EXHIBIT 10.09
FORM OF NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT ("Agreement") is made and entered into
as of __________, 1997, by and between Choice Hotels International, Inc., a
Delaware corporation which is to be renamed Sunburst Hospitality Corporation
("Choice"), and Choice Hotels Franchising, Inc., a Delaware corporation which is
to be renamed Choice Hotels International, Inc. ("Franchising"). As used in
this Agreement, the terms "Choice" and "Franchising" shall mean Choice and
Franchising, as the case may be, and their respective Subsidiaries and
Affiliates, other than any Subsidiaries and Affiliates in which the respective
direct or indirect ownership interest of Choice or Franchising is less than
fifty percent (50%).
WHEREAS, prior to the Distribution Date (as defined below),
Franchising was a wholly owned subsidiary of Choice; and the Franchising
Business (as defined herein) and the Hospitality Business (as defined herein)
were operated by Choice, its divisions, subsidiaries or affiliates;
WHEREAS, on ___________, 1997 (the "Distribution Date"), the common
stock of Franchising was distributed (the "Distribution") on a pro rata basis,
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to the stockholders of Choice;
WHEREAS, from the Distribution Date, Franchising is to continue the
Franchising Business formerly operated by Choice through Franchising, its
divisions, subsidiaries or affiliates;
WHEREAS, from the Distribution Date, Choice is to continue the
Hospitality Business; and,
WHEREAS, in order to effect the Distribution, Choice and Franchising
entered into a Distribution Agreement (the "Distribution Agreement") dated as of
__________, 1997, which provides, in part, that Choice and Franchising enter
into this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and in the Distribution Agreement and in the Related
Agreements entered into pursuant to or in connection with the Distribution, and
for other valuable consideration, the receipt and sufficiency of which are
hereby mutually acknowledged, Choice and Franchising agree as follows:
ARTICLE 1.
DEFINITIONS
1.1. Definitions. The following terms when used herein shall have
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the meaning set forth below:
"Affiliates" shall mean any Person directly or indirectly controlling
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or controlled by, or under direct or indirect common control with, Choice or
Franchising, as the case may be. For purposes of this definition "control",
when used with respect to any Person, means the power to direct the management
and policies of such Person, directly or indirectly, through the ownership of
voting securities, by contract, or otherwise. Notwithstanding the foregoing,
Choice's Affiliates shall not include Franchising or its Subsidiaries or
Affiliates, and Franchising's Affiliates shall not include Choice or its
Subsidiaries or Affiliates.
"Choice" shall have the meaning set forth in the first paragraph of
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this Agreement.
"Classic Sports Business" shall mean the business of owning and
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operating a bar/restaurant with a sports theme in a hotel property under the
brand name Classic Sports-Food, Drink & Memories.
"Compete" shall mean (i) to conduct or participate or engage in, or
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bid for or otherwise pursue a business, whether as a principal, sole proprietor,
partner, stockholder, or agent of, or consultant to, any Person or in any other
capacity, or (ii) have any ownership interest in any Person or business which
conducts, participates or engages in, or bids for or otherwise pursues a
business, whether as a principal, sole proprietor, partner, stockholder, or
agent of, or consultant to, any Person or in any other capacity.
"Competing Franchising Activity" shall mean a business activity that
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Competes with or is substantially similar to, the Franchising Business,
provided, however, that the Classic Sports business shall not be deemed a
Competing Franchising Activity.
"Competing Franchising Business" shall mean a business that Competes
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in any Competing Franchising Activity .
"Competing Hospitality Activity" shall mean a business activity that
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competes with, or is substantially similar to, the Hospitality Business;
provided, however, that the European Hotel Business shall not be deemed a
Competing Hospitality Activity.
"Competing Hospitality Business" shall mean a business that Competes
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with, or is substantially similar to, the Hospitality Business.
"Effective Period" shall have the meaning set forth in Section 2.1.
