises solely for the business franchised under this Agreement. Franchisee may not operate, or allow any third party to operate, a time share office or desk or any other area from which time share interests, similar interests, or rights relating to any other property or service are offered or sold on or from any part of the Hotel premises. Franchisee must at all times ensure that the Hotel is operated in compliance with the Hotel System, the Manual (other than any personnel and security-related policies and procedures contained in the Manual, which are for Franchisee’s optional use), and all other mandatory System Standards and other policies and procedures Hyatt periodically communicates to Franchisee, as Hyatt may periodically modify them. System Standards may regulate, among other things:

 

           (a) Franchisee’s obligation to maintain the Hotel in first class condition and in a clean, safe, and orderly manner, including periodic cleaning, repainting and redecorating of the Hotel and repair and replacement of FF&E;

 

           (b) the provision of efficient, courteous, competent, prompt, and high-quality service to the public;

 

           (c) quality standards and the types of services, concessions, operating supplies, amenities and other items that Franchisee may use, promote, or offer at the Hotel;

 

           (d) Franchisee’s use of the Proprietary Marks and display, style, location, and type of signage;

 

           (e) directory and reservation service listings of the Hotel and methods for using required and authorized GDS and ADS;

 

           (f) creating a favorable response to the name “Hyatt Place” and the names of any brand extensions, other Proprietary Marks and brand-specific programs bearing the “Hyatt” name;

 

           (g) honoring all nationally recognized credit cards and other payment mechanisms that Hyatt periodically designates and entering into all necessary credit card and other agreements with the issuers of those cards and other applicable parties;

 

           (h) mystery shopper programs, guest relations programs, and guest complaints and resolution programs, including reimbursing dissatisfied guests for their costs of staying at the Hotel and participating in other guest satisfaction programs in the manner Hyatt periodically specifies;

 

           (i) delivering to Hyatt or otherwise providing Hyatt access to the names of Hotel customers and guests and Franchisee’s sales and customer database;

	  
	
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           (j) record retention policies and programs;

 

           (k) the Quality Assurance Program, including deficiency action policies and other measures concerning the Hotel’s compliance with the Hotel System, the Manual and System Standards; and

 

           (1) participation in and compliance with the terms of all of Hyatt’s marketing, reservation service, rate and room inventory management, advertising, cooperative advertising, guest frequency, social responsibility, discount or promotional, customer award, Internet, computer, training, privacy, data security, and operating programs, including a property management system that interfaces with the CRS or any other central reservation system Hyatt periodically adopts. Hyatt may periodically establish and/or coordinate these programs with third parties Hyatt designates. These third parties might (but need not) be Hyatt’s Affiliates. Franchisee must sign and comply with any license, participation and other agreements Hyatt periodically specifies relating to these programs.

 

Despite Hyatt’s right to establish and periodically to modify System Standards for the Hotel and modify the Hotel System as Hyatt deems best, Franchisee retains the right to control, and responsibility for, the Hotel’s day-to-day management and operation and implementing and maintaining System Standards at the Hotel. Because complete and detailed uniformity under many varying conditions might not be possible or practical, Franchisee acknowledges that Hyatt specifically reserves the right and privilege, as Hyatt deems best, to vary the Hotel System and System Standards for any Hyatt Place Hotel based upon the peculiarities of any condition or factors that Hyatt considers important to that hotel’s successful operation. Franchisee has no right to require Hyatt to grant Franchisee a similar variation or accommodation.

 

Hyatt’s mandatory System Standards do not include any personnel or security-related policies or procedures that Hyatt (at its option) makes available to Franchisee in the Manual or otherwise for Franchisee’s optional use. Franchisee will determine to what extent, if any, these optional policies and procedures should apply to the Hotel’s operations. Franchisee acknowledges that Hyatt does not dictate or control labor or employment matters for franchisees and their employees and will not be responsible for the safety and security of Hotel employees or patrons.

 

4.4 Uses and Sources of FF&E and Other Products and Services. Franchisee must purchase or lease, install, and maintain at the Hotel all FF&E and other items that Hyatt periodically specifies for the Hotel System. Franchisee may not install at the Hotel, without Hyatt’s prior written consent, any FF&E or other items Hyatt has not previously approved. Franchisee may use at the Hotel only FF&E, supplies, and other goods and services that conform to the System Standards.

 

Hyatt may require Franchisee to acquire a particular model or brand of FF&E, supplies, and other goods and services that are available from only one manufacturer or supplier. Hyatt also may require Franchisee to acquire FF&E, supplies, and other goods and services only from Hyatt or its Affiliates or one or more sources that Hyatt periodically designates or approves. If Franchisee wishes to obtain any FF&E, supplies, or other goods and services for which Hyatt has

	  
	
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established standards or specifications from a source that Hyatt has not previously approved as meeting the System Standards, Franchisee must send Hyatt a written request with any information and samples Hyatt considers necessary to determine whether the item and source meet Hyatt’s then current criteria. Upon Hyatt’s request, Franchisee must reimburse Hyatt’s costs in reviewing Franchisee’s request and evaluating the item and/or source. If Franchisee complies with Hyatt’s processes and procedures regarding approval of alternate or additional manufacturers or suppliers, Hyatt will respond to Franchisee’s request within a reasonable time period. Franchisee may not purchase any FF&E, supplies or other goods or services for the Hotel unless the purchase is from a source Hyatt designates or approves or, for those goods or services that Hyatt does not require Franchisee to acquire only from designated or approved sources, unless Hyatt has approved in writing that the good or service Franchisee proposed meets Hyatt’s standards and specifications. Hyatt may modify the System Standards in this area as Hyatt deems best. Hyatt reserves the right, at its option, to revoke its approval of certain sources or items if they fail to continue to meet the System Standards. Hyatt may refuse any of Franchisee’s requests if Hyatt already has designated a particular source for, or model or brand of, FF&E, supplies or other goods or services that Hyatt (in its sole judgment) determines to be critical to the Hotel System and Hyatt does not desire to expand the list of approved sources, models, or brands. Hyatt may make this decision as it deems best. Hyatt and its Affiliates have the right to receive rebates, commissions, payments, benefits and other material consideration from suppliers on account of their actual or prospective dealings with Franchisee and other franchisees and owners of Hyatt Place Hotels and to use all amounts that Hyatt and its Affiliates receive without restriction for any purposes they deem appropriate (unless they agree otherwise with the supplier).

 

4.5 CRS, GDS, ADS and Guest Room Rates. Franchisee must participate in, connect with, and use the CRS, GDS and ADS in the manner Hyatt periodically designates for offering, booking, modifying, and communicating guest room reservations for the Hotel. Franchisee may only utilize the GDS and ADS that Hyatt periodically authorizes. Franchisee must honor and give first priority on available rooms to all confirmed reservations that the CRS, GDS or ADS refers to the Hotel. The CRS and approved GDS and ADS are the only reservation systems or services that the Hotel may use for reservations.

 

Franchisee will establish the Hotel’s room rates and submit them to Hyatt promptly upon Hyatt’s request. Franchisee is solely responsible for notifying the reservation center of any changes in the Hotel’s room rates. Franchisee must monitor and ensure that the Hotel’s current room rates are properly reflected in the CRS, and must notify Hyatt promptly about any discrepancies between the Hotel’s actual room rates and the room rates listed in the CRS. Franchisee may not charge any guest a rate for any reservation higher than the rate that the reservations center specifies to the guest at the time he or she makes the reservation. Except for special event periods, Franchisee may not charge any rate exceeding the rate Franchisee submits in writing for sale by the CRS. Franchisee must comply with Hyatt’s “best price guarantee” and related policies, as Hyatt periodically modifies them.

 

4.6 Upgrading the Hotel and CapEx Account. Franchisee may not make any material changes to the Hotel’s existing or planned construction, including any change in the number of guest rooms at the Hotel, without Hyatt’s prior written consent and complying with such conditions and procedures that Hyatt periodically establishes for such changes. Without

	  
	
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limiting Hyatt’s rights and Franchisee’s obligations under Section 4.3, Hyatt may require Franchisee at any time and from time to time during the Term to upgrade or renovate the Hotel, including by altering the Hotel’s appearance and/or replacing a material portion of improvements and/or FF&E, to comply with then current building décor, appearance, and trade dress standards and other aspects of the Hotel System that Hyatt has established and requires for new similarly situated Hyatt Place Hotels (subject to Reasonable Deviations). This upgrading or renovation may obligate Franchisee to invest additional capital in the Hotel and/or incur higher operating costs. Franchisee agrees to implement such upgrading and renovation within the time period Hyatt requests, regardless of their cost or the point during the Term when Hyatt requires Franchisee to do so, as if they were part of this Agreement as of the Effective Date, provided that all such upgrades and renovations apply uniformly to all similarly situated Hyatt Place Hotels (subject to Reasonable Deviations).

 

In order to assist Franchisee in having funds available to make any necessary capital expenditures at the Hotel and comply with its obligations under this Section 4.6 (but without limiting those obligations), Franchisee shall deposit into a separate account that Franchisee controls an amount equal to five percent (5%) of the Hotel’s Gross Rooms Revenue each month. Upon Hyatt’s reasonable request, Franchisee will provide Hyatt information concerning the funds in and expenditures from that account. Franchisee shall use such funds only for the purpose of making approved capital expenditures and complying with its upgrade and other obligations under this Section 4.6, although such obligations may require Franchisee to spend more than the amount then in that account.

 

4.7 Inspections/Compliance Assistance and Quality Assurance Program. Hyatt may inspect the Hotel at any time, with or without notice to Franchisee, to determine whether Franchisee and the Hotel are complying with the Hotel System, System Standards, and other terms and conditions of this Agreement. Franchisee must permit Hyatt’s representatives to inspect or audit the Hotel at any time and give them free lodging (subject to availability) during the inspection period.

 

The Hotel must participate in the quality assurance, compliance and guest satisfaction programs that Hyatt develops and periodically modifies (collectively, the “Quality Assurance Program”). Franchisee must pay its allocable share of all fees and other costs associated with the Quality Assurance Program. As part of the Quality Assurance Program, Hyatt and/or its representatives and designees may evaluate whether the Hotel is complying with the Hotel System and System Standards. If Hyatt determines that the Hotel is not complying with the Hotel System, System Standards, or any other terms and conditions of this Agreement and instructs Franchisee to correct those deficiencies, then, without limiting Hyatt’s other rights or remedies under this Agreement, any other agreement or applicable law, Franchisee must: (a) reimburse Hyatt for its costs related to that non-compliance, including fees, travel and living expenses and other costs for administering any necessary actions, follow-up inspections, audits or re-evaluation visits until the deficiencies have been fully corrected, and (b) ensure that applicable Hotel personnel attend meetings and additional training programs that Hyatt specifies, at Franchisee’s sole expense, relating to that non-compliance.

 

4.8 Compliance With Laws. Franchisee must strictly comply with all laws, rules, regulations and other legal and governmental requirements concerning the Hotel’s development

	  
	
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and operation, including by (a) ensuring that the Hotel is at all times in full compliance with the Americans with Disabilities Act and similar rules; (b) paying all taxes when due; (c) obtaining and maintaining trade or fictitious name registrations; and (d) obtaining and maintaining all licenses and permits necessary to operate the Hotel, including all licenses required to sell alcoholic beverages at the Hotel (unless Hyatt, at its sole option, has determined that no alcoholic beverages may be offered at or from the Hotel’s premises). Franchisee and its Owners agree to comply, and to assist Hyatt to the fullest extent possible in its efforts to comply, with the Anti-Terrorism Laws. In connection with that compliance, Franchisee and its Owners certify, represent, and warrant as of the Effective Date that none of Franchisee’s nor any Owner’s property or interests is subject to being blocked under, and that Franchisee and its Owners otherwise are not in violation of, any of the Anti-Terrorism Laws.

 

4.9 No Diverting Business. Franchisee must refer guests and customers, wherever reasonably possible, only to Hyatt Place Hotels or other brands affiliated with Hyatt, not use the Hotel or the Hotel System to promote a competing business or other lodging facility, and not divert business from the Hotel to a competing business.

 

4.10 Data Privacy and Data Security. Franchisee agrees to fully comply with all policies and procedures regarding the collection, storage, use, processing and transfer of personal data (i.e., any information which identifies or is capable of identifying an individual) that Hyatt may promulgate from time to time. Additionally, Franchisee agrees to execute any agreements or other documents, and to take any actions, that Hyatt may require Franchisee and all similarly situated franchisees (subject to Reasonable Deviations) to execute or take from time to time in furtherance of the implementation of Hyatt’s data privacy or data security compliance program.

 

Without limiting the generality of the foregoing, if Franchisee receives, accesses, transmits, stores or processes any Cardholder Data (defined below), then Franchisee agrees to maintain the confidentiality and security of that Cardholder Data at all times, both during the Term and after this Agreement’s termination or expiration. For purposes of this Agreement, “Cardholder Data” means any data that relates to either (a) a payment card authorized by or bearing the logo of a member of the Payment Card Industry (“PCI”) Security Standards Council (the “PCI SSC”) or any similar organization that Hyatt periodically specifies, or alternative technology or non-cash transaction method relating to payment that Hyatt periodically specifies, or (b) a person to whom such a payment card or alternative technology as described in (a) has been issued.

 

Franchisee further covenants that it will, at all times during the Term, in accessing, transmitting, storing or processing Cardholder Data, or in providing technology that accesses, transmits, stores or processes Cardholder Data, comply with (and ensure that all technology provided by or on behalf of Franchisee complies with) the standards and measures required under the then current Payment Data Security Guidelines. For purposes of this Agreement, “Payment Data Security Guidelines” means the then current version of the PCI Data Security Standards (“PCI DSS”) or any successor standards and measures that Hyatt periodically specifies for payment cards, alternative technologies or non-cash transaction methods relating to payment, including all associated audit and certification requirements, and any other applicable standards, measures, or requirements that may be periodically promulgated by the PCI SSC or similar organization that Hyatt periodically specifies, by any member thereof, or by any entity

	  
	
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that functions as an acquirer, issuer, processor, card association, payment network or similar actor (each, individually an “Acquirer”) with respect to a payment card or alternative technology. In addition, if Franchisee uses or provides (i) any payment applications that store, process or transmit Cardholder Data as part of authorization or settlement, or (ii) any personal identification number (“PIN”) entry terminals used for payment card transactions or alternative technology relating to payment transactions that Hyatt periodically specifies, then Franchisee must ensure that such payment applications, PIN entry terminals, or alternative technologies (as the case may be) comply with applicable security standards and requirements, including the then current PIN Entry Device Security Requirements and Payment Application Data Security Standards. Hyatt has the right (but no obligation), at its sole option at any time and from time to time during the Term, to audit Franchisee’s compliance with this Section 4.10 and to require Franchisee (at Franchisee’s expense) to enroll or maintain enrollment in a third party audit and/or validation program that Hyatt monitors. Hyatt further reserves the right, at its sole option at any time and from time to time during the Term, to disclose the results of such audits and/or validation programs to any Acquirer that provides services to Franchisee. Without limiting any of its other obligations under this Agreement, Franchisee represents and warrants that all software, hardware and other materials used by Franchisee, or provided or made available to Hyatt by or on behalf of Franchisee, comply, and do not prevent Hyatt from complying, with all applicable Payment Data Security Guidelines and other data privacy or data security compliance programs that Hyatt identifies, and Franchisee agrees that during the Term it will continue to comply, and will not prevent Hyatt from complying, with these requirements.

 

4.11 No Brand Owners. Franchisee represents and warrants to Hyatt that neither Franchisee nor any of its Owners is a Brand Owner and agrees that neither Franchisee nor any of its Owners at any time during the Term shall be or become a Brand Owner.

 

ARTICLE V

 

ADVERTISING AND MARKETING

 

5.1 Pre-Opening Marketing. Franchisee must conduct a pre-opening marketing program for the Hotel according to Hyatt’s requirements. At least one hundred twenty (120) days before the Hotel’s grand opening, Franchisee must prepare and submit to Hyatt for its approval a written pre-opening marketing program that satisfies Hyatt’s requirements and contemplates spending at least an amount equal to One Hundred Dollars ($100) multiplied by the number of guest rooms at the Hotel. Franchisee must change the program as Hyatt specifies and implement the approved program.

 

5.2 Participation in Advertising and Marketing. Franchisee acknowledges that promoting Hyatt Place Hotels as a single chain in the United States is an important part of the Hotel System. Franchisee must participate in and use, in the manner that Hyatt specifies, all advertising, marketing, and promotional activities, materials and programs that Hyatt periodically requires for the Hotel.

 

5.3 Approval of Marketing Programs. Subject to Hyatt’s requirements and at Franchisee’s expense, Franchisee may conduct local and regional marketing, advertising and promotional programs. Franchisee shall pay Hyatt the reasonable fees that Hyatt periodically

 

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establishes for optional marketing, advertising and promotional materials Franchisee orders from Hyatt for these programs. Franchisee must conduct these programs in a dignified manner.

 

Before using them, Franchisee must submit to Hyatt for its prior approval all advertising, marketing, promotional, and public relations plans, programs, and materials that Franchisee desires to use or in which Franchisee desires to participate, including any materials and uses of the Proprietary Marks in digital, electronic, computerized or other form, whether on a Travel Services Website or Franchisee Organization Website (each as defined in Section 5.4) or otherwise. If Franchisee does not receive written disapproval within fifteen (15) business days after Hyatt receives the materials, they are deemed to be approved. Franchisee may not use any advertising, marketing, promotional, or public relations materials or engage in any programs that Hyatt has not approved or has disapproved and must discontinue using any previously-approved materials and engaging in any previously-approved programs within the timeframe Hyatt specifies after Franchisee receives written notice from Hyatt.

