Exhibit 10.13

 

LEASE AGREEMENT

 

DATED AS OF DECEMBER 21, 2004

 

BETWEEN

 

PHILADELPHIA HOTEL ASSOCIATES LP

 

AS LESSOR

 

AND

 

MHI HOSPITALITY TRS, LLC

AS LESSEE

 

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TABLE OF CONTENTS

 

Article 1 LEASED PROPERTY; TERM

     4   

  1.1  

  

Leased Property

     4   

  1.2  

  

Term

     5   

Article 2 DEFINITIONS

     5   

  2.1  

  

Definitions

     5   

Article 3 BASE RENT; PERCENTAGE RENT; ADDITIONAL CHARGES

     16   

  3.1  

  

Rent

     16   

  3.2  

  

Confirmation of Percentage Rent

     18   

  3.3  

  

Additional Charges

     19   

  3.4  

  

Net Lease Provision

     19   

  3.5  

  

Conversion of Property

     20   

Article 4 IMPOSITIONS

     20   

  4.1  

  

Payment of Impositions

     20   

  4.2  

  

Notice of Impositions

     21   

  4.3  

  

Adjustment of Impositions

     21   

  4.4  

  

Utility Charges

     21   

Article 5 NO TERMINATION; ABATEMENT

     21   

  5.1  

  

No Termination, Abatement, etc.

     21   

  5.2  

  

Abatement Procedures

     22   

Article 6 PERSONAL PROPERTY; LANDLORD’S LIEN

     22   

  6.1  

  

Ownership of the Leased Property

     22   

  6.2  

  

Lessee’s Personal Property

     22   

  6.3  

  

Lessor’s Lien

     23   

Article 7 CONDITIONS; USE

     23   

  7.1  

  

Condition of the Leased Property

     23   

  7.2  

  

Use of the Leased Property

     24   

  7.3  

  

Lessor to Grant Easements, etc.

     24   

Article 8 COMPLIANCE WITH APPLICABLE LAWS

     25   

  8.1  

  

Compliance with Legal and Insurance Requirements, etc.

     25   

  8.2  

  

Legal Requirement Covenants

     25   

  8.3  

  

Environmental Covenants

     26   

Article 9 MAINTENANCE AND REPAIRS

     28   

  9.1  

  

Maintenance and Repair

     28   

  9.2  

  

Encroachments, Restrictions, etc.

     29   

Article 10 ALTERATIONS

     29   

10.1  

  

Alterations

     29   

Article 11 PROHIBITED LIENS AND ENCUMBRANCES

     29   

11.1  

  

Liens

     29   

Article 12 PERMITTED CONTESTS

     30   

12.1  

  

Permitted Contests

     30   

Article 13 INSURANCE REQUIREMENTS

     31   

13.1  

  

General Insurance Requirements

     31   

13.2  

  

Replacement Cost

     32   

13.3  

  

Waiver of Subrogation

     33   

13.4  

  

Form Satisfactory, etc.

     33   

13.5  

  

Increase in Limits

     33   

13.6  

  

Blanket Policy

     33   

13.7  

  

No Separate Insurance

     33   

 

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Article 14 INSURANCE PROCEEDS

     34   

14.1  

  

Insurance Proceeds

     34   

14.2  

  

Reconstruction in the Event of Damage or Destruction Covered by Insurance

     34   

14.3  

  

Reconstruction in the event of Damage or Destruction not covered by Insurance

     35   

14.4  

  

Lessee’s Property

     35   

14.5  

  

Abatement of Rent

     35   

14.6  

  

Damage near end of Term

     35   

14.7  

  

Waiver

     35   

Article 15 CONDEMNATION; TAKING

     36   

15.1  

  

Definitions

     36   

15.2  

  

Parties’ Rights and Obligations

     36   

15.3  

  

Total Taking

     36   

15.4  

  

Allocation of Award

     36   

15.5  

  

Partial Taking

     36   

15.6  

  

Temporary Taking

     37   

Article 16 EVENTS OF DEFAULT; REMEDIES; DAMAGES

     38   

16.1  

  

Events of Default

     38   

16.2  

  

Surrender

     39   

16.3  

  

Damages

     39   

16.4  

  

Waiver

     40   

16.5  

  

Application of Funds

     40   

Article 17 LESSOR’S RIGHT TO CURE

     41   

17.1  

  

