CHARLOTTE/MATTHEWS (FI&S)

Exhibit 10.13

MANAGEMENT AGREEMENT

by and between

NEWPORT CHARLOTTE MANAGEMENT, LLC

as “MANAGER”

and

APPLE TEN HOSPITALITY MANAGEMENT, INC.

as “OWNER”

Dated as of March 25, 2011

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CHARLOTTE/MATTHEWS (FI&S)

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

Page

 

 

 

 

 

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ARTICLE I

 

APPOINTMENT OF MANAGER

 

1

 

 

 

 

 

 

1.01.

 

Appointment

 

1

 

 

 

 

 

 

 

1.02.

 

Management of the Hotel

 

1

 

 

 

 

 

 

 

1.03.

 

Employees

 

3

 

 

 

 

 

 

 

1.04.

 

Owner’s Right to Inspect

 

4

 

 

 

 

 

 

 

1.05.

 

Regular Meetings

 

4

 

 

 

 

 

 

 

1.06.

 

System Standards

 

4

 

 

 

 

 

 

 

1.07.

 

Limitations on Manager’s Authority

 

4

 

 

 

 

 

 

 

1.08.

 

Representations and Warranties of Manager

 

5

 

 

 

 

 

 

ARTICLE II

 

TERM

 

5

 

 

 

 

 

 

2.01.

 

Term

 

5

 

 

 

 

 

 

 

2.02.

 

Performance Termination

 

5

 

 

 

 

 

 

ARTICLE III

 

COMPENSATION OF MANAGER

 

6

 

 

 

 

 

 

3.01.

 

Management Fees

 

6

 

 

 

 

 

 

 

3.02.

 

Operating Profit

 

6

 

 

 

 

 

 

 

3.03.

 

Reimbursables

 

7

 

 

 

 

 

 

 

3.04.

 

Termination Fee

 

7

 

 

 

 

 

 

ARTICLE IV

 

ACCOUNTING, BOOKKEEPING AND BANK ACCOUNTS

 

8

 

 

 

 

 

 

4.01.

 

Accounting, Distributions and Annual Reconciliation

 

8

 

 

 

 

 

 

 

4.02.

 

Books and Records

 

9

 

 

 

 

 

 

 

4.03.

 

Accounts, Expenditures

 

10

 

 

 

 

 

 

 

4.04.

 

Annual Operating Projection

 

11

 

 

 

 

 

 

 

4.05.

 

Working Capital

 

11

 

 

 

 

 

 

 

4.06.

 

Fixed Asset Supplies

 

11

 

 

 

 

 

 

 

4.07.

 

Real Estate and Personal Property Taxes

 

11

 

 

 

 

 

 

 

4.08.

 

Sarbanes-Oxley Certification

 

12

 

 

 

 

 

 

ARTICLE V

 

REPAIRS, MAINTENANCE AND REPLACEMENTS

 

13

 

 

 

 

 

 

5.01.

 

Repairs and Maintenance to be Paid from Gross Revenues

 

13

 

 

 

 

 

 

 

5.02.

 

Repairs, Maintenance and Equipment Replacements to be Paid from Reserve

 

14

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ARTICLE VI

 

INSURANCE

 

15

 

 

 

 

 

 

6.01.

 

Property Insurance

 

15

 

 

 

 

 

 

 

6.02.

 

Operational Insurance

 

15

 

 

 

 

 

 

 

6.03.

 

Coverage

 

16

 

 

 

 

 

 

 

6.04.

 

Costs and Expenses

 

16

 

 

 

 

 

 

 

6.05.

 

Owner’s Right to Provide Insurance

 

17

 

 

 

 

 

 

ARTICLE VII

 

DAMAGE AND REPAIR

 

17

 

 

 

 

 

 

7.01.

 

Damage and Repair

 

17

 

 

 

 

 

 

 

7.02.

 

Condemnation

 

18

 

 

 

 

 

 

 

7.03.

 

Business Interruption

 

18

 

 

 

 

 

 

 

7.04.

 

Subordination to Mortgage

 

18

 

 

 

 

 

 

 

7.05.

 

Liens; Credit

 

19

 

 

 

 

 

 

ARTICLE VIII

 

DEFAULTS

 

19

 

 

 

 

 

 

8.01.

 

Events of Default

 

19

 

 

 

 

 

 

 

8.02.

 

Remedies

 

20

 

 

 

 

 

 

 

8.03.

 

Additional Remedies

 

20

 

 

 

 

 

 

ARTICLE IX

 

ASSIGNMENT AND SALE

 

21

 

 

 

 

 

 

9.01.

 

Assignment

 

21

 

 

 

 

 

 

 

9.02.

 

Sale of the Hotel

 

21

 

 

 

 

 

 

ARTICLE X

 

MISCELLANEOUS

 

22

 

 

 

 

 

 

10.01.

 

Right to Make Agreement

 

22

 

 

 

 

 

 

 

10.02.

 

Consents and Cooperation

 

22

 

 

 

 

 

 

 

10.03.

 

Relationship

 

22

 

 

 

 

 

 

 

10.04.

 

Applicable Law; Jurisdiction

 

23

 

 

 

 

 

 

 

10.05.

 

Recordation

 

23

 

 

 

 

 

 

 

10.06.

 

Headings

 

23

 

 

 

 

 

 

 

10.07.

 

Notices

 

23

 

 

 

 

 

 

 

10.08.

 

Environmental Matters

 

24

 

 

 

 

 

 

 

10.09.

 

Confidentiality; Projections

 

25

 

 

 

 

 

 

 

10.10.

 

Indemnification

 

26

 

 

 

 

 

 

 

10.11.

 

Actions to be Taken Upon Termination

 

27

 

 

 

 

 

 

 

10.12.

 

Waiver

 

29

 

 

 

 

 

 

 

10.13.

 

Partial Invalidity

 

29

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10.14.

 

Survival

 

29

 

 

 

 

 

 

 

10.15.

 

Negotiation of Agreement

 

29

 

 

 

 

 

 

 

10.16.

 

Estoppel Certificates

 

29

 

 

 

 

 

 

 

10.17.

 

Affiliates

 

30

 

 

 

 

 

 

 

10.18.

 

Blocked Persons or Entities

 

30

 

 

 

 

 

 

 

10.19.

 

Restrictions on Operating the Hotel in Accordance with System Standards

 

30

 

 

 

 

 

 

 

10.20.

 

Counterparts

 

30

 

 

 

 

 

 

 

10.21.

 

Entire Agreement

 

31

 

 

 

 

 

 

 

10.22.

 

Franchise Agreement

 

31

 

 

 

 

 

 

 

10.23.

 

Operation of Other Hotels

 

31

 

 

 

 

 

 

 

10.24.

 

Waiver of Jury Trial and Punitive Damages

 

32

 

 

 

 

 

 

 

10.25.

 

Termination of the Hotel Lease

 

32

 

 

 

 

 

 

 

10.26.

 

All Payments Subject to the Availability of Funds

 

32

 

 

 

 

 

 

ARTICLE XI

 

DEFINITION OF TERMS

 

32

 

 

 

 

 

 

11.01.

 

Definition of Terms

 

32

 

 

 

 

 

 

ARTICLE XII

 

SUPPLEMENTAL PROVISIONS

 

41

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Schedule 1

 

-

Hotel Specific Data

 

 

Schedule 2

 

-

Supplemental Provisions

 

 

Exhibit A

 

-

Legal Description of Site

 

 

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MANAGEMENT AGREEMENT

          THIS MANAGEMENT AGREEMENT (“Agreement”) is executed as of the 25th day
of March, 2011 (“Effective Date”), by APPLE TEN HOSPITALITY MANAGEMENT, INC., a
Virginia corporation (“Owner”), with a mailing address at c/o Apple REIT
Companies, 814 E. Main Street, Richmond, Virginia 23219, Attention: Krissy
Gathright, and NEWPORT CHARLOTTE MANAGEMENT, LLC, a Virginia limited liability
company (“Manager”), with a mailing address at c/o 4290 New Town Avenue,
Williamsburg, Virginia 23188.

          A. The party identified as the “Landlord” in Schedule 1 attached
hereto (“Landlord”) is the owner of the hotel identified in Schedule 1, as more
particularly described in the definition of “Hotel” in Section 11.01 hereof.

          B. Landlord and Owner have entered into that certain Hotel Lease
Agreement dated as of the Effective Date (the “Hotel Lease”) pursuant to which
Landlord leases the Hotel to Owner.

          C. All capitalized terms used in this Agreement shall have the meaning
set forth in Section 11.01 hereof.

          D. Owner desires to engage Manager to manage and operate the Hotel,
and Manager desires to accept such engagement, upon the terms and conditions set
forth in this Agreement.

          NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Owner and Manager agree as follows:

ARTICLE I

APPOINTMENT OF MANAGER

          1.01. Appointment.

          Owner hereby appoints and employs Manager as Owner’s exclusive
independent contractor to supervise, direct and control the management and
operation of the Hotel throughout the Term. Manager accepts said appointment and
agrees to manage the Hotel during the Term in accordance with the terms and
conditions of this Agreement.

          1.02. Management of the Hotel.

          A. Manager shall manage the Hotel, including, without limitation,
performance of the following functions, in accordance with Prudent Industry
Practices, the provisions of this Agreement and all standards imposed by the
Franchise Agreement (provided that in all cases, except as otherwise
specifically set forth in this Agreement, the costs and expenses of performing
such functions shall be Deductions):

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                    1. Recruit, employ, relocate, manage, supervise, direct and
discharge all employees at the Hotel and maintain adequate staff, consistent
with Prudent Industry Practices and the Annual Operating Projection, to carry
out its duties under this Agreement.

                    2. Establish prices, rates and charges for services provided
in the Hotel, including Guest Room rates, subject to Owner’s prior approval or
as set forth in the Annual Operating Projection.

                    3. Establish and revise, as necessary, administrative
policies and procedures, including employment policies and procedures and
policies and procedures for the control of revenue and expenditures, for the
purchasing of supplies and services, for the control of credit and for the
scheduling of maintenance, and verify that the foregoing procedures are
operating in a sound manner.

                    4. Make payments on accounts payable and collect accounts
receivable.

                    5. Procure (for Owner) all Inventories and replace Fixed
Asset Supplies and otherwise incur customary and reasonable expenses in the
operation of the Hotel, subject to the approved Annual Operating Projection.

                    6. Prepare and deliver Annual Operating Projections,
Accounting Period Statements, Annual Operating Statements, and such other
information as is required by this Agreement.

                    7. Plan, execute and supervise repairs and maintenance at
the Hotel.

                    8. Obtain the insurance required to be obtained by Manager
pursuant to Article VI of this Agreement, subject to the provisions of Section
6.05.

                    9. Obtain and keep in full force and effect, either in its
own name or in Owner’s or Owner’s affiliate’s name, as may be required by
applicable law, any and all licenses (including, without limitation, liquor
licenses which shall be maintained in the name of Manager to the extent
permitted by law) and permits to the extent same is within the control of
Manager (or, if same is not within the control of Manager, Manager shall use
reasonable diligence and efforts to obtain and keep same in full force and
effect).

                    10. Execute subordination agreements, estoppel certificates
and other documentation required by any purchaser or mortgagee and reasonably
cooperate (provided that Manager shall not be obligated to enter into any
amendments of this Agreement) with Owner or Landlord in any attempt(s) by Owner
or Landlord to effectuate a Sale of the Hotel or to obtain a Mortgage.

                    11. At the direction and with the concurrence of Owner,
arrange for and supervise public relations and advertising and prepare marketing
plans.

                    12. Negotiate and enter into, on behalf of Owner, service
contracts and other third party agreements required in the ordinary course of
operating the Hotel, provided that each

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such contract or agreement that requires expenditures in excess of $5,000 or is
not terminable without penalty or fee must first be approved in advance by
Owner.

                    13. Manage and operate the Hotel at all times in compliance
with the Franchise Agreement, including (without limitation) the Manual and the
System Standards (as such terms are defined in the Franchise Agreement).

          B. The operation of the Hotel shall be under the exclusive supervision
and control of Manager, except as otherwise specifically provided in this
Agreement, and Manager shall be responsible for the proper and efficient
operation of the Hotel. In fulfilling its obligations under this Agreement,
Manager will act as a reasonable, prudent operator of the Hotel, having regard
for the status of the Hotel, operating the Hotel in accordance with Prudent
Industry Practices and at all times maintaining and complying with all standards
imposed by the Franchise Agreement, and subject to the foregoing and all other
terms and conditions of this Agreement, shall have discretion in the following:
charges, terms and conditions for Guest Rooms and commercial space; credit
policies and services provided by the Hotel; food and beverage services;
employment policies; granting of leases, subleases, licenses and concessions for
shops and businesses within the Hotel, provided that the term of any such lease,
sublease, license or concession shall not exceed the lesser of one (1) year or
the Term without the prior written approval of Owner; receipt, holding and
disbursement of funds; maintenance of bank accounts; procurement of Inventories,
supplies and services; promotion and publicity; payment of costs and expenses as
are specifically provided for in this Agreement or are otherwise reasonably
necessary for the proper and efficient operation of the Hotel; and, generally,
all activities necessary for operation of the Hotel. With respect to all
Material Management Decisions, Manager shall consult with Owner in advance of
making any such decisions. The term “Material Management Decisions” means a
decision to be made in connection with any expenditure of more than $10,000 for
each item or $50,000 in the aggregate for all such items in any Fiscal Year if
such expenditure is not included in the approved Annual Operating Projection for
such Fiscal Year or if such expenditure would result in an increase in the
overall Annual Operating Projection.

          C. Manager shall comply with and abide by all applicable Legal
Requirements pertaining to its operation of the Hotel. Landlord or Owner shall
have the right, but not the obligation, in its reasonable discretion, to contest
or oppose, by appropriate proceedings, any such Legal Requirements. The
reasonable expenses of any such contest of a Legal Requirement shall be paid
from Gross Revenues as Deductions. Owner or Landlord, as applicable, shall
indemnify and hold Manager harmless from any loss, claim, fees or expenses
(including reasonable attorneys’ fees) arising from the noncompliance with any
Legal Requirement that Owner or Landlord chooses to contest or as to which Owner
does not fund the cost of compliance.