 

        5.4 Websites. Franchisee may not develop, maintain or authorize any Website (other than a Hotel System Website) that either has the word “hyatt” or any similar word as part of its domain name or URL or that accepts reservations for the Hotel (other than through an approved link to a Hotel System Website). Franchisee may, with Hyatt’s approval and subject to the conditions in Section 5.3 and this Section 5.4, authorize any Travel Services Website or Franchisee Organization Website to list and promote the Hotel together with other hotels. A “Travel Services Website” is a Website operated by a third party (which is not an Affiliate of Franchisee) that promotes and sells travel-related products and services for a number of hotel brands, including other Hyatt-affiliated hotels. A “Franchisee Organization Website” is a Website that mentions the Hotel and other hotels in which Franchisee and its Affiliates have an interest as part of Franchisee’s and its Affiliates’ portfolio of properties and that has a primary purpose of promoting the entire portfolio (rather than only promoting the Hotel). Franchisee shall submit to Hyatt for its approval all proposed uses of the Proprietary Marks, references to the Hotel, links to a Hotel System Website, and other information concerning a Travel Services Website or Franchisee Organization Website as Hyatt periodically requests. Hyatt will not unreasonably withhold its approval of Franchisee’s use of a Travel Services Website or Franchisee Organization Website. Hyatt may implement and periodically modify, and Franchisee must comply with, System Standards relating to any Travel Services Websites, Franchisee Organization Websites and other electronic uses of the Proprietary Marks and may withdraw its approval of any Website that no longer meets Hyatt’s minimum standards.

 

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

 

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Agreement relating to any advertising, marketing or promotional programs that Franchisee conducts also apply to any such programs that the Cooperative conducts.

 

ARTICLE VI

 

FEES AND PAYMENTS

 

        6.1 Application Fee. Hyatt and Franchisee acknowledge that, before Hyatt and Franchisee signed this Agreement, Franchisee paid Hyatt an application fee listed in Exhibit B, which is an amount equal to Sixty Thousand Dollars ($60,000) plus an additional Four Hundred Dollars ($400) for each guest room at the Hotel in excess of one hundred fifty (150) guest rooms (the “Application Fee”). The Application Fee was fully earned by Hyatt and non-refundable upon Hyatt’s approval of Franchisee’s franchise application before Hyatt and Franchisee signed this Agreement.

 

        In addition, if Hyatt and Franchisee agree to add additional guest rooms to the Hotel during the Term, then Franchisee must pay Hyatt an additional Application Fee in an amount equal to Four Hundred Dollars ($400) multiplied by the number of additional guest rooms. When Franchisee requests Hyatt’s approval of Franchisee’s plans to develop the additional guest rooms, Franchisee must pay Hyatt a non-refundable PIP fee of Five Thousand Dollars ($5,000). Hyatt will apply this PIP fee toward the additional Application Fee if Hyatt approves Franchisee’s plans. If the PIP fee exceeds the additional Application Fee, Hyatt may keep the excess. The remaining portion of the additional Application Fee is due, fully earned by Hyatt, and non-refundable on the date Hyatt approves Franchisee’s plans to develop the additional guest rooms.

 

        6.2 Data Installation Services Fee. Franchisee must pay Hyatt a non-refundable fee of Seven Thousand Five Hundred Dollars ($7,500) on or before the date upon which Hyatt provides data installation services relating to the initial set-up of the CRS, GDS and ADS at the Hotel.

 

        6.3 Monthly Fees to Hyatt. On or before the tenth (10th) day of each month or such later day of the month that Hyatt periodically specifies (the “Payment Day”), Franchisee shall pay Hyatt:

 

          (a) a “Royalty Fee” equal to (i) three percent (3%) of the Hotel’s Gross Rooms Revenue accrued during the First Year (defined below); (ii) four percent (4%) of the Hotel’s Gross Rooms Revenue accrued during the Second Year (defined below); and (iii) five percent (5%) of the Hotel’s Gross Rooms Revenue during the balance of the Term. The “First Year” means the calendar twelve (12)-month period beginning on the first (1st) day of the calendar month during which the Opening Date occurs. The “Second Year” means the calendar twelve (12)-month period beginning on the first (1st) anniversary of the first (1st) day of the calendar month during which the Opening Date occurs;

 

          (b) a Contribution to the Marketing, Central Reservations and Technology Fund equal to three and one-half percent (3.5%) of the Hotel’s Gross Rooms Revenue

 

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during the preceding month. At any time during the Term, Hyatt may, upon thirty (30) days’ prior notice to Franchisee, periodically increase the Contribution, but it will not exceed four percent (4%) of the Hotel’s Gross Rooms Revenue; and

 

          (c) all fees and other amounts that Hyatt then has paid or has agreed to pay on Franchisee’s behalf to any Providers. If any Provider assesses a single or group fee or other charge that covers all or a group of Hyatt Place Hotels to which that Provider provides products or services, Franchisee agrees that Hyatt’s allocation of that fee or other charge among the Hotel and other Hyatt Place Hotels is final. The Providers may periodically increase the fees and other charges they impose. At Hyatt’s option, Franchisee must begin paying these fees and other charges directly to the applicable Provider(s).

 

        6.4 Payments to Other Parties. Franchisee agrees to pay on a timely basis, as and when due: (a) applicable commissions to travel agents and third party reservation service charges and otherwise participate in any Hotel System travel agent commission payment program, as Hyatt periodically modifies it; (b) all commissions and fees for reservations Franchisee accepts through any sources (including the Internet), whether processed through Hyatt, the CRS, or any Provider’s reservation system or billed directly to Franchisee; (c) all contributions for cooperative advertising programs in which Franchisee agrees to participate, as required in Section 5.5; (d) charges for computer, telephone and other equipment related to the CRS; and (e) all fees and assessments due for guest frequency programs or other marketing programs Hyatt initiates that are attributable to the Hotel.

 

        6.5 Late Fee and Late Payment Interest. Franchisee agrees to pay Hyatt a late fee of Two Hundred Twenty-Five Dollars ($225) for each required payment not made on or before its original due date and for each payment not honored by Franchisee’s financial institution. The late fee is not interest or a penalty but compensates Hyatt for increased administrative and management costs due to Franchisee’s late payment. In addition, all amounts that Franchisee owes Hyatt that are more than seven (7) days late will bear interest accruing as of their original due date at one and one-half percent (1.5%) per month or the highest commercial contract interest rate the law allows, whichever is less. Hyatt may debit Franchisee’s bank account automatically via EFT (defined below in Section 6.6) for the late fee and interest. Franchisee acknowledges that this Section 6.5 is not Hyatt’s agreement to accept any payments after they are due or Hyatt’s commitment to extend credit to, or otherwise finance Franchisee’s operation of, the Hotel.

 

        6.6 Electronic Funds Transfer. Franchisee must make all payments for Royalty Fees, Contributions, and other amounts due to Hyatt and its Affiliates under this Agreement or otherwise in connection with the Hotel by electronic funds transfer (“EFT”). Franchisee must sign the documents Hyatt periodically specifies to allow Hyatt and its Affiliates to debit the applicable bank account for the Hotel automatically or otherwise process these payments through EFT. Franchisee also must sign any additional or new forms and complete any reasonable procedures Hyatt periodically establishes for EFT. Hyatt periodically may change the procedure for payments and require Franchisee to (a) make its payments to a designated bank account by wire transfer or other means Hyatt specifies and (b) sign any authorizations or other documents required to implement that procedure. Funds must be available in Franchisee’s account to cover

 

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Hyatt’s withdrawals. Franchisee may not change its bank, financial institution, or account without first telling Hyatt.

 

        6.7 Application of Payments. Despite any designation Franchisee makes, Hyatt may apply any of Franchisee’s payments to any of Franchisee’s past due indebtedness to Hyatt or its Affiliates. Hyatt may set off any amounts Franchisee or its Affiliates owe Hyatt or its Affiliates against any amounts that Hyatt or its Affiliates owe Franchisee or its Affiliates. Franchisee may not withhold payment of any amounts Franchisee owes Hyatt or its Affiliates due to Hyatt’s alleged nonperformance of any of its obligations under this Agreement.

 

        6.8 Taxes on Franchisee’s Payments. If any gross receipts, sales, use, excise, or similar tax is imposed upon Hyatt due to any payment Franchisee makes to Hyatt under this Agreement (but not Hyatt’s own income taxes), Franchisee must reimburse Hyatt for all payments of such taxes Hyatt makes so that the amount of Franchisee’s payments Hyatt retains after paying the applicable taxes equals the full amount of the payments Franchisee was required to make under this Agreement had the tax not been imposed upon Hyatt. Any and all amounts payable pursuant to this Agreement or any related agreement between Hyatt (or its Affiliate) and Franchisee are exclusive of any such taxes. Accordingly, if applicable, all of Franchisee’s payments shall, in addition, include an amount equal to any and all such taxes imposed by law on any payments to be made pursuant to this Agreement or any related agreement.

 

        6.9 Non-Refundability. Unless otherwise specified, all fees that Franchisee paid to Hyatt before or simultaneously with the execution of this Agreement, or will pay to Hyatt during the Term, are non-refundable.

 

ARTICLE VII

 

BOOKS AND RECORDS, AUDITS AND REPORTING

 

        7.1 Financial Reports. At Hyatt’s request, Franchisee must prepare and deliver to Hyatt daily, monthly, quarterly, and annual operating statements, profit and loss statements, balance sheets, and other reports relating to the Hotel that Hyatt periodically requires, prepared in the form, by the methods, and within the timeframes that Hyatt specifies in the Manual. The reports must contain all information Hyatt requires and be certified as accurate in the manner Hyatt requires. Without limiting the generality of the foregoing, on or before the day of each month that Hyatt reasonably specifies from time to time, Franchisee agrees to prepare and send Hyatt a statement for the previous month, certified by Franchisee’s chief financial or principal accounting officer, listing Gross Rooms Revenue, other Hotel revenues, room occupancy rates, reservation data, the amounts currently due under Article VI, and other information that Hyatt deems useful in connection with the Hotel System. The statement will be in the form and contain the detail Hyatt reasonably requests from time to time and may be used by Hyatt for all reasonable purposes.

 

        Within ninety (90) days after the end of Franchisee’s fiscal year, Franchisee must send Hyatt one or more of the following as Hyatt may request, certified by Franchisee’s chief financial or principal accounting officer to be true and correct: (a) complete financial statements relating to the Hotel for that fiscal year (including a balance sheet, statement of operations and

 

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statement of cash flow) prepared in accordance with generally accepted accounting principles consistently applied; (b) Franchisee’s income tax returns for the Hotel for that year; and (c) statements reflecting all Gross Rooms Revenue and all sources and amounts of other Hotel revenue generated during the year. Hyatt may require Franchisee to have audited financial statements prepared annually during the Term.

 

        7.2 Notification.

 

                  7.2.1 Lender and Ground Lessor Information. Franchisee must send Hyatt current contact information for each Lender and Ground Lessor upon Hyatt’s request or any change in the Lender’s or Ground Lessor’s information. Upon Hyatt’s request, Franchisee must provide Hyatt copies of all ground leases, subleases and other arrangements with any Ground Lessor. Franchisee must promptly send Hyatt a copy of any notice of default, notice of termination, or other exercise of any default rights or remedies that Franchisee receives from any Lender or Ground Lessor, together with all other information that Hyatt reasonably requests relating to any such defaults or termination. Franchisee agrees that Hyatt may, at its option and without breaching any rights of or obligations to Franchisee, have discussions and share information with any Lender or Ground Lessor concerning the Hotel or Franchisee.

 

                  7.2.2 Guarantor Net Worth Threshold. Franchisee must provide Hyatt on an annual basis financial statements or other documents that Hyatt reasonably specifies, certified by Franchisee or the Guarantor in the manner Hyatt specifies, demonstrating that at least one Guarantor then satisfies the Guarantor Net Worth Threshold. If at any time during the Term there is not at least one Guarantor who maintains the Guarantor Net Worth Threshold, then, in addition to and without limiting Hyatt’s other remedies and rights under this Agreement and applicable law, Hyatt may require Franchisee thereafter to provide Hyatt audited financial statements on an annual basis demonstrating that at least one Guarantor then satisfies the Guarantor Net Worth Threshold.

 

                  7.2.3 Other Actions or Events. Franchisee must notify Hyatt in writing within ten (10) days after Franchisee receives information or documentation about any lawsuit, action, or proceeding, or the issuance of any injunction, award, or decree of any court, quasi-judicial body, or governmental agency, that might adversely affect the Hotel, Franchisee’s ability to perform its obligations under this Agreement, or its financial condition.

 

        7.3 Preparation and Maintenance of Books and Records. Franchisee agrees to: (a) prepare on a current basis in a form satisfactory to Hyatt, and preserve for at least four (4) years, complete and accurate records concerning Gross Rooms Revenue and all financial, operating, marketing, and other aspects of the Hotel; and (b) maintain an accounting system that fully and accurately reflects all financial aspects of the Hotel, including books of account, tax returns, governmental reports, daily reports, profit and loss and cash flow statements, balance sheets, and complete quarterly and annual financial statements relating to the Hotel. Hyatt reserves the right to access Franchisee’s computer system independently to obtain sales information, occupancy information, and other data and information relating to the Hotel. Franchisee must send Hyatt upon its reasonable request, in the form and format that Hyatt periodically specifies, any information relating directly or indirectly to the Hotel that Hyatt does not access independently from Franchisee’s computer system.

 

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7.4 Audit. Hyatt may at any time during Franchisee’s regular business hours, and without prior notice to Franchisee, examine Franchisee’s and the Hotel’s business, bookkeeping, and accounting records, sales and income tax records and returns, and other records. Franchisee agrees to cooperate fully with Hyatt’s representatives and independent accountants in any examination. If any examination discloses an understatement of the Hotel’s Gross Rooms Revenue, Franchisee agrees to pay Hyatt, within fifteen (15) days after receiving the examination report, the Royalty Fees, Contributions and other fees due on the amount of the understatement, together with the late fee and interest on the understated amounts from the date originally due until the date of payment in accordance with Section 6.5. Furthermore, if an examination is necessary due to Franchisee’s failure to furnish reports, supporting records, or other information as required, or to furnish these items on a timely basis, or if Hyatt’s examination reveals a Royalty Fee or Contribution underpayment to Hyatt of three percent (3%) or more of the total amount owed during any six (6)-month period, or that Franchisee willfully understated the Hotel’s Gross Rooms Revenue, Franchisee agrees to reimburse Hyatt for the costs of the examination, including the charges of attorneys and independent accountants and the travel expenses, room and board, and compensation of Hyatt’s employees. These remedies are in addition to Hyatt’s other remedies and rights under this Agreement and applicable law.

 

ARTICLE VIII

 

RELATIONSHIP OF THE PARTIES AND INDEMNIFICATION

 

        8.1 Relationship of the Parties. Franchisee is an independent contractor. Neither Hyatt nor Franchisee is the legal representative or agent of, or has the power to obligate, the other for any purpose. The parties have a business relationship defined entirely by this Agreement’s express provisions. No partnership, joint venture, affiliate, agency, fiduciary, or employment relationship is intended or created by this Agreement. Hyatt and Franchisee may not make any express or implied agreements, warranties, guarantees, or representations, or incur any debt, in the name or on behalf of the other or represent that Hyatt’s and Franchisee’s relationship is other than franchisor and franchisee. Hyatt will not be obligated for any damages to any person or property directly or indirectly arising out of the Hotel’s operation or the business Franchisee conducts under this Agreement.

 

        8.2 Franchisee’s Notices to Public Concerning Independent Status. Franchisee must take the actions that Hyatt periodically requires to minimize the chance of a claim being made against Hyatt or its Affiliates for any occurrence at the Hotel or for acts, omissions, or obligations of Franchisee or anyone affiliated with Franchisee or the Hotel. Such steps may include giving notice in private and public rooms and on advertisements, business forms, and stationery and other places, making clear to the public that Hyatt is not the Hotel’s owner or operator and is not accountable for events occurring at the Hotel.

 

        8.3 Franchisee’s Indemnification and Defense of Hyatt.

 

                  8.3.1 Indemnification. In addition to Franchisee’s obligation under this Agreement to procure and maintain insurance, Franchisee agrees to indemnify and hold harmless Hyatt, its Affiliates, and its and their respective owners, officers, directors, agents, employees, representatives, successors, and assigns (the “Hyatt Indemnified Parties”) against, and to

 

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reimburse any one or more of the Hyatt Indemnified Parties for, all Losses directly or indirectly arising out of, resulting from, or in connection with (a) the application Franchisee submitted to Hyatt for the rights granted under this Agreement; (b) the construction, development, use, occupancy, or operation of the Hotel, including any claim or allegation relating to the Americans with Disabilities Act or any similar law concerning public accommodations for persons with disabilities; (c) any bodily injury, personal injury, death, or property damage suffered by any Hotel guest, customer, visitor, or employee; (d) claims alleging either intentional or negligent conduct, acts, or omissions by Franchisee, any Management Company or other contractor of Franchisee (or any of Franchisee’s or its contractor’s agents, employees or representatives), or Hyatt or its Affiliates relating to the operation of the Hotel or the Hotel System, subject to Section 8.4.1; and (e) Franchisee’s breach of the terms and conditions of this Agreement.

 

                  8.3.2 Defense. Franchisee agrees to defend (at Franchisee’s expense) the Hyatt Indemnified Parties from and against any and all Proceedings directly or indirectly arising out of, resulting from, or in connection with any matter described in Section 8.3.1(a) through (e), including those alleging a Hyatt Indemnified Party’s negligence or willful misconduct, subject to Section 8.4.1. Each Hyatt Indemnified Party may at Franchisee’s expense defend and control the defense of any Proceeding described in this Section 8.3.2 and agree to settlements and take any other remedial, corrective, or other actions, without limiting Franchisee’s obligations under Section 8.3.1, provided that the Hyatt Indemnified Party will seek Franchisee’s advice and counsel, and keep Franchisee informed, with regard to any proposed or contemplated settlement.

 

                  8.3.3 Survival and Mitigation. The obligations under this Section 8.3 will continue in full force and effect subsequent to and notwithstanding this Agreement’s expiration or termination. A Hyatt Indemnified Party need not seek recovery from any insurer or other third party, or otherwise mitigate its Losses, in order to maintain and recover fully a claim against Franchisee under this Section 8.3. Franchisee agrees that a failure to pursue a recovery or mitigate a Loss will not reduce or alter the amounts that a Hyatt Indemnified Party may recover from Franchisee under this Section. Franchisee’s obligation to indemnify the Hyatt Indemnified Parties shall not be limited in any way by reason of any insurance that any Hyatt Indemnified Party maintains.

