Date:  December 6, 2009
To:  Mr. Eric Danziger - Wyndham Hotel Group President

From:  Jay Patel – Interim President O8A        

Re: Upgrade of Software System follow-up and other Issues

We continue to question your decision to suspend use of MSI and HSS systems from WHG franchisees. As mentioned in our initial letter regarding this matter, we stress the fact that most of the hotel owners are having severe financial difficulty in the current economic environment and any unforeseen capital improvement expense will be devastating for their businesses.  The following information pertains to the Software Systems and continues to expand into other areas of concern. 

1)      MSI and HSS representatives have assured us that the newer versions of their software systems are in full compliance with new PCI compliance guidelines and they have provided assurances to their clients.

2)      Wyndham Worldwide purchased their version of HSS in 1999 and modified it to work with their reservation system.  WHG had the ability to update the software however; they did not update the HSS or MSI but rather decided to abandon future use of these systems.  You have recently also abandoned use of the Brilliant System.  WHG can still hire programmers to update their old version or a new version of these software systems.    

3)      Softhotels continues to be full of glitches. Last month, we received a letter from an O8A member using Softhotels that had sent documentation where his Softhotels night audit doubled revenue in the system.  He had demanded that this be taken care of immediately and within 48 hours the issue was resolved.  Again, this was one of the many issues that have been documented on our website for over 2 years now.

4)      One of our members just had the Softhotels package shipped to him without him actually signing up and he received a 20 K bill on his WHG statement. We request that you put an end to this practice immediately.  Franchisors cannot force equipment on a franchisee as this violates our property rights.  This practice also violates the acceptance clause in the software agreement, which states “Acceptance of the Integrated System occurs upon installation at the Facility and successful completion of acceptance testing by the installation service providers.”  This also contradicts your payment clause which states “We will not confirm an installation date for the Integrated System at the Facility until you have paid us or concluded payment arrangements satisfactory to us.”  In fact, this practice of WHG began back in the Power Up days where we were given our “FREE” PMS system.  Unfortunately, most of the franchisees were not aware that they had the right to refuse the equipment as WHG sent every hotel an addendum document and then told them that if the document was not signed then WHG would put them into default.  Many of the franchisees did NOT sign these addendums but yet they still received this initial hardware and software package from WHG.  We continue to evaluate the legality of any upgrades when owners under the older franchise agreements did not sign any addendums.  Further, if we had known the financial implications of your hardware and software agreements, many of the franchisees would not have signed your financially detrimental agreement.

5)      Most of the owners believe the actual reasons for forcing owners to change the software are different from the one given by franchisor.  It appears to be more financially beneficial for WHG to rollout new software and charge owners 7-8 K per site which is an approx 49 - 56 Million dollar collections considering over 7000 locations.  Although this may be the practice of most franchisors, WHG is the only economy lodging brand franchisor that is imposing such high costs on the franchisees.  WHG will likely benefit a considerable amount from this and future software and hardware rollouts and training.  Further the hardware WHG is selling is over priced old technology.  The base package that had been sold this year had older processors which were sold to us at today’s prices.

6)      The owners also believe that the software also has a very high monthly maintenance fee. The new agreements are also forcing a mandatory 5% increase in monthly maintenance fees every year, without justifying any reason for the annual increase.

7)      The new contracts do not guarantee that there will be no new hardware or software upgrades after four years time. Hence, there is no assurance the franchisor will repeat the whole process after four years.  Many of the franchisees foresee a change coming in the next few years as Softhotels has and continues to have many flaws.

8)      Your license agreement section 4.1.2 states “Until Acceptance, the Hardware shall be kept at the facility and shall not be removed without our prior written consent. We have the right at any time during normal business hours and upon reasonable notice to inspect the Hardware and for that purpose have access to its location. You represent and acknowledge that the Hardware shall be used only for the business of the Facility and that no item of Hardware will be used for personal, family, or any other business purpose.”  Further section 4.2 states “No Unauthorized Software. You shall not load, store, file, run, test or use any software on the Hardware except (i) the Software, and (ii) other software that we specifically authorize you to run on the Hardware in writing before it is first loaded onto the Hardware.”   This affects the front desk operations and the performance of the hotel as 1) Most of the hotels only have space for 2 computers at the front desk. Since, both these computers will not allow access to MS word in order to type letters for customers and day to day operations, the work at the hotel will be affected. It can also result in less annual revenue. 2) Most of the hotels also rely on internet surfing to market their hotels.  The economy lodging brands of WHG, utilize the front desk personal or managers at the front desk to complete this task while they work at the front desk.  Since your software prohibits internet surfing on these systems the hotel work and revenues will be affected in a negative manner.

9)      Your license agreement section 4.3 states “Replacement. We will not require that you replace the Integrated System for a period of four years after the Acceptance Date. At any time after Acceptance, if you believe that some or all of your Hardware requires replacement, you may purchase replacement Hardware from us or from our authorized vendor. The replacement Hardware will be subject to the warranty and service obligation then offered. The warranty on the replaced Hardware is not transferable and will terminate when the replacement Hardware is accepted. Your purchase of replacement Hardware is at your expense and you must cooperate with our instructions on changeover from the replaced Hardware.”                                             
This will affect the bottom line of the franchisees.  The issue of your approved vendors charging more than 2 to 3 times the actual market value for hardware has been raised numerous times with different representatives of WHG. This brings us back to the original issue of the franchisor taking royalties on sales from approved vendors, and in return allowing the vendors to abuse the franchisees by charging much more than the market value for goods they supply.  It also raises questions about the integrity of WHG in this whole debate about system compliance.