Lessor’s Right to Cure Lessee’s Default

     41   

Article 18 RESERVED

     41   

Article 19 REIT REQUIREMENTS

     41   

19.1  

  

REIT Requirements

     41   

19.2  

  

Lessee Officer and Employee Limitation

     42   

19.3  

  

Management Agreement

     43   

Article 20 HOLDING OVER

     43   

20.1  

  

Holding Over

     43   

Article 21 RISK OF LOSS

     44   

21.1  

  

Risk of Loss

     44   

Article 22 INDEMNIFICATION

     44   

22.1  

  

Indemnification

     44   

Article 23 SUBLETTING AND ASSIGNMENT

     45   

23.1  

  

Subletting and Assignment

     45   

23.2  

  

Attornment

     45   

Article 24 REPORTING AND CERTIFICATION REQUIREMENTS

     46   

24.1  

  

Officer’s Certificates; Financial Statements; Budgets; Lessor’s Estoppel
Certificates and Covenants

     46   

24.2  

  

Operating Budget

     46   

24.3  

  

Capital Budget

     47   

Article 25 LESSOR’S DEFAULT; CURE RIGHTS

     48   

25.1  

  

Lessee’s Right to Cure

     48   

25.2  

  

Breach by Lessor

     48   

Article 26 NOTICES

     48   

26.1  

  

Notices

     48   

 

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Article 27 MISCELLANEOUS PROVISIONS

     49   

27.1  

  

Transfer of Licenses

     49   

27.2  

  

Early Termination Rights; Termination Fees

     49   

27.3  

  

Substitution of Initial Hotel

     49   

27.4  

  

Compliance with Franchise Agreement

     49   

27.5  

  

Lessor’s Right to Inspect

     50   

27.6  

  

Conveyance by Lessor

     50   

27.7  

  

Lessor may Grant Liens

     50   

27.8  

  

Non Disturbance Agreement

     50   

27.9  

  

Waiver of Presentment, etc.

     50   

27.10

  

Memorandum of Lease

     50   

27.11

  

Usury

     50   

27.12

  

No Waiver

     51   

27.13

  

Remedies Cumulative

     51   

27.14

  

Acceptance of Surrender

     51   

27.15

  

No Merger of Title

     51   

27.16

  

Quiet Enjoyment

     51   

27.17

  

Binding Effect

     51   

27.18

  

Entire Agreement; No Offer

     51   

27.19

  

Severability

     52   

27.20

  

Counterparts

     52   

27.21

  

Governing Law

     52   

27.22

  

Recitals; Headings

     52   

27.23

  

Survival

     52   

27.24

  

Exhibits

     53   

Exhibit A Land

     55   

Exhibit B Base Rent and Percentage Rent

     56   

Exhibit C Management Agreement

     57   

 

3

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LEASE AGREEMENT

 

THIS LEASE AGREEMENT (hereinafter called “Lease”), is made as of the 21st day of
December, 2004, by and between Philadelphia Hotel Associates LP, a Pennsylvania
limited partnership (hereinafter called “Lessor”), and MHI Hospitality TRS, LLC,
a Delaware limited liability company (hereinafter called “Lessee”), and provides
as follows:

 

WITNESSETH:

 

Lessor owns fee title to the Leased Property (as defined below); and

 

Lessor desires to lease to Lessee and Lessee desires to lease from Lessor, the
Leased Property, pursuant to the terms and conditions of this Lease.

 

NOW, THEREFORE, intending to be legally bound, Lessor, in consideration of the
payment of rent by Lessee to Lessor, the covenants and agreements to be
performed by Lessee, and upon the terms and conditions hereinafter stated, does
hereby rent and lease unto Lessee, and Lessee does hereby rent and lease from
Lessor, the Leased Property, as follows:

 

ARTICLE 1

 

LEASED PROPERTY; TERM

 

1.1 Leased Property. The Leased Property is comprised of all of Lessor’s right,
title and interest in that certain hotel located at 4501 Island Avenue,
Philadelphia, PA in Philadelphia County, Pennsylvania and known as the “Hilton,
Philadelphia Airport”:

 

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

 

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

 

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

 