 

                  8.3.4 Separate Counsel and Settlement. If separate counsel is appropriate in Hyatt’s opinion because of actual or potential conflicts of interest, Hyatt may retain attorneys and/or independently defend any Proceeding subject to indemnification under this Section 8.3 at Franchisee’s sole expense. No party may agree to any settlement in any Proceeding that could have an adverse effect on Hyatt, its Affiliates, the Hotel System, or other franchisees without Hyatt’s prior approval.

 

                  8.3.5 Notice of Action. Franchisee shall notify Hyatt immediately (but not later than five (5) days following Franchisee’s receipt of notice) of any Proceeding naming any Hyatt Indemnified Party as a defendant or potential defendant and shall include with such notification copies of all correspondence or court papers relating to the Proceeding.

 

                  8.3.6 Right to Control Defense of Certain Proceeding. Without limiting Hyatt’s rights or Franchisee’s obligations under this Section 8.3, Hyatt (or its designee) has the right to defend and control the defense of any class action or other Proceeding involving both the

 

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Hotel and any other Hyatt Place Hotel or Hyatt-affiliated hotel, regardless of whether Hyatt or any of the other Hyatt Indemnified Parties are named defendants in that action. Franchisee shall promptly reimburse Hyatt for the Hotel’s proportionate share of all reasonable expenses that Hyatt incurs in connection with any Proceeding covered by this Section 8.3.6. Hyatt shall allocate those expenses equitably among the Hotel and all other Hyatt Place Hotels and Hyatt- affiliated hotels involved in the action in any manner that Hyatt reasonably determines.

 

        8.4 Hyatt’s Indemnification and Defense of Franchisee.

 

                  8.4.1 Indemnification. Hyatt agrees to indemnify and hold harmless Franchisee, its Affiliates, and its and their respective owners, officers, directors, agents, employees, representatives, successors, and assigns (the “Franchisee Indemnified Parties”) against, and to reimburse any one or more of the Franchisee Indemnified Parties for, any and all Losses (including defense costs and other Losses incurred in defending any Proceeding described in Section 8.3.2, if applicable) directly or indirectly arising out of, resulting from, or in connection with (a) a final decision by a court of competent jurisdiction not subject to further appeal that Hyatt, its Affiliate, or any of their respective employees directly engaged in willful misconduct or gross negligence or intentionally caused the property damage or bodily injury that is the subject of the claim, so long as the claim is not asserted on the basis of theories of vicarious liability (including agency, apparent agency, or employment) or Hyatt’s failure to compel Franchisee to comply with this Agreement, which are claims for which the Franchisee Indemnified Parties are not entitled to indemnification under this Section 8.4; and (b) any trademark infringement Proceeding disputing Franchisee’s authorized use of any Proprietary Mark under this Agreement, provided that Franchisee has timely notified Hyatt of, and complies with Hyatt’s directions in responding to, the Proceeding.

 

                  8.4.2 Defense. Hyatt agrees to defend (at Hyatt’s expense) the Franchisee Indemnified Parties from and against any and all Proceedings described in Section 8.4.1(b). At Hyatt’s option, Hyatt and/or its Affiliate(s) may defend and control the defense of any other Proceeding arising from or relating to the Proprietary Marks or Franchisee’s use of any Proprietary Mark under this Agreement. Hyatt may agree to settlements and take any other remedial, corrective, or other actions with respect to any Proceeding described in this Section 8.4.2, provided that Hyatt will seek Franchisee’s advice and counsel, and keep Franchisee informed, with regard to any proposed or contemplated settlement.

 

                  8.4.3 Survival and Mitigation. The obligations under this Section 8.4 will continue in full force and effect subsequent to and notwithstanding this Agreement’s expiration or termination. A Franchisee Indemnified Party need not seek recovery from any insurer or other third party, or otherwise mitigate its Losses, in order to maintain and recover fully a claim against Hyatt under this Section 8.4. Hyatt agrees that a failure to pursue a recovery or mitigate a Loss will not reduce or alter the amounts that a Franchisee Indemnified Party may recover from Hyatt under this Section 8.4. Hyatt’s obligation to indemnify the Franchisee Indemnified Parties shall not be limited in any way by reason of any insurance that any Franchisee Indemnified Party maintains.

 

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                  8.5 Guarantor Net Worth Threshold. Franchisee represents and warrants that at least one Guarantor satisfies the Guarantor Net Worth Threshold as of the Effective Date, and Franchisee agrees to ensure that at least one Guarantor continues to satisfy the Guarantor Net Worth Threshold at all times during the Term. Upon at least ninety (90) days’ written notice to Franchisee, Hyatt may periodically increase the amount of the Guarantor Net Worth Threshold if Hyatt determines, in its reasonable judgment, that its risk or exposure with respect to this Agreement has increased since the Effective Date (or its most recent increase in the Guarantor Net Worth Threshold, as applicable). Franchisee agrees to comply with the modified Guarantor Net Worth Threshold, either by demonstrating to Hyatt’s satisfaction that a then existing Guarantor satisfies the modified Guarantor Net Worth Threshold or by presenting a substitute Guarantor who signs Hyatt’s then current form of Guaranty reflecting the modified Guarantor Net Worth Threshold, by the end of that ninety (90)-day period. Franchisee agrees to, and shall cause its Guarantors to, reasonably cooperate with Hyatt in connection with all auditing and reporting requirements relating to the Guarantor Net Worth Threshold, whether those requirements are contained in this Agreement, the Guaranty or any other agreement.

 

ARTICLE IX

 

INSURANCE

 

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

 

                    (1) the following property insurance:

 

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

 

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

 

          (c) Business interruption insurance covering loss of profits and necessary continuing expenses, including Royalty Fees, Contributions and other amounts due to Hyatt and its Affiliates under or in connection with this Agreement, for interruptions caused by any occurrence covered by the insurance referred to in subsections (a) and (b) above and providing coverage for the actual loss sustained.

 

          (d) If the Hotel is located in whole or in part within an area identified by the Federal-Flood Management Agency, flood insurance in a reasonable amount for a hotel of this type in the geographic area, to include business

 

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interruption for lost profits, continuing expenses and Royalty Fees, Contributions and other amounts due to Hyatt and its Affiliates under or in connection with this Agreement.

 

          (e) If the Hotel is located in an “earthquake zone” as determined by the U.S. Geological Survey, earthquake insurance in a reasonable amount for a hotel of this type in the geographic area, to include business interruption for lost profits, continuing expenses, and Royalty Fees, Contributions and other amounts due to Hyatt and its Affiliates under or in connection with this Agreement.

 

          (f) If the Hotel is located in a “Tier 1 or Tier 2 named windstorm zone” as determined by Franchisee’s insurance underwriters, named windstorm insurance in a reasonable amount for a hotel of this type in the geographic area, to include business interruption for loss of profits and continuing expenses, including Royalty Fees, Contributions and other amounts due to Hyatt and its Affiliates under or in connection with this Agreement.

 

          (g) If the Hotel is located in a “Tier 1 or Tier 2 terrorism zone” as determined by Franchisee’s insurance underwriters, certified and non-certified terrorism insurance for the property, as long as it is not more than two (2) times Franchisee’s “all-risk” property premium.

 

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

 

(3) Commercial General Liability Insurance for any claims or losses arising or resulting from or pertaining to the Hotel or its operation, protecting Franchisee and Hyatt (and its Affiliates) with combined single limits of Two Million Dollars ($2,000,000) per each occurrence for bodily injury and property damage. If the general liability coverages contain a general aggregate limit, such limit shall be not less than Two Million Dollars ($2,000,000), and it shall apply in total to the Hotel only by specific endorsement. Such insurance shall be on an occurrence policy form and include premises and operations, independent contractors, blanket contractual, products and completed operations, advertising injury, employees as additional insureds, broad form property damage, personal injury to include false arrest and molestation, incidental medical malpractice, severability of interests, innkeeper’s and safe deposit box liability, and explosion, collapse and underground coverage during any construction.

 

(4) Liquor Liability (if the Hotel distributes, sells, serves, or furnishes alcoholic beverages, subject to Section 4.8) for combined single limits of bodily injury and property damage of not less than Two Million Dollars ($2,000,000) each occurrence.

 

(5) Business Auto Liability, including owned, non-owned and hired vehicles for combined single limits of bodily injury and property damage of not less than Two Million Dollars ($2,000,000) each occurrence.

 

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(6) Umbrella Excess Liability on a following form basis, primary and excess, per occurrence and in the aggregate, in amounts not less than: (i) Fifteen Million Dollars ($15,000,000), if the Hotel has less than seven (7) stories; (ii) Twenty Five Million Dollars ($25,000,000), if the Hotel has between seven (7) and eleven (11) stories; and (iii) One Hundred Million Dollars ($100,000,000), if the Hotel has twelve (12) stories or more. Hyatt may require Franchisee to increase the amount of coverage if, in Hyatt’s judgment, such an increase is warranted.

 

(7) Comprehensive crime insurance to include employee dishonesty coverage, loss inside the premises, loss outside the premises, money orders and counterfeit paper currency, depositor’s forgery coverage and computer fraud.

 

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

 

The liability policies referenced in Sections (3) through (6) above in this Article shall be endorsed to include certified and non-certified terrorism insurance in an amount not less than the limit(s) of each applicable policy.

 

Hyatt may periodically increase the amounts of coverage required under these insurance policies and/or require different or additional insurance coverage at any time to reflect inflation, identification of new risks, changes in law or standards of liability, higher damage awards or other relevant changes in circumstances. All insurance must by endorsement specifically name Hyatt and any Affiliates that Hyatt periodically designates (and Hyatt’s and those Hyatt-designated Affiliates’ employees and agents) as additional insureds. Any deductibles or self-insured retentions that Franchisee maintains (excluding deductibles for high hazard risks in high hazard geological zones, such as earthquake, flood and named windstorm, which shall be as required by the insurance carrier) shall not exceed Twenty-Five Thousand Dollars ($25,000), or such higher amount as Hyatt (at its option) may approve in writing in advance. Franchisee must purchase each policy from an insurance company reasonably acceptable to Hyatt and licensed, authorized or registered to do business in the state where the Hotel is located. However, this licensing requirement shall not apply to those insurers providing Umbrella Excess Liability above Two Million Dollars ($2,000,000) under Subsection (6) above.

 

All required insurance must be specifically endorsed to provide that the coverages will be primary to any valid and collectible insurance available to any additional insureds and shall have a waiver of subrogation in favor of Hyatt. All policies must provide that they may not be canceled, non-renewed, or materially changed without at least thirty (30) days’ prior written notice to Hyatt. Franchisee may satisfy its insurance obligations under blanket insurance policies that cover Franchisee’s and its Affiliates’ other properties so long as such blanket insurance fulfills the requirements in this Agreement.

 

Franchisee must deliver to Hyatt a certificate of insurance (or certified copy of such insurance policy if Hyatt requests) evidencing the coverages required above and setting forth the amount of any deductibles. Franchisee must deliver to Hyatt renewal certificates of insurance (or certified copies of such insurance policy if Hyatt requests) not less than ten (10) days prior to

 

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their respective inception dates. Franchisee’s obligation to maintain insurance shall not relieve Franchisee of its obligations under Section 8.3.

 

If Franchisee fails for any reason to procure or maintain the insurance required by this Agreement, Hyatt shall have the right and authority (although without any obligation to do so) to immediately procure such insurance and to charge Franchisee the cost together with a reasonable fee for Hyatt’s expenses.

 

ARTICLE X

 

CONDEMNATION AND DAMAGE

 

10.1 Condemnation.

 

10.1.1 Relocating the Hotel. Franchisee must immediately notify Hyatt of any proposed taking of any portion of the Hotel by eminent domain, condemnation or expropriation. If Hyatt agrees that all or a substantial portion of the Hotel is to be taken, condemned or expropriated, then, upon Franchisee’s request, Hyatt may (but has no obligation to) allow Franchisee to relocate the Hotel to a new location within the Area of Protection that Franchisee selects (subject to Hyatt’s approval) within four (4) months after the taking, condemnation or expropriation. If Franchisee develops a new Hyatt Place Hotel at a new location within the Area of Protection that Hyatt approves (a “Relocated Hotel”), and if Franchisee opens that Relocated Hotel according to Hyatt’s specifications and this Agreement’s other terms and conditions (including the applicable provisions of Article II) within twenty-four (24) months after closing the Hotel, then the Relocated Hotel shall thereafter be deemed to be the Hotel franchised under this Agreement.

 

10.1.2 Termination Upon Condemnation. If a taking, condemnation or expropriation involving all or a substantial portion of the Hotel occurs, and if following such taking, condemnation or expropriation:

 

            (a) Hyatt elects not to allow Franchisee to develop a Relocated Hotel;

 

            (b) Franchisee promptly notifies Hyatt that Franchisee will not develop a Relocated Hotel; or

 

            (c) Franchisee and Hyatt do not agree to a new location for a Relocated Hotel within the four (4)-month period specified above,

 

then either party may terminate this Agreement immediately upon written notice to the other. If this Agreement is terminated pursuant to this Section 10.1.2, and if Franchisee and its Owners sign Hyatt’s then current form of termination agreement and a general release, in a form satisfactory to Hyatt, of any and all claims against Hyatt and its owners, Affiliates, officers, directors, employees and agents, then Franchisee shall not be required to pay liquidated damages pursuant to Section 16.5 at the time of termination. However, such termination agreement shall provide that if Franchisee or any of its Affiliates begins construction on a new select service hotel at any location within the Area of Protection at any time during the twenty-four (24) month period following the effective date of termination of this Agreement, then Franchisee or its

 

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Owners must pay Hyatt liquidated damages equal to Four Thousand Dollars ($4,000) multiplied by the number of guest rooms in that new select service hotel. If Franchisee and its Owners fail to sign such termination agreement and general release within a reasonable time after Hyatt delivers them to Franchisee, then Franchisee must pay Hyatt liquidated damages pursuant to Section 16.5 at the time of termination, in addition to complying with its other post-termination obligations under this Agreement.

 

10.1.3 Termination for Failure to Develop Relocated Hotel. If Hyatt and Franchisee agree to a new location for a Relocated Hotel pursuant to Section 10.1.1 but Franchisee fails to develop and open the Relocated Hotel according to this Agreement’s terms and conditions within twenty-four (24) months after the Hotel’s closing, then Hyatt may terminate this Agreement immediately upon written notice to Franchisee and Franchisee must pay Hyatt liquidated damages pursuant to Section 16.5, in addition to complying with its other post-termination obligations under this Agreement.

 

10.2 Damage. If the Hotel is damaged by fire or other casualty, Franchisee must notify Hyatt immediately. If the cost to repair the damage is less than or equal to the Damage Threshold (defined below), or if the cost to repair the damage exceeds the Damage Threshold but Franchisee notifies Hyatt within a reasonable time after the casualty that it intends to repair the damage and operate the Hotel as a Hyatt Place Hotel, then Franchisee must repair the damage promptly according to the System Standards and this Agreement’s other terms and conditions. The “Damage Threshold” means the greater of (a) sixty percent (60%) of the market value of the Hotel immediately prior to the time of fire or other casualty, or (b) the amount of insurance proceeds made available to Franchisee in connection with the fire or casualty. If the damage or repair requires Franchisee to close all or any portion of the Hotel, then Franchisee must commence reconstruction as soon as practicable (but in any event within four (4) months) after closing the Hotel and reopen for continuous business operations as a Hyatt Place Hotel as soon as practicable (but in any event within twenty-four (24) months) after closing the Hotel, but not without complying with this Agreement’s other terms and conditions (including the applicable provisions of Article II).

 

If the cost to repair the damage from a fire or other casualty exceeds the Damage Threshold and Franchisee either fails to notify Hyatt within a reasonable time after the casualty that it intends to repair the damage and operate the Hotel as a Hyatt Place Hotel, or notifies Hyatt that Franchisee elects not to repair the damage and operate the Hotel as a Hyatt Place Hotel (including if Franchisee elects to repair the damage and re-open a hotel at the Site under a name other than “Hyatt Place”), then Hyatt may terminate this Agreement and Franchisee must pay Hyatt liquidated damages pursuant to Section 16.5. However, if a hotel is not reopened at the Site (either as a Hyatt Place Hotel or under any other brand) during the twenty-four (24)-month period after closing the Hotel, then the amount of liquidated damages payable pursuant to Section 16.5 shall not exceed the amount of any insurance proceeds that Franchisee receives. Franchisee must provide Hyatt such documentation as Hyatt may reasonably request to calculate the Damage Threshold and the insurance proceeds Franchisee receives in connection with any fire or other casualty.

 

10.3 Extension of Term. The Term will be extended for the period of time during which the Hotel is closed due to fire or other casualty. Franchisee need not make any payments

 

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of Royalty Fees or Contributions while the Hotel is closed by reason of condemnation or casualty unless Franchisee receives insurance proceeds compensating Franchisee for lost Gross Rooms Revenue during such period.

 

ARTICLE XI

 

PROPRIETARY RIGHTS

 

11.1 Ownership and Goodwill of Proprietary Marks, Copyrighted Materials, and Confidential Information. Hyatt’s Affiliate has licensed the Proprietary Marks, Copyrighted Materials, and Confidential Information to Hyatt to use and sublicense in franchising, developing, and operating Hyatt Place Hotels. Franchisee’s right to use the Proprietary Marks, Copyrighted Materials, and Confidential Information is derived only from this Agreement and is limited to Franchisee’s operating the Hotel according to this Agreement and all System Standards that Hyatt prescribes during the Term. Franchisee’s unauthorized use of the Proprietary Marks, Copyrighted Materials, or Confidential Information is a breach of this Agreement and infringes Hyatt’s and its Affiliate’s rights in them. Franchisee acknowledges and agrees that its use of the Proprietary Marks, Copyrighted Materials, and Confidential Information and any goodwill established by that use are exclusively for Hyatt’s and its Affiliate’s benefit and that this Agreement does not confer any goodwill or other interests in the Proprietary Marks, Copyrighted Materials or Confidential Information upon Franchisee, other than the right to operate the Hotel under this Agreement. Franchisee may not at any time during or after the Term contest or assist any other person or entity in contesting the validity, or Hyatt’s and its Affiliate’s ownership, of the Proprietary Marks, Copyrighted Materials, or Confidential Information.