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"European Hotel Business" shall mean (i) the business of owning and
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operating the fourteen hotels set forth on Schedule A hereto, which hotels are,
on the Distribution Date, owned and operated by Franchising and (ii) any
ownership interest by Franchising in Friendly Hotels, PLC, a corporation formed
under the laws of [ ].
"Franchising Business" shall mean the business of franchising hotels
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under the Clarion, Quality, Comfort, Sleep Inn, Rodeway, Econo Lodge and
Mainstay Suites brands.
"Franchising" shall have the meaning set forth in the first paragraph
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of this Agreement.
"Hospitality Business" shall mean the business of owning and operating
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hotel properties.
"Person" shall mean any person, firm, corporation, general or limited
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partnership, association, or other entity.
"Preceding Period" shall mean, with respect to any acquisition or
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potential acquisition, the three hundred sixty-five (365) days preceding the
date on which the acquisition is consummated.
"Strategic Alliance Agreement" shall mean the Strategic Alliance
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Agreement dated of even date herewith by and between Choice and Franchising, as
may be amended from time to time.
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"Subsidiaries" shall mean corporations or other entities which are
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more than fifty percent (50%) owned, directly or indirectly, by Choice or
Franchising, as the case may be, and partnerships in which Choice or
Franchising, as the case may be, or a subsidiary corporation, is a general
partner.
"Transfer" shall mean the sale, conveyance, disposal of or other
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transfer of ownership, title or other interest.
Any capitalized terms defined in the Distribution Agreement and used
herein, shall have the meanings ascribed to them in the Distribution Agreement
unless otherwise defined herein.
ARTICLE 2.
TERM
2.1. Term. This Agreement shall remain in effect for a period
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commencing on the date hereof and automatically terminate without further
documentation on the fifth anniversary date of the Distribution Date; provided,
however, that, in the event that, on the fifth anniversary date of the
Distribution Date, the Strategic Alliance Agreement remains in effect, then this
Agreement shall, without further documentation, remain in effect and shall not
terminate until the date on which the Strategic Alliance Agreement ceases to be
in effect.
ARTICLE 3.
NONCOMPETITION WITH RESPECT TO THE FRANCHISING BUSINESS
3.1. Certain Restrictions on Choice.
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A. Except as provided in Section 3.1.(B) herein, during the
Effective Period, Choice shall not Compete in the Franchising Business anywhere
in the world.
B. Notwithstanding anything herein to the contrary, but
subject to the limitation set forth in Section 3.1.C., Section 3.1.A shall not
prohibit Choice from conducting the following activities:
(i) the continued operation of any business operated
as of the Distribution Date by Choice (including, without limitation, the
Classic Sports Business); or
(ii) activities that Choice is permitted or required
to conduct under the Strategic Alliance Agreement; or
(iii) the ownership of capital stock of a corporation
which conducts, participates or engages in competition with, or owns or has
an interest in a business similar to, the Franchising Business (including,
without limitation, a Competing Franchising Business), if (a) such capital
stock is traded on a national or regional stock exchange in the United
States or Canada or is traded on the National Association of Securities
Dealers, Inc., Automated Quotation System, and (b) Choice, directly or
indirectly, is the beneficial owner of not more than five percent (5%) of
such corporation's outstanding capital stock; or
(iv) the acquisition of any Person which Competes in a
Competing Franchising Business, except for such a Person whose primary
business is a Competing Franchising Business. If (x) the gross sales of
such Person (including its Subsidiaries and
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Affiliates) from the Competing Franchising Activities for the Preceding
Period, do not constitute more than twenty percent (20%) of the gross sales
(including sales from the Competing Franchising Activities) of such Person
(including its Subsidiaries and Affiliates), or (y) neither the fair market
value of, nor the value, if any, attributed to the Competing Franchising
Activities in the acquisition agreement is in excess of Five Million
Dollars ($5,000,000), as increased by the percentage increase, if any, in
the Consumer Price Index, All Urban Consumers, United States during the
term hereof (using 1996 as the base year), then such Competing Franchising
Activity shall not constitute such Person's primary business.