10)  Your license agreement section 4.5states “Communications. We may require you to purchase additional or replacement communications hardware or software and install the same as part of the Integrated System to keep pace with changes in the required methods and means of communications between Chain Facilities and the Central Reservation System, the Brand Information Source, and the Email Network.”  Currently, with the existing systems we do not have this problem.  Should you require additional or replacement hardware, it will be a double whammy for the hotel owners who are already buried in debt and fighting to overcome these unnecessary expenses of system compliance to begin with.

11)  Your license agreement section states that “9. Damage Limitation. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, IN NO EVENT SHALL WE OR ANY RELATED PARTY BE LIABLE FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR EXEMPLARY DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOST PROFITS OR REVENUES.” Numerous technical problems have been brought to your attention with Softhotels. Some of the issues may be resolved however WHG’s lack of communication on this issue lends us to believe that many issues still exist. The recent revenue miscalculations and other accounting bugs in the software have been devastating for the franchisees. It will be inappropriate to sign any agreement which has Damage Limitation clauses until these bugs are fixed.  Further, in some states Lemon Laws may be utilized as an avenue to protect the citizens and business operators from financially damaging products.

12)  Your license agreement section “11.1 We shall be entitled to terminate this Agreement immediately:…. (c) At any time after the fourth anniversary of the Acceptance Date, if the Integrated System becomes obsolete in our judgment based upon technological advances or improvements, changes in the Services or any other reason”  This clause further solidifies the issue raised earlier in point no. 7 of extensive costs and this whole process of being repeated after four years.

13)  Your license agreement section states “11.2 In addition to the right to terminate this Agreement, we may suspend the Services to the Facility, including, but not limited to Hardware maintenance services upon the occurrence of any of the events described in Section 11.1. Because we still incur costs on your behalf, you must continue to pay fees associated with Central Reservation System service under the Franchise Agreement during such suspension period.”                                                                                                                            Franchisees do not agree with this assessment of yours and do not believe the franchisor is authorized to keep charging for a system after they have suspended the service.  You have also not provided any details as to which costs you will incur on behalf of the franchisees.

14)  Your license agreement section states “12.4 Your Forms. We are not bound by any terms of your purchase order forms or notices of acceptance which attempt to impose any conditions at variance with our terms and conditions included in this Agreement or in our invoices, standards manuals, technical specifications or elsewhere. Our failure to object to any provision contained in your printed form is not a waiver of any provision of this Agreement.”   This infringes on franchisees rights and also infringes on property laws. Numerous states have their own laws which prevent malpractices. The franchisees believe it is highly improper to make them sign such clauses by using force in the form of franchise agreement default.

15)  Franchisees believe the MSI and HSS systems will be abandoned in order for the franchisor to have full control over the franchisee in the form of restricting the rate codes and enforcing questionable Wyndham Rewards Fees that were generated for years.  MSI and HSS limit the abilities of WHG to control the Wyndham Rewards membership number during guests stays.

16)  WHG is currently helping Expedia Inc. in creating a monopoly for itself, by creating rate codes that only help expedia and give them an unfair advantage over the other OTA’s through the use of  Micros and Softhotel. In the event of an Anti-trust lawsuit, WHG can be held accountable along with Expedia for such practices and the results will be devastating for the hotel owners who would likely suffer financially.  Although, brought to WHG’s attention numerous times, WHG continues to participate with expedia in such questionable business practices.  Several years ago, WHG generated an SOR code that helped expedia charge the customers excess state and city taxes which often amounted to an additional 33% tax payment by the customers. These additional tax fees were taken by Expedia and now this issue has come to the forefront.  There are numerous cases and some judgments that have been awarded against Expedia in regards to this issue.  Although the hotel owners had complained in 2004 and 2005 about this to the franchisor, the franchisor ignored their concerns and the franchisees became an unwilling participant in this entire fiasco. The hotel owners do not want this to be repeated and as a matter of principal would like to oppose any software which aids in the facilitation of such practices.

We hope that you will take an opportunity to discuss this information and respond to our concerns.  We respect you for opening up initial discussion with your franchisees however; question your decision on suspending open discussion.  O8A has stated from its inception that open communication is the best and most useful method to help create a better business relationship with your franchisees.  We continued dialogue with your office however; two of our communications to your offices did not receive any responses as they were pertaining to critical issues.  Avoidance of discussion of these issues continues to be detrimental to our relationship with the franchisor.  Many of your existing brands continue to face declines in growth and it appears that from articles written in lodging publications that WHG appears to be focused on new acquisition rather than establishing better relationships with existing franchisees.  We hope that our assessment is incorrect and you continue to discuss our concerns in an amicable manner.  We welcome any discussion and I am available if you wish to discuss further at my office @ (336) 998-9116.

Respectfully,

O8A

November 24, 2009

There are a number of new concerns that have been brought to our attention in the last week and they will have a significant financial impact on us as Wyndham franchisees.  As franchisees many of us are going through significant financial strains.  In fact many of us are either behind on Mortgage payments, franchisee payments and also property tax payments.  While we continue to suffer through these economic times our franchisor is severly straining our relationship by imposing additional costs on our hotels.  Below, you will find some significant information.