 

11.2 Limitations on Franchisee’s Use of Proprietary Marks. Franchisee agrees to use the Proprietary Marks as the Hotel’s sole identification, except that Franchisee must identify itself as the Hotel’s independent owner in the manner that Hyatt periodically specifies. Franchisee may not use any Proprietary Mark (a) as part of any corporate or legal business name; (b) with any prefix, suffix, or other modifying words, terms, designs, or symbols (other than logos Hyatt licenses to Franchisee); (c) in providing or selling any unauthorized services or products; (d) as part of any domain name, homepage, meta tags, keyword, electronic address, or otherwise in connection with a Website (unless Hyatt has approved such use in advance); or (e) in any other manner Hyatt has not expressly authorized in writing. If Hyatt discovers Franchisee’s unauthorized use of the Proprietary Marks, in addition to Hyatt’s other rights and remedies under this Agreement and applicable law, Hyatt may require Franchisee to destroy (with no reimbursement from Hyatt) all offending items reflecting such unauthorized use.

 

Franchisee may not use any Proprietary Mark in advertising the transfer, sale, or other disposition of the Hotel or an ownership interest in Franchisee or any of its Owners without Hyatt’s prior written consent, which Hyatt will not unreasonably withhold. Franchisee agrees to display the Proprietary Marks prominently as Hyatt prescribes at the Hotel and on forms, advertising, supplies, and other materials Hyatt periodically designates. Franchisee agrees to give the notices of trade and service mark registrations that Hyatt specifies and to obtain any fictitious or assumed name registrations required under applicable law.

 

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11.3 Notification of Infringements and Claims. Franchisee agrees to notify Hyatt immediately of any apparent infringement or challenge to Franchisee’s use of any Proprietary Mark, Copyrighted Materials, or Confidential Information, or of any person’s claim of any rights in any Proprietary Mark, Copyrighted Materials, or Confidential Information, and not to communicate with any person other than Hyatt, its Affiliates, and its and their attorneys, and Franchisee’s attorneys, regarding any infringement, challenge, or claim. Hyatt and its Affiliates may take the action it and they deem appropriate (including no action) and control exclusively any Proceeding arising from any infringement, challenge, or claim or otherwise concerning any Proprietary Mark, Copyrighted Materials, or Confidential Information. Franchisee agrees to sign any documents and take any other reasonable actions that, in the opinion of Hyatt’s and its Affiliates’ attorneys, are necessary or advisable to protect and maintain Hyatt’s and its Affiliates’ interests in any Proceeding or otherwise to protect and maintain Hyatt’s and its Affiliates’ interests in the Proprietary Marks, Copyrighted Materials, and Confidential Information. Hyatt or its Affiliate will reimburse Franchisee’s reasonable out-of-pocket costs for taking any requested action.

 

11.4 Discontinuing Use of Proprietary Marks. If it becomes advisable at any time for Hyatt and/or Franchisee to modify, discontinue using, and/or replace any Proprietary Mark and/or to use one or more additional, substitute, or replacement trade or service marks together with or in lieu of any previously-designated Proprietary Mark, Franchisee agrees to comply with Hyatt’s directions within a reasonable time after receiving notice. Neither Hyatt nor its Affiliates will reimburse Franchisee for any costs or expenses incurred in connection with such directions, including expenses of changing the Hotel’s signs, any loss of revenue due to any modified or discontinued Proprietary Mark, or Franchisee’s expenses of promoting a modified or substitute trademark or service mark. Hyatt’s rights in this Section 11.4 apply to any and all of the Proprietary Marks (and any portion of any Proprietary Mark) that this Agreement authorizes Franchisee to use. Hyatt may exercise these rights at any time and for any reason, business or otherwise, Hyatt thinks best. Franchisee acknowledges both Hyatt’s right to take this action and Franchisee’s obligation to comply with Hyatt’s directions.

 

11.5 Confidential Information. Hyatt and its Affiliates possess (and will continue to develop and acquire) Confidential Information, some of which constitutes trade secrets under applicable law, relating to developing and operating Hyatt Place Hotels. Franchisee acknowledges and agrees that Franchisee will not acquire any interest in Confidential Information, other than the right to use certain Confidential Information as Hyatt specifies while operating the Hotel during the Term, and that Confidential Information is proprietary, includes Hyatt’s and its Affiliate’s trade secrets, and is disclosed to Franchisee only on the condition that Franchisee agrees, and Franchisee hereby does agree, that Franchisee: (a) will not use Confidential Information in any other business or capacity; (b) will keep confidential each item deemed to be a part of Confidential Information, both during and after the Term (afterward for as long as the item is not generally known in the hotel industry); (c) will not make unauthorized copies of any Confidential Information disclosed via electronic medium or in written or other tangible form; and (d) will adopt and implement reasonable procedures that Hyatt periodically specifies to prevent unauthorized use or disclosure of Confidential Information.

 

All information that Hyatt or its Affiliates obtain from Franchisee or any other source about the Hotel or its guests under this Agreement or any related agreement (including

 

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agreements relating to the CRS and other software systems that Hyatt or its Affiliates provide or require), or otherwise related to the Hotel, is part of Confidential Information and Hyatt’s property. Franchisee acknowledges and agrees that Hyatt has the right, without prior notice to Franchisee, to access the Hotel’s computer systems, including the property management system, and all guest and other data and information that Franchisee has processed or stored with, through, or otherwise in connection with such computer systems, and to use and allow others to use such data and information in any manner that Hyatt deems appropriate (subject to applicable law). However, Franchisee may at any time during and after the Term use, to the extent lawful and at Franchisee’s own risk, any information and data stored in the Hotel’s property management system database (subject to Section 4.10).

 

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

 

11.6 Innovations. All inventions, innovations and discoveries relating to a Hyatt Place Hotel (collectively, “Innovations”), whether or not protectable intellectual property and whether created by or for Franchisee, its Affiliates or contractors, or its or their employees, must be promptly disclosed to Hyatt and will be deemed to be Hyatt’s sole and exclusive property, part of the Hotel System, and works made-for-hire for Hyatt. However, Franchisee may not use any Innovation in operating the Hotel or otherwise without Hyatt’s prior written consent. If any Innovation does not qualify as a “work made-for-hire” for Hyatt, by this paragraph Franchisee assigns ownership of that Innovation, and all related rights to that Innovation, to Hyatt and agrees to take whatever action (including signing assignment or other documents) that Hyatt requests to evidence its ownership or to help Hyatt obtain intellectual property rights in the Innovation.

 

ARTICLE XII

 

TRANSFER

 

12.1 Transfer by Hyatt. Franchisee represents that Franchisee has not signed this Agreement in reliance on any particular owner, director, officer, or employee remaining with Hyatt in that capacity. Hyatt may change its ownership or form and/or assign this Agreement and any other agreement to a third party without restriction. After Hyatt’s assignment of this Agreement to a third party who expressly assumes the obligations under this Agreement, Hyatt no longer will have any performance or other obligations under this Agreement. Such an assignment shall constitute a release of Hyatt and a novation with respect to this Agreement, and the assignee shall be liable to Franchisee as if it had been an original party to this Agreement.

 

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12.2 Transfer by Franchisee - Defined. Franchisee understands and acknowledges that the rights and duties this Agreement creates are personal to Franchisee and its Controlling Owners and that Hyatt has granted Franchisee the rights under this Agreement in reliance upon Hyatt’s perceptions of Franchisee’s and its Controlling Owners’ collective character, skill, aptitude, attitude, business ability, and financial capacity. Accordingly, unless otherwise specified in this Article XII, neither this Agreement (or any interest in this Agreement), the Hotel or substantially all of its assets, nor any ownership interest in Franchisee or any Owner (if such Owner is a legal entity) may be transferred without complying with the terms and conditions applicable to such transfer in this Article XII. A transfer of the Hotel’s ownership, possession, or control, or substantially all of its assets, may be made only with a transfer of this Agreement. Any transfer without complying with the terms and conditions applicable to such transfer in this Article XII, including Hyatt’s approval (where such approval is required under this Agreement), is a breach of this Agreement.

 

In this Agreement, the term “transfer” includes a voluntary, involuntary, direct, or indirect assignment, sale, gift, or other disposition of any interest in this Agreement; Franchisee; the Hotel or substantially all of its assets; any of Franchisee’s Owners (if such Owner is a legal entity); or any right to receive all or a portion of the Hotel’s, Franchisee’s, or any Owner’s profits or losses or any capital appreciation relating to the Hotel, Franchisee or any Owner. An assignment, sale, gift, or other disposition includes the following events: (a) transfer of ownership of capital stock, a partnership or membership interest, or another form of ownership interest; (b) merger or consolidation or issuance of additional securities or other forms of ownership interest; (c) any sale of a security convertible to an ownership interest; (d) transfer in a divorce, insolvency, or entity dissolution proceeding or otherwise by operation of law; (e) transfer by will, declaration of or transfer in trust, or under the laws of intestate succession; or (f) pledge of or other grant of a security interest in this Agreement (to someone other than Hyatt), the Hotel or an ownership interest in Franchisee or one of its Owners as security, foreclosure upon the Hotel, or Franchisee’s transfer, surrender, or loss of the Hotel’s possession, control, or management.

 

12.3 Non-Control Transfers. If Franchisee (and each of its Owners) is substantially complying with this Agreement, then, subject to the other provisions of this Article XII, Franchisee and/or any of its Owners may consummate any Non-Control Transfers, without seeking or receiving Hyatt’s consent, if:

 

          (a) neither the proposed transferee nor any of its direct and indirect owners (if the transferee is a legal entity) is a Brand Owner;

 

          (b) Franchisee notifies Hyatt at least ten (10) days before the transfer’s effective date; and

 

          (c) such transfer does not, whether in one transaction or a series of related transactions (regardless of the time period over which these transfers take place), result in the transfer or creation of a direct or indirect Controlling Ownership Interest in Franchisee.

 

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12.4 Control Transfers. Franchisee must notify Hyatt in writing at least ten (10) days in advance of Franchisee’s listing the Hotel for sale and promptly send Hyatt all information that Hyatt reasonably requests regarding any proposed sale. In connection with any proposed Control Transfer, Franchisee must submit to Hyatt, on behalf of the proposed transferee, a complete application for a new franchise agreement (the “Change of Ownership Application”), accompanied by payment of Hyatt’s then current application fee (although no such fee is due if the transfer is to the spouse, child, parent, or sibling of the Owner(s) or from one Owner to another). If Hyatt does not approve the Change of Ownership Application and consent to the proposed Control Transfer, Hyatt will refund any application fee paid, less Seven Thousand Five Hundred Dollars ($7,500) for processing costs. Hyatt will process the Change of Ownership Application according to this Section 12.4 and its then current procedures, including review of criteria and requirements regarding upgrading the Hotel, credit, background investigations, operations ability and capacity, prior business dealings, market feasibility, guarantees, and other factors concerning the proposed transferee(s) (and, if applicable, its direct and indirect owner(s)) that Hyatt deems relevant. Hyatt has sixty (60) days from its receipt of the completed and signed Change of Ownership Application to consent or withhold its consent to the proposed Control Transfer.

 

If Franchisee (and each of its Owners) is substantially complying with this Agreement, then, subject to the other provisions of this Article XII, Hyatt will approve a Control Transfer if all of the following conditions are met before or concurrently with the effective date of the Control Transfer:

 

          (a) the transferee and each of its direct and indirect owners (if the transferee is a legal entity) has, in Hyatt’s judgment, the necessary business experience, aptitude, and financial resources to operate the Hotel and meets Hyatt’s then applicable standards for Hyatt Place Hotel franchisees;

 

          (b) Franchisee has paid all Royalty Fees, Contributions, and other amounts owed to Hyatt, its Affiliates, and third party vendors, has submitted all required reports and statements, and has not violated any provision of this Agreement or any other agreement with Hyatt or its Affiliate, in each case during both the sixty (60)-day period before Franchisee requested Hyatt’s consent to the transfer and the period between Franchisee’s request and the effective date of the transfer;

 

          (c) the transferee’s general manager and other Hotel management personnel that Hyatt specifies, if different from Franchisee’s general manager and Hotel management personnel, satisfactorily complete Hyatt’s required training programs;

 

          (d) the transferee and its owners shall (if the transfer is of this Agreement), or Franchisee and its Owners shall (if the transfer is of a Controlling Ownership Interest in Franchisee or one of its Controlling Owners), sign Hyatt’s then current form of franchise agreement and related documents (including guarantees and assumptions of obligations), any and all of the provisions of which may differ materially from any and all of those contained in this Agreement, including the Royalty Fee and Contributions, and the term of which franchise agreement will be equal to the remaining unexpired portion of the Term;

 

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          (e) Franchisee (and its transferring Owners) sign Hyatt’s then current form of termination agreement and a general release, in a form satisfactory to Hyatt, of any and all claims against Hyatt and its owners, Affiliates, officers, directors, employees, agents, successors and assigns;

 

          (f) Hyatt has determined that the purchase price and payment terms will not adversely affect the transferee’s operation of the Hotel;

 

          (g) Franchisee signs all documents Hyatt requests evidencing its agreement to remain liable or assume liability for all obligations to Hyatt and its Affiliates existing before the effective date of the transfer; and

 

          (h) Franchisee (if Franchisee will no longer operate the Hotel) and its transferring Owners will not directly or indirectly at any time or in any manner identify itself or themselves in any business as a current or former Hyatt Place Hotel or as one of Hyatt’s franchisees; use any Proprietary Mark, any colorable imitation of a Proprietary Mark, or other indicia of a Hyatt Place Hotel in any manner or for any purpose; or utilize for any purpose any trade name, trade or service mark, or other commercial symbol that suggests or indicates a connection or association with Hyatt or its Affiliates.

 

Hyatt may review all information regarding the Hotel that Franchisee gives the proposed transferee, correct any information that Hyatt believes is inaccurate, and give the transferee copies of any reports that Franchisee has given Hyatt or Hyatt has made regarding the Hotel.

 

12.5 Permitted Transfers. Notwithstanding Section 12.4:

 

          (a) Franchisee may mortgage the Hotel (but not this Agreement) to a Lender without having to obtain Hyatt’s prior approval and without complying with the other terms and conditions of Section 12.4, provided the Lender signs Hyatt’s form of comfort letter pursuant to Section 2.5; and

 

          (b) any Owner who is an individual may, without Hyatt’s prior written consent and without complying with the other terms and conditions of Section 12.4, transfer his or her interest in Franchisee (or Franchisee’s Owner) to a trust or other entity that he or she establishes for estate planning purposes, as long as he or she is a trustee of, or otherwise controls the exercise of the rights in Franchisee (or Franchisee’s Owner) held by, the trust or other entity, continues to comply with and ensures the trust’s or other entity’s compliance with the applicable provisions of this Agreement (if such Owner is a Guarantor), and notifies Hyatt in writing of the transfer at least ten (10) days prior to its anticipated effective date. Dissolution of or transfers from any trust or other entity described in this Section 12.5(b) are subject to all applicable terms and conditions of Section 12.3 or 12.4.

 

12.6 Transfers of Equity Interest Upon Death. Upon the death or mental incompetency of a person with a Controlling Ownership Interest in Franchisee or one of its Controlling Owners, that person’s executor, administrator, or personal representative (“Representative”) must, within three (3) months after the date of death or mental incompetency, transfer the Owner’s interest in Franchisee or the Controlling Owner to a third

 

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party, subject to Hyatt’s approval and the conditions set forth in Section 12.4. In the case of a transfer by devise or inheritance, if the heirs or beneficiaries cannot meet the conditions of Section 12.4 within this three (3)-month period, the Representative will have six (6) months from the date of death or mental incompetency to dispose of the interest, subject to Hyatt’s approval and the conditions set forth in Section 12.4. Hyatt may terminate this Agreement if this required transfer fails to occur within the required timeframe.

 

12.7 Registration of a Proposed Transfer of Equity Interests. Subject to this Agreement’s other provisions, ownership interests in Franchisee or a Controlling Owner may be offered to the public only with Hyatt’s prior written consent. All materials required by federal or state law for the sale of any interest in Franchisee or its Affiliates, including any materials to be used in an offering exempt from registration under federal or state securities laws, must be submitted to Hyatt for review before their distribution to prospective investors or filing with any government agency. No such offering may imply or state (by use of the Proprietary Marks or otherwise) that Hyatt is participating as an underwriter, issuer, or Franchisee’s representative, suggest that Hyatt endorses Franchisee’s offering or agrees with any financial projections, or otherwise contain any information about Hyatt, this Agreement, Hyatt’s relationship with Franchisee or the Hotel System that Hyatt disapproves. Hyatt’s review and approval of the materials will not in any way be Hyatt’s endorsement of the offering or representation that Franchisee has complied or is complying with applicable laws. Hyatt’s approval will mean only that Hyatt believes the references in the offering materials to Hyatt, this Agreement, Hyatt’s relationship with Franchisee and the Hotel System, and the use in the offering materials of the Proprietary Marks, are acceptable to Hyatt. Franchisee must pay Hyatt a non-refundable fee equal to Five Thousand Dollars ($5,000) to review each proposed offering. Hyatt may require changes to Franchisee’s offering materials for the purposes specified above and has the right to request and receive a full indemnification from all participants in the offering before issuing Hyatt’s consent.

 

12.8 Non-Waiver of Claims. Hyatt’s consent to a transfer is not a representation of the fairness of the terms of any contract between Franchisee (or its Owners) and the transferee, a guarantee of the Hotel’s or transferee’s prospects of success, or a waiver of any claims Hyatt has against Franchisee (or its Owners) or of Hyatt’s right to demand the transferee’s full compliance with this Agreement.