C. During the Effective Period, Choice shall not, directly
or indirectly:
(i) acquire from any Person (other than Franchising)
any interest in a Competing Franchising Business unless, prior to such
acquisition, Choice offers to sell the Competing Franchising Activities to
Franchising at a price equal to the lesser of (a) the fair market value of
such Competing Franchising Activities, and (b) the value, if any,
attributed to the Competing Franchising Activities in the acquisition
agreement, and otherwise on the same terms and conditions on which the
Competing Franchising Business is being acquired by Choice. Franchising
shall have thirty (30) days after receiving notice of the acquisition of
the Competing Franchising Business to elect, by notice to Choice, to
purchase the Competing Franchising Activities on the terms and conditions
set forth in the notice. If Franchising does not elect to purchase the
Competing Franchising Activities within the 30-day period, Choice shall be
entitled to own and operate such Competing Franchising Activities, subject
to the restrictions on Transfer set forth in Section 3.1.C.(ii).
Notwithstanding the foregoing, Choice shall not have to offer to sell, or
sell, to Franchising any such Competing Franchising Activities which, in
the good faith judgment of Choice, are not readily divisible from other
activities permitted to Choice, provided that the gross sales from such
non-divisible Competing Franchising Activities for the Preceding Period do
not exceed the greater of One Million Dollars ($1,000,000) per year or five
percent (5%) of the gross sales for the Preceding Period of the Competing
Franchising Business. Thereafter, in the event that the gross sales from
such non-divisible Competing Franchising Activities for any calendar year
exceed the greater of One Million Dollars ($1,000,000) per year or five
percent (5%) of the gross sales of the Competing Franchising Business, then
all non-divisible Competing Franchising Activities shall be subject to
Choice's obligation to offer them for sale to Franchising, as set forth
above, to the maximum extent that Choice and Franchising, using their best
efforts and negotiating in good faith, can make such Competing Franchising
Activities divisible and transferable to Franchising. The amount of One
Million Dollars ($1,000,000) referenced in this Section shall be increased
by the percentage increase, if any, in the Consumer Price Index, All Urban
Consumers, United States during the term hereof (using 1996 as the base
year).
(ii) Transfer to any Person (other than Franchising)
any Competing Franchising Activities unless it first offers to sell such
Competing Franchising Activities to Franchising upon substantially the same
terms and conditions offered by a bona fide prospective purchaser not an
affiliate of Choice. Franchising shall have thirty (30) days after
receiving notice of the proposed Transfer to elect, by notice to Choice, to
purchase the Competing Franchising Activities on the terms and conditions
set forth in the notice. If Franchising does not elect to purchase the
Competing Franchising Activities from Choice within the 30-day period,
Choice shall be entitled to Transfer such Competing Franchising Activities
to any Person not an affiliate of Choice on substantially the same terms
and conditions as set forth in the notice to Franchising. However, if no
definitive agreement to Transfer is executed within ninety (90) days
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after the expiration of the 30-day period, Choice shall not thereafter
Transfer such Competing Franchising Activities to any Person (other than
Franchising) without first offering to sell it to Franchising as provided
above. Notwithstanding the foregoing, Choice shall not have to offer to
sell, or sell, to Franchising any such Competing Franchising Activities
which, in the good faith judgment of Choice, are not readily divisible from
the other activities otherwise permitted to be transferred by Choice
without compliance with this Section 3.1.C.(ii), provided that the gross
sales from such non-divisible Competing Franchising Activities for the
Preceding Period do not exceed the greater of One Million Dollars
($1,000,000) per year or five percent (5%) of the gross sales for the
Preceding Period of the Competing Franchising Business. The amount of One
Million Dollars ($1,000,000) referenced in this Section shall be increased
by the percentage increase, if any, in the Consumer Price Index, All Urban
Consumers, United States during the term hereof (using 1996 as the base
year).
ARTICLE 4.