          1.03. Employees

          All personnel employed at the Hotel shall at all times be the
employees of Manager and not the employees of Owner. Manager shall have
reasonable discretion with respect to all personnel employed at the Hotel,
including, without limitation, decisions regarding hiring, promoting,
transferring, compensating, supervising, terminating, directing and training all

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employees at the Hotel, and, generally, establishing and maintaining all
policies relating to employment; provided, however, that (i) Owner shall have
the right to approve the hiring or termination of the persons who occupy the
position of General Manager for the Hotel and (ii) Manager shall not negotiate
or enter into any collective bargaining or other labor agreement with employees
or with any organization representing or claiming to represent employees without
Owner’s prior consent. No person shall be given gratuitous accommodations or
services without prior joint approval of Owner and Manager except in accordance
with policies agreed upon by Owner and Manager. Owner shall not pay for the
relocation costs of any employees except for the cost of relocating the General
Manager; provided, however, that (i) the relocation costs for the General
Manager shall be subject to Owner’s prior approval, which approval shall not be
unreasonably withheld or delayed, and (ii) Manager shall reimburse Owner for the
costs (including relocation costs) of hiring and training General Managers who
are employed at the Hotel for less than one (1) year and are transferred or
relocated except to a hotel owned by Owner or an Affiliate of Owner. As is
consistent with Prudent Industry Practices, Manager shall be responsible and
liable for all acts or omissions of the personnel employed at the Hotel and all
persons managing such employees.

          1.04. Owner’s Right to Inspect.

          Owner, its representatives, employees, agents, Affiliates and
Mortgagees shall have access to the Hotel at any and all reasonable times for
the purpose of inspection, exercising any of its rights under this Agreement or
showing the Hotel to prospective purchasers, tenants or Mortgagees and at any
time in case of an emergency.

          1.05. Regular Meetings.

          At Owner’s request, Owner and Manager shall have meetings at the Hotel
and at mutually convenient times. Manager shall be represented at such meetings
by the General Manager of the Hotel and such other personnel as the Manager
and/or Owner may deem appropriate. The purpose of the meetings shall be, inter
alia, to discuss the performance of the Hotel and other related issues,
including any variations from the Annual Operating Projection for the preceding
quarter.

          1.06. System Standards

          Subject to the availability of adequate funds, Manager shall take such
actions consistent with this Agreement as are necessary for the Hotel to comply
with the System Standards, and Manager shall operate the Hotel so that the Hotel
will at all times comply with System Standards.

          1.07. Limitations on Manager’s Authority

          Manager shall not, without Owner’s prior written approval, enter into
any FF&E Lease if (i) the fair market value of the FF&E subject to such FF&E
Lease at the time of entering into such FF&E Lease exceeds Ten Thousand Dollars
($10,000); (ii) the fair market value of the FF&E subject to all FF&E Leases at
the time of entering into such FF&E Lease exceeds Twenty-five Thousand Dollars
($25,000) in the aggregate; (iii) the FF&E subject to such FF&E Lease is FF&E
that is not, consistent with Prudent Industry Practices, customarily leased;
(iv) such FF&E

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Lease is with an Affiliate of Manager or is on payment terms (including the
amounts and schedule of payments) that would be materially more favorable to the
lessor thereof than payment terms customary under Prudent Industry Practices for
leases of similar FF&E; or (v) such FF&E Lease is not terminable by Owner upon
thirty (30) days’ notice.

          1.08. Representations and Warranties of Manager. Manager hereby
represents and warrants to Owner as follows:

          A. Authority; No Conflicts. Manager is a limited liability company
duly formed, validly existing and in good standing in the state identified in
Schedule 1. Manager has obtained all necessary consents to enter into and
perform this Agreement and is fully authorized to enter into and perform its
obligations under this Agreement. No consent or approval of any person, entity
or governmental authority is required for the execution, delivery or performance
by Manager of this Agreement, and this Agreement is hereby binding and
enforceable against Manager. Neither the execution nor the performance of, or
compliance with, this Agreement by Manager has resulted, or will result, in any
violation of, or default under, or acceleration of, any obligation under any
existing corporate charter, certificate of incorporation, bylaw, articles of
organization, limited liability company agreement or regulations, partnership
agreement or other organizational documents of Manager and under any, mortgage
indenture, lien agreement, promissory note, contract, or permit, or any
judgment, decree, order, restrictive covenant, statute, rule or regulation,
applicable to Manager or, to the best of Manager’s knowledge, to the Hotel.

          B. Bankruptcy. Neither Manager nor any of its Affiliates, is insolvent
or the subject of any bankruptcy proceeding, receivership proceeding or other
insolvency, dissolution, reorganization or similar proceeding.

ARTICLE II

TERM

          2.01. Term.

          The “Term” of this Agreement shall begin on the Effective Date and
shall continue until the expiration date identified in Schedule 1. The Term will
be automatically renewed for up to two (2) one-year periods unless either party
provides notice not less than one hundred twenty (120) days prior to the
expiration of the Term or the initial renewal Term, as the case may be, in which
case this Agreement shall terminate as of the last day of the Term or the
initial renewal term, as applicable. Notwithstanding the foregoing, Manager or
Owner shall have the option to terminate this Agreement at any time from and
after the date that is one hundred eighty (180) days prior to the expiration of
the initial Term, with or without cause, by giving the other party not less than
one hundred eighty (180) days prior written notice of its election to terminate.

          2.02. Performance Termination.

          A. Owner shall have the option to terminate this Agreement following
any Performance Termination Period with respect to which the following occurs:

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                    1. The Operating Profit for the Performance Termination
Period is less than the Performance Termination Threshold; or

                    2. The Revenue Index of the Hotel during the Performance
Termination Period is less than the Revenue Index Threshold for such Performance
Termination Period.

          Owner shall exercise such option to terminate by serving written
notice thereof on Manager no later than sixty (60) days after Owner’s receipt of
the last Accounting Period Statement for Performance Termination Period, and
this Agreement shall terminate as of the end of the second (2nd) full Accounting
Period following the date on which Manager receives the above-described notice
from Owner. Notwithstanding anything contained herein to the contrary, Manager
at its option may elect to void such Termination by so notifying Owner within
such sixty (60) day period; provided, however, that the amount that was
necessary to have achieved the Performance Termination Threshold or Revenue
Index Threshold, as applicable (the “Deficit Amount”) shall be made up to Owner
by either (i) Manager’s paying the Deficit Amount to Owner within ten (10) days
after such 60-day period (the “Cure Payment”) or (ii) offsetting the Deficit
Amount against the Base Management Fees, the Incentive Management Fees and/or
other amounts or reimbursements payable to Manager under this Agreement, as
Owner may direct.

          B. Owner’s failure to exercise its right to terminate this Agreement
pursuant to this Section 2.02 shall not be deemed an estoppel or waiver of
Owner’s right to terminate this Agreement with respect to any subsequent event
or circumstance that could give Owner the right to terminate hereunder.

ARTICLE III

COMPENSATION OF MANAGER

          3.01. Management Fees.

          In consideration of services to be performed during the Term, Manager
shall be paid the sum of the following as its management fees:

          A. the Base Management Fee, which shall be retained by Manager from
Gross Revenues except as otherwise provided in this Agreement; plus

          B. the Incentive Management Fee but only to the extent of available
Operating Profit after payment of Owner’s Priority as provided in Section 3.02
below.

          3.02. Operating Profit.

          A. Operating Profit, to the extent available, shall be distributed to
Owner and to Manager in the following order of priority, except as otherwise
provided in this Agreement:

                    1. An amount up to the maximum amount of Owner’s Priority
shall be paid to Owner;

                    2. The Incentive Management Fee shall be paid to Manager;
and

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                    3. Any remaining balance of Operating Profit shall be paid
to Owner.

          Owner’s Priority shall not be cumulative from one Fiscal Year to the
next, and to the extent the maximum amount of Owner’s Priority is unpaid in any
Fiscal Year, such unpaid amount shall not accrue and shall not be payable in any
subsequent Fiscal Year. Notwithstanding anything in this Agreement to the
contrary, Manager acknowledges and agrees that Incentive Management Fees are
only payable (i) annually within thirty (30) days after Owner’s receipt and
acceptance of the Annual Operating Statement, (ii) to the extent of available
Operating Profit after payment in full of Owner’s Priority and (iii) in no event
shall Incentive Management Fees accrue or be deemed to accrue.

          B. To the extent of available Operating Profit with respect to each
Accounting Period, Manager shall distribute a prorated portion of the Owner’s
Priority to Owner for each such Accounting Period in accordance with Section
4.01. Any Incentive Management Fee payable to Manager will be payable within
thirty (30) days after Owner’s receipt and acceptance of the Annual Operating
Statement.

          3.03 Reimbursables.

          Although Manager shall not be required to advance its own funds for
any purpose under this Agreement, Manager shall, nonetheless, be reimbursed from
Gross Revenues or by Owner for all reasonable amounts advanced by Manager, its
employees, or agents, including, but not limited to, costs paid to third parties
for property specific data processing, third party payroll processing, costs
incurred in complying with the requirements of Section 4.08 hereof, travel and
out-of-pocket expenses, such as postage, facsimile, express courier, and long
distance telephone expenses incurred in the performance of Manager’s duties and
obligations hereunder. Such expenses shall be set forth in the Annual Operating
Projection. The provisions of this Section 3.03 shall survive Termination.

          3.04. Termination Fee.

          A. If this Agreement is terminated by Owner for any reason prior to
the expiration of the Term (including, but not limited to, a termination by
Owner incident to a Sale of the Hotel as provided in Section 9.02 below), other
than (i) a performance termination as provided for in Section 2.02 above or (ii)
in the case of an Event of Default by Manager or (iii) a termination due to an
Operating Loss or (iv) termination as provided in Section 4.08 or (v) a
termination permitted under Article VII, Owner agrees to pay Manager a
“Termination Fee,” as liquidated damages, and not as a penalty, equal to the sum
obtained by multiplying: (1) one-twelfth (1/12) of the annual Base Management
Fee in the amount called for in the current Annual Operating Projection (but in
no event less than the Base Management Fee for the preceding full Fiscal Year)
times (2) the number of months remaining in the Term. Nothing in this paragraph
is intended to imply that Owner has any right to terminate this Agreement except
as is expressly set forth elsewhere herein.

          B. The parties recognize that if this Agreement is terminated under
circumstances that would entitle Manager to a Termination Fee in accordance with
(A) above, Manager would suffer an economic loss by virtue of the loss of
management fees that would otherwise have been

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earned under this Agreement. Because such fees vary in amount depending upon the
Gross Revenues of the Hotel and, accordingly, would be extremely difficult
and/or impractical to ascertain with certainty, the parties agree that the
Termination Fee constitutes a reasonable estimate of such economic loss and is
appropriately delineated as liquidated damages and not as a penalty.

           C. Notwithstanding the foregoing, if in the event of a termination
for which a Termination Fee would otherwise be due, Owner may, in its sole and
absolute discretion, avoid payment of such Termination Fee by, within sixty (60)
days of such termination, by naming Manager as manager for another hotel not
already managed by Manager, provided that such substitute hotel is reasonably
comparable to the Hotel in size, number of rooms, quality of franchise, strength
of geographic market, and gross revenue. If Manager is so appointed as manager
of a substitute hotel, such management shall be pursuant to the terms and
conditions of this Agreement.

          D. The provisions of this Section 3.04 shall survive Termination.

ARTICLE IV

ACCOUNTING, BOOKKEEPING AND BANK ACCOUNTS

          4.01. Accounting, Distributions and Annual Reconciliation.

          A. Within fifteen (15) days after the close of each Accounting Period,
Manager shall deliver an interim accounting (the “Accounting Period Statement”)
to Owner, prepared in accordance with the Uniform System of Accounts, showing
Gross Revenues, Deductions, Operating Profit and applications and distributions
thereof for the preceding Accounting Period and any other information reasonably
requested by Owner. Manager shall transfer to Owner, with each Accounting Period
Statement, any interim amounts due Owner, subject to Working Capital needs
mutually agreed upon by Owner and Manager, and shall retain any interim amounts
payable to Manager pursuant to the terms of this Agreement.

          B. Calculations and payments of the Incentive Management Fee and the
Base Management Fee made with respect to each Accounting Period shall be
accounted for cumulatively within a Fiscal Year, but shall not be cumulative
from one Fiscal Year to the next. Within each SEC Filing Period, Manager shall
deliver to Owner (1) a statement (the “Annual Operating Statement”) in
reasonable detail summarizing the operations of the Hotel for the immediately
preceding Fiscal Year and a certificate of Manager’s chief accounting officer
(or comparable employee) certifying that, to the best of his or her knowledge,
such Annual Operating Statement is true and correct and (2) a statement (the
“Quarterly Operating Statement”) in reasonable detail summarizing the operations
of the Hotel for the immediately preceding calendar quarter and a certificate of
Manager’s chief accounting officer (or comparable employee) certifying that, to
the best of his or her knowledge, such Quarterly Operating Statement is true and
correct. The parties shall, within five (5) Business Days after Owner’s receipt
of such Annual Operating Statement, make any adjustments, by cash payment, in
the amounts paid or retained for such Fiscal Year as are needed because of the
final figures set forth

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in such Annual Operating Statement. Such Annual Operating Statement shall be
controlling over the preceding Accounting Period Statements.

          C. To the extent there is an Operating Loss for any Accounting Period,
unless such loss was due to a force majeure event, no Base Management Fee or
Incentive Management Fee shall be paid to or retained from Gross Revenues by
Manager. Any Base Management Fee that would have been payable to Manager had
there been an Operating Profit for such Accounting Period shall not accrue and
shall not be payable to Manager. In no event shall Incentive Management Fees
accrue, nor shall any Incentive Management Fee be payable to Manager in respect
of any Accounting Period (i) as to which there is an Operating Loss or (ii) as
to which accrued Base Management Fees are payable to Manager.

          To the extent there is an Operating Loss for any Accounting Period,
additional funds in the amount of any such Operating Loss (other than the amount
of any Base Management Fee) shall be provided by Owner within thirty (30) days
after Manager has delivered written notice thereof to Owner. If Owner does not
fund such Operating Loss within the thirty (30) day time period, Manager shall
have the right (without affecting Manager’s other remedies under this Agreement)
to withdraw an amount to cover such Operating Loss from future distributions of
funds otherwise due to Owner. In the event an Operating Loss occurs in respect
of a Fiscal Year, either Owner or Manager may elect to terminate this Agreement.
In no event shall Manager be obligated to invest its own funds to cover any
Operating Loss.