 

ARTICLE XIII

 

SUCCESSOR FRANCHISE

 

13.1 Right to a Successor Franchise Agreement. When this Agreement expires:

 

  (a) if Franchisee (and each Guarantor) has substantially complied with this Agreement during its Term;

 

  (b) if Franchisee and its Owners then meet Hyatt’s then applicable standards for franchisees and owners of franchisees of Hyatt Place Hotels;

 

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  (c) if Franchisee received passing Quality Assurance Scores (as defined in the Manual) on all evaluations conducted during the preceding three (3)-year period;

 

  (d) if Franchisee (and each Guarantor) is, both on the date Franchisee gives Hyatt written notice of Franchisee’s election to exercise the Successor Franchise Right (as defined below) and on the date on which the term of the successor franchise commences, in full compliance with this Agreement, including all System Standards; and

 

  (e) provided that (i) Franchisee maintains possession of and agrees (regardless of cost) to renovate, remodel, and/or expand the Hotel (which may include structural alterations), add or replace improvements and FF&E, and otherwise modify the Hotel as Hyatt requires to comply with the Hotel System and System Standards then applicable for new similarly situated Hyatt Place Hotels (subject to Reasonable Deviations), or (ii) at Franchisee’s option, Franchisee secures a substitute site that Hyatt approves and constructs and develops that site according to the Hotel System and System Standards then applicable for new similarly situated Hyatt Place Hotels (subject to Reasonable Deviations),

 

Hyatt will offer Franchisee the right to enter into a successor franchise agreement to operate the Hotel as a Hyatt Place Hotel for a term commencing immediately upon the expiration of this Agreement and expiring ten (10) years from that date (the “Successor Franchise Right”) in accordance with Section 13.3. If Franchisee (and each Guarantor) is not, both on the date Franchisee gives Hyatt written notice of Franchisee’s election to exercise the Successor Franchise Right and on the date on which the term of the successor franchise agreement is scheduled to commence, in full compliance with this Agreement, including all System Standards, Franchisee acknowledges that Hyatt need not enter into a successor franchise agreement with Franchisee, whether or not Hyatt had, or chose to exercise, the right to terminate this Agreement during its Term.

 

13.2 Grant of a Successor Franchise. Franchisee agrees to give Hyatt written notice of Franchisee’s election to exercise the Successor Franchise Right no more than twenty-one (21) months, and no less than eighteen (18) months, before this Agreement expires. Simultaneously with submitting its notice to exercise the Successor Franchise Right, Franchisee shall pay Hyatt its then current PIP fee, which is non-refundable. Hyatt agrees to give Franchisee written notice (“Hyatt’s Notice”), not more than ninety (90) days after Hyatt receives Franchisee’s notice, of Hyatt’s decision:

 

  (a) to enter into a successor franchise agreement with Franchisee (subject to the other terms and conditions of this Article XIII);

 

  (b) to enter into a successor franchise agreement with Franchisee on the condition that Franchisee corrects existing deficiencies of the Hotel or in Franchisee’s operation of the Hotel (subject to the other terms and conditions of this Article XIII); or

 

  (c) not to enter into a successor franchise agreement with Franchisee based on Hyatt’s determination that Franchisee and its Guarantors have not satisfied any one or more of the conditions in Section 13.1.

 

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If applicable, Hyatt’s Notice will:

 

(i) describe the renovation, remodeling, expansion, improvements, and/or modifications required to bring the Hotel into compliance with the Hotel System and System Standards then applicable for similarly situated new Hyatt Place Hotels (subject to Reasonable Deviations), which must be completed to Hyatt’s satisfaction at least three (3) months before the Term expires; and

 

(ii) state the actions Franchisee must take to correct operating deficiencies and the time period in which Franchisee must correct these deficiencies.

 

If Hyatt elects not to enter into a successor franchise agreement with Franchisee, Hyatt’s Notice will describe the reasons for its decision. If Hyatt elects to enter into a successor franchise agreement with Franchisee, Franchisee’s effective exercise of the Successor Franchise Right is subject to Franchisee’s full compliance with all of the terms and conditions of this Agreement through the date of its expiration, in addition to Franchisee’s compliance with the obligations described in Hyatt’s Notice.

 

If Hyatt’s Notice states that Franchisee must cure certain deficiencies of the Hotel or its operation as a condition to Hyatt’s entering into a successor franchise agreement with Franchisee, Hyatt will give Franchisee written notice of Hyatt’s decision not to enter into a successor franchise agreement with Franchisee, based upon Franchisee’s failure to cure those deficiencies, at least ninety (90) days before this Agreement expires. However, Hyatt need not give Franchisee this ninety (90) days’ notice if Hyatt decides not to enter into a successor franchise agreement with Franchisee due to Franchisee’s breach of this Agreement during the ninety (90)-day period before it expires. If Hyatt fails to give Franchisee:

 

(1) notice of deficiencies in the Hotel, or in Franchisee’s operation of the Hotel, within ninety (90) days after Hyatt receives Franchisee’s timely election to exercise the Successor Franchise Right (if Hyatt elects to enter into a successor franchise agreement with Franchisee under subparagraphs (b) and (ii) above); or

 

(2) notice of Hyatt’s decision not to enter into a successor franchise agreement with Franchisee at least ninety (90) days before this Agreement expires, if this notice is required,

 

Hyatt may unilaterally extend the Term for the time period necessary to give Franchisee either reasonable time to correct deficiencies or the ninety (90) days’ notice of Hyatt’s refusal to grant a successor franchise. If Franchisee fails to notify Hyatt of Franchisee’s election to enter into a successor franchise agreement within the prescribed time period, Hyatt will deem this to be Franchisee’s decision not to exercise the Successor Franchise Right or enter into a successor franchise agreement with Hyatt.

 

13.3 Agreements/Releases. If Franchisee satisfies all of the other conditions for a successor franchise agreement, Franchisee and its Owners (as applicable) agree to sign the form of franchise agreement and any ancillary agreements Hyatt then customarily uses in granting franchises for Hyatt Place Hotels (modified as necessary to reflect the fact that it is for a 

 

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successor franchise and that there will be no further renewal or successor franchise rights), which may contain provisions that differ materially from any and all of those contained in this Agreement, except that Hyatt will not charge a successor franchise fee. Franchisee and its Owners further agree to sign general releases, in a form satisfactory to Hyatt, of any and all claims against Hyatt and its owners, Affiliates, officers, directors, employees, agents, successors, and assigns. Hyatt will consider Franchisee’s or its Owners’ failure to sign these agreements and releases and to deliver them to Hyatt for acceptance and execution within thirty (30) days after their delivery to Franchisee to be an election not to enter into a successor franchise agreement.

 

ARTICLE XIV

 

DISPUTE RESOLUTION

 

14.1 Arbitration. All controversies, disputes, or claims between Hyatt (and/or its Affiliates and its and their respective owners, officers, directors, agents, and/or employees), on the one hand, and Franchisee (and/or its Affiliates and Guarantors and its and their respective owners, officers, directors, agents and/or employees), on the other hand, arising out of or related to:

 

  (a) this Agreement or any other agreement between Franchisee and Hyatt or any of its Affiliates;

 

  (b) Hyatt’s (or any of its Affiliates’) relationship with Franchisee;

 

  (c) the scope or validity of this Agreement or any other agreement between Franchisee and Hyatt or any of its Affiliates, or any provision of any of those agreements (including the validity and scope of the arbitration obligation under this Section 14.1, which Hyatt and Franchisee acknowledge is to be determined by an arbitrator, not a court); or

 

  (d) any aspect of the Hotel System or any System Standard

 

must be submitted for binding arbitration to the American Arbitration Association (the “AAA”). The arbitration proceedings will be conducted by one (1) arbitrator and, except as this Section 14.1 otherwise provides, according to the AAA’s then current commercial arbitration rules. The arbitrator must be a licensed attorney, have hotel industry experience, and be listed on the AAA’s National Roster of Neutrals (or such other equivalent replacement roster of experienced arbitrators that the AAA designates). All proceedings will be conducted at a suitable location chosen by the arbitrator that is within ten (10) miles of Hyatt’s then current principal business address. All matters relating to arbitration will be governed by the Federal Arbitration Act (9 U.S.C. Sections 1 et seq.) and not by any state arbitration law.

 

The arbitrator has the right to award any relief that he or she deems proper, including money damages (with interest on unpaid amounts from the date due), specific performance, injunctive relief, and attorneys’ fees and costs, provided that the arbitrator may not declare any Proprietary Mark generic or otherwise invalid or, except as expressly provided in Section 14.5 below, award any punitive, exemplary, or treble or other forms of multiple damages against either party (Hyatt and Franchisee hereby waiving to the fullest extent permitted by law, except 

 

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as expressly provided in Section 14.5 below, any right to or claim for any punitive, exemplary, and treble and other forms of multiple damages against the other). The award of the arbitrator shall be conclusive and binding upon all parties hereto and judgment upon the award may be entered in any court of competent jurisdiction.

 

Hyatt and Franchisee agree to be bound by the provisions of any limitation on the period of time in which claims must be brought under applicable law or this Agreement, whichever expires earlier. Hyatt and Franchisee further agree that, in any arbitration proceeding, each must submit or file any claim that would constitute a compulsory counterclaim (as defined by the Federal Rules of Civil Procedure) within the same proceeding as the claim to which it relates. Any claim that is not submitted or filed as required is forever barred. The arbitrator may not consider any settlement discussions or offers that might have been made by either Franchisee or Hyatt.

 

Hyatt and Franchisee agree that arbitration will be conducted on an individual, not a class-wide, basis; that only Hyatt (and/or its Affiliates and its and their respective owners, officers, directors, agents, and/or employees, as applicable) and Franchisee (and/or its Guarantors and Affiliates and its and their respective owners, officers, directors, agents and/or employees, as applicable) may be the parties to any arbitration proceedings described in this Section 14.1; and that an arbitration proceeding between Hyatt (and/or its Affiliates and its and their respective owners, officers, directors, agents, and/or employees) and Franchisee (and/or its Guarantors and Affiliates and its and their respective owners, officers, directors, agents and/or employees) may not be consolidated with any other arbitration proceeding between Hyatt and any other person. Notwithstanding the foregoing or anything to the contrary in this Section 14.1 or Section 18.2, if any court or arbitrator determines that all or any part of the preceding sentence is unenforceable with respect to a dispute that otherwise would be subject to arbitration under this Section 14.1, then all parties agree that this arbitration clause shall not apply to that dispute and that such dispute shall be resolved in a judicial proceeding in accordance with this Article XIV (excluding this Section 14.1).

 

Despite Hyatt’s and Franchisee’s agreement to arbitrate, Hyatt and Franchisee each have the right in a proper case to seek temporary restraining orders and temporary or preliminary injunctive relief from a court of competent jurisdiction; provided, however, that Hyatt and Franchisee must contemporaneously submit the dispute for arbitration on the merits as provided in this Article XIV. The provisions of this Section 14.1 are intended to benefit and bind certain third party non-signatories and will continue in full force and effect subsequent to and notwithstanding this Agreement’s expiration or termination.

 

14.2 Governing Law. All matters relating to arbitration will be governed by the Federal Arbitration Act (9 U.S.C. Sections 1 et seq.). Except to the extent governed by the Federal Arbitration Act, the United States Trademark Act of 1946 (Lanham Act, 15 U.S.C. Sections 1051 et seq.) or other federal law, this Agreement, the franchise, and all claims arising from the relationship between Hyatt (and/or any of its Affiliates) and Franchisee will be governed by the laws of the State of Illinois, without regard to its conflict of laws rules, except that any Illinois law regulating the offer or sale of franchises, business opportunities, or similar interests, or governing the relationship between a franchisor and a franchisee or any similar 

 

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relationship, will not apply unless its jurisdictional requirements are met independently without reference to this Section 14.2.

 

14.3 Consent to Jurisdiction. Subject to the parties’ arbitration obligations and the provisions below, Franchisee and its Owners agree that all actions arising under this Agreement or otherwise as a result of the relationship between Franchisee and Hyatt (and/or any of its Affiliates) must be commenced in the state or federal court of general jurisdiction closest to Hyatt’s then current principal business address, and Franchisee (and each Owner) irrevocably submits to the jurisdiction of those courts and waives any objection Franchisee (or the Owner) might have to either the jurisdiction of or venue in those courts. Nonetheless, Franchisee and its Owners agree that Hyatt may enforce this Agreement and any arbitration orders and awards in the courts of the state or states in which Franchisee (or any of its Owners) is domiciled or the Hotel is located.

 

14.4 Attorneys’ Fees. If either party initiates a formal legal proceeding under or relating to this Agreement, the non-prevailing party in that proceeding (as determined by the judge or arbitrator, as applicable) must reimburse the prevailing party for all of the prevailing party’s costs and expenses that it incurs, including reasonable accounting, attorneys’, arbitrators’, and related fees.

 

14.5 Waiver Of Punitive Damages And Jury Trial. EXCEPT FOR THE INDEMNIFICATION OBLIGATIONS FOR THIRD PARTY CLAIMS UNDER SECTIONS 8.3 AND 8.4, AND EXCEPT FOR PUNITIVE, EXEMPLARY, AND TREBLE AND OTHER FORMS OF MULTIPLE DAMAGES AVAILABLE TO EITHER PARTY UNDER FEDERAL LAW, HYATT AND FRANCHISEE (AND FRANCHISEE’S OWNERS) WAIVE TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHT TO OR CLAIM FOR ANY PUNITIVE, EXEMPLARY, AND TREBLE AND OTHER FORMS OF MULTIPLE DAMAGES AGAINST THE OTHER AND AGREE THAT, IN THE EVENT OF A DISPUTE BETWEEN HYATT AND FRANCHISEE (AND/OR FRANCHISEE’S OWNERS), THE PARTY MAKING A CLAIM WILL BE LIMITED TO EQUITABLE RELIEF AND TO RECOVERY OF ANY ACTUAL DAMAGES IT SUSTAINS.

 

SUBJECT TO THE PARTIES’ ARBITRATION OBLIGATIONS, HYATT AND FRANCHISEE (AND FRANCHISEE’S OWNERS) IRREVOCABLY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM, WHETHER AT LAW OR IN EQUITY, BROUGHT BY EITHER HYATT OR FRANCHISEE.

 

14.6 Limitations of Claims. EXCEPT FOR CLAIMS ARISING FROM FRANCHISEE’S NON-PAYMENT OR UNDERPAYMENT OF AMOUNTS FRANCHISEE OWES HYATT OR ANY OF ITS AFFILIATES, ANY AND ALL CLAIMS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR HYATT’S (OR ANY OF ITS AFFILIATES’) RELATIONSHIP WITH FRANCHISEE WILL BE BARRED UNLESS A LEGAL PROCEEDING (IN THE REQUIRED OR PERMITTED FORUM) IS COMMENCED WITHIN EIGHTEEN (18) MONTHS FROM THE DATE ON WHICH THE PARTY ASSERTING THE CLAIM KNEW OR SHOULD HAVE KNOWN OF THE FACTS GIVING RISE TO THE CLAIMS.

 

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ARTICLE XV

 

DEFAULT AND TERMINATION

 

15.1 Termination by Hyatt After Opportunity to Cure. Hyatt has the right to terminate this Agreement, effective on the date stated in Hyatt’s written notice (or the earliest date permitted by applicable law), if:

 

  (a) Franchisee fails to pay Hyatt or any of its Affiliates any fees or other amounts due under this Agreement or any other agreement between Franchisee and Hyatt or any of its Affiliates and does not cure that default within ten (10) days after delivery of Hyatt’s written notice of default to Franchisee;

 

  (b) Franchisee fails to pay when due any financial obligation to a Provider and does not cure that default within thirty (30) days after delivery of Hyatt’s written notice of default to Franchisee;

 

  (c) Franchisee fails to begin or continue the construction or renovation of the Hotel in accordance with the timeline set forth in Article II, or fails to open the Hotel on or before the Opening Deadline (as extended pursuant to Section 2.3.1, if applicable), and does not cure that default within thirty (30) days after delivery of Hyatt’s written notice of default to Franchisee;

 

  (d) Franchisee fails to comply with any other provision of this Agreement, the Manual, any aspect of the Hotel System or any System Standard and does not cure that default within thirty (30) days after delivery of Hyatt’s written notice of default to Franchisee;

 

  (e) Franchisee fails to comply with any other agreement with Hyatt or its Affiliates relating to the Hotel and does not cure that default within thirty (30) days (or such shorter time period that the other agreement specifies for curing that default) after delivery of Hyatt’s written notice of default to Franchisee;

 

  (f) Franchisee fails to send Hyatt a copy of the recorded deed, an executed lease for at least the Term, or other evidence satisfactory to Hyatt of Franchisee’s right to control the Hotel’s premises before Franchisee begins construction or any material renovation of the Hotel or within ten (10) days after Hyatt’s request for such information or materials;

 

  (g) Franchisee does not buy, maintain, or send Hyatt evidence of required insurance coverage and does not cure that default within ten (10) days after delivery of Hyatt’s written notice of default to Franchisee;

 

  (h) Franchisee fails to pay when due any federal or state income, service, sales, or other taxes due on the Hotel’s operation and does not cure that default within thirty (30) days after delivery of Hyatt’s written notice of default to Franchisee, unless Franchisee is in good faith contesting its liability for those taxes or has received an

 

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extension from the applicable government agency of the time within which to make such payments;

 

  (i) Franchisee fails to provide the financial statements and other documents described in Section 7.2.2 when due and does not cure that default within thirty (30) days after Hyatt delivers written notice of the default to Franchisee; or

 

  (j) Franchisee fails to ensure that at least one Guarantor satisfies the Guarantor Net Worth Threshold and does not cure that default (by providing the financial statements and other documents described in Section 7.2.2 demonstrating that at least one Guarantor then satisfies the Guarantor Net Worth Threshold) within sixty (60) days after Hyatt delivers written notice of the default to Franchisee.