NONCOMPETITION WITH RESPECT TO THE CHOICE BUSINESS
4.1. Certain Restrictions on Franchising.
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A. Except as provided in Section 4.1.B herein, during the
Effective Period, Franchising shall not Compete in the Hospitality Business
anywhere in the world.
B. Notwithstanding anything herein to the contrary, but
subject to the limitations set forth in Section 4.1.C., Section 4.1.A shall not
prohibit Franchising from conducting the following activities:
(i) the continued operation and development of any
business operated as of the Distribution Date by Franchising (including,
without limitation, the European Hotel Business); or
(ii) activities that Franchising is permitted or
required to conduct under the Strategic Alliance Agreement; or
(iii) the ownership of capital stock of a corporation
which conducts, participates or engages in competition with, or owns or has
an interest in a business similar to, the Hospitality Business (including,
without limitation, a Competing Hospitality Business), if (a) such capital
stock is traded on a national or regional stock exchange in the United
States or Canada or is traded on the National Association of Securities
Dealers, Inc., Automated Quotation System, and (b) Franchising, directly or
indirectly, is the beneficial owner of not more than five percent (5 %) of
such corporation's outstanding capital stock; or
(iv) the acquisition of any Person which Competes in a
Competing Hospitality Business, except for such a Person whose primary
business is a Competing Hospitality Business. If (x) the gross sales of
such Person (including its Subsidiaries and Affiliates) from the Competing
Hospitality Activities for the Preceding Period do not constitute more than
twenty percent (20%) of the gross sales (including sales from the Competing
Hospitality Activities) of such Person (including its Subsidiaries and
Affiliates), or (y) neither the fair market value of, nor the value, if
any, attributed to the Competing Hospitality Activities in the acquisition
agreement is in excess of Five Million Dollars ($5,000,000), as increased
by the percentage increase, if any, in the Consumer Price Index, All Urban
Consumers, United
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States during the term hereof (using 1996 as the base year), then such
Competing Hospitality Activity shall not constitute such Person's primary
business.
C. During the Effective Period, Franchising shall not,
directly or indirectly:
(i) acquire from any Person (other than Choice) any
interest in a Competing Hospitality Business unless, prior to such
acquisition, Franchising offers to sell the Competing Hospitality
Activities to Choice at a price equal to the lesser of (a) the fair market
value of such Competing Hospitality Activities, and (b) the value, if any,
attributed to the Competing Hospitality Activities in the acquisition
agreement, and otherwise on the same terms and conditions on which the
Competing Hospitality Business is being acquired by Franchising. Choice
shall have thirty (30) days after receiving notice of the acquisition of
the Competing Hospitality Business to elect, by notice to Franchising, to
purchase the competing Hospitality Activities on the terms and conditions
set forth in the notice. If Choice does not elect to purchase the Competing
Hospitality Activities within the 30-day period, Franchising shall be
entitled to own and operate such Competing Hospitality Activities, subject
to the restrictions on Transfer set forth in Section 4.1.C.(ii).
Notwithstanding the foregoing, Franchising shall not have to offer to sell,
or sell, to Choice any such Competing Hospitality Activities which, in the
good faith judgment of Choice, are not readily divisible from other
activities permitted to Franchising, provided that the gross sales of such
non-divisible Competing Hospitality Activities for the Preceding Period, do
not exceed the greater of One Million Dollars ($1,000,000) per year or
five percent (5%) of the gross sales for the Preceding Period of the
Competing Hospitality Business. Thereafter, in the event that the gross
sales from such non-divisible Competing Hospitality Activities for any
calendar year exceed the greater of One Million Dollars ($1,000,000) per
year or five percent (5%) of the gross sales of the Competing Hospitality
Business, then all non-divisible Competing Hospitality Activities shall be
subject to Franchising's obligation to offer them for sale to Choice, as
set forth above, to the maximum extent that Hospitality and Franchising,
using their best efforts and negotiating in good faith, can make such
Competing Hospitality Activities divisible and transferable to Hospitality.