(d) all equipment, machinery, fixtures, and other items of property required or
incidental to the use of the Improvements as a hotel, including all components
thereof, now and hereafter permanently affixed to or incorporated into the
Improvements, including, without limitation, all furnaces, boilers, heaters,
electrical equipment, heating, plumbing, lighting, ventilating, refrigerating,
incineration, air and water pollution control, waste disposal, air-cooling and
air-conditioning systems and apparatus, sprinkler systems and fire and

 

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theft protection equipment, all of which to the greatest extent permitted by law
are hereby deemed by the parties hereto to constitute real estate, together with
all replacements, modifications, alterations and additions thereto
(collectively, the “Fixtures”);

 

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

 

(f) all existing occupancy leases within the Leased Property (including any
security deposits or collateral held by Lessor pursuant thereto).

 

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

 

1.2 Term. The term of the Lease (the “Term”) shall commence on December 21, 2004
(the “Commencement Date”) and shall end on December 21, 2014 (the “Expiration
Date”), unless sooner terminated in accordance with the provisions hereof,
provided however that the Lessor and Lessee will renegotiate the Rent for the
period commencing on December 21, 2004.

 

ARTICLE 2

 

DEFINITIONS

 

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

 

“Additional Charges” shall have the meaning as set forth in Section 3.3.

 

5

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“Affiliate” as used in this Lease the term “Affiliate” of a person shall mean
(a) any person that, directly or indirectly, controls or is controlled by or is
under common control with such person, (b) any other person that owns,
beneficially, directly or indirectly, ten percent or more of the outstanding
capital stock, shares or equity interests of such person, or (c) any officer,
director, employee, member, partner or trustee of such person or any person
controlling, controlled by or under common control with such person (excluding
trustees and persons serving in similar capacities who are not otherwise an
Affiliate of such person). The term “Person” as used within this definition
means and includes individuals, corporations, general and limited partnerships,
stock companies or associations, joint ventures, associations, companies,
trusts, banks, trust companies, land trusts, business trusts, or other entities
and governments and agencies and political subdivisions thereof. For the
purposes of this definition, “Control” (including the correlative meanings of
the terms “Controlled By” and “Under Common Control With”), as used with respect
to any person, shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such person,
through the ownership of voting securities, partnership interests or other
equity interests.

 

“Award” shall have the meaning as set forth in Section 15.1(c).

 

“Base Rent” shall have the meaning as set forth in Section 3.1(a).

 

“Beverage Sales” shall mean gross revenue from (i) the sale of wine, beer,
liquor or other alcoholic beverages, whether sold in the bar or lounge,
delivered to a guest room, sold at meetings or banquets or at any other location
at the Leased Property, or (ii) non-alcoholic beverages sold in the bar or
lounge. Such revenues shall not include the following:

 

(a) Any gratuity or service charge added to a customer’s bill or statement in
lieu of a gratuity which is paid to an employee;

 

(b) Any revenues that are subsequently credited, rebated or refunded in the
ordinary course of business; and

 

(c) Sales taxes or taxes of any other kind imposed on the sale of alcoholic or
other beverages.

 

“Business Day” shall mean each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which national banks in the Commonwealth of Virginia, or in
the municipality wherein the Leased Property is located are closed.

 

“Capital Budget” shall have the meaning as set forth in Section 24.3.

 

“Capital Expenditures” shall mean amounts expended to pay the costs of
replacement and renewals to the FF&E of the Leased Property and Capital
Improvements.

 

“Capital Improvements” shall mean certain non-routine repairs and maintenance to
the building(s) of the Leased Property which are normally capitalized under
generally accepted accounting principles such as, but not limited to, exterior
and interior repainting, resurfacing, building walls, floors, roofs and parking
areas, and replacing folding walls and the like, and

 

6

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major repairs, alterations, improvements, renewals or replacement to the
building structure of the Leased Property or to its mechanical, electrical,
heating, ventilating, air conditioning, plumbing or vertical transportation
systems.

 

“CERCLA” means The Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.

 

“Claims” shall have the meaning as set forth in Section 12.1.

 

“Code” shall mean the Internal Revenue Code of 1986, as amended.

 

“Commencement Date” shall mean the date set forth in Section 1.2 as the
commencement date with respect to the Facility.

 

“Condemnation” shall have the meaning as set forth in Section 15.1(a).

 

“Condemnor” shall have the meaning as set forth in Section 15.1(d).