          4.02. Books and Records.

          Books of control and account pertaining to operations at the Hotel
shall be kept on the accrual basis and in all material respects in accordance
with GAAP. Owner may at reasonable intervals and upon giving reasonable advance
notice examine such records during Manager’s normal business hours. If Owner
desires to audit, examine or review the Annual Operating Statement, Owner shall
notify Manager in writing within sixty (60) days after receipt of such Annual
Operating Statement of its intention to audit and begin such audit no sooner
than ten (10) days after Manager’s receipt of such notice. Owner shall use
reasonable efforts to complete such audit within one hundred twenty (120) days
after commencement thereof. If Owner does not make such an audit, then such
Annual Operating Statement shall be deemed to be conclusively accepted by Owner
as being correct, except in the event of manifest error or fraud,
misrepresentation, misconduct or negligence by Manager or its agents, employees,
representatives or contractors or other third parties. If any audit by an
independent certified professional accountant retained by Owner discloses an
understatement of any amounts due Owner, Manager shall promptly pay Owner such
amounts found to be due, plus interest thereon at the Prime Rate plus one
percent (1%) per annum from the date such amounts should originally have been
paid. If any audit discloses that Manager has not received any amounts due it,
Owner shall pay Manager such amounts. The cost of the audit shall be paid by
Owner and be a Deduction; provided, however, Manager shall pay for such cost if
such audit discloses an underpayment to Owner for the Fiscal Year so audited of
five percent (5%) or more of the amount that should have been paid to Owner for
such Fiscal Year. In addition, if the Franchise Agreement requires Owner to pay
interest and/or the cost of an audit to the franchisor on account of an
understatement in reports provided by Manager, Manager shall pay such interest
and costs

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in accordance with the Franchise Agreement without (either directly or
indirectly) passing such charges on to Owner.

          4.03. Accounts, Expenditures.

          A. All funds derived from operation of the Hotel shall be deposited by
Manager in Owner’s bank accounts (the “Operating Accounts”) established by
Manager in a bank or banks designated by Manager with the concurrence of Owner.
Withdrawals by Manager from said Operating Accounts shall be made solely by the
General Manager or the Assistant General Manager of the Hotel, a senior officer
of Manager or such other representatives of Manager whose signatures have been
authorized by Manager with the concurrence of Owner. Reasonable petty cash funds
shall be maintained at the Hotel.

          B. Except as otherwise provided in this Agreement, all payments made
by Manager hereunder shall be made from the Operating Accounts, petty cash
funds, or from the Reserve (in accordance with Section 5.02). Manager shall not
be required to make any advance or payment with respect to the Hotel except out
of such funds, and Manager shall not be obligated to incur any liability or
obligation with respect to the Hotel unless resulting from acts or omissions of
Manager that are in violation of or inconsistent with this Agreement or from
Manager’s negligence or misconduct (each, “Manager’s Liability” and,
collectively, “Manager’s Liabilities”).

          C. Debts and liabilities (other than Manager’s Liabilities) incurred
by Manager as a result of its operation and management of the Hotel pursuant to
the terms hereof, whether asserted before or after Termination, will be paid by
Owner to the extent funds are not available for that purpose from Gross
Revenues, and Owner shall indemnify, defend and hold Manager harmless from and
against all loss, costs, liability, and damage (including, without limitation,
reasonable attorneys’ fees and expenses) arising from Owner’s failure to pay or
perform such debts and liabilities. Manager shall pay, indemnify, defend and
hold Owner harmless from and against all Manager’s Liabilities and all loss,
costs, liability and damage (including, without limitation, reasonable
attorneys’ fees and expenses) arising from Manager’s failure to pay or perform
Manager’s Liabilities. The provisions of this Section 4.03.C shall survive
Termination.

          4.04. Annual Operating Projection.

          Manager shall deliver to Owner for its review, at least forty-five
(45) days prior to the beginning of each Fiscal Year after the first Fiscal Year
following the Effective Date, a preliminary draft of the business plan
(including a proposed budget) and a projection of the estimated Gross Revenues,
departmental profits, Deductions, and Operating Profit for the forthcoming
Fiscal Year for the Hotel (the “Annual Operating Projection”) for approval by
Owner. Manager will consider in good faith suggestions made by Owner with
respect to the Annual Operating Projection and make modifications thereto that
are agreed upon by Owner and Manager. In the case of the Fiscal Year beginning
on the Effective Date, Manager and Owner have already agreed upon the Annual
Operating Projection for such Fiscal Year. Upon approval of the Annual Operating
Projection by Owner and Manager, Manager in good faith shall use best efforts to
adhere to such Annual Operating Projection. In the event Owner and Manager are
unable to agree upon the Annual Operating Projection by the commencement of the
Fiscal Year

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to which it relates, the Manager shall be entitled to operate the Hotel in
accordance with this Agreement with the maximum approved amount of expenditures
to be equal to (i) the aggregate of all items in the proposed budget which are
not disputed by Owner, plus (ii) the sum of the actual expenditures for the
items in dispute in the previous Fiscal Year increased by the increase (if any)
in the CPI on January 1 of the year in question over the CPI on January 1 of the
previous year.

          4.05. Working Capital.

          Owner, as of the Effective Date, shall establish a level of Working
Capital funds, which shall be held in the Operating Accounts, that is reasonably
believed to be reasonably sufficient for the operations of the Hotel, subject at
all times to seasonal differences and changes in circumstances after the
Effective Date. Manager may from time to time during the Term request that Owner
advance any additional funds necessary to maintain Working Capital at levels
reasonably determined by Manager (with the concurrence of Owner) to be necessary
to satisfy the needs of the Hotel. In the event Owner and Manager are unable to
agree upon the need for and/or amount of additional Working Capital within
thirty (30) days after Owner’s receipt of such written notice from Manager,
Manager may increase the amount based on the CPI formula in Paragraph 4.04
above. If Owner and Manager agree upon the need for and amount of additional
Working Capital and thereafter Owner does not so fund additional Working Capital
within ten (10) Business Days after Owner’s receipt of a written request from
Manager to fund such additional Working Capital, Manager shall have the right to
withdraw an amount equal to the funds requested by Manager for additional
Working Capital from future distribution of funds otherwise due to Owner. All
funds so advanced for Working Capital shall be utilized by Manager for the
purposes of this Agreement. Upon Termination, Manager shall immediately return
the outstanding balance of the Working Capital to Owner.

          4.06. Fixed Asset Supplies.

          The parties further recognize that, as of the Effective Date, the
level of funds for Fixed Asset Supplies is reasonably believed to be reasonably
sufficient for the operations of the Hotel, subject at all times to seasonal
differences and changes in circumstances after the Effective Date. Any
additional funds which are necessary to maintain Fixed Asset Supplies at levels
determined by Manager (with the concurrence of Owner) to be necessary to satisfy
the needs of the Hotel, shall be paid from Gross Revenues as Deductions. Fixed
Asset Supplies shall remain the property of Owner throughout the term of this
Agreement and upon Termination.

          4.07. Real Estate and Personal Property Taxes.

          A. Except as specifically set forth in Section 4.07.B below, all real
estate and personal property taxes, levies, assessments (including special
assessments (regardless of when due or whether they are paid as a lump sum or in
installments over time) imposed because of facilities that are constructed by or
on behalf of the assessing jurisdiction (for example, roads, sidewalks, sewers,
culverts, etc.) which directly benefit the Hotel (regardless of whether or not
they also benefit other buildings)), “Impact Fees” (regardless of when due or
whether they are paid as a lump sum or in installments over time) which are
required of Owner as a condition to the issuance of zoning variances or building
permits, and similar charges on or relating to the

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Hotel (collectively, “Impositions”) during the Term shall be paid by Manager
from Gross Revenues, before any fine, penalty, or interest is added thereto or
lien placed upon the Hotel or upon this Agreement, unless payment thereof is in
good faith being contested and enforcement thereof is stayed. Any such payments
shall be Deductions in determining Operating Profit. Owner shall, within five
(5) days after receipt, furnish Manager with copies of official tax bills and
assessments which it may receive with respect to the Hotel. Either Landlord or
Owner may, and at Owner’s request Manager shall, initiate proceedings to contest
any negotiations or proceedings with respect to any Imposition, and all
reasonable costs of any such contest shall be paid from Gross Revenues and shall
be a Deduction in determining Operating Profit. Manager shall, as part of its
contest or negotiation of any Imposition, be entitled, on Owner’s behalf, to
waive any applicable statute of limitations in order to avoid paying the
Imposition during the pendency of any proceedings or negotiations with
applicable authorities. Notwithstanding anything contained herein to the
contrary, at Owner’s option (i) Manager shall establish an escrow account in the
name of Owner in a bank or banks designated by Manager with the concurrence of
Owner and shall deposit monthly into such account from Gross Revenues an amount
that Manager reasonably estimates shall be sufficient to pay the Impositions, in
which case Manager shall pay the Impositions from funds in the escrow account as
and when the Impositions become due (and Owner shall promptly deposit into the
escrow account any deficiency if the estimated monthly payments are not
sufficient to pay all of the Impositions) or (ii) the amounts that would
otherwise be deposited into such escrow account shall be included in the
Operating Profit, not deducted from Gross Revenues and shall be distributed in
cash to Owner along with the remainder of the Owner’s Priority. If Owner elects
to retain such amounts pursuant to clause (ii) above, Manager shall accrue such
amounts as a reserve on the accounting records of the Hotel, and Owner shall
fund the same as and when the Impositions become due, but such accrued and
unfunded amounts shall be deducted from Gross Revenues for purposes of
calculating the Incentive Management Fee. In addition, if any Mortgagee requires
the establishment of an escrow account with respect to the Impositions, Manager
shall comply with such requirements.

          B. The word “Impositions” as used in this Agreement shall not include
any franchise, corporate, estate, inheritance, succession, capital levy or
transfer tax or other assessment or payment in lieu thereof imposed on Owner or
Manager, or any income tax imposed on any income of Owner or Manager (including
distributions to Owner or Manager pursuant to Article III hereof), all of which
shall be paid solely by Owner or Manager, as applicable, not from Gross Revenues
nor from the Reserve.

          4.08. Sarbanes-Oxley Certification.

          A. Owner may, in connection with its or any of its Affiliate’s annual
or quarterly Securities and Exchange Commission reporting requirements (and in
any event no more than four (4) times in any Fiscal Year), request that Manager
deliver to Owner or its Affiliate a certificate from an accounting officer (or
equivalent employee) of Manager, in a form approved by Manager’s accounting
firm, certifying that, to his or her knowledge, the information contained in the
Accounting Period Statements for the Accounting Periods contained within the
applicable Fiscal Year or quarter are true and correct in all material respects,
subject to final adjustment based on the annual review conducted by Manager in
preparing the Annual Operating Statement. Owner shall submit such request in
writing, along with the date by which such

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certificate is to be delivered, not less than five (5) business days prior to
the requested delivery date, and Manager shall deliver the certificate by the
requested date or, if later, within five (5) business days after Manager’s
receipt of Owner’s request.

          B. In connection with Owner’s or its Affiliates’ certifications under
Section 404 (“Section 404”) of the Sarbanes-Oxley Act of 2002, Owner or such
Affiliate shall have the right, at its option:

                    1. Either (i) to require Manager to document its processes
and related internal controls for Owner or such Affiliate to use in its required
documentation under Section 404 or (ii) to have access to Manager’s books and
records relating to the Hotel (including, without limitation, reasonable access
to Manager’s premises) to document Manager’s processes and related internal
controls; and

                    2. Either (i) to require testing by Manager of the controls
identified in clause 1 above or (ii) to have access to Manager’s books and
records relating to the Hotel (including, without limitation, reasonable access
to Manager’s premises) to permit Owner or such Affiliate to test the controls
identified in clause 1 above.

          Manager shall provide Owner’s or such Affiliates’ independent auditors
access to Manager’s books and records relating to the Hotel (including, without
limitation, access to Manager’s premises) to conduct their audit of the testing
performed pursuant to this Section 4.08. If Owner or such Affiliate determine
such controls have weaknesses which should be mentioned in Owner’s or such
Affiliates’ report on internal controls under Section 404 or other
certifications under the Sarbanes-Oxley Act of 2002, Manager shall use
reasonable best efforts to remedy and/or correct identified weaknesses within
thirty (30) days after notice; provided, however, that in the event that Manager
does not so remedy and/or correct such weaknesses within the applicable thirty
(30) day cure period, Owner shall be entitled to terminate this Agreement upon
thirty (30) days prior notice to Manager. Manager shall be responsible for any
costs of Owner or its auditors associated with correcting or retesting any such
weaknesses.

ARTICLE V

REPAIRS, MAINTENANCE AND REPLACEMENTS

          5.01. Repairs and Maintenance to be Paid from Gross Revenues.

          Subject to the availability of adequate funds, Manager shall maintain
the Hotel in good repair and condition, comply with and abide by all applicable
Legal Requirements pertaining to its operation of the Hotel and shall make or
cause to be made such routine maintenance, repairs and minor alterations as it
determines are necessary for such purposes and as required pursuant to the terms
of the Franchise Agreement or by Owner. The phrase “routine maintenance,
repairs, and minor alterations” as used in this Section 5.01 shall include only
those which are normally expensed under generally accepted accounting
principles. The cost of such maintenance, repairs and alterations shall be paid
from Gross Revenues (and not from the Reserve) and shall be treated as a
Deduction.

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          5.02. Repairs, Maintenance and Equipment Replacements to be Paid from
Reserve.

          A. At Owner’s option and request, a reserve account in the name of
Owner (the “Reserve”) shall be established by Manager, in a bank or similar
institution reasonably acceptable to both Manager and Owner, to cover the cost
of:

                    1. Replacements, renewals and additions to the FF&E at the
Hotel; and

                    2. Capital Expenditures.

          B. During the Term, Manager shall transfer into the Reserve the
amount(s) specified in Schedule 1. Transfers into the Reserve shall be made at
the time of each interim accounting described in Section 4.01 hereof. All
amounts transferred to the Reserve shall be deducted from Gross Revenues in
determining Operating Profit and shall be deposited in the special Reserve
account described in Section 5.02.A.

          C. Subject to the availability of adequate funds, Manager at Owner’s
expense shall from time to time make such (1) replacements and renewals to the
FF&E of the Hotel, and (2) Routine Capital Expenditures, as may be agreed upon
by Owner and Manager and as may be required by the Franchise Agreement. At the
end of each Fiscal Year, any amounts remaining in the Reserve shall be carried
forward to the next Fiscal Year. The Reserve will be kept in an interest-bearing
account, and any interest which accrues thereon shall be retained in the
Reserve. Interest which accrues on amounts held in the Reserve, shall not (a)
result in any reduction in the required contributions to the Reserve set forth
in Section 5.02.B above, nor (b) be included in Gross Revenues.

          D. All repairs, alterations, improvements, renewals or replacements
made pursuant to this Article V, and all amounts kept in the Reserve, shall be
the property of Owner, subject to Manager’s rights to apply such funds as
otherwise provided in this Agreement. In addition and notwithstanding anything
contained herein to the contrary, no funds shall be expended for replacements,
renewals and additions to the FF&E, for Routine Capital Expenditures or for any
other capital expenditures unless each such expenditure is included in the
Annual Operating Projection approved by Owner. In the event that Owner requests
that Manager perform capital improvements that are not included in the Annual
Operating Projection, Manager will perform such improvements provided that Owner
and Manager have theretofore agreed upon a mutually satisfactory funding
mechanism to pay for the cost of such improvements. Notwithstanding the
foregoing, in case of threatened damage or destruction to the Hotel or persons
or property thereon due to force majeure or other comparable emergency, Manager
may at Owner’s expense make such repairs, replacements or improvements to the
Hotel as Manager reasonably deems necessary to avoid and/or minimize any such
injury, damage or destruction.