The amount of One Million Dollars ($1,000,000) referenced in this Section
shall be increased by the percentage increase, if any, in the Consumer
Price Index, All Urban Consumers, United States during the term hereof
(using 1996 as the base year).
(ii) Transfer to any Person (other than Choice) any
Competing Hospitality Activities unless it first offers to sell such
Competing Hospitality Activities to Hospitality upon substantially the same
terms and conditions offered by a bona fide prospective purchaser not an
affiliate of Franchising. Hospitality shall have thirty (30) days after
receiving notice of the proposed Transfer to elect, by notice to
Franchising, to purchase the Competing Hospitality Activities on the terms
and conditions set forth in the notice. If Hospitality does not elect to
purchase the Competing Hospitality Activities from Franchising within the
30-day period, Franchising shall be entitled to Transfer such Competing
Hospitality Activities to any Person not an affiliate of Franchising on
substantially the same terms and conditions as set forth in the notice to
Hospitality. However, if no definitive agreement to Transfer is executed
within ninety (90) days after the expiration of the 30-day period,
Franchising shall not thereafter Transfer such Competing Hospitality
Activities to any Person (other than Choice) without first offering to sell
it to Choice as provided above. Notwithstanding the foregoing, Choice shall
not have to offer to sell, or sell, to Franchising any such Competing
Franchising Activities which, in the good faith judgment of Choice, are not
readily divisible from the other activities otherwise permitted to be
transferred by Choice without compliance with this Section 4.1.C.(ii)
provided
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that the gross sales from such non-divisible Competing Franchising
Activities for the Preceding Period do not exceed the greater of One
Million Dollars ($1,000,000) per year or five percent (5%) of the gross
sales for the Preceding Period of the Competing Franchising Business. The
amount of One Million Dollars ($1,000,000) referenced in this Section shall
be increased by the percentage increase, if any, in the Consumer Price
Index, All Urban Consumers, United States during the term hereof (using
1996 as the base year).
ARTICLE 5.
MISCELLANEOUS
5.1. Dispute Resolution. Any dispute, controversy or disagreement
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("Dispute") between the Parties related to the obligations of the Parties under
this Agreement in respect to which an amicable resolution cannot be reached
shall be submitted for mediation to a committee made up of an equal number of
non-common members of each company's Board of Directors ("Committee"). If the
Parties are unable to reach an amicable resolution of a Dispute within thirty
days after submission to the Committee, then, to the maximum extent allowed by
law, the Dispute shall be submitted and resolved by final and binding
arbitration in Baltimore, Maryland administered by JAMS-Endispute in accordance
with JAMS-Endispute's rules of practice then in effect or such other procedures
as the Parties may agree upon; provided, however, that any Party may seek
injunctive relief and enforcement of any award rendered pursuant to the
arbitration provisions of this Section 5.1 by bringing a suit in any court of
competent jurisdiction. Any award issued as a result of such arbitration shall
be final and binding between the Parties thereto and shall be enforceable by any
court having jurisdiction over the Party against whom enforcement was sought and
application may be made to such court for judicial acceptance of the award and
order of enforcement. The fees and expenses of arbitration (including
reasonable attorneys' fees) shall be paid by the Party that does not prevail in
such arbitration.
5.2. Modification. This Agreement may only be amended, modified or
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supplemented in a written agreement signed by both parties hereto.
5.3. Waiver. No term or condition of this Agreement shall be
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deemed to have been waived, nor shall there be any estoppel against the
enforcement of any provision hereof, except by written instrument of the party
charged with such waiver or estoppel.
5.4. Governing Law. This Agreement shall be governed by, and
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construed in accordance with, the laws of the State of Maryland, regardless of
the laws that might be applied under applicable principles of conflicts of laws.
5.5. Headings. The headings of the sections of this Agreement are
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for convenience only and shall not affect the construction of this Agreement.