 

15.2 Termination by Hyatt Without Opportunity to Cure. Hyatt may terminate this Agreement immediately, without giving Franchisee an opportunity to cure the default, effective upon delivery of written notice to Franchisee (or such later date as required by law), if:

 

  (a) Franchisee or any Guarantor admits its inability to pay its debts as they become due or makes a general assignment for the benefit of creditors; suffers an action to dissolve or liquidate Franchisee or any Guarantor; commences or consents to any case, proceeding, or action seeking reorganization, arrangement, adjustment, liquidation, dissolution, or composition of debts under any law relating to bankruptcy, insolvency, reorganization, or relief of debtors; suffers an appointment of a receiver, trustee, custodian, or other official for any portion of its property or the Hotel; takes any corporate or other action to authorize any of the actions set forth above in this Section 15.2(a); has any case, proceeding, or other action commenced against it as debtor seeking an order for relief, or seeking reorganization, arrangement, adjustment, liquidation, dissolution, or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization, or relief of debtors, or seeking appointment of a receiver, trustee, custodian, or other official for it or any portion of its property or the Hotel, and such case, proceeding, or other action results in an order for relief against it that is not fully stayed within seven (7) business days after being entered or remains un-dismissed for forty-five (45) days; has an attachment of Fifty Thousand Dollars ($50,000) or more on all or any part of the Hotel or any of its assets that remains for at least ninety (90) days; or fails, within sixty (60) days after the entry of a final judgment against it in any amount exceeding One Hundred Thousand Dollars ($100,000), to discharge, vacate, or reverse the judgment, to stay its execution, or, if appealed, to discharge the judgment within thirty (30) days after a final adverse decision in the appeal;

 

  (b) Franchisee ceases constructing and/or operating the Hotel at the Site under the Proprietary Marks, or loses possession or the right to possess all or a significant part of the Hotel, for any reason except as otherwise provided in this Agreement;

 

  (c) Franchisee or any of its Affiliates contests in any court or other Proceeding all or any portion of Hyatt’s or its Affiliate’s ownership of the Hotel System or the validity of any Proprietary Mark, Copyrighted Materials, or Confidential

 

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Information, or registers or attempts to register any Proprietary Mark or a derivative thereof;

 

  (d) Franchisee (or any of its Owners) makes a transfer in violation of Article XII;

 

  (e) Franchisee fails to identify the Hotel to the public as a Hyatt Place Hotel or discontinues operating the Hotel as a Hyatt Place Hotel, and it is not unreasonable for Hyatt under the facts and circumstances to conclude that Franchisee does not intend to continue to operate the Hotel under the Proprietary Marks;

 

  (f) Franchisee or any of its Owners or Guarantors is, or is discovered to have been, convicted of a felony or enters or is discovered to have entered a plea of no contest to a felony;

 

  (g) Franchisee or any of its Owners or Guarantors commits any action or any other offense likely in Hyatt’s reasonable opinion to reflect materially adversely upon Hyatt, the Hotel System, or the Proprietary Marks, including any violation of laws or regulations relating to discrimination, equal employment, or equal opportunity;

 

  (h) Franchisee knowingly maintains false books and records of account or knowingly submits false or misleading reports or information to Hyatt, including any information Franchisee provides or fails to provide on its franchise application;

 

  (i) Franchisee (or any of its Owners) knowingly makes any unauthorized use or disclosure of any part of the Manual or any other Confidential Information;

 

  (j) Hyatt determines that a serious threat or danger to public health or safety results from the construction, maintenance, or operation of the Hotel, such that an immediate shutdown of the Hotel or construction site is necessary to avoid a substantial liability or loss of goodwill to the Hotel System;

 

  (k) Hyatt exercises its right to terminate this Agreement pursuant to Section 10.1 or 10.2;

 

  (l) Franchisee violates any law, ordinance, or regulation and does not begin to cure the violation immediately after receiving notice from Hyatt or any other party and to complete the cure as soon as is reasonably practicable or within the timeframe allowed by law, whichever is shorter;

 

  (m) Franchisee (1) fails on three (3) or more separate occasions within any twelve (12) consecutive month period to comply with this Agreement, whether the failures relate to the same or different obligations under this Agreement and whether or not Franchisee corrects the failures after Hyatt’s delivery of notice to Franchisee; or (2) fails on two (2) or more separate occasions within any six (6) consecutive month period to comply with the same obligation under this Agreement, whether or not Franchisee corrects the failures after Hyatt’s delivery of notice to Franchisee; or

 

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  (n) Franchisee’s or any of its Owners’ assets, property, or interests are blocked under any Anti-Terrorism Law, or Franchisee or any of its Owners otherwise violate any Anti-Terrorism Law.

 

15.3 Suspension of Rights and Services. Franchisee acknowledges that, upon Franchisee’s failure to remedy any default specified in any written notice issued to Franchisee under Section 15.1 (following any cure period specified for such default in Section 15.1) or Section 15.2, Hyatt has the right, until Franchisee remedies such default to Hyatt’s satisfaction, to (a) suspend Franchisee’s right to use, and Franchisee’s access to, the CRS, the GDS and ADS, and any advertising materials and programs that Hyatt makes available; (b) remove the Hotel from Hyatt’s advertising publications and programs and/or the National Directory; (c) suspend or terminate any temporary or other fee reductions to which Hyatt might have agreed in this Agreement or any amendment(s) to this Agreement; and/or (d) refuse to provide any operational support that this Agreement otherwise requires, including other information technology and network services. If Hyatt suspends Franchisee from the CRS, Hyatt has the right to divert reservations previously made for the Hotel to other Hyatt Place Hotels or Hyatt-affiliated hotels. Hyatt will exercise its right to suspend Franchisee’s rights only after Franchisee’s cure period (if any) under the written notice of default has expired. Hyatt’s exercise of this right will not constitute an actual or constructive termination of this Agreement nor be Hyatt’s sole and exclusive remedy for Franchisee’s default. If Hyatt exercises its right not to terminate this Agreement but to implement any remedies in this Section 15.3, Hyatt may at any time after the appropriate cure period under the written notice has lapsed (if any) terminate this Agreement without giving Franchisee any additional corrective or cure period. During any suspension period, Franchisee must continue to pay all fees and other amounts due under, and otherwise comply with, this Agreement and all related agreements. Hyatt’s election to suspend Franchisee’s rights as provided above will not be a waiver by Hyatt of any breach of this Agreement. If Hyatt rescinds any suspension of Franchisee’s rights, Franchisee will not be entitled to any compensation, including repayment, reimbursement, refunds, or offsets, for any fees, charges, expenses, or losses Franchisee might have incurred due to Hyatt’s exercise of any suspension right provided above.

 

15.4 General Provisions Concerning Default and Termination. In any arbitration or other proceeding in which the validity of Hyatt’s or Franchisee’s termination of this Agreement or Hyatt’s refusal to enter into a successor franchise agreement is contested, Hyatt and Franchisee may cite and rely upon all of the other’s (and any Guarantor’s) defaults or violations of this Agreement, not only the defaults or violations referenced in any written notice. No notice of termination or refusal to enter into a successor franchise agreement will relieve either Hyatt or Franchisee of its obligations that survive termination of this Agreement, including its de-identification, indemnification, and liquidated damages payment obligations. Franchisee agrees that Hyatt has the right and authority (but not the obligation) to notify Franchisee’s Lender and any or all of Franchisee’s Owners, creditors and/or suppliers if Franchisee is in default under, or Hyatt has terminated, this Agreement.

 

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ARTICLE XVI

 

RIGHTS AND OBLIGATIONS UPON EXPIRATION OR TERMINATION

 

16.1 De-Identification. Beginning on the date upon which this Agreement terminates or expires, Franchisee must immediately cease using the Hotel System and begin to de-identify the Hotel by taking whatever action Hyatt deems necessary to ensure that the Hotel no longer is identified as a Hyatt Place Hotel. Franchisee agrees to take the following steps, among other actions that Hyatt then specifies, to de-identify the Hotel:

 

  (a) return to Hyatt the Manual, all other Copyrighted Materials, and all materials containing Confidential Information or bearing any of the Proprietary Marks, and cease using all such items;

 

  (b) remove all structures and items identifying the Hotel System, including all elements of the trade dress (for example, the edge design on the Hotel’s roof line) and other distinctive features, devices, and/or items associated with the Hotel System, such as (for example) FF&E that is uniquely identified with a Hyatt Place Hotel and/or other Hyatt-affiliated hotels, interior signage, lobby signage, door identifier signage, directional signage, phone face plates, memo pads, pens, cups, glasses, signage on the back of guest room doors, and all other signage bearing one or more of the Proprietary Marks. With respect to the Hotel’s exterior signage, Franchisee must (i) immediately schedule the permanent removal of all exterior signage bearing any of the Proprietary Marks and give Hyatt written evidence of that schedule, (ii) immediately cover all exterior signage in a professional manner, and (iii) permanently remove all exterior signage within thirty (30) days after this Agreement expires or terminates. In addition, Franchisee must make at its expense such specific additional changes that Hyatt reasonably requests to de-identify the Hotel;

 

  (c) change the Hotel’s telephone listing and immediately stop answering the telephone in any way that would lead a current or prospective customer, vendor, or other person to believe that the Hotel still is associated with the Hotel System or Hyatt;

 

  (d) stop all uses of the Proprietary Marks on any Franchisee Organization Website and require all third party Websites to remove any references that directly or indirectly associate the Hotel with the Proprietary Marks;

 

  (e) cancel all fictitious, assumed, or other business name registrations relating to Franchisee’s use of the Proprietary Marks; and

 

  (f) permit Hyatt’s representatives to enter the Hotel on no less than twenty- four (24) hours’ prior notice to conduct inspections on a periodic basis until de- identification is completed to Hyatt’s satisfaction.

 

Beginning on the date upon which this Agreement terminates or expires and continuing until de-identification is completed to Hyatt’s satisfaction, Franchisee must maintain a conspicuous sign at the registration desk in a form that Hyatt specifies stating that the Hotel no longer is associated with the Hotel System. Franchisee and its Affiliates may not, without

 

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Hyatt’s permission, represent to Hotel customers, prospective customers or the public that the Hotel is or was a Hyatt Place Hotel, or otherwise hold itself out to the public as a former franchisee of Hyatt’s or as the former operator of a Hyatt Place Hotel, except in the limited case of informing investors, prospective investors, or lenders that Franchisee has general experience in operating a Hyatt Place Hotel. Franchisee acknowledges that the de-identification process is intended to alert the public immediately that the Hotel is not affiliated with the Hotel System. Subject to the terms of Subsection (b) above with respect to exterior signage, Franchisee shall complete all de-identification obligations under this Section 16.1 to Hyatt’s satisfaction, and provide a written certification to Hyatt indicating such completion, on or before the date which is fifteen (15) days after this Agreement terminates or expires.

 

If Franchisee fails to comply strictly with all of the de-identification provisions in this Section 16.1, Franchisee agrees to: (i) pay Hyatt a royalty fee of Five Thousand Dollars ($5,000) per day until de-identification is completed to Hyatt’s satisfaction; and (ii) permit Hyatt’s representatives to enter the Hotel to complete the de-identification process at Franchisee’s expense. Franchisee agrees to pay all of Hyatt’s costs and expenses of enforcing these de-identification provisions, including all attorneys’ fees and costs. Nothing in this Section 16.1 or this Agreement limits Hyatt’s rights or remedies at law or in equity if Franchisee does not complete the de-identification procedures as provided above, including Hyatt’s right to seek and obtain an injunction to remove or cause to be removed, at Franchisee’s sole cost and expense, all signage from the Hotel.

 

16.2 Pay Amounts Owed. Unless otherwise provided in this Agreement, within five (5) days after the termination or expiration of this Agreement, Franchisee must pay all amounts owed to Hyatt and its Affiliates under this Agreement or any other agreement.

 

16.3 Contacting Customers. Upon this Agreement’s termination or expiration for any reason, Hyatt has the right to contact those individuals or entities who have reserved rooms with Franchisee through the CRS, and any other Hotel customers, and inform them that Franchisee’s lodging facility no longer is part of the Hotel System. Hyatt also has the right to inform those individuals, entities and customers of other Hyatt Place Hotels and Hyatt-affiliated hotels that are proximately located to Franchisee’s lodging facility in case they prefer to change their reservations so that they can stay at a Hyatt-affiliated hotel. Hyatt’s exercise of these rights will not constitute an interference with Franchisee’s contractual or business relationship. Franchisee acknowledges that the individuals and entities that made reservations with Franchisee’s lodging facility when it was a Hotel under this Agreement constitute Hyatt’s customers.

 

16.4 Survival. The following provisions of this Agreement shall survive termination or expiration of this Agreement regardless of the circumstances: Sections 4.10 (second paragraph), 6.5, 7.4, 8.1, 8.3, 8.4, 10.1.2 (last three (3) sentences), 10.1.3, 10.2 (last paragraph), 11.1, 11.5, 11.6 and 15.4 and Articles IX, XIV, XVI, XVII and XVIII. Additionally, all of Franchisee’s covenants, obligations, and agreements that by their terms or by implication are to be performed after the termination or expiration of the Term shall survive such termination or expiration.

 

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16.5 Liquidated Damages. Franchisee acknowledges and confirms that Hyatt will suffer substantial damages as a result of the termination of this Agreement before the Term expires. Some of those damages include lost Royalty Fees, lost Contributions, lost market penetration and goodwill, loss of Hotel System representation in the Hotel’s market area, confusion of national accounts and individual customers, disadvantage in competing for national accounts and other types of bookings for Hyatt Place Hotels, lost opportunity costs, and expenses that Hyatt will incur in developing or finding another franchisee to develop another Hyatt Place Hotel in the Hotel’s market area (collectively, “Brand Damages”). Hyatt and Franchisee acknowledge that Brand Damages are difficult to estimate accurately and proof of Brand Damages would be burdensome and costly, although such damages are real and meaningful to Hyatt. Therefore, upon termination of this Agreement before the Term expires for any reason (subject to Article X), Franchisee agrees to pay Hyatt, within fifteen (15) days after the date of such termination, liquidated damages in a lump sum as calculated below.

 

If the Hotel had opened for business before the effective date of termination, the liquidated damages payable under this Section 16.5 shall be equal to the greater of:

 

  (a) Four Thousand Dollars ($4,000) multiplied by the number of approved guest rooms at the Hotel; or

 

  (b) the product of either thirty-six (36) or the number of months then remaining in the Term as of the effective date of termination, whichever is shorter, multiplied by the average monthly Royalty Fees and Contributions that Franchisee owed Hyatt during the twelve (12)-month period before the month of termination (or for such lesser period that the Hotel has been open, if less than twelve (12) months).

 

If the Hotel (or a Relocated Hotel under Section 10.1) had not yet opened for business as of the effective date of termination, then the liquidated damages payable under this Section 16.5 shall be equal to Four Thousand Dollars ($4,000) multiplied by the number of approved guest rooms at the Hotel.

 

Notwithstanding any temporary fee reductions to which Hyatt might have agreed in this Agreement or an amendment to this Agreement, all liquidated damages calculations based on monthly fees shall be calculated on the full (and not the discounted) monthly Royalty Fees and Contributions required under this Agreement as of the Effective Date. Franchisee agrees that the liquidated damages calculated under this Section 16.5 represent the best estimate of Hyatt’s Brand Damages arising from any termination of this Agreement before the Term expires. Franchisee’s payment of the liquidated damages to Hyatt will not be considered a penalty but, rather, a reasonable estimate of fair compensation to Hyatt for the Brand Damages Hyatt will incur because this Agreement did not continue for the Term’s full length.

 

Franchisee acknowledges that Franchisee’s payment of liquidated damages is full compensation to Hyatt only for the Brand Damages resulting from the early termination of this Agreement and is in addition to, and not in lieu of, Franchisee’s obligations to pay other amounts due to Hyatt under this Agreement as of the date of termination and to comply strictly with the de-identification procedures of Section 16.1 and Franchisee’s other post-termination obligations.

 

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If any valid law or regulation governing this Agreement limits Franchisee’s obligation to pay, and Hyatt’s right to receive, the liquidated damages for which Franchisee is obligated under this Section 16.5, then Franchisee shall be liable to Hyatt for any and all Brand Damages Hyatt incurs, now or in the future, as a result of Franchisee’s breach of this Agreement.

 

ARTICLE XVII

 

NOTICES

 

All written notices, reports, and payments permitted or required to be delivered by this Agreement or the Manual will be deemed to be delivered: (a) at the time delivered by hand; (b) at the time delivered via computer transmission if the sender has confirmation of a successful transmission, and, in the case of the Royalty Fees, Contributions, and other amounts due, at the time Hyatt actually receives payment via EFT; (c) one (1) business day after transmission by facsimile or other electronic system if the sender has confirmation of successful transmission; (d) one (1) business day after being placed in the hands of a nationally recognized commercial courier service for next business day delivery; or (e) three (3) business days after placement in the United States Mail by Certified Mail, Return Receipt Requested, postage prepaid. Any notice to Hyatt must be sent to the address specified below, although Hyatt may change this address for notice by giving Franchisee thirty (30) days’ prior notice by any of the means specified in subparagraphs (a) through (e) above. Any notice that Hyatt sends Franchisee may be sent to the one (1) person identified below, even if Franchisee has multiple Owners, at the address specified below. Franchisee may change the person and/or address for notice only by giving Hyatt thirty (30) days’ prior notice by any of the means specified in subparagraphs (a) through (e) above.

 

	Notices to 

Hyatt: 	Hyatt Place Franchising, L.L.C. 

71 South Wacker Drive, 12th Floor 

Chicago, Illinois 60606 

Attention: Senior Vice President	 	Notices to

Franchisee: 	Moody National HP G-Town MT, LLC

636 Woodway, Suite 110

Houston, TX 77057 

Attention: Brett C. Moody

 

Any required payment or report that Hyatt does not actually receive during regular business hours on the date due will be deemed delinquent. Notices delivered via the means specified above will be deemed delivered as of the times specified above whether or not Hyatt or Franchisee accepts delivery.