          E. Notwithstanding anything contained herein to the contrary, at
Owner’s option the amounts that would otherwise be deposited into the Reserve
pursuant to this Section 5.02 shall be included in the Operating Profit, not
deducted from Gross Revenues and shall be distributed in cash to Owner along
with the remainder of the Owner’s Priority. In such case, Manager shall accrue
such amounts as a reserve on the accounting records of the Hotel, and Owner
shall fund the same only when required under this Agreement to cover the
appropriate costs actually

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incurred. However, such accrued and unfunded reserves shall be deducted from
Gross Revenues for purposes of calculating the Incentive Management Fee.

          F. Unless otherwise expressly covered by this Article V (including
without limitation in case of emergency as provided in Section 5.02.D.), Manager
shall not make any capital expenditure or improvement without first obtaining
Owner’s prior written consent and approval.

ARTICLE VI

INSURANCE

          6.01. Property Insurance.

          A. Subject to Owner’s prior approval, which shall not be unreasonably
withheld or delayed, and the provisions of Section 6.05, Manager shall,
commencing with the Effective Date and for the duration of the Term, procure and
maintain, using funds deducted from Gross Revenues in determining Operating
Profit, the following insurance and/or such other insurance as may be required
by the Franchise Agreement or approved or required by Owner:

                    1. Insurance on the Hotel (including contents) against loss
or damage by all perils included in “all risk” (as such term is commonly used in
the insurance industry) coverage, in an amount not less than one hundred percent
(100%) of the replacement cost thereof, except that if such 100% replacement
cost coverage is not available on reasonable rates and terms, then such
insurance shall be in an amount not less than ninety percent (90%) of the
replacement cost thereof (less excavation and foundation costs), of the Hotel;

                    2. Insurance against loss or damage from explosion of
boilers, pressure vessels, pressure pipes and sprinklers, to the extent
applicable, installed in the Hotel;

                    3. Business interruption insurance covering loss of profits
and necessary continuing expenses for interruptions caused by any occurrence
covered by the insurance referred to in Section 6.0l.A.1 and 2, for a period of
not less than one (1) year after the occurrence, of a type and in amounts and
with such deductible limits as are agreed upon by Owner and Manager.

                    4. If the Hotel is in an earthquake-prone area, earthquake
insurance as is customary in accordance with local practice.

          B. All policies of insurance required under Section 6.01.A. 1, 2, 3,
and 4 shall insure Owner, Landlord, Manager, and any Mortgagee as named
insureds, and any losses thereunder shall be payable to the parties as and to
the extent their respective interests, if any, may appear.

          6.02. Operational Insurance.

          Subject to Owner’s prior approval, which shall not be unreasonably
withheld or delayed, and the provisions of Section 6.05, Manager shall,
commencing with the Effective Date and for the duration of the Term, procure and
maintain, using funds deducted from Gross Revenues in

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determining Operating Profit, with insurance companies approved by Owner the
following insurance and/or such other insurance as may be required by the
Franchise Agreement or approved or required by Owner:

          A. Workers compensation insurance as may be required under applicable
laws covering all of the employees at the Hotel, with such deductible limits or
self-insured retentions as are agreed upon by Owner and Manager;

          B. Fidelity bonds or crime insurance with respect to Hotel employees
and other employees of Manager handling funds of the Hotel, in an amount
approved by Owner;

          C. Comprehensive general public liability insurance against claims for
all injury, death or property damage occurring on, in, or about the Hotel, and
automobile insurance on vehicles owned or leased by owner and operated in
conjunction with the Hotel, with a combined single limit of not less than Twenty
Million Dollars ($20,000,000) for each occurrence for personal injury, death and
property damage, with such deductible limits as are agreed upon by Owner and
Manager;

          D. Employment practices liability insurance covering
employment-related claims and the legal defense of such claims in amounts as
Manager in its reasonable judgment deems advisable (with the concurrence of
Owner, which shall not be unreasonably withheld or delayed);

          E. Such other insurance, including excess/umbrella coverage, in
amounts as Manager in its reasonable judgment deems advisable (with the
concurrence of Owner, which shall not be unreasonable withheld or delayed) for
protection against claims, liabilities and losses arising out of or connected
with the operation of the Hotel or as reasonably required by a Mortgagee.

          Owner, Manager and Landlord shall be the named insureds with respect
to the insurance described in Section 6.02.C and, to the extent applicable,
Section 6.02.E. Manager shall be the named insured and Owner and Landlord shall
be additional insureds on the policies described in Section 6.02.A, 6.02.B. and
6.02.D.

          6.03. Coverage.

          All insurance described in Sections 6.01 and 6.02 may be obtained by
Manager by endorsement or equivalent means under its blanket insurance policies,
provided that such blanket policies fulfill the requirements specified herein.
Deductible limits shall be as agreed upon by Owner and Manager. No coverage
required hereunder shall be self-insured by Manager or Owner without prior
written approval of Manager and Owner. Owner shall have the right to approve the
insurance policies to be obtained by Manager pursuant hereto and the insurance
companies issuing such policies.

          6.04. Costs and Expenses.

          Insurance premiums and any costs or expenses with respect to the
insurance described in this Article VI shall be Deductions in determining
Operating Profit. Premiums on policies for more than one year shall be charged
pro rata against Gross Revenues over the period of the

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policies. Any reserves, losses, costs, damages or expenses which are uninsured,
or fall within deductible limits, shall be treated as a cost of insurance and
shall be Deductions in determining Operating Profit.

          6.05. Owner’s Right to Provide Insurance. Notwithstanding anything
contained in this Agreement to the contrary, Owner and/or its Affiliates
(including, without limitation, Landlord) shall have the right to procure and
maintain any or all of the property and operational insurance for the Hotel
otherwise required to be maintained by Manager under this Article VI and in lieu
of Manager’s procuring the same, provided that (i) Owner shall give Manager not
less than thirty (30) days notice of Owner’s intent to provide such insurance
and shall provide to Manager upon request certificates of insurance, naming
Manager as an additional insured, evidencing the same (ii) Owner’s insurance
provides reasonably equivalent coverage to Manager’s policies and (iii) such
insurance procured by Owner shall not become effective until the end of the
then-current term of the applicable policy or policies maintained by Manager. In
such case, all of the terms and conditions of this Article VI, to the extent
applicable, shall govern the insurance procured by Owner under this Section
6.05. Without limiting the generality of the foregoing, all insurance premiums
and any costs or expenses with respect to such insurance shall be Deductions in
determining Operating Profit.

          6.06 Waiver of Subrogation. All policies of insurance carried by any
party pursuant to this Agreement shall expressly waive any right on the part of
the insurer against any other party to this Agreement, which right, is hereby
expressly waived to the extent that such waiver is not prohibited by or
violative of any such policy or does not otherwise cause a loss or reduction of
coverage. The parties to this Agreement agree that their policies will include
such waiver clause or endorsement so long as the same shall be obtainable
without unreasonable extra cost.

ARTICLE VII

DAMAGE AND REPAIR

          7.01. Damage and Repair.

          A. If, during the Term, the Hotel is damaged or destroyed by fire,
casualty or other cause, Owner and/or Landlord may elect, in its sole and
absolute discretion, to repair or replace the damaged or destroyed portion of
the Hotel with such modifications as Owner may deem appropriate or as may be
required by law, and Manager shall have the right to discontinue operating the
Hotel to the extent it deems necessary to comply with applicable law, ordinance,
regulation or order or as necessary for the safe and orderly operation of the
Hotel. All proceeds from the insurance described in this Agreement shall be paid
to Owner and/or Landlord, as the case may be. If Owner elects not to repair or
replace said damaged portion of the Hotel, Owner shall so notify Manager by
written notice as soon as reasonable practicable and no later than ninety (90)
days after the date of the casualty.

          B. In the event damage or destruction to the Hotel from any cause
materially and adversely affects the operation of the Hotel and Owner notifies
Manager that Owner will not repair or replace such damage, either party may
terminate this Agreement by at least sixty (60) days prior written notice to the
other party.

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          7.02. Condemnation.

          A. In the event all or substantially all of the Hotel shall be taken
in any eminent domain, condemnation, compulsory acquisition, or similar
proceeding by any competent authority for any public or quasi-public use or
purpose or in the event a portion of the Hotel shall be so taken, but the result
is that either Owner or Manager reasonably determines that it is not feasible to
continue to operate the Hotel in accordance with the standards required by this
Agreement, Owner or Manager may terminate this Agreement as of the effective
date of such taking. All awards and proceeds of any such taking or proceeding
shall belong to Owner and/or Landlord, as the case may be.

          B. In the event this Agreement is not terminated pursuant to Section
7.02.A, such portion of the Hotel that is not so taken shall be repaired or
replaced, with such modifications as Owner may deem appropriate or as may be
required by law, and this Agreement shall continue except as may be otherwise
agreed by the parties. All awards for any such partial taking or condemnation
shall belong to Owner and/or Landlord, as the case may be. Manager shall have
the right to discontinue temporarily operating the Hotel to the extent it deems
necessary for the safe and orderly operation of the Hotel.

          7.03. Business Interruption.

          In the event that the operations of the Hotel are interrupted by the
causes described in Sections 7.01 and 7.02 above, Manager shall nonetheless be
entitled to be paid a Base Management Fee during the period of interruption
equal to one-twelfth (1/12) of the annual Base Management Fee in the amount
called for in the current Annual Operating Projection (but in no event less than
the Base Management Fee for the preceding full Fiscal Year). The Base Management
Fee shall be prorated for any partial period of interruption.

          7.04. Subordination to Mortgage.

          Manager shall provide to any Mortgagee an instrument (the
“Subordination Agreement”), reasonably satisfactory in all respects to Owner and
such Mortgagee, which shall be recordable in the jurisdiction where the Hotel is
located, pursuant to which:

                    1. This Agreement and any extensions, renewals, replacements
or modifications thereto, and all right and interest of Manager in and to the
Hotel, shall be subject and subordinate to such Mortgagee’s Mortgage, with
notice and opportunity to cure rights and post-default cure rights in favor of
Mortgagee;

                    2. Manager shall be obligated to each of the Subsequent
Owners (as defined below) to perform all of the terms and conditions of this
Agreement for the balance of the remaining Term hereof, with the same force and
effect as if such Subsequent Owner were the Owner; and

                    3. In the event that there is a Foreclosure of such Mortgage
in connection with which title or possession of the Hotel is transferred to the
Mortgagee (or its designee) or to a purchaser at foreclosure or to a subsequent
purchaser from the Mortgagee (or from its designee) (all of the foregoing shall
collectively be referred to as “Subsequent Owners”), this Agreement

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may be terminated at the election of such Subsequent Owner as of the date of
such Foreclosure or upon thirty (30) days notice.

          7.05. Liens; Credit.

          Manager and Owner shall use commercially reasonable efforts to prevent
any liens from being filed against the Hotel which arise from any maintenance,
repairs, alterations, improvements, renewals or replacements in or to the Hotel
and shall cooperate fully in obtaining the release of any such liens. If the
lien was not occasioned by the fault of either party, the cost of releasing any
lien shall be treated the same as the cost of the matter to which it relates. If
the lien arises as a result of the fault of either party, then the party at
fault shall bear the cost of obtaining the lien release. In no event shall
either party borrow money in the name of or pledge the credit of the other.

ARTICLE VIII

DEFAULTS

          8.01. Events of Default.

          Each of the following shall, to the extent permitted by applicable
law, constitute an “Event of Default” under this Agreement.

          A. The filing of a voluntary petition in bankruptcy or insolvency or a
petition for reorganization under any bankruptcy law by either party, or the
admission by either party that it is unable to pay its debts as they become due.

          B. The consent to an involuntary petition in bankruptcy or the failure
to vacate, within ninety (90) days from the date of entry thereof, any order
approving an involuntary petition by either party.

          C. The entering of an order, judgment or decree by any court of
competent jurisdiction, on the application of a creditor, adjudicating either
party as bankrupt or insolvent or approving a petition seeking reorganization or
appointing a receiver, trustee, or liquidator of all or a substantial part of
such party’s assets, and such order, judgment or decree’s continuing unstayed
and in effect for an aggregate of sixty (60) days (whether or not consecutive).

          D. The failure of either party to make any payment required to be made
in accordance with the terms of this Agreement, as of the due date as specified
in this Agreement and the failure to cure such default within ten (10) days
after receipt of written notice from the non-defaulting party demanding such
cure, provided that only a two (2) business day notice or cure period shall be
required in the case of payments by Manager of Owner’s Priority or other
distributions of Operating Profit payable to Owner.

          E. Manager, any of its Affiliates or any employee at the Hotel is or
becomes a Specially Designated National or Blocked Person, unless, in the case
of an employee, Manager terminates any such employee promptly after becoming
aware of the same.

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          F. In carrying out its duties hereunder, Manager or an officer,
director, employee, or agent of Manager or its Affiliates commits any act
involving fraud, moral turpitude or willful misconduct relating to the business
or affairs of the Hotel, or commits an act which constitutes a felony.

          G. Any representation or warranty by Manager or any of its Affiliates
in this Agreement or in any certificate or document or financial or other
statement furnished or delivered to Owner or any of its Affiliates at any time
under or in connection with this Agreement shall have been false or
intentionally misleading in any material respect on or as of the date made or
deemed made.

          H. The failure of either party to perform, keep or fulfill any of the
other covenants, undertakings, obligations or conditions set forth in this
Agreement that continues for a period of thirty (30) days after the defaulting
party’s receipt of written notice from the non-defaulting party of said failure,
or, if the default is such that it cannot reasonably be cured within said thirty
(30) day period of time, if the defaulting party fails to commence the cure of
such default within said thirty (30) day period of time or thereafter fails to
diligently pursue such efforts to completion., provided that (i) in the case of
any default by Manager such default is cured not later than ninety (90) days
after Manager’s receipt of such written notice and (ii) only a two (2) business
day notice or cure period shall be required in the case of Manager’s failure to
maintain the insurance required by Article VI.

          8.02. Remedies.

          Upon the occurrence of an Event of Default, the non-defaulting party
shall have the right to pursue any one or more of the following courses of
action: (1) to terminate this Agreement by written notice to the defaulting
party, which termination shall be effective as of the effective date which is
set forth in said notice, provided that said effective date shall be at least
thirty (30) days after the date of said notice in the case of an Event of
Default by Owner; (2) to institute forthwith any and all proceedings permitted
by law or equity including, without limitation (but subject to the provisions of
Section 10.24 hereof), actions for specific performance and/or damages; and/or
(3) to avail itself of the remedies described in Section 8.03.