 

“Consumer Price Index” means Consumer Price Index, published for Urban Consumers
for the U.S. City Average for all Items, 1982-84 = 100 issued by the Bureau of
Labor Statistics of the United States Department of Labor, as published in The
Wall Street Journal.

 

“CPI Adjustment Year” shall mean the calendar year next following the year in
which the Commencement Date occurs, if the Commencement Date occurs between
January 1 and June 30, or the second calendar year following the year in which
the Commencement Date occurs, if the Commencement Date occurs between July 1 and
December 31.

 

“Date of Taking” shall have the meaning as set forth in Section 15.1(b).

 

“Encumbrance” shall have the meaning as set forth in Section 27.7.

 

“Eligible Independent Contractor” shall mean a management company that meets the
following requirements:

 

(a) The management company does not permit wagering activities to be conducted
at or in connection with the Facility.

 

(b) The management company does not own, directly or indirectly (within the
meaning of Section 856(d)(5) of the Code), more than 35% of the outstanding
stock of MHI.

 

(c) No more than 35% of its interest in assets or net profits is owned, directly
or indirectly (within the meaning of Section 856(d)(5) of the Code), by one or
more Persons owning 35% (within the meaning of Section 856(d) of the Code) or
more of the outstanding stock of MHI.

 

7

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(d) Neither MHI, the Lessor, nor the Lessee, derives or receives any income from
the management company or any of its subsidiaries.

 

(e) At the time that the management company enters into a management agreement
with the Lessee to operate the Leased Property, the management company (or any
“Related Person” within the meaning of Section 856(d)(9)(F) of the Code) is
actively engaged in the trade or business of operating “qualified lodging
facilities” within the meaning of Section 856(d)(9)(D) of the Code for any
Person who is not a “related person” within the meaning of Section 856(d)(9)(F)
of the Code with respect to MHI or the Lessee (an “Unrelated Person”). For
purposes of determining whether the requirement of this paragraph (e) has been
met, a management company shall be treated as being “actively engaged” in such a
trade or business if the management company (i) derives at least 10% of both its
profits and revenue from operating “qualified lodging facilities” within the
meaning of Section 856(d)(9)(D) of the Code for Unrelated Persons or (ii)
complies with any regulations or other administrative guidance under Section
856(d)(9) of the Code that provide a “safe harbor” rule with respect to the
amount of hotel management business with Unrelated Persons that is necessary to
qualify as an “eligible independent contractor” within the meaning of such Code
section.

 

A “qualified lodging facility” is defined in Section 856(d)(9)(D) of the Code
and means a “Lodging Facility” (defined below), unless wagering activities are
conducted at or in connection with such facility by any person who is engaged in
the business of accepting wagers and who is fully authorized to engage in such
business at or in connection with such facility. A “Lodging Facility” is a
hotel, motel or other establishment more than one-half of the dwelling units in
which are used on a transient basis, and includes customary amenities and
facilities operated as party of, or associated with, the lodging facility so
long as such amenities and facilities are customary for other properties of a
comparable size and class owned by other owners unrelated to MHI.

 

“Environmental Authority” shall mean any department, agency or other body or
component of any Government that exercises any form of jurisdiction or authority
under any Environmental Law.

 

“Environmental Authorization” shall mean any license, permit, order, approval,
consent, notice, registration, filing or other form of permission or
authorization required under any Environmental Law.

 

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

 

“Environmental Liabilities” shall mean any and all obligations to pay the amount
of any judgment or settlement, the cost of complying with any settlement,
judgment or order for injunctive or other equitable relief, the cost of
compliance or corrective action in response to any

 

8

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notice, demand or request from an Environmental Authority, the amount of any
civil penalty or criminal fine, and any court costs and reasonable amounts for
attorney’s fees, fees for witnesses and experts, and costs of investigation and
preparation for defense of any claim or any Proceeding, regardless of whether
such Proceeding is threatened, pending or completed, that may be or have been
asserted against or imposed upon Lessor, Lessee, any Predecessor, the Leased
Property or any property used therein and arising out of:

 

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

 

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

 

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

 

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

 

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

 

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

 

“Event of Default” shall have the meaning as set forth in Section 16.1.

 

“Expiration Date” the date set forth in Section 1.2 as the expiration date with
respect to the Facility.