 

ARTICLE XVIII

 

GENERAL

 

18.1 The Exercise of Hyatt’s Judgment. Hyatt has the right from time to time to develop, operate, and change the Hotel System and System Standards in any manner not specifically prohibited by this Agreement. Whenever Hyatt has reserved in this Agreement a right to take or to withhold an action, or to grant or decline to grant Franchisee the right to take or omit an action, Hyatt may, except as otherwise specifically provided in this Agreement, make its decision or exercise its rights based on information readily available to it and its judgment of 

 

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what is in the best interests of Hyatt and its Affiliates, the Hyatt Place Hotel network generally, or the Hotel System at the time its decision is made, without regard to whether Hyatt could have made other reasonable or even arguably preferable alternative decisions or whether its decision promotes Hyatt’s (or its Affiliates’) financial or other individual interest.

 

18.2 Severability and Interpretation. Except as expressly provided to the contrary in this Agreement (including in Section 14.1), each section, subsection, paragraph, term, and provision of this Agreement is severable, and if, for any reason, any part is held to be invalid or contrary to or in conflict with any applicable present or future law or regulation in a final, unappealable ruling issued by any court, agency, or tribunal with competent jurisdiction, that ruling will not impair the operation of, or otherwise affect, any other portions of this Agreement, which will continue to have full force and effect and bind the parties. If any applicable and binding law or rule of any jurisdiction requires more notice than this Agreement requires of this Agreement’s termination or of Hyatt’s refusal to offer Franchisee the Successor Franchise Right, or some other action that this Agreement does not require, or if, under any applicable and binding law or rule of any jurisdiction, any provision of this Agreement or any System Standard is invalid, unenforceable, or unlawful, the notice and/or other action required by the law or rule will be substituted for the comparable provisions of this Agreement, and Hyatt may modify the invalid or unenforceable provision or System Standard to the extent required to be valid and enforceable or delete the unlawful provision in its entirety. Franchisee agrees to be bound by any promise or covenant imposing the maximum duty the law permits that is subsumed within any provision of this Agreement, as though it were separately articulated in and made a part of this Agreement.

 

18.3 Waiver of Obligations and Force Majeure. Hyatt and Franchisee may unilaterally waive or reduce any obligation of or restriction upon the other under this Agreement only by a signed written instrument, effective upon delivery of written notice to the other or another effective date stated in the notice of waiver. Any waiver granted will be without prejudice to any other rights Hyatt or Franchisee have, will be subject to continuing review, and may be revoked at any time and for any reason effective upon delivery of ten (10) days’ prior written notice.

 

Hyatt and Franchisee will not waive or impair any right, power, or option this Agreement reserves (including Hyatt’s right to demand compliance with every term, condition, and covenant or to declare any breach to be a default and to terminate this Agreement before the Term expires) because of any custom or practice that varies from this Agreement’s terms; Hyatt’s or Franchisee’s failure, refusal, or neglect to exercise any right under this Agreement or to insist upon the other’s compliance with this Agreement, including any System Standard; Hyatt’s waiver of or failure to exercise any right, power, or option, whether of the same, similar, or different nature, with other Hyatt Place Hotels; the existence of franchise agreements for other Hyatt Place Hotels that contain provisions differing from those contained in this Agreement; or Hyatt’s acceptance of any payments due from Franchisee after any breach of this Agreement. No special or restrictive legend or endorsement on any check or similar item given to either party will be a waiver, compromise, settlement, or accord and satisfaction. The receiving party is authorized to remove any legend or endorsement, and it will have no effect.

 

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Neither Hyatt nor Franchisee will be liable for loss or damage or be in breach of this Agreement, including Franchisee’s obligations to develop and open the Hotel under Article II, if Hyatt’s or Franchisee’s failure to perform their respective obligations results from Force Majeure. Any delay resulting from Force Majeure will extend performance accordingly or excuse performance, in whole or in part, as may be reasonable, except that Force Majeure will not excuse payments of amounts owed at the time of the occurrence or payment of Royalty Fees, Contributions or other payments due afterward.

 

18.4 Binding Effect.  This Agreement is valid when signed by Franchisee and signed and accepted by Hyatt at its office in Chicago, Illinois.

 

18.5 Entire Agreement and Construction. This Agreement is binding upon Hyatt and Franchisee and their respective executors, administrators, heirs, beneficiaries, permitted assigns, and successors in interest. Subject to Hyatt’s right to modify the Manual, the Hotel System and System Standards, this Agreement may not be modified except by a written agreement signed by both Hyatt’s and Franchisee’s duly-authorized officers. The Preliminary Statement and Exhibits, and the attached PIP (if applicable), are a part of this Agreement, which constitutes Hyatt’s and Franchisee’s entire agreement, and there are no other oral or written understandings or agreements between Hyatt and Franchisee, and no oral or written representations by Hyatt, relating to the subject matter of this Agreement, the franchise relationship, or the Hotel (any understandings or agreements reached, or any representations made, before this Agreement are superseded by this Agreement). Franchisee may not rely on any alleged oral or written understandings, agreements, or representations not contained in this Agreement. Notwithstanding the foregoing, nothing in this Agreement or any related agreement shall disclaim or require Franchisee to waive reliance on any representation that Hyatt made in the most recent franchise disclosure document (including its exhibits and amendments) that Hyatt delivered to Franchisee or its representative.

 

Any policies that Hyatt adopts and implements from time to time to guide Hyatt in its decision-making are subject to change, are not a part of this Agreement, and are not binding on Hyatt. Except as expressly provided in this Agreement, nothing in this Agreement is intended or deemed to confer any rights or remedies upon any person or legal entity not a party to this Agreement.

 

References in this Agreement to “Hyatt” with respect to all of Hyatt’s rights and all of Franchisee’s obligations to Hyatt under this Agreement include any of Hyatt’s Affiliates, and its and their successors and assigns, with whom Franchisee deals. The headings in this Agreement are for convenience only and will not control or affect the meaning or construction of any provision. Time is of the essence in this Agreement, and all provisions of this Agreement shall be so interpreted.

 

18.6 Hyatt’s Withholding of Consent.  Except where this Agreement expressly obligates Hyatt reasonably to approve or not unreasonably to withhold its approval of any of Franchisee’s actions or requests, Hyatt has the absolute right to refuse any request Franchisee makes or to withhold its approval of any of Franchisee’s proposed, initiated, or completed actions that require its approval. However, Hyatt may withhold its consent, whenever and wherever otherwise required, if Franchisee is in default under this Agreement.

 

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18.7 Cumulative Remedies. Hyatt’s and Franchisee’s rights under this Agreement are cumulative, and their exercise or enforcement of any right or remedy under this Agreement will not preclude their exercise or enforcement of any other right or remedy that they are entitled by law to enforce.

 

ARTICLE XIX 

 

ACKNOWLEDGEMENTS

 

To induce Hyatt to sign this Agreement and grant Franchisee the rights under this Agreement, Franchisee represents, warrants and acknowledges that:

 

  (a) Franchisee has independently investigated and evaluated the opportunity of investing in the hotel industry generally and specifically the Hyatt Place Hotel franchise opportunity, including the current and potential market conditions and competitive factors and risks, and recognizes that, like any other business, the nature of a Hyatt Place Hotel’s business will evolve and change over time.

 

  (b) Hyatt’s approval of the Site is not a guarantee or warranty, express or implied, of the success or profitability of a Hyatt Place Hotel operated at that location.

 

  (c) an investment in a Hyatt Place Hotel involves business risks that could result in the loss of a significant portion or all of Franchisee’s investment.

 

  (d) Franchisee’s business abilities and efforts are vital to its success.

 

  (e) retaining customers for the Hotel will require a high level of customer service and strict adherence to the Hotel System and the System Standards, and that Franchisee is committed to maintaining the System Standards.

 

  (f) except as expressly set forth in the franchise disclosure document that Hyatt delivered to Franchisee or its representative, Franchisee has not received from Hyatt, and is not relying upon, and that Hyatt expressly disclaims making, any representation, warranty or guaranty, express or implied, as to the actual or potential volume, sales, income or profits of the Hotel or any other Hyatt Place Hotel.

 

  (g) any information Franchisee has acquired from other Hyatt Place Hotel owners, including information regarding their sales, profits or cash flows, is not information obtained from Hyatt, and Hyatt makes no representation about that information’s accuracy.

 

  (h) Franchisee has no knowledge of any representations made about the Hyatt Place Hotel franchise opportunity by Hyatt, its Affiliates or any of their respective officers, directors, owners or agents that are contrary to the statements made in Hyatt’s franchise disclosure document or to the terms and conditions of this Agreement.

 

  (i) in all of their dealings with Franchisee, Hyatt’s officers, directors, employees and agents act only in a representative, and not in an individual, capacity and

 

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that business dealings between Franchisee and them as a result of this Agreement are only between Franchisee and Hyatt.

 

  (j) it is relying solely on Hyatt, and not on any Affiliate of Hyatt, with regard to Hyatt’s financial and other obligations under this Agreement, and no employee or other person speaking on behalf of, or otherwise representing, Hyatt has made any statement or promise to the effect that Hyatt’s Affiliates guarantee Hyatt’s performance or financially back Hyatt.

 

  (k) all statements Franchisee has made and all materials (including ownership information and descriptions of Franchisee’s and/or its Affiliates’ ownership structure(s)) it has given Hyatt in acquiring the rights under this Agreement are accurate and complete and that Franchisee has made no misrepresentations or material omissions in obtaining those rights.

 

  (l) Franchisee has read this Agreement and Hyatt’s franchise disclosure document and understands and accepts that the terms and covenants in this Agreement are reasonable and necessary for Hyatt to maintain its high standards of quality and service, and to protect and preserve the goodwill of the Proprietary Marks.

 

  (m) Franchisee has been afforded an opportunity to ask any questions it has and to review any appropriate materials of interest to Franchisee concerning the Hyatt Place Hotel franchise opportunity.

 

  (n) Franchisee has been afforded an opportunity, and Hyatt has encouraged Franchisee, to have this Agreement and all other agreements and materials that Hyatt has given or made available to Franchisee reviewed by an attorney and has either done so or intentionally chosen not to do so.

 

  (o) Franchisee has a net worth that is sufficient to make the investment in the Hyatt Place Hotel franchise opportunity represented by this Agreement, and Franchisee will have sufficient funds to meet all of Franchisee’s obligations under this Agreement.

 

  (p) any statements, oral or written, by Hyatt or its agents before the execution of this Agreement were for informational purposes only and do not constitute any representation or warranty by Hyatt, and Hyatt’s only representations, warranties, and obligations are those specifically set forth in this Agreement or in the most recent franchise disclosure document (including its exhibits and amendments) that Hyatt delivered to Franchisee or its representative. Franchisee must not rely on, and the parties do not intend to be bound by, any statement or representation not contained in this Agreement or such disclosure document.

 

[Signature page follows]

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IN WITNESS WHEREOF, the parties have signed this Agreement as of the dates set forth by their signatures to be effective as of the Effective Date (regardless of the dates of the parties signatures).

 

	 	FRANCHISEE:	 
	 	 	 
	 	MOODY NATIONAL HP G-TOWN MT, LLC	 
	
 

	
By: 

	 	 
	 	 	
Brett C. Moody 

President

	 
	 	 	 	 
	 	Date:	
 APRIL 9, 2013

	 

 

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	 	FRANCHISOR:	 
	 	 	 
	 	
HYATT PLACE FRANCHISING, L.L.C.

	 
	
 

	
By: 

	 	 
	 	 	
B. Anthony Isaac 

Senior Vice President

	 
	 	 	 	 
	 	Date:	
APRIL 4, 2013

	 

 

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EXHIBIT A

to the

HYATT PLACE HOTEL FRANCHISE AGREEMENT

 

DEFINED TERMS

 

In addition to any other terms defined in this Agreement, the following terms shall have the respective meanings as indicated below.

 

“ADS” means the online travel agencies and other alternative distribution systems that Hyatt may periodically authorize or require for Franchisee’s Hotel and other similarly situated Hyatt Place Hotels (subject to Reasonable Deviations).

 

“Affiliate” means, with respect to a party, any person or entity directly or indirectly owned or controlled by, under common control with, or owning or controlling, such party. For purposes of this definition, “control” means the power to direct or cause the direction of management and policies.

 

“AOP Term” means the time period described in Exhibit B.

 

“Anti-Terrorism Laws” mean Executive Order 13224 issued by the President of the United States, the USA PATRIOT Act, and all other present and future federal, state, and local laws, ordinances, regulations, policies, lists, and other requirements of any governmental authority addressing or in any way relating to terrorist acts and acts of war.

 

“Area of Protection” means the geographic area described in Exhibit B.

 

“Brand Owner” means any entity that (a) is either a franchisor or owner of a Competing Brand (defined below), (b) manages or otherwise operates hotels exclusively for the franchisor or owner of a Competing Brand, or (c) is an Affiliate of any entity described in (a) or (b) above. A “Competing Brand” is a hotel concept that has at least five (5) hotels operating under that concept’s trade name anywhere in the world and that, in Hyatt’s reasonable opinion, competes with Hyatt Place Hotels.

 

“Confidential Information” means (a) site selection criteria; (b) the substance, design, and construction of Hyatt Place Hotels and the Design Standards; (c) training and operations materials and manuals, including the Manual; (d) methods, formats, specifications, standards, systems, procedures, sales and marketing techniques, knowledge, and experience used in developing and operating Hyatt Place Hotels; (e) marketing, advertising and promotional programs for Hyatt Place Hotels; (f) information regarding the Hotel’s guests; (g) knowledge of specifications for and suppliers of FF&E and other products and supplies that are uniquely identified with Hyatt Place Hotels and/or other Hyatt-affiliated hotels; (h) any computer software or other technology that is proprietary to Hyatt, its Affiliates or the Hotel System, including digital passwords and identifications and any source code of, and data, reports, and other printed materials generated by, the software or other technology; (i) knowledge of the operating results

 

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and financial performance of Hyatt Place Hotels other than the Hotel; and (j) graphic designs and related intellectual property.

 

“Contribution” means a contribution to the Marketing, Central Reservations and Technology Fund paid to Hyatt according to the terms of Sections 4.1 and 6.3(b) of this Agreement.

 

“Control Transfer” means any transfer (as defined in Section 12.2) of (a) this Agreement (or any interest in this Agreement), (b) the Hotel or all or substantially all of its assets, (c) a Controlling Ownership Interest in Franchisee, whether in one transaction or a series of related transactions (regardless of the time period over which these transfers take place), or (d) a Controlling Ownership Interest in any Controlling Owner (if such Owner is a legal entity), whether in one transaction or a series of related transactions (regardless of the time period over which these transfers take place).

 

“Controlling Owner” means an individual or legal entity holding a direct or indirect Controlling Ownership Interest in Franchisee.

 

“Controlling Ownership Interest” in a legal entity means, whether directly or indirectly, either (a) the record or beneficial ownership of, or right to control, fifty percent (50%) or more of the investment capital, equity, rights to receive profits or losses, or other rights to participate in the results of the entity, or (b) the effective control of the power to direct or cause the direction of that entity’s management and policies, including a general partnership interest (with respect to an entity that is a partnership) and a manager or managing member interest (with respect to an entity that is a limited liability company), or the power to appoint or remove any such party. In the case of (a) or (b), the determination of whether a “Controlling Ownership Interest” exists is made both immediately before and immediately after a proposed transfer.

 

“Copyrighted Materials” means all copyrightable materials that Hyatt or its Affiliate periodically develops and Hyatt periodically designates for use in connection with the Hotel System, including the Manual, videotapes, CDs/DVDs, marketing materials (including advertising, marketing, promotional, and public relations materials), architectural drawings (including the Design Standards and all architectural plans, designs, and layouts such as, without limitation, site, floor, plumbing, lobby, electrical, and landscape plans), building designs, and business and marketing plans, whether or not registered with the U.S. Copyright Office.

 

“Core Management” means the general manager, assistant general manager (if applicable), and sales director for the Hotel.

 

“CRS” means the central reservations system and related services for Hyatt Place Hotels, as Hyatt may periodically modify it.

 

“Design Standards” means the standards that Hyatt periodically prescribes detailing certain design criteria to be incorporated into the design and layout of the Hotel, as Hyatt determines them.

 

“Effective Date” means the date listed on page one of this Agreement, regardless of the date upon which Hyatt and Franchisee sign this Agreement.

 

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“FF&E” means all fixtures; equipment; furnishings; furniture; telephone systems; communications systems; facsimile machines; copiers; signs; property management, revenue management, in-room entertainment, and other computer and technology systems; and other similar items that Hyatt periodically specifies for the Hotel System.

 

“Force Majeure” means (a) compliance with the orders, requests, or recommendations of any federal, state, or municipal government, unless such order, request or recommendation arises because of Hyatt’s or Franchisee’s failure to comply with any applicable law, regulation or ordinance; (b) fire, flood, accident, hurricane or other calamity or act of God; (c) strikes, embargoes, war, civil disturbance, acts of terrorism or similar events; or (d) any other similar event or cause.

 

“Fund” means the Marketing, Central Reservations and Technology Fund for the Hotel System to which franchisees make Contributions.

 

“Gallery Host Stand” means the front desk and location of related operations at the Hotel.

 

“GDS” means the global distribution systems that Hyatt periodically authorizes or requires for Franchisee’s Hotel and other similarly situated Hyatt Place Hotels (subject to Reasonable Deviations).

 

“Gross Rooms Revenue” means all gross revenues attributable to or payable for the rental of guest rooms, including guaranteed no-show revenue and cancellation fees and all cash, check, barter, credit, debit, and other transactions, whether or not collected, at the actual rates charged, reduced by guest room rebates and overcharges (but only if originally included in Gross Rooms Revenue) and excluding any sales or room taxes Franchisee collects and transmits to the appropriate taxing authority. If Franchisee receives any proceeds from any business interruption insurance applicable to loss of revenue due to the non-availability of guest rooms, there shall be added to Gross Rooms Revenue an amount equal to the imputed gross revenue that the insurer used to calculate those proceeds. Gross Rooms Revenue shall be accounted for in accordance with the Uniform System of Accounts for the Lodging Industry, Tenth Edition, as published by the Educational Institute of the American Hotel and Motel Association, 2006, or a later edition that Hyatt approves.