          8.03. Additional Remedies.

          A. Upon the occurrence of a Default by either party under the
provisions of Section 8.0l.D, the amount owed to the non-defaulting party shall
accrue interest, at an annual rate equal to the Prime Rate plus three (3)
percentage points, from and after the date on which the Default occurred.

          B. The remedies granted under Section 8.02 and Section 8.03 shall not
be in substitution for, but shall be in addition, to, any and all rights and
remedies available to the non-defaulting party (including, without limitation,
injunctive relief and damages) by reason of applicable provisions of law or
equity (except as specifically limited by this Agreement) and shall survive
Termination.

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ARTICLE IX

ASSIGNMENT AND SALE

          9.01. Assignment.

          A. Manager shall not assign or transfer its interest in this Agreement
without the prior written consent of Owner and any franchisor under the
Franchise Agreement. Any assignee consented to by Owner and by such franchisor
shall agree in writing to be bound by and comply with the terms of this
Agreement (such written agreement to be acceptable in form and substance to
Owner and such franchisor). For purposes of the foregoing, a transfer of
Manager’s interest in this Agreement shall include (i) an assignment or pledge
of this Agreement as security for an obligation, (ii) a transfer of any
controlling ownership or beneficial interest, direct or indirect, in Manager,
including any such transfer by operation of law except to an Affiliate and (iii)
a transfer of Manager’s interest in this Agreement by operation of law,
including by merger or consolidation (other than such a transfer to an Affiliate
approved by Owner, which approval shall not be unreasonably withheld).

          B. Owner shall have the right to assign or transfer its interest in
this Agreement without the prior written consent of the Manager (1) as security
for a Mortgage of the Hotel in accordance with this Agreement, (2) in connection
with a sale, assignment, transfer or other disposition of the Hotel by Owner or
Landlord, subject to Section 9.02, and (3) in connection with a merger or
consolidation or reorganization of, or a sale of all or substantially all of the
assets of, Apple REIT Ten, Inc., or any Affiliate thereof.

          C. In the event Owner and the franchisor under the Franchise Agreement
consent to an assignment of this Agreement by Manager, no further assignment or
transfer shall be made without the express consent in writing of such parties.
An assignment by Manager of its interest in this Agreement shall not relieve
Manager from its obligations under this Agreement.

          D. Notwithstanding anything contained herein to the contrary, Manager
shall not assign its interest in this Agreement to a Specially Designated
National or Blocked Person.

          9.02. Sale of the Hotel.

          Owner or Landlord may, in its or their sole and absolute discretion,
enter into any Sale of the Hotel to any Person and, in connection with any such
Sale of the Hotel, may assign this Agreement as provided in Section 9.01.
However, if Owner or Landlord enters into a Sale of the Hotel, either Owner or
Manager may, at its option, terminate this Agreement upon thirty (30) days
notice to the other party upon completion of the Sale of the Hotel. Upon any
such sale or assignment, Owner shall be released of all liabilities and
obligations arising under and with respect to this Agreement on and after the
date of such Sale of the Hotel; provided, however, that Owner shall continue to
be liable for all obligations and amounts due which arise or accrue during the
Term of this Agreement before the date of such Sale of the Hotel, including, but
not limited to, the obligation to pay a Termination Fee as provided in Section
3.04 above but such Termination Fee shall only be payable if Owner (not Manager)
terminates this Agreement upon Sale of the Hotel. Upon the termination of this
Agreement pursuant to this Section 9.02,

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Manager shall be released of all liabilities and obligations arising under and
with respect to this Agreement on and after the date of such termination;
provided, however, that Manager shall continue to be liable for all obligations
and amounts due which arise or accrue during the Term of this Agreement before
the date of such termination.

ARTICLE X

MISCELLANEOUS

          10.01. Right to Make Agreement.

          Each party warrants, with respect to itself, that neither the
execution of this Agreement nor the performance of the transactions contemplated
hereby shall violate any provision of law or judgment, writ, injunction, order
or decree of any court or governmental authority having jurisdiction over it;
result in or constitute a breach or default under any indenture, contract, other
commitment or restriction to which it is a party or by which it is bound; or,
require any consent, vote or approval which has not been taken, or at the time
of the transaction involved shall not have been given or taken. Each party
covenants that it has and will continue to have throughout the Term and any
extensions thereof, the full right to enter into this Agreement and perform its
obligations hereunder.

          10.02. Consents and Cooperation.

          Wherever in this Agreement the consent or approval of Owner or Manager
is required, except as otherwise provided in this Agreement or agreed by the
parties, such consent or approval shall not be withheld, delayed or conditioned,
shall be in writing and shall be executed by a duly authorized officer or agent
of such party. Owner agrees to cooperate with Manager by executing such leases,
subleases, licenses, concessions, equipment leases, service contracts and other
agreements negotiated in good faith and at arm’s length by Manager and
pertaining to the Hotel that, in Manager’s reasonable judgment, should be made
in the name of the Owner, provided that all such agreements shall be subject to
Owner’s prior approval.

          10.03. Relationship.

          The relationship of Owner and Manager shall be that of independent
contractors, and neither this Agreement nor any agreements, instruments,
documents, or transactions contemplated hereby shall in any respect be
interpreted, deemed or construed as making Manager an agent of or partner or
joint venturer with Owner. Owner and Manager agree that neither party will make
any contrary assertion, claim or counterclaim in any action, suit, arbitration
or other legal proceedings involving Owner and Manager. Any contract or
agreement that Manager enters into with an Affiliate of Manager or with a third
party to provide goods or services to the Hotel shall be entered into in the
name of Manager or Owner, provided that no such contract or agreement shall be
entered into in the name of Owner without Owner’s prior written consent and
approval of each such agreement and contract, and Owner shall have no liability
with respect to any contract or agreement entered into in the name of Manager
other than to pay any sums due thereunder which are Deductions or which Owner
otherwise agrees to pay. Notwithstanding anything contained herein to the
contrary, Manager shall defend, indemnify and

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hold Owner harmless from and against any claims by the third party vendor or
supplier under any contract entered into by Manager (a) in the name of Owner
without Owner’s prior written consent and approval or (b) in the name of Manager
without Owner’s prior written consent and/or approval if such consent and/or
approval is required by the terms of this Agreement.

          10.04. Applicable Law; Jurisdiction.

          This Agreement shall be construed under and shall be governed by the
laws of the state in which the Hotel is located, without regard to that state’s
conflict of laws provisions. Each of Owner and Manager hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of the state and (to the extent permitted by law) Federal courts of
such state, and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Agreement, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such state court or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that Owner or
Manager may otherwise have to bring any action or proceeding relating to this
Agreement against the other party in the courts of any other jurisdiction. Each
of Owner and Manager hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement in any court referred to above.
Each of the parties hereto hereby irrevocably waives, to the fullest extent
permitted by law, the defense of an inconvenient forum to the maintenance of
such action or proceeding in any such court.

          10.05. Recordation.

          The terms and provisions of this Agreement shall not run with the
parcel of land designated as the Site, and neither this Agreement nor any
memorandum or short form hereof shall be recorded or registered without the
prior written consent of Owner.

          10.06. Headings.

          Headings of articles and sections are inserted only for convenience
and are in no way to be construed as a limitation on the scope of the particular
articles or sections to which they refer.

          10.07. Notices.

          Notices, statements and other communications to be given under the
terms of this Agreement shall be in writing and delivered by hand against
receipt or sent by certified or registered mail (with a copy by first class
mail) or Express Mail service, in each case postage prepaid, return receipt
requested or by nationally utilized overnight delivery service, addressed to the
parties as follows:

 

 

 

 

To Owner:

Apple Ten Hospitality Management, Inc.

 

 

c/o Apple REIT Companies

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814 E. Main Street

 

 

Richmond, Virginia 23219

 

 

Attn:    Krissy Gathright

 

 

Phone: (804) 727-6323

 

 

Fax:     (804) 727-6353

 

 

 

 

To Manager:

c/o Newport Hospitality Group, Inc.

 

 

4290 New Town Avenue

 

 

Williamsburg, Virginia 23188

 

 

Attn: Michael L. Pleninger

 

 

Fax No.: (757) 221-0400

 

 

 

 

and

 

 

 

 

 

 

c/o Newport Hospitality Group, Inc.

 

 

116 Park Lane

 

 

Concord, Massachusetts 01742

 

 

Attn: Andrew T. Carey

 

 

Fax No.: (978) 318-0332

or at such other address as is from time to time designated by the party
receiving the notice. Any such notice that is mailed in accordance herewith
shall be deemed received when delivery is received or refused, as the case may
be. Additionally, notices may be given by telephone facsimile transmission,
provided that an original copy of said transmission shall be delivered to the
addressee by nationally utilized overnight delivery service on the business day
following such transmission. Telephone facsimiles shall be deemed delivered on
the date of such transmission.

          10.08. Environmental Matters.

          A. Manager shall operate the Hotel in compliance with all applicable
Environmental Laws. Manager shall (i) not use, generate or store any Hazardous
Materials in or on the Hotel except as necessary for the operation and
maintenance of the Hotel and in compliance with the Environmental Laws, (ii) not
allow, permit or cause the release or threat of release of any Hazardous
Materials in, on, under or from the Hotel, except for the ordinary use of
cleaning and maintenance supplies in compliance with applicable Environmental
Laws, (iii) not allow the accumulation of tires, spent batteries, construction
and demolition debris or any other solid waste, except for solid waste generated
from the operation of the Hotel and stored in containers for normal scheduled
pickup and disposal off site in compliance with applicable Environmental Laws
and (iv) use best efforts to operate and maintain the Hotel in a manner to
prevent mold, fungal or other microbial growth or conditions that are favorable
for such growth, including, without limitation, the proper operation and
maintenance of heating, ventilation and air conditioning systems and removal of
any mold, fungal or microbial growth.

          B. In the event of the discovery of a release or threat of release of
Hazardous Materials in, on, under or from any portion of the Hotel during the
Term, Manager shall

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promptly notify Owner and shall take all appropriate actions with regard to such
Hazardous Materials as required of an owner or operator under applicable
Environmental Laws. Manager shall keep Owner apprised of the status of
addressing the release or threat of release of Hazardous Materials, and Owner
shall have the right at any time to assume control of the matter from Manager.

          C. Notwithstanding the foregoing paragraphs, the parties agree that
Manager is not and shall not be the insurer for the Hotel as to environmental
matters and, to that end, Manager shall only be responsible for environmental
remediation necessitated as a result of Manager’s negligence or acts or
omissions (as opposed to Owner’s or a third-party’s negligence, acts or
omissions).

“Environmental Laws” shall mean all federal, state and local environmental,
health and safety laws, rules, regulations, ordinances, permits, orders, common
law or requirements of any governmental authority, including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, 42 U.S.C. §§ 9601, et. seq., as amended; Solid Waste Disposal Act,
42 U.S.C. §§ 6901, et. seq., as amended; Toxic Substances Control Act, 15 U.S.C.
§§ 2601, et. seq., as amended; Hazardous Materials Transportation Act, 49 U.S.C.
§§ 5101, et. seq., as amended; Federal Water Pollution Control Act, 33 U.S.C. §§
1251, et. seq.

“Hazardous Materials” shall mean any hazardous substances, hazardous wastes,
toxic substances, hazardous materials, petroleum or petroleum products,
pollutants or contaminants (as those terms are defined under Environmental
Laws), including, without limitation, polychlorinated biphenyls, lead or
lead-based paint, asbestos or mold in such concentrations or amounts as may
impose clean-up, removal, monitoring or other responsibility under the
Environmental Laws or which may present a significant risk of harm to guests,
invitees or employees of the Hotel.

          10.09. Confidentiality; Projections.

          A. Owner and Manager agree that the terms of this Agreement (but not
its existence) are strictly confidential and will use their reasonable efforts
to ensure that the terms of this Agreement are not disclosed to any outside
person or entities without the prior written consent of the other party, except
(1) as Owner or Manager may determine is required by any law, rule, regulation
or judicial process, or by any regulatory or supervisory authority having
jurisdiction over the parties or any of their Affiliates or (2) to the extent
reasonably necessary, (i) to obtain licenses, permits and other public
approvals, (ii) in connection with a financing of the Hotel, Owner, or any
Affiliate thereof, (iii) in connection with a Sale of the Hotel or other sale of
Owner, or any Affiliate thereof or its or their corporate assets, (iv) subject
to the provisions of Section 4.02, in connection with an audit or other
investigation conducted pursuant to this Agreement or (v) in connection with
either party’s enforcement of its rights and remedies under this Agreement.
Notwithstanding the foregoing or anything to the contrary set forth herein, the
terms of this Agreement shall not be deemed confidential to the extent: (a) such
information becomes generally available to the public other than as a result of
unauthorized disclosure by the recipient or persons to whom such recipient has
made the information available; or (b) the party seeking to disclose such
confidential information can demonstrate to the reasonable satisfaction

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of the other party that the information sought to be disclosed is customarily
disclosed by at least 80% of all Persons directly or indirectly owning hotels in
the United States.

          B. Owner acknowledges that any written or oral projections, pro
formas, or other similar information that has been (prior to execution of this
Agreement) or will (during the Term) be provided by Manager (or any Affiliate of
either) to Owner is for information purposes only, and that Manager, and any
such Affiliate do not guarantee that the Hotel will achieve the results set
forth in any such projections, pro formas, or other similar information. Owner
further acknowledges that any such projections, pro formas, or other similar
information are based on assumptions and estimates, unanticipated events may
occur subsequent to the date of preparation of such projections, pro formas, and
other similar information, and the actual results achieved by the Hotel are
likely to vary from the estimates contained in any such projections, pro formas,
or other similar information and such variations might be material.

          10.10. Indemnification.

          A. Manager hereby agrees to indemnify, defend and hold harmless Owner,
its officers, directors, stockholders, employees, agents and their respective
successors and assigns from and against any and all claims, liabilities,
damages, losses, obligations and costs (including reasonable attorneys’ fees)
arising from (i) Manager’s or any of its Affiliate’s failure to comply with its
obligations under this Agreement and, to the extent provided herein, the
obligations of the franchisee under the Franchise Agreement, (ii) any negligent
act or omission, theft, fraud or willful misconduct of Manager or its Affiliates
and their respective employees or agents and (iii) any claim asserted by any
employee or agent of Manager or its Affiliates, including any claim for
employment discrimination, wrongful termination, violations of law and other
claims asserted by such employees, except, as to any of the items listed in
clauses (i) – (iii) above, to the extent of any costs properly payable from
Gross Revenues as Deductions, to the extent of any costs or claims covered by
insurance and to the extent that the loss or liability giving rise to such claim
was caused directly by Owner’s breach of its obligations under this Agreement.