5.6. Notices. All notices and other communications hereunder shall
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be in writing- and shall be delivered by hand or mailed by registered or
certified mail (return receipt requested) to the parties at the following
addresses (or at such other addresses for a party as shall be specified by like
notice) and shall be deemed given on the date on which such notice is received:
To Choice:
Sunburst Hospitality Corporation
00000 Xxxxxxxx Xxxx
0
Xxxxxx Xxxxxx, Xxxxxxxx 00000
Attention: General Counsel
To Franchising:
Choice Hotels International, Inc.
00000 Xxxxxxxx Xxxx
Xxxxxx Xxxxxx, Xxxxxxxx 00000
Attention: General Counsel
5.7. Assignment. Neither Party shall sell, assign, pledge or
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otherwise transfer its interest in this Agreement or any part thereof without
the prior written consent of the other Party, except to an entity succeeding to
substantially all of the business and operations of such Party. The
transferring Party shall remain liable for liabilities and obligations existing
at the time of such transfer. Subject to the foregoing, this Agreement shall
bind and inure to the benefit of the Parties' respective successors and
permitted assigns.
5.8. Counterparts. This Agreement may be executed in two
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counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
5.9. Severability. Choice and Franchising agree that the period of
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restriction and the geographical area of restriction imposed upon the parties
are fair and reasonable and are reasonably required for the protection of each
of the parties hereto. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect as though the invalid portions were not a part
hereof. If the provisions of this Agreement relating to the area of restriction
or the period of restriction shall be deemed to exceed the maximum area or
period which a court having jurisdiction over the matter would deem enforceable,
such area or period shall, for purposes of this Agreement, be deemed to be the
maximum area or period which such court would deem valid and enforceable.
5.10. Entire Agreement. This Agreement, the Distribution
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Agreement, the Strategic Alliance Agreement, certain hotel franchising
agreements, and other agreements executed pursuant thereto, constitute the
entire agreement of the parties concerning the subject matter hereof.
5.11. Remedies. Choice and Franchising agree that irreparable
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damage would occur in the event any of the provisions of this Agreement were not
to be performed in accordance with the terms hereof, and that their remedy at
law for any breach of the other party's obligations hereunder would be
inadequate. Choice and Franchising agree and consent that temporary and
permanent injunctive relief may be granted in any proceeding which may be
brought to enforce any provision hereof without the necessity of proof of actual
damage.
5.12. Enforceability. The terms, conditions and promises contained
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in this Agreement shall be binding upon and shall inure to the benefit of each
of the parties hereto, their heirs, personal representatives, or successors and
assigns. Each of the parties hereto shall cause its subsidiaries to comply with
such party's obligations hereunder. Nothing herein, expressed or implied, shall
be construed to give any other Person any legal or equitable rights hereunder.
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5.13. Consent to Jurisdiction. Subject to Section 4.1 hereof, the
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parties irrevocably submit to the exclusive jurisdiction of (a) the Courts of
the State of Maryland in Xxxxxxxxxx County, and (b) the United States District
Court for the State of Maryland for the purposes of any suit, action or other
proceeding arising out of this Agreement. The parties hereby irrevocably
designate, appoint and empower Prentice Hall Corporation System, Inc. as its
true and lawful agent and attorney-in-fact in its name, place, and stead to
receive on its behalf service of process in any action, suit, or proceeding with
respect to any matters as to which it has submitted to jurisdiction as set forth
in the immediately preceding sentence.
5.14. No Joint Venture Or Agency. This Agreement is not intended
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to create a joint venture, partnership or any other similar arrangement between
the Parties, and neither Party shall be authorized to act as an agent of the
other Party, except as expressly provided herein. Notwithstanding the
foregoing, each Party shall be free to designate the other as its agent for
appropriate purposes.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered, all as of the day and year first above written.
CHOICE HOTELS INTERNATIONAL, INC.
By:
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Name:
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Title:
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CHOICE HOTELS FRANCHISING, INC.
By:
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Name:
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Title:
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Schedule A
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European Hotels
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[List to be added]
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