 

“Ground Lessor” means any person or entity (including any Affiliate of Franchisee) that, directly or through one or more other people or entities, leases or subleases all or any part of the Hotel’s real property or improvements to Franchisee or that otherwise has any fee simple ownership or leasehold interest in the Site or the Hotel.

 

“Guarantor” means each individual or entity who from time to time guarantees Franchisee’s obligations under this Agreement.

 

“Guarantor Net Worth Threshold” means the minimum amount of total assets less total liabilities, each as calculated in accordance with U.S. generally accepted accounting principles, that at least one Guarantor (whether an individual or an entity) must maintain at all times during the Term. The amount of the Guarantor Net Worth Threshold as of the Effective Date is listed in Exhibit B.

 

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“Hotel” means the Hyatt Place Hotel located at the Site that Franchisee will operate pursuant to this Agreement. The Hotel includes all structures, facilities, appurtenances, FF&E, entrances, exits, and parking areas located on the Site or any other real property that Hyatt approves for Hotel expansion, signage, or other facilities.

 

“Hotel System” means the concept and system associated with the establishment and operation of Hyatt Place Hotels, as Hyatt periodically modifies it. The Hotel System now includes: (a) the Proprietary Marks; (b) all Copyrighted Materials; (c) all Confidential Information; (d) the Design Standards; (e) the CRS; (f) the required or authorized GDS and ADS; (g) the National Directory; (h) management, personnel, and operational training programs, materials, and procedures; (i) System Standards described in the Manual or in other written or electronic communications; and (j) marketing, advertising, and promotional programs.

 

“Hotel System Website” means a Website that Hyatt develops, maintains and/or authorizes for all or substantially all of the Hyatt Place Hotel network (and, at Hyatt’s option, other Hyatt-affiliated Hotels). The National Directory may be part of the Hotel System Website.

 

“Include” and “including,” whenever used in this Agreement, whether capitalized or not, will mean “including, by way of example, but without limitation.”

 

“Lender” means the financial institution or other party (including an Affiliate of Franchisee), if any, that provided or is providing the financing for Franchisee’s acquisition, development, and/or operation of the Hotel, including any mortgagee or trustee under any deed of trust.

 

“Losses” means any and all losses, expenses, obligations, diminutions in value, liabilities, damages (actual, consequential, or otherwise), and reasonable defense costs that indemnified party incurs. For purposes of this definition, defense costs include accountants’, arbitrators’, attorneys’, and expert witness fees, costs of investigation and proof of facts, court costs, travel and living expenses, and other expenses of litigation, arbitration, or alternative dispute resolution, regardless of whether litigation, arbitration, or alternative dispute resolution is commenced.

 

“Management Arrangement” means any lease, management agreement, or other similar arrangement with any entity for all or a part of the Hotel’s operation.

 

“Management Company” means any entity (including any Affiliate of Franchisee) that Hyatt approves as the Hotel’s manager pursuant to an approved Management Arrangement.

 

“Manual” means Hyatt’s confidential manuals, as amended from time to time.

 

“National Directory” means the national directory of Hyatt Place Hotels, which, at Hyatt’s option, also may be associated with any other hotel brand or other business that Hyatt or its Affiliates own, operate, franchise, license or manage, and may (at Hyatt’s option) be in written, electronic and/or another form that Hyatt periodically specifies.

 

“Non-Controlling Owner” means any Owner which is not a Controlling Owner.

 

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“Non-Control Transfer” means any transfer (as defined in Section 12.2) of (a) a non-Controlling Ownership Interest in Franchisee, (b) a non-Controlling Ownership Interest in any Controlling Owner (if such Owner is a legal entity), or (c) a Controlling Ownership Interest or non-Controlling Ownership Interest in any Non-Controlling Owner (if such Owner is a legal entity).

 

“Opening Date” means the date upon which Franchisee first opens the Hotel for business under the “Hyatt Place®” name.

 

“Owner” means any person holding a direct or indirect ownership interest (whether of record, beneficially, or otherwise) or voting rights in Franchisee, including any person who has a direct or indirect interest in Franchisee, this Agreement, the franchise, or the Hotel and any person who has any other legal or equitable interest, or the power to vest in himself or herself any legal or equitable interest, in their revenue, profits, rights, or assets or any capital appreciation relating thereto.

 

“PIP” means Property Improvement Plan.

 

“Proceeding” means any claim asserted or inquiry made (whether formally or informally), and any legal action, investigation or other proceeding (including any arbitration proceeding) brought, by any governmental agency or other person or entity.

 

“Proprietary Marks” means the trade names, trademarks, and service marks “Hyatt Place” and such other trade names, trademarks, service marks, logos, slogans, trade dress, domain names, and other designations of source and origin (including all derivatives of the foregoing) that Hyatt or its Affiliate periodically develops and Hyatt periodically designates for use in connection with the Hotel System.

 

“Providers” means providers of products or services for the Hotel, including the then current CRS operator (if applicable), then current GDS and ADS operators (if applicable), and other suppliers to the Hotel, which may include Hyatt and/or its Affiliates.

 

“Reasonable Business Judgment” means that Hyatt’s action or inaction has a business basis that is intended to benefit the Hyatt Place Hotel network or the profitability of the network, including Hyatt and its Affiliates, regardless of whether some individual hotels may be unfavorably affected; or to increase the value of the Proprietary Marks; or to increase or enhance overall hotel guest or franchisee or owner satisfaction; or to minimize possible brand inconsistencies or customer confusion.

 

“Reasonable Deviations” means that, if the market area or unique circumstances of a Hyatt Place Hotel warrant, then, in Hyatt’s Reasonable Business Judgment, Hyatt may apply an aspect of the Hotel System, System Standard, requirement, fee or other term or condition to the Hotel in a manner which differs from the manner in which that aspect of the Hotel System, requirement, fee or other term or condition applies to one or more other similarly situated Hyatt Place Hotels.

 

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“System Standards” means standards, specifications, procedures, and rules for operations, marketing, construction, equipment, furnishings, and quality assurance that Hyatt implements and may periodically modify for Hyatt Place Hotels.

 

“Website” means any web page, website, other online or Internet presence or other electronic medium.

 

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EXHIBIT B

to the

HYATT PLACE HOTEL FRANCHISE AGREEMENT

 

BASIC TERMS

	 	  	  
	
Site:

	
A Hyatt Place hotel located at:

9161 Winchester Road

Germantown, TN 38138

	 	 	 
	

Number of Approved Guest Rooms:

	
127 Rooms

 

Pursuant to Section 4.2.1, Hyatt hereby approves Franchisee’s initial Management Arrangement with Moody National Hospitality Management, LP as the initial Management Company.

 

Franchisee paid an Application Fee of $60,000.00 before signing this Agreement.

 

The “Guarantor Net Worth Threshold” as of the Effective Date is $508,000.00.

	  	  	  	 
	  	
FRANCHISEE:

	 
	  	  	 
	  	
MOODY NATIONAL HP G-TOWN MT, LLC

	 
	  	  	 
	  	
By:

	  	 
	  	  	
Brett C. Moody

	 
	  	  	
President

	 
	  	  	  	 
	  	
Date: 

	
4-9-13

	 

 

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FRANCHISOR:

	  	  
	  	
HYATT PLACE FRANCHISING, L.L.C.

	  	  	  
	  	
By:

	  
	  	  	
B. Anthony Isaac

	  	  	
Senior Vice President

	  	  	  
	  	
Date: 

	

APRIL 4, 2013

 

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EXHIBIT C

to the

HYATT PLACE HOTEL FRANCHISE AGREEMENT

 

RIGHT OF FIRST OFFER FOR STRATEGIC MARKETS

 

By signing this Exhibit C, Hyatt and Franchisee acknowledge that Hyatt’s right of first offer reflected in this Exhibit C applies to this Agreement. If Hyatt and Franchisee do not sign this Exhibit C, then it does not apply to this Agreement.

 

If Franchisee (or any of its Owners) at any time during the Term determine to sell or transfer for consideration this Agreement and the Hotel, or a Controlling Ownership Interest in Franchisee or its Controlling Owner (except to or among Franchisee’s then current Owners, which is not subject to this Exhibit C), then Franchisee must first give Hyatt the opportunity to acquire those rights (the “Offered Rights”) by delivering written notice to Hyatt. Franchisee’s notice must contain the specific terms and conditions of the proposed sale or transfer, including the proposed consideration and the terms of any financing Franchisee will provide for the proposed purchase price (the “Offer Terms”). The Offer Terms must relate exclusively to the Offered Rights and not to any other assets or rights.

 

Hyatt will then have thirty (30) days after receiving the Offer Terms to notify Franchisee whether Hyatt elects to acquire the Offered Rights on the Offer Terms, provided that (1) Hyatt may substitute cash, a cash equivalent, or marketable securities for any form of payment proposed in the Offer Terms (such as ownership interests in an entity) and may elect to pay the net present value of any payments to be made over time; and (2) Hyatt must receive, and Franchisee and its Owners agree to make, all customary representations, warranties, and indemnities in Hyatt’s purchase, including representations and warranties as to ownership and condition of and title to assets; liens and encumbrances on assets; validity of contracts and agreements; liabilities affecting the assets, contingent or otherwise; and indemnities for all actions, events, and conditions that existed or occurred in connection with the Hotel or Franchisee’s business before the closing. Hyatt has the unrestricted right to assign its right of first offer to a third party, who then will have the rights described in this Exhibit C.

 

If Hyatt exercises the right of first offer, the closing will take place at a location and on a date (within thirty (30) days after Hyatt delivers its notice of exercise to Franchisee) that Hyatt chooses. Hyatt and Franchisee will sign documents, including deeds, affidavits, transfers and assignments, and any other documents necessary or appropriate for the sale or transfer of the Offered Rights. Franchisee must satisfy all liens, mortgages, and/or encumbrances on the Hotel. Hyatt and Franchisee will share equally any closing costs.

 

If Hyatt notifies Franchisee in writing that Hyatt does not intend to exercise its right of first offer with respect to any Offer Terms, or fails to notify Franchisee of Hyatt’s decision within the thirty (30)-day period described above, then Franchisee thereafter may offer the Offered Rights to any third party on terms no more favorable to that party than the Offer Terms. However, Franchisee or its Owners may sell or transfer the Offered Rights only if Hyatt

 

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otherwise approves the transfer in accordance with, and Franchisee (and its Owners) and the transferee comply with the conditions in, Article XII of this Agreement. This means that, even if Hyatt does not exercise Hyatt’s right of first offer, if the proposed transfer otherwise would not be allowed under Article XII, Franchisee (or its Owners) may not move forward with the transfer at all.

 

Later, Franchisee may determine to offer the Offered Rights on terms which are more favorable to the buyer than the Offer Terms, or Franchisee may determine to change the Offered Rights. If Franchisee does, then Franchisee must first offer those new terms to Hyatt according to the procedures described above.

 

By signing below, Hyatt and Franchisee acknowledge and agree that the terms of this Exhibit C will apply to this Agreement.

	  	  	  
	  	
FRANCHISEE:

	  	  
	  	
MOODY NATIONAL HP G-TOWN MT, LLC

	  	  	  
	  	
By:

	  
	  	  	
Brett C. Moody

	  	  	
President

	  	  	  
	  	
Date: 

	
4-9-13

 

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FRANCHISOR:

	  	  
	  	
HYATT PLACE FRANCHISING, L.L.C.

	  	  
	  	
By:

	  
	  	  	  
	  	  	
Senior Vice President

	  	  	  
	  	
Date: 

	
April 4, 2013

 

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EXHIBIT D

to the

HYATT PLACE HOTEL FRANCHISE AGREEMENT

 

PROPERTY IMPROVEMENT PLAN (“PIP”)

(if applicable)

 

INTENTIONALLY OMITTED

 

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RIDER TO THE HYATT PLACE FRANCHISING, L.L.C.

FRANCHISE AGREEMENT

FOR GERMANTOWN, TENNESSEE

 

          This Rider (the “Rider”) is made and entered into as of April 9, 2013 (the “Effective Date”) (regardless of the dates of the parties’ signatures) by and between HYATT PLACE FRANCHISING, L.L.C., a Delaware limited liability company (“Hyatt”), and MOODY NATIONAL HP G-TOWN MT, LLC., a Delaware limited liability company (“Franchisee”).

 

          1. Background. Hyatt and Franchisee are parties to that certain Franchise Agreement dated as of April 9, 2013 that has been signed concurrently with the signing of this Rider (the “Franchise Agreement”) pursuant to which Franchisee will operate a Hyatt Place Hotel to be located at 9161 Winchester Road, Germantown, Tennessee 38138 (the “Hotel”). This Rider is annexed to and forms part of the Franchise Agreement. Hyatt and Franchisee are signing this Rider because Franchisee has asked Hyatt to amend certain provisions of the Franchise Agreement, and Hyatt is willing to do so according to this Rider’s terms and conditions. All references in this Rider to “Sections,” “Articles,” and/or “Exhibits” shall mean the applicable Section, Article, and/or Exhibit (as applicable) of and to the Franchise Agreement.

 

          2. Term.  Section 1.2 of the Franchise Agreement is deleted and replaced with the following:

 

	  	
             1.2 Term. The term of this Agreement (the “Term”) will commence on the Effective Date and expire without notice effective twenty (20) years from the Effective Date, subject to its earlier termination as set forth in this Agreement.

 

          3. Rights in Area of Protection During AOP Term. Section 1.3 of the Franchise Agreement is deleted in its entirety.

 

          4. No Other Restrictions. The second paragraph of Section 1.4 of the Franchise Agreement is deleted and replaced with the following:

 

	  	
            Franchisee acknowledges that Hyatt’s Affiliates currently operate other franchised and non-franchised systems for lodging facilities (including full service and select service hotels, time-share or interval ownership facilities, and vacation clubs) that use different brand names, trademarks, and service marks, including those with the “Hyatt” name as part of their brand name, some of which might operate and have facilities in the same market area as the Hotel, that will compete directly with Franchisee. None of those activities, even other uses of the “Hyatt” name, will constitute a violation of this Agreement.

 

          5. Condemnation. Section 10.1.1 of the Franchise Agreement is deleted and replaced with the following:

 

	  	
          10.1.1 Relocating the Hotel. Franchisee must immediately notify Hyatt of any proposed taking of any portion of the Hotel by eminent domain, condemnation or expropriation. If Hyatt agrees that all or a substantial portion of the Hotel is to be taken, condemned or expropriated, then, upon Franchisee’s request, Hyatt may (but has no

 

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4

  

 

	  	
obligation to) allow Franchisee to relocate the Hotel to a new location within the same market area that Franchisee selects (subject to Hyatt’s approval) within four (4) months after the taking, condemnation or expropriation. If Franchisee develops a new Hyatt Place Hotel at a new location within the same market area that Hyatt approves (a “Relocated Hotel”), and if Franchisee opens that Relocated Hotel according to Hyatt’s specifications and this Agreement’s other terms and conditions (including the applicable provisions of Article II) within twenty-four (24) months after closing the Hotel, then the Relocated Hotel shall thereafter be deemed to be the Hotel franchised under this Agreement.

 

6. Condemnation. The third sentence of the last paragraph of Section 10.1.2 of the Franchise Agreement is deleted and replaced with the following:

 

	  	
However, such termination agreement shall provide that if Franchisee or any of its Affiliates begins construction on a new select service hotel at any location within the same market area at any time during the twenty-four (24) month period following the effective date of termination of this Agreement, then Franchisee or its Owners must pay Hyatt liquidated damages equal to Four Thousand Dollars ($4,000) multiplied by the number of guest rooms in that new select service hotel.

 

7. Acknowledgements. The following is added as a new ARTICLE XIX (q):

 

	  	
           (q) Franchisee, or its parent or any of its Affiliates, is an entity that has been in business for a least five (5) years and has a net worth of at least $5 million.

 

           8. Non-Control Transfers. Section 12.3 (b) of the Franchise Agreement is deleted and replaced with the following:

 

	  	
           (b) Franchisee notifies Hyatt at least ten (10) days after a transfer’s effective date if such transfer involves more than a ten percent (10%) interest in Franchisee and/or any of its Owners; and

 

9. Exhibit C. Right of First Offer for Strategic Markets. The third paragraph in Exhibit C to the Franchise Agreement is deleted and replaced with the following:

 

Hyatt will then have fifteen (15) days after receiving the Offer Terms to notify Franchisee whether Hyatt elects to acquire the Offered Rights on the Offer Terms, provided that (1) Hyatt may substitute cash, a cash equivalent, or marketable securities for any form of payment proposed in the Offer Terms (such as ownership interests in an entity) and may elect to pay the net present value of any payments to be made over time; and (2) Hyatt must receive, and Franchisee and its Owners agree to make, all customary representations, warranties, and indemnities in Hyatt’s purchase, including representations and warranties as to ownership and condition of and title to assets; liens and encumbrances on assets; validity of contracts and agreements; liabilities affecting the assets, contingent or otherwise; and indemnities for all actions, events, and conditions that existed or occurred in connection with the Hotel or Franchisee’s business before the closing. Hyatt has the unrestricted right to assign its right of first offer to a third party, who then will have the rights described in this Exhibit C.

 

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          IN WITNESS WHEREOF, the parties have signed this Rider as of the dates set forth by their signatures, to be effective as of the Effective Date.

	 	  	  
	
FRANCHISEE:

	  
	  	  
	

MOODY NATIONAL HP G-TOWN MT, LLC

	  
	  	  	  
	
BY: 

	

	  
	  	

Brett C. Moody

	  
	  	

President

	  

 

	
Date: 

	 	  	
        4-9-13

	  
	 	 	 	 	 
	
Attest: 

	
 

	
          

 

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FRANCHISOR:

	  
	  	  
	
HYATT PLACE FRANCHISING, L.L.C.

	  
	  	  	  
	
BY: 

	
     

	  
	  	
B. Anthony Isaac

	  
	  	
Senior Vice President

	  

 

	
Date: 

	 	  	
          APRIL 4, 2013

	  
	 	 	 	 	 
	
Attest: 

	
 

	
          

	  

 

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