          B. Owner hereby agrees to indemnify, defend and hold harmless Manager,
its officers, directors, stockholders, employees, agents and their respective
successors and assigns from and against any and all claims, liabilities,
damages, losses, obligations and costs (including reasonable attorneys’ fees)
arising from (i) Owner’s failure to comply with its obligations under this
Agreement, (ii) any theft, fraud or willful misconduct of Owner or its
Affiliates or their respective employees or agents and (iii) any claim asserted
by any employee or agent of Owner or its Affiliates except, as to any of the
items listed in clauses (i)-(iii) above, to the extent the loss or liability
giving rise to such claim was caused directly by Manager’s breach of its
obligations under this Agreement or is covered by insurance.

           C. In agreeing to the provisions relating to liability and indemnity
contained in this Section 10.10, Owner, Landlord, and Manager recognize that
simple mistakes and/or errors in judgment by Manager and the employees of
Manager are ordinary risks of business in the operation of the Hotel and that
Manager is not assuming such risks and shall not be responsible for loss,
liability, or costs resulting therefrom. Further, Manager is not undertaking to
be an insurer against third party claims or the insurer of the profitability of
the Hotel. Furthermore,

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Manager is not assuming any liability for work performed or materials or
equipment supplied by third parties.

          D. Neither Owner, Landlord, nor Manager shall be liable for any
special, indirect, incidental, or consequential damages of any kind in
connection with this Agreement, including without limitation, damages resulting
from loss of profits, lost sales, business or goodwill, whether or not such
party has been advised of the possibility of such damages.

          E. The provisions of this Section 10.10 shall survive Termination.

          10.11. Actions to be Taken Upon Termination.

          Upon a Termination, the following shall be applicable:

          A. All fees or expenses due to Manager for the period before such
Termination shall be paid to Manager. On the effective date of such Termination,
Manager shall cease all activities hereunder on behalf of Owner at the Hotel and
shall have no further obligations hereunder except as to matters arising before
such date and except as otherwise provided in this Agreement. However, Manager
shall cooperate with Owner in the orderly transfer of management to Owner or
Owner’s designated agent or manager.

          B. Manager shall, within forty-five (45) days after Termination,
prepare and deliver to Owner a final accounting statement with respect to the
Hotel, as more particularly described in Section 4.01 hereof, along with a
statement of any sums due from Owner to Manager pursuant hereto, dated as of the
date of Termination. Within thirty (30) days of the receipt by Owner of such
final accounting statement, the parties will make whatever cash adjustments are
necessary pursuant to such final statement. The cost of preparing such final
accounting statement shall be a Deduction, unless the Termination occurs as a
result of an Event of Default by either party, in which case the defaulting
party shall pay such cost. Manager and Owner acknowledge that there may be
certain adjustments for which the information will not be available at the time
of the final accounting and the parties agree to readjust such amounts and make
the necessary cash adjustments when such information becomes available;
provided, however, that all accounts shall be deemed final two (2) years after
Termination.

          C. Manager shall immediately release and transfer to Owner any of
Owner’s funds which are held or controlled by Manager with respect to the Hotel.

          D. Manager shall make available to Owner such books and records
respecting the Hotel (including those from prior years) as will be needed by
Owner to prepare the accounting statements, in accordance with the GAAP, for the
Hotel for the year in which the Termination occurs and for any subsequent year.

          E. Manager shall (to the extent permitted by law) assign to Owner or
to the new manager all operating licenses and permits for the Hotel which have
been issued in Manager’s

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name (including liquor and restaurant licenses, if any); provided that if
Manager has expended any of its own funds in the acquisition of any of any of
such licenses or permits, Owner shall reimburse Manager therefor if it has not
done so already unless such expenditure is a Manager’s Liability.

          F. If this Agreement is terminated by reason of Owner’s Event of
Default, a reasonable reserve shall be established from Gross Revenues to
reimburse Manager for all costs and expenses incurred by Manager in terminating
its employees at the Hotel, such as severance pay, unemployment compensation,
employment relocation and other employee liability costs arising out of the
termination of employment of Manager’s employees at the Hotel. If Gross Revenues
are insufficient to meet the requirements of such reserve, then Owner shall
deliver to Manager, within ten (10) Business Days after receipt of Manager’s
written request therefor, the sums necessary to establish such reserve.

          G. If this Agreement is terminated before the expiration of the Term
for any reason other than an Event of Default by Manager, Manager may submit to
Owner for its approval a budget with respect to expenses anticipated to be
incurred by Manager to terminate its activities at the Hotel. Upon approval of
such budget by Owner, Owner shall deposit the total amount of such budget into
the Hotel’s operating account, and Manager may use such deposit to pay such
expenses. Manager shall provide Owner a final accounting of the foregoing, and
any surplus remaining from such deposit shall be refunded to Owner.

          H. Owner may, at its option, (i) provide Manager and/or the employees
at the Hotel (or require Manager to provide to the employees at the Hotel) at
least sixty (60) days’ notice of a Termination and/or (ii) cause the entity
which shall succeed Manager as the operator of the Hotel to offer employment to
a sufficient number of the employees at the Hotel to avoid the occurrence, in
connection with such Termination, of a “plant closing” or “mass layoff” within
the meaning of the WARN Act. If Owner elects to cause the entity which shall
succeed Manager as operator of the Hotel to offer employment to certain of
Manager’s employees, Manager shall not take any action that would cause such
employees not to continue as employees at the Hotel.

          I. Various other actions shall be taken, as described in this
Agreement, including, but not limited to, the actions described in Section 4.05.

          J. Manager shall peacefully vacate and surrender the Hotel to Owner on
the date of termination unless otherwise agreed to by the parties.

          The provisions of this Section 10.11 shall survive Termination.

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          10.12. Waiver.

          The failure of either party to insist upon a strict performance of any
of the terms or provisions of this Agreement, or to exercise any option, right
or remedy contained in this Agreement, shall not be construed as a waiver or as
a relinquishment for the future of such term, provision, option, right or
remedy, but the same shall continue and remain in full force and effect. No
waiver by either party of any term or provision hereof shall be deemed to have
been made unless expressed in writing and signed by such party.

          10.13. Partial Invalidity.

          If any portion of any term or provision of this Agreement, or the
application thereof to any person or circumstance shall be invalid or
unenforceable, at any time or to any extent, the remainder of this Agreement, or
the application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Agreement shall be valid and be
enforced to the fullest extent permitted by law.

          10.14. Survival.

          Except as otherwise specifically provided in this Agreement or where
required to give effect to a provision of this Agreement or to avoid a
forfeiture, the rights and obligations of the parties herein shall not survive
any Termination.

          10.15. Negotiation of Agreement.

          Owner and Manager are both business entities having substantial
experience with the subject matter of this Agreement, and each has fully
participated in the negotiation and drafting of this Agreement. Accordingly,
this Agreement shall be construed without regard to the rule that ambiguities in
a document are to be construed against the draftsman. No inferences shall be
drawn from the fact that the final, duly executed Agreement differs in any
respect from any previous draft hereof.

          10.16. Estoppel Certificates.

          Each party to this Agreement shall at any time and from time to time,
upon not less than fifteen (15) days’ prior notice from the other party,
execute, acknowledge and deliver to such other party, or to any third party
specified by such other party, a statement in writing: (a) certifying that this
Agreement is unmodified and in full force and effect (or if there have been
modifications, that the same, as modified, is in full force and effect and
stating the modifications); and (b) stating to the best knowledge of the
certifying party (i) whether or not there is a continuing Default or Event of
Default by the non-certifying party in the performance or observance of any
covenant, agreement or condition contained in this Agreement, (ii) the amount,
if any, of any past due fees or other past due amounts owed to Manager or Owner;
and (iii) whether or not there are any past due and unpaid obligations with
respect to the Hotel, other than in the ordinary course of business. Such
statement shall be binding upon the certifying party and may be relied upon by
the non-certifying party and/or such third party specified by the

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non-certifying party as aforesaid. In addition, upon written request after a
Termination, each party agrees to execute and deliver to the non-certifying
party and to any such third party a statement certifying that this Agreement has
been terminated.

          10.17. Affiliates.

          Manager shall not be entitled to contract with companies that are
Affiliates (or companies in which Manager has an ownership interest if such
interest is not sufficient to make such a company an Affiliate) or with third
parties or their Affiliates that have other contractual relationships with
Manager and/or its Affiliates to provide goods and/or services to the Hotel
without the prior written consent of Owner. Notwithstanding the foregoing,
Manager may contract with Affiliates to provide marketing, accounting and human
resource services subject to the conditions that (i) the costs of such services
are included in the Annual Operating Projection approved by Owner and (ii) at
the time Manager submits each Annual Operating Projection to Owner for its
approval, Manager specifically identifies the services to be provided by
Manager’s Affiliates.

          10.18. Blocked Persons or Entities.

          Manager represents and warrants to Owner and covenants for the benefit
of Owner that (i) neither Manager nor any of its Affiliates or any of the
officers, directors, partners or, to Manager’s knowledge, employees of Manager
or its Affiliates, or, to its knowledge, the funding sources for any of the
foregoing, is or will be identified on the list of the U. S. Treasury’s Office
of Foreign Asset Control (“OFAC”); (ii) neither Manager nor any of its
Affiliates is or will be directly or indirectly owned or controlled by the
government of any country that is subject to an embargo imposed by the United
States government; and (iii) neither Manager nor any of its Affiliates is acting
or will act on behalf of a government of, or is involved in business
arrangements or other transactions with, any country that is subject to such an
embargo. Manager will notify Owner in writing immediately upon the occurrence of
any event which would render the foregoing representations and warranties
incorrect.

          10.19. Restrictions on Operating the Hotel in Accordance with System
Standards.

          In the event of either (i) a Legal Requirement, including an order,
judgment or directive by a court or administrative body which is issued in
connection with any Litigation involving Owner, or (ii) any action taken by a
Mortgagee in connection with a Foreclosure, which in either case restricts or
prevents Manager, in a material and adverse manner, from operating the Hotel in
accordance with System Standards (including without limitation, any restrictions
on expenditures by Manager from the Operating Accounts or from the Reserve,
other than restrictions which are set forth in this Agreement), Manager shall be
entitled, at its option, to terminate this Agreement upon sixty (60) days’
written notice to Owner. The foregoing shall not reduce or otherwise affect the
rights of the parties under Article VIII.

          10.20. Counterparts.

          This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, and all of which shall constitute one
and the same instrument. Such

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executed counterparts may be delivered by facsimile which, upon transmission to
the other party, shall have the same force and effect as delivery of the
original signed counterpart. The submission of an unsigned copy of this
Agreement or an electronic instrument with or without electronic signature to
either party shall not constitute an offer or acceptance. This Agreement shall
become effective and binding only upon execution and delivery of this Agreement
in non-electronic form by both parties in accordance with this Section.

          10.21. Entire Agreement.

          This Agreement, together with any other writings signed by the parties
expressly stated to be supplemental hereto and together with any instruments to
be executed and delivered pursuant to this Agreement, constitutes the entire
agreement between the parties and supersedes all prior understandings and
writings, and may be changed only by a written non-electronic instrument that
has been duly executed by the non-electronic (which shall not be deemed to
exclude facsimile) signature of an authorized representative of the parties
hereto.

          10.22. Franchise Agreement.

          During the Term of this Agreement, subject to the availability of
adequate funds, Manager shall perform all of the obligations of Owner as
“Franchisee” under the Franchise Agreement to the extent such obligations relate
to the management or operation of the Hotel, including, without limitation, the
obligations of “Franchisee” under Sections XIII (Accounting and Records) and XIV
(Insurance) of the Franchise Agreement, and Manager shall not commit any act or
omit to take any action that would cause a default by the Franchisee under the
Franchise Agreement. In the event of any inconsistency between the provisions of
this Agreement and the provisions of the Franchise Agreement, the provisions of
the Franchise Agreement shall prevail. Manager shall send promptly to Owner any
and all notices that Manager receives from the Franchisor with respect to the
Hotel or the Franchise Agreement and shall keep Owner fully informed with
respect to all matters that come to Manager’s attention under the Franchise
Agreement. Notwithstanding the foregoing, Manager shall not have the right to
grant any consent, approval or other right reserved to the Franchisee under the
Franchise Agreement or to make any decision or agreement on behalf of Owner
under the Franchise Agreement. In the event the Franchise Agreement is
terminated for any reason, this Agreement shall also terminate effective as of
the date of termination of the Franchise Agreement, unless the parties hereto
agree otherwise.

          10.23. Operation of Other Hotels.

          During the Term and except for the Hotel and the other hotels
described in Schedule 1, neither Manager nor any of its Affiliates shall
acquire, lease, own, manage or operate, directly or indirectly, any hotel, inn,
motel or other type of lodging facility, regardless of whether similar to the
Hotel or whether operated under the same or a different brand, that is a
Competing Hotel without Owner’s prior written consent. In addition, if Manager
or any of its Affiliates shall acquire, lease, own, manage or operate, directly
or indirectly, any hotel, inn, motel or other type of lodging facility,
regardless of whether similar to the Hotel or whether operated under the same or
a different brand, in the same geographic area or market as the Hotel, Manager
shall not permit unfair favoritism in the operation and management of such other
hotels that would

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disadvantage the operation or business of the Hotel (such as, by way of example
only, directing potential Hotel guests to such other hotels instead of to the
Hotel). At Owner’s request, Manager shall provide such information as may
reasonably be requested by Owner to determine if there has been any such unfair
favoritism and, in the event Owner, in its reasonable business judgment,
determines that any such unfair favoritism has occurred, Owner may terminate
this Agreement. For purposes of this Section, a “Competing Hotel” shall mean any
hotel, inn, motel or other type of lodging facility that markets directly to or
makes efforts to attract customers, guests and/or hotel business that would
otherwise do business with the Hotel.

          10.24. Waiver of Jury Trial and Punitive Damages.

          Owner and Manager each hereby absolutely, irrevocably and
unconditionally waive trial by jury and the right to claim punitive damages in
any litigation, action, claim, suit or proceeding, at law or in equity, arising
out of or pertaining to this Agreement or any other agreement, instrument or
document entered into in connection herewith.

          10.25 Termination of the Hotel Lease.

          Landlord represents and agrees that in the event of the cancellation
or termination of the Hotel Lease for any reason, this Agreement shall remain in
full force and effect with Landlord substituted as Owner hereunder.

          10.26 All Payments Subject to Availability of Funds.

          Whenever Manager is required to make a payment hereunder, it is agreed
that such obligation is subject to the availability of adequate operating funds
(or other funds provided by Owner) after the payment of all operating expenses
of the Hotel.

