Comfort Inn 2007 Annual Report Download - page 25

These agreements typically grant developers exclusivity in various markets and favorable franchise agreement terms
provided that they adhere to an agreed upon development schedule.
Either party to our standard domestic franchise agreement can terminate the agreement prior to the conclusion of the
agreement’ s term under certain circumstances, such as upon designated anniversaries of the agreement. Early termination
options give us flexibility in eliminating or re-branding properties, if they become weak performers for reasons other than
contractual failure by the franchisee. We also have the right to terminate a franchise agreement if a franchisee fails to
bring the property into compliance with contractual or quality standards within specified periods of time. The franchise
agreements also typically contain liquidated damage provisions resulting from a franchisee’ s termination of the franchise
agreement outside the designated anniversaries. Master franchise agreements typically contain provisions permitting us to
terminate the agreement for failure to meet a specified development schedule.
When the responsibility for development is transferred to an international master franchisee, that party has the
responsibility to sell to local franchisees our brands and the master franchisee generally must manage the delivery of
necessary services (such as training, quality assurance, reservations and marketing) to support the franchised hotels in the
master franchise area. The master franchisee collects the fees paid by the local franchisee and remits an agreed share to us.
Master franchise agreements generally have a term of at least 10 years. We have only entered into master franchise
agreements with respect to franchised hotels outside the United States.
Since 2005, we have increased our efforts to enforce quality and contractual standards as well as eliminate weak
performers. However, in 2007 and 2006, we retained 96% and 95% of franchisees, respectively, which were in our
domestic system in the previous year.
Franchise agreements are individually negotiated and vary among the different Choice brands and franchises, but
generally are competitive with the industry average within their market group. Franchise fees usually have four
components: an initial, one-time affiliation fee; a royalty fee; a marketing fee; and a reservation fee. Proceeds from the
marketing fee and reservation fee are used exclusively to fund the Company’ s marketing and reservation activities that
support all of the Choice brands.
Our standard franchise fees are as follows:
QUOTED FEES BY BRAND AS OF DECEMBER 31, 2007
On-Going Fees as a Percentage of
Franchisee’s Gross Room Revenues
Brand Initial Fee Per
Room/Minimum
Royalty Fees
Marketing Fees
Reservation
Fees
Combined
Marketing and
Reservation Fees
Cambria Suites ................................................ $ 500/$60,000 5.00 % 2.10% 1.75% —
Comfort Inn ..................................................... $ 500/$50,000 5.65 % 2.10% 1.75% —
Comfort Suites................................................. $ 500/$50,000 5.65 % 2.10% 1.75% —
Quality Inn....................................................... $ 300/$35,000 4.65 % 2.10% 1.75% —
Quality Suites .................................................. $ 300/$50,000 4.65 % 2.10% 1.75% —
Clarion............................................................. $ 300/$40,000 4.25 % 2.00% 1.25% —
Sleep Inn.......................................................... $ 300/$40,000 4.65 % 2.10% 1.75% —
MainStay Suites............................................... $ 300/$30,000 5.00 % — — 2.50 %
Econo Lodge.................................................... $ 250/$25,000 4.50 % — — 3.50 %
Rodeway Inn.................................................... (1) (2) (3) (3) —
Suburban.......................................................... $ 225/$30,000 5.00 % — — 2.50 %
(1) Initial fee of $7,500 for properties with up to 85 rooms. Additional $90 per room fee for each room over 85 rooms.
(2) Royalty rate is $15.00 per room per month with $1.00 per room escalations on each of the 2nd, 3rd, 4th and 5th anniversaries of the
franchise agreement.
(3) Marketing and reservation fees are $8.00 and $5.00 per room per month, respectively.
23