ARTICLE XI

DEFINITION OF TERMS

          11.01. Definition of Terms.

          The following terms when used in this Agreement shall have the
meanings indicated:

          “Accounting Period” shall mean a calendar month.

          “Accounting Period Statement” shall have the meaning ascribed to it in
Section 4.0l.A.

          “Accounting Quarter” shall mean three consecutive Accounting Periods,
the first of which begins on the first day of the Fiscal Year.

          “Affiliate” shall mean, as to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common control
with such Person. For purposes of this

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definition, the term “control” (including the terms “controlling,” “controlled
by” and “under common control with”) of a Person means the possession, directly
or indirectly, of the power: (i) to vote more than fifty percent (50%) of the
voting stock or other beneficial interests of such Person; or (ii) to direct or
cause the direction of the management and policies of such Person, whether
through the Ownership of voting stock, by contract or otherwise.

          “Agreement” shall mean this Management Agreement between Owner and
Manager, including the exhibits attached hereto.

          “Annual Operating Projection” shall have the meaning ascribed to it in
Section 4.04.

          “Annual Operating Statement” shall have the meaning set forth in
Section 4.0l.B.

          “Available Cash Flow” shall mean an amount, with respect to each
Fiscal Year or portion thereof during the Term, equal to the excess, if any, of
the Operating Profit over the Owner’s Priority.

          “Base Management Fee” shall mean an amount payable to Manager as a
Deduction from Gross Revenues for all services provided by Manager pursuant to
this Agreement, except as otherwise expressly provided herein. The Base
Management Fee shall be the percentage of Gross Revenues shown on Schedule 1 for
each Fiscal Year during the Term.

          “Buildings” shall mean the buildings and improvements constituting
that certain hotel more particularly described on Schedule 1 attached hereto and
made a part hereof which is located on the Site.

          “Business Day” shall mean any day other than a Saturday, Sunday or
legal holiday in the Commonwealth of Virginia.

          “Competitive Set” shall mean the group of hotels which are closest in
geographical distance from the Hotel and which are generally within the same
hotel market segment as the Hotel, as described in Schedule 1. If any such
hotels, subsequent to the Effective Date, either changes its chain affiliation
or ceases to operate or otherwise ceases to reflect the general criteria set
forth in the first sentence of this definition, Owner and Manager agree to
mutually, reasonably and in good faith, discuss appropriate changes to the
foregoing list of the hotels that shall comprise the Competitive Set.

          “CPI”, shall mean the Consumer Price Index for All Urban Consumers
(CPI-U) for the U.S. City Average for All Items (1982-1984=100) published by the
Bureau of Labor Statistics, United States Department of Labor; provided,
however, that if such index ceases to be published or is converted to a
different standard or is otherwise revised, the index shall be adjusted by any
then applicable conversion factor, or failing that, by any published price or
cost indices or other published data which are as comparable as possible to the
Index prior to its termination or revision.

          “Cure Payment” shall have the meaning set forth in Section 2.02.A.

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          “Deductions” shall have the meaning ascribed to it in the definition
of Operating Profit.

          “Default” shall mean the occurrence of any event which, with the lapse
of time, the giving of notice or both, would constitute an Event of Default.

          “Effective Date” shall have the meaning ascribed to it in the
Preamble.

          “Environmental Laws” shall have the meaning ascribed to it in Section
10.08.

          “Event of Default” shall have the meaning ascribed to it in Section
8.01.

          “FF&E” shall mean furniture, furnishings, fixtures, soft goods, case
goods, signage, audio-visual equipment, kitchen appliances, vehicles, carpeting
and equipment, including front desk and back-of-the-house computer equipment,
that meet Owner’s capitalization policy consistent with GAAP, but shall not
include Fixed Asset Supplies or Software.

          “FF&E Lease” means a lease of any property other than real property.

          “Fiscal Year” shall mean a calendar year commencing on January 1 and
ending on December 31; provided, however, the first fiscal year commences as of
the Effective Date and ends at midnight on December 31 of that same calendar
year. A partial Fiscal Year between the end of the last full Fiscal Year and the
Termination of this Agreement shall also constitute a separate Fiscal Year. If
Fiscal Year is changed in the future, appropriate adjustment to this Agreement’s
reporting and accounting procedures shall be made; provided, however, that no
such change or adjustment shall alter the term of this Agreement or in any way
reduce the distributions of Operating Profit or other payments due hereunder.

          “Fixed Asset Supplies” shall mean items included within “Property and
Equipment” under the Uniform System of Accounts including, but not limited to,
linen, china, glassware, tableware, uniforms, and similar items, whether used in
connection with public space or Guest Rooms.

          “Foreclosure” shall mean any exercise of the remedies available to a
Mortgagee, upon a default under the Mortgage held by such Mortgagee, which
results in a transfer of title to or possession of the Hotel. The term
“foreclosure” shall include, without limitation, any one or more of the
following events, if they occur in connection with a default under a Mortgage:
(i) a transfer by judicial or non-judicial foreclosure; (ii) a transfer by deed
in lieu of foreclosure; (iii) the appointment by a court of a receiver to assume
possession of the Hotel; (iv) a transfer of either ownership or control of the
Owner, by exercise of a stock pledge or otherwise; (vi) if title to the Hotel is
held by a tenant under a ground lease, an assignment of the tenant’s interest in
such ground lease or (vi) any similar judicial or non-judicial exercise of the
remedies held by the Mortgagee resulting in actual ownership or control of the
Hotel by such Mortgagee or its designee.

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          “Franchise Agreement” shall mean the franchise agreement described on
Schedule 1 attached hereto and made a part hereof, as the same may be amended or
supplemented from time to time.

          “Gross Revenues” shall mean all revenues and receipts of every kind
derived from operating the Hotel and all departments and parts thereof,
including, but not limited to: income (from both cash and credit transactions)
from rental of Guest Rooms, telephone charges, stores, offices, exhibit or sales
space of every kind; license, lease and concession fees and rentals (not
including gross receipts of licensees, lessees and concessionaires); income from
vending machines; income from parking; health club membership fees; food and
beverage sales; wholesale and retail sales of merchandise; and service charges;
provided, however, that Gross Revenues shall not include the following:
gratuities to employees of the Hotel; federal, state or municipal excise, sales
or use taxes or any other taxes collected directly from patrons or guests or
included as part of the sales price of any goods or services; proceeds from the
sale of FF&E; interest received or accrued with respect to the funds in the
Reserve or the other operating accounts of the Hotel; any refunds, rebates,
discounts and credits of a similar nature, given, paid or returned in the course
of obtaining Gross Revenues or components thereof; insurance proceeds;
condemnation proceeds (other than for a temporary taking); or any proceeds from
any Sale of the Hotel or from the financing or refinancing of any debt
encumbering the Hotel.

          “Guest Room” shall mean a separately-keyed lodging unit in the Hotel.

          “Guest Room Revenues” shall mean the portion of Gross Revenues of the
Hotel which is attributed to the rental of Guest Rooms.

          “Hazardous Materials” shall have the meaning ascribed to it in Section
10.08.

          “Hotel” shall mean the Site together with the Buildings and all other
improvements construed or to be constructed on the Site pursuant to this
Agreement, all FF&E and Fixed Asset Supplies installed or located on the Site or
in the Buildings, and all easements or other appurtenant rights thereto.

          “Hotel Lease” shall have the meaning ascribed to it in Recital B.

          “Hotel Purchase Contract” shall have the meaning ascribed to it in
Schedule 1.

          “Impact Fees” shall have the meaning ascribed to it in Section 4.07.A.

          “Impositions” shall have the meaning ascribed to it in Section 4.07.

          “Incentive Management Fee” shall mean an amount payable to Manager,
pursuant to Section 3.01 and Section 4.01, that is set forth in Schedule 1 of
Available Cash Flow in any Fiscal Year (or portion thereof) after payment to
Owner of Owner’s Priority.

          “Initial Term” shall have the meaning ascribed to it in Section 2.01.

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          “Inventories” shall mean “Inventories” as defined in the Uniform
System of Accounts, such as, but not limited to, provisions in storerooms,
refrigerators, pantries and kitchens; beverages in wine cellars and bars; other
merchandise intended for sale; fuel; mechanical supplies; stationery; and other
expensed supplies and similar items.

          “Landlord” shall mean the party identified as “Landlord” in Schedule
1.

          “Legal Requirement(s)” shall mean any federal, state or local law,
code, rule, ordinance, regulation or order of any governmental authority or
agency having jurisdiction over the business or operation of the Hotel or the
matters which are the subject of this Agreement, including, without limitation,
the following: (i) any building, zoning or use laws, ordinances, regulations or
orders; and (ii) Environmental Laws.

          “Litigation” shall mean: (i) any cause of action (including, without
limitation, bankruptcy or other debtor/creditor proceedings) commenced in a
federal, state or local court; or (ii) any claim brought before an
administrative agency or body (for example, without limitation, employment
discrimination claims).

          “Manager” shall have the meaning ascribed to it in the Preamble hereto
or shall mean any permitted successor or assign, as applicable.

          “Manager’s Liability” and “Manager’s Liabilities” shall have the
meanings ascribed to such terms in Section 4.03.B.

          “Mortgage” shall mean any mortgage, deed of trust or similar security
instrument creating a lien on the Hotel.

          “Mortgagee” shall mean the holder of any Mortgage encumbering the
Hotel or the Site.

          “Operating Accounts” shall have the meaning ascribed to it in Section
4.03.A.

          “Operating Loss” shall mean a negative Operating Profit.

          “Operating Profit” shall mean the excess of Gross Revenues over the
following deductions (“Deductions”) incurred by Manager, on behalf of Owner, in
operating the Hotel:

                    1. the cost of sales, including, without limitation,
compensation, fringe benefits, payroll taxes and other costs related to Hotel
employees, provided that the foregoing costs shall not include salaries and
other employee costs of executive personnel of Manager who do not work at the
Hotel on a regular basis, which salaries and costs shall be Manager’s Liability;

                    2. departmental expenses incurred at departments within the
Hotel; administrative and general expenses; the cost of marketing incurred by
the Hotel; advertising and business promotion incurred by the Hotel; heat,
light, and power; computer line charges; and routine repairs, maintenance and
minor alterations treated as Deductions under Section 5.01;

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                    3. the cost of Inventories and Fixed Asset Supplies consumed
in the operation of the Hotel;

                    4. a reasonable reserve for uncollectible accounts
receivable as reasonably determined by Manager with the concurrence of Owner;

                    5. all costs and fees of independent professionals or other
third parties who are retained by Manager with the concurrence of Owner to
perform services required or permitted hereunder;

                    6. all costs and fees of technical consultants and
operational experts who are retained or employed by Manager with the concurrence
of Owner for specialized services (including, without limitation, quality
assurance inspectors) and the reasonable cost of attendance by employees of the
Hotel at training and manpower development programs sponsored by Manager,
provided Owner has approved attendance at programs and the cost thereof;

                    7. the Base Management Fee;

                    8. all royalty, marketing fund, reservation, communication
support, property management system and other similar fees payable to the
Franchisor under the Franchise Agreement;

                    9. insurance costs and expenses as provided in Section 6.04;

                    10. taxes, if any, payable by or assessed against Manager,
Owner or Landlord related to this Agreement or to Manager’s operation of the
Hotel and Impositions (exclusive of Manager’s, Owner’s and Landlord’s income
taxes or franchise taxes and any other similar taxes payable by Manager and all
other taxes, assessments and payments excluded from the definition of
Impositions);

                    11. transfers to the Reserve required pursuant to Section
5.02;

                    12. any costs paid by Manager pursuant to the Franchise
Agreement;

                    13. payments pursuant to FF&E leases or other forms of
financing obtained for the FF&E located in or connected with the Hotel; and

                    14. to the extent approved in advance by Owner, such other
costs and expenses incurred by Manager as are specifically provided for
elsewhere in this Agreement or are otherwise reasonably necessary for the proper
and efficient operation of the Hotel, including without limitation, travel
expenses or supervisory personnel of Manager incurred in connection with
managing the Hotel.

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          The term “Deductions” shall not include (a) debt service payments
pursuant to a Mortgage or (b) rental payments under any Hotel Lease, all of
which shall be paid by Owner from its own funds.

          “Owner” shall have the meaning ascribed to it in the Preamble or shall
mean any successor or assign, as applicable.

          “Owner’s Priority” shall mean the amount shown as Owner’s Priority on
Schedule 1 attached hereto and made a part hereof, per Fiscal Year (prorated for
any partial Fiscal Year). Owner’s Priority for each Fiscal Year shall be paid to
the extent of Operating Profit available in such Fiscal Year, as provided in
Section 3.02 of this Agreement. In the event of any capital expenditures made
with respect to the Hotel after the date of this Agreement that are in excess of
the Reserve, the Owner’s Priority shall be increased (but not decreased) for the
remaining portion of the Fiscal Year in which such capital expenditures are made
and all subsequent Fiscal Years so as to equal a twelve percent (12%) return on
an amount equal to the sum of (i) the purchase price paid by Owner for the Hotel
plus (ii) closing costs (including, without limitation, defeasance costs but
excluding any brokerage fees or expenses incurred by Owner’s parent in
connection with its public equity raise) plus (iii) such excess capital
expenditures.

          “Performance Termination Period” shall have the meaning ascribed to it
in Schedule 1.

          “Performance Termination Threshhold” shall have the meaning ascribed
thereto in Schedule 1.

          “Person” means an individual (and the heirs, executors,
administrators, or other legal representatives of an individual), a partnership,
a corporation, limited liability company, a government or any department or
agency thereof, a trustee, a trust and any unincorporated organization.

          “Prime Rate” shall mean the “prime rate” of interest announced from
time to time in the “Money Rates” section of The Wall Street Journal.

          “Prudent Industry Practice” shall mean the customary practices of the
hotel industry in the United States for hotels comparable to the Hotel. To the
extent inconsistent with the requirements of the Franchise Agreement, such
practices shall be conformed to the requirements of the Franchise Agreement for
purposes of this Agreement.

          “Quarterly Operating Statement” shall have the meaning set forth in
Section 4.0l.B.

          “Reserve” shall have the meaning ascribed to it in Section 5.02A.

          “Revenue Data Publication” shall mean Smith’s STAR Report, a monthly
publication distributed by Smith Travel Research, Inc. of Gallatin, Tennessee,
or an alternative source, reasonably satisfactory to both parties, of data
regarding the Revenue Per Available Room of hotels in the general trade area of
the Hotel. If such Smith’s STAR Report is discontinued in the

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future, or ceases (in the reasonable opinion of either Owner or Manager) to be a
satisfactory source of data regarding the Revenue Per Available Room of various
hotels in the general trade area of the Hotel, Owner and Manager shall select an
alternative source for such data. If the parties fail to agree on such
alternative source within a reasonable period of time, either party may
terminate this Agreement upon sixty (60) days prior written notice to the other
party.

          “Revenue Index” shall mean that fraction that is equal to (a) the
Revenue Per Available Room for the Hotel divided by (b) the average Revenue Per
Available Room for the hotels in the Competitive Set, as set forth in the
Revenue Data Publication. Appropriate adjustments to the Revenue Index,
acceptable to Owner in its reasonable discretion, shall be made in the event of
a major renovation of the Hotel.

          “Revenue Index Threshold” shall mean the number shown on Schedule 1
attached hereto and made a part hereof. However, if the entry of a new hotel
into the Competitive Set (or the removal of a hotel from the Competitive Set)
causes significant variations in the Revenue Index that do not reflect the
Hotel’s true position in the relevant market, appropriate adjustments shall be
made to the Revenue Index Threshold by mutual consent of Owner and Manager each
acting in good faith.

          “Revenue Per Available Room” shall mean (i) the term “revenue per
available room” as defined by the Revenue Data Publication, or (ii) if the
Revenue Data Publication is no longer being used (as more particularly set forth
in the definition of “Revenue Data Publication”), the aggregate gross room
revenues of the hotel in question for a given period of time divided by the
total room nights for such period. If clause (ii) of the preceding sentence is
being used, a “room” shall be an available hotel guestroom that is keyed as a
single unit.

          “Routine Capital Expenditures” shall mean certain routine, non-major
expenditures which are classified as “capital expenditures” under
generally-accepted accounting principles, and which will be funded from the
Reserve (pursuant to Section 5.02). Routine Capital Expenditures consist of the
following types of expenditures: exterior and interior painting; resurfacing
building walls and floors; resurfacing parking areas; and miscellaneous similar
expenditures. Routine Capital Expenditures are not non-routine capital
expenditures or major repairs or major alterations or improvements.

          “Sale of the Hotel” shall mean any sale, assignment, transfer or other
disposition, for value or otherwise, voluntary or involuntary, of the Site
and/or the Hotel or any interest therein, in whole or part. For purposes of this
Agreement, a Sale of the Hotel shall also include a lease (or sublease) of all
or substantially all of the Hotel or Site or any interest therein. Sale of the
Hotel shall exclude related party transactions with Affiliates of Owner and
shall also exclude granting of security interests in the Hotel or any part
thereof in connection with financing.

          “SEC Filing Period” shall mean such period of time (a) (not to exceed
thirty (30) days) after the close of each Fiscal Year within which Owner must
receive the Annual Operating Statement from Manager with respect to such Fiscal
Year and (b) (not to exceed twenty (20) days) after the close of each calendar
quarter of a Fiscal Year within which Owner must receive the Quarterly Operating
Statement from Manager with respect to such quarter, in each case in order for
Owner to have a reasonable period of time within which to prepare and make all

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required filings with the Securities and Exchange Commission and other
applicable governmental agencies.

          “Site” shall mean the real property described on Exhibit A attached
hereto and made a part hereof.

          “Software” shall mean all computer software and accompanying
documentation (including all future upgrades, enhancements, additions,
substitutions and modifications thereof), other than computer software which is
generally commercially available, which are used by Manager in connection with
operating or otherwise providing services to the Hotel.

          “Specially Designated National or Blocked Person” shall mean (i) a
person designated by the U.S. Department of Treasury’s Office of Foreign Assets
Control from time to time as a “specially designated national or blocked person”
or similar status, (ii) a person described in Section 1 of U.S. Executive Order
13224 issued on September 23, 2001, or (iii) a person otherwise identified by
government or legal authority as a person with whom Manager or its Affiliates
are prohibited from transacting business. Currently, a listing of such
designations and the text of the Executive Order are published under the
internet website address www.ustreas.gov/offices/enforcement/ofac.

          “Subordination Agreement” shall have the meaning ascribed to it in
Section 7.04.

          “Subsequent Owners” shall have the meaning ascribed to it in Section
7.04.

          “System” shall have the meaning set forth in the Franchise Agreement.

          “System Standards” shall mean any one or more (as the context
requires) of the following three (3) categories of standards: (i) operational
standards (for example, services offered to guests, quality of food and
beverages, cleanliness, staffing and employee compensation and benefits,
frequent traveler programs and other similar programs; (ii) physical standards
(for example, quality of the hotel, FF&E, and Fixed Asset Supplies, frequency of
FF&E replacements, etc.); and (iii) technology standards (for example, those
relating to software, hardware, telecommunications, systems security and
information technology); each of such standards shall be the standard which is
generally prevailing or in the process of being implemented at other hotels in
the System represented by the Franchise Agreement.

          “Term” shall have the meaning ascribed to it in Section 2.01.

          “Termination” shall mean the expiration or sooner cessation of this
Agreement.

          “Trade Name” shall mean any name, whether informal (such as a
fictitious name or d/b/a) or formal (such as the full legal name of a
corporation or partnership) which is used to identify an entity.

          “Uniform System of Accounts” shall mean the Uniform System of Accounts
for the Lodging Industry, Ninth Revised Edition, 1996, as published by the
Educational Institute of the American Hotel & Motel Association, as revised.

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          “WARN Act” shall mean the Worker Adjustment and Retraining
Notification Act, 29 U.S.C. 2101 et seq.

          “Working Capital” shall mean funds that are used in the day-to-day
operation of the business of the Hotel, including, without limitation, amounts
sufficient for the maintenance of change and petty cash funds, amounts deposited
in operating bank accounts, receivables, amounts deposited in payroll accounts,
prepaid expenses and funds required to maintain Inventories, less accounts
payable and accrued current liabilities.

ARTICLE XII

SUPPLEMENTAL PROVISIONS

          All of the terms, conditions, representations, warranties, covenants
and other provisions, if any, set forth in the supplemental provisions attached
hereto as Schedule 2 (the “Supplemental Provisions”) are hereby incorporated
into this Agreement and shall be considered a part hereof. In the event of any
conflict or inconsistency between the Supplemental Provisions and the other
provisions of this Agreement, the Supplemental Provisions shall control.

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          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed under seal as of the day and year first written above.

 

 

 

 

 

 

OWNER:

 

 

 

 

APPLE TEN HOSPITALITY MANAGEMENT, INC., a
Virginia corporation

 

 

 

 

By:

/s/ Justin G. Knight

 

 

 

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Name: Justin G. Knight

 

Title: President

 

 

 

 

MANAGER:

 

 

 

 

NEWPORT CHARLOTTE MANAGEMENT, LLC,
a Virginia limited liability company

 

 

 

 

By:

/s/ Michael L. Pleninger

 

 

 

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Name: Michael L. Pleninger

 

Title: Manager

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SCHEDULE 1

HOTEL SPECIFIC DATA

1. Description of Hotel: That certain hotel known as the Fairfield Inn & Suites
Charlotte Matthews, containing 94 guestrooms and guest suites, a lobby, meeting
rooms, administrative offices, parking and certain amenities and related
facilities located on the Site, including the following:

 

 

 

a. Number of Guest Rooms: 94

 

 

 

b. Other Improvements/Amenities: meeting space; full service business center;
indoor swimming pool; whirlpool; exercise room; wireless high speed internet
access.

 

 

2.

Franchise Agreement: Franchise Agreement between Apple Ten Hospitality
Management, Inc. and Marriott International, Inc., dated March 25, 2011

 

 

3.

Competitive Set:

 

 

12283

Comfort Inn Matthews

32347

Hampton Inn Charlotte Matthews

35396

Courtyard Charlotte Matthews

42419

Country Inn & Suites Matthews

59714

Holiday Inn Express & Suites Charlotte SE Matthews

 

 

4.

Landlord: Apple Ten North Carolina, L.P.

 

 

5.

Base Management Fee: Three percent (3%)

 

 

6.

a. Incentive Management Fee: 20% of available cash flow after payment of Owner’s
Priority

 

 

 

b. Owner’s Priority: $1,200,000 (12% of Purchase Price [$10,000,000])

 

 

7.

a. Performance Termination Threshold: Year 1: $800,000 (8% of Purchase Price);
Year 2: $900,000 (9% of Purchase Price); Year 3 and thereafter: $1,000,000 (10%
of Purchase Price)

 

 

 

b. Performance Termination Period: Any calendar year; provided, however, the
initial Performance Termination Period shall begin on January 1, 2012.

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8.

Revenue Index Threshold: 100%

 

 

9.

Hotel Purchase Contract: N/A

 

 

10.

Expiration Date of Term: Five (5) years from the Effective Date

 

11.

State in which Manager is Organized: Virginia

 

 

12.

FF&E Reserve: An amount equal to five percent (5%) of Gross Revenues for each
Accounting Period.

 

 

13.

Other Hotels: None

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SCHEDULE 2

1. Franchise Agreement. During the Term of this Agreement, subject to the
availability of adequate funds, Manager shall perform all of the obligations of
Owner as “Franchisee” under the Franchise Agreement to the extent such
obligations relate to the management or operation of the Hotel, including,
without limitation, the obligations of “Franchisee” under Sections XIII
(Accounts and Receipts) and XIV (Insurance) of the Franchise Agreement, and
Manager shall not commit any act or omit to take any action that would cause a
default by the Franchisee under the Franchise Agreement. In the event of any
inconsistency between the provisions of this Agreement and the provisions of the
Franchise Agreement, the provisions of the Franchise Agreement shall prevail.
Manager shall send promptly to Owner any and all notices that Manager receives
from the Franchisor with respect to the Hotel or the Franchise Agreement and
shall keep Owner fully informed with respect to all matters that come to
Manager’s attention under the Franchise Agreement. Likewise, Owner shall send
promptly to Manager any and all notices that Owner receives from the Franchisor
with respect to the Hotel or the Franchise Agreement that would require action
or compliance on the part of Manager. Notwithstanding the foregoing, Manager
shall not have the right to grant any consent, approval or other right reserved
to the Franchisee under the Franchise Agreement or to make any decision or
agreement on behalf of Owner under the Franchise Agreement. In the event the
Franchise Agreement is terminated for any reason, this Agreement shall also
terminate effective as of the date of termination of the Franchise Agreement,
unless the parties hereto agree otherwise.

[FOR HILTON BRANDS:] During the Term of this Agreement, subject to the
availability of adequate funds, Manager shall perform all of the obligations of
Owner as “Licensee” under the Franchise Agreement to the extent such obligations
relate to the management or operation of the Hotel, including, without
limitation, the obligations of “Licensee” under Paragraphs 6, 7 and 8 of the
Franchise Agreement, and Manager shall not commit any act or omit to take any
action that would cause a default by the Licensee under the Franchise Agreement.
In the event of any inconsistency between the provisions of this Agreement and
the provisions of the Franchise Agreement, the provisions of the Franchise
Agreement shall prevail. Manager shall send promptly to Owner any and all
notices that Manager receives from the Franchisor with respect to the Hotel or
the Franchise Agreement and shall keep Owner fully informed with respect to all
matters that come to Manager’s attention under the Franchise Agreement.
Notwithstanding the foregoing, Manager shall not have the right to grant any
consent, approval or other right reserved to the Licensee under the Franchise
Agreement or to make any decision or agreement on behalf of Owner under the
Franchise Agreement. In the event the Franchise Agreement is terminated for any
reason, this Agreement shall also terminate effective as of the date of
termination of the Franchise Agreement, unless the parties hereto agree
otherwise.

2. Accounting Period. For purposes of this Agreement, the term “Accounting
Periods” shall mean a calendar month, except that the first Accounting Period
shall begin on the Effective Date and shall end on the last day of the calendar
month in which the Effective Date occurs.

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3. Fiscal Year. [FOR MARRIOTT BRANDS:] For purposes of this Agreement, the term
“Fiscal Year” shall mean the fiscal year as of the Effective Date that ends at
midnight on the Friday closest to December 31 in each calendar year; the new
Fiscal Year begins on the Saturday immediately following said Friday. Any
partial Fiscal Year between the Effective Date and the commencement of the first
full Fiscal Year shall constitute a separate Fiscal Year and shall be deemed the
first Fiscal Year. A partial Fiscal Year between the end of the last full Fiscal
Year and the Termination of this Agreement shall also constitute a separate
Fiscal Year.

[FOR HILTON BRANDS:] For purposes of this Agreement, the term “Fiscal Year”
shall mean, initially, the period beginning as of the Effective Date and ending
at midnight on the following December 31 and thereafter each calendar year
during the Term. Any partial Fiscal Year between the Effective Date and the
commencement of the first full Fiscal Year shall constitute a separate Fiscal
Year and shall be deemed the first Fiscal Year. A partial Fiscal Year between
the end of the last full Fiscal Year and the Termination of this Agreement shall
also constitute a separate Fiscal Year.

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EXHIBIT A

LEGAL DESCRIPTION OF SITE

BEGINNING at a #5 rebar found in the southwest right-of-way line of Independence
Boulevard (a 200-foot existing I right-of-way), and said beginning point being
further described as the northeast comer of the property of the Department of
Transportation (now or formerly) known as P1D #193-112-04 as described in Deed
Book 6336, Page 250, Mecklenburg County Registry, and thence from said beginning
point with the northern boundary line of the said Department of Transportation
property, South 61” 54’ 5]” West 166.66 feet to a #4 rebar found, said rebar
being the L northwest comer of the said Depar1ment of Transportation property;
thence with the southwest boundary line of the said Department of Transportation
property, along a curve to the left having a chord bearing and distance of South
29” 21’ 48” East 157.24 feet (said curve having a radius of 3,429.02 feet and an
arc length of 157.25 feet) to a #4 rebar found, said rebar being a common comer
of the Hiran Hospitality, Inc. property (now or formerly) known as PID
#193-112-02 as described ill Deed Book 19939, Page 21, Mecklenburg County
Registry; thence with the I northern boundary line of the said Hiran
Hospitality, Inc. property, South 55” 0&’ 31” West 408.95 feet to a #4 rebar
found (disturbed), said rebar being the westernmost comer of the said Hiran
Hospitality, Inc. property and said rebar being North 430 38’ 42” East 633.20
feet from a PK nail, and said #4 rebar being in the eastern right-of-way line of
an access easement; thence with the eastern right-of-way line of said access
easement, North 34° 51’ 29” West 268.19 feet to a PK nail found within said
access easement; thence on a line that is approximately the center line of the
said access easement, North 55° 08’ 31” East 589.44 feet to a PK nail in the
western right-of-way line of Independence Boulevard; thence with the western
right-of-way line of Independence Boulevard, South 34” 53’ 22” East 131.33 feet
to the POINT AND PLACE OF BEGINNING, and containing 3.043 acres as shown on a
survey p, dated June 6, 2008 by Hugh E. White, Jr., Professional Land Surveyor.

Being the same property conveyed to the Grantor in Deed Book 23584, Page 304,
Mecklenburg County Registry.

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