 

“Facility” shall mean the hotel and/or other facility offering lodging and other
services or amenities being operated or proposed to be operated on the Leased
Property.

 

“FF&E” shall mean all Fixtures, furniture, furnishings and equipment.

 

“FIFRA” means The Federal Insecticide, Fungicide, and Rodenticide Act, as
amended.

 

“First Annual Room Revenues Break Point” shall mean the amount of Room Revenues
for the applicable Lease Year corresponding to such term as set forth on Exhibit
B.

 

“First Tier Room Revenue Recognition” shall mean all Lease Year to date Room
Revenues in excess of the First Tier Rent Floor up to but not exceeding the
First Annual Room Revenues Break Point.

 

9

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“First Tier Rent Floor” shall mean the amount of Room Revenues for the
applicable Lease Year corresponding to such term as set forth on Exhibit B.

 

“Fiscal Year” shall mean the 12-month period from January 1 to December 31.

 

“Fixtures” shall have the meaning as set forth in Section 1.1(d).

 

“Food Sales” shall mean gross revenue from the sale, for on-site consumption, of
food and non-alcohol beverages sold at the Leased Property, including in respect
to guest rooms, banquet rooms, meeting rooms and other similar rooms. Such
revenues shall not include the following:

 

(a) Vending machine sales;

 

(b) Any gratuities or service charges added to a customer’s bill or statement in
lieu of a gratuity which is paid to an employee;

 

(c) Non-alcoholic beverages sold from the bar or lounge;

 

(d) Sales taxes or taxes of any other kind imposed on the sale of food or
non-alcoholic beverages; and

 

(e) Any revenues that are subsequently credited, refunded or rebated in the
ordinary course of business.

 

“Franchise Agreement” shall mean any franchise license agreement with a national
franchisor under which the Facility is operated.

 

“Full Replacement Cost” shall have the meaning as set forth in Section 13.2.

 

“GAAP” shall mean, as of any date of determination, generally accepted
accounting principles consistently applied as recognized by the accounting
industry and standards within the United States.

 

“Government” shall mean The United States of America, any state, district or
territory thereof, any foreign nation, any state, district, department,
territory or other political division thereof, or any political subdivision of
any of the foregoing.

 

“Gross Revenues” shall mean all revenues and receipts of every kind received
from operating the Facility and all departments and parts thereof, including but
not limited to, income from both cash and credit transactions, income from the
rental of rooms, stores, offices, banquet rooms, conference rooms, exhibits or
sale space of every kind, license, lease and concession fees and rentals (not
including gross receipts of licensees, lessors and concessionaires), vending
machines, health club membership fees, food and beverage sales, wholesale and
retail sales of merchandise, service charges, and proceeds, if any, from
business interruption or other loss of income insurance; provided, however,
Gross Revenues shall not include (a) gratuities to the Facility’s employees, (b)
federal, state or municipal excise, sales or use taxes or similar

 

10

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impositions collected directly from customers, patrons or guests or included as
part of the sales prices of any goods or services paid over to federal, state or
municipal governments, (c) property insurance or condemnation proceeds
(excluding proceeds from business interruption coverage), (d) proceeds from the
sale or refinance of assets other than sales in the ordinary course of business,
(e) funds furnished by the Lessor, (f) judgments and awards, (g) the amount of
all credits, rebates or refunds (which shall be deductions from Gross Revenues)
to customers, patrons or guests, (h) the value of complimentary rooms, food and
beverages, (i) interest income, (j) lease security deposits, and (k) items
constituting “allowances” under the Uniform System.

 

“Hazardous Materials” shall mean all chemicals, pollutants, contaminants, wastes
and toxic substances, including without limitation:

 

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

 

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

 

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

 

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

 

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

 

“Impositions” shall mean collectively, all taxes (including, without limitation,
all ad valorem, sales and use, single business, gross receipts, transaction
privilege, rent or similar taxes as the same relate to or are imposed upon
Lessee or its business conducted upon the Leased Property), assessments
(including, without limitation, all assessments for public improvements or
benefit, whether or not commenced or completed prior to the date hereof and
whether or not to be completed within the Term), ground rents, water, sewer or
other rents and charges, excises, tax inspection, authorization and similar fees
and all other governmental charges, in each case whether general or special,
ordinary or extraordinary, or foreseen or unforeseen, of every character in
respect of the Leased Property or the business conducted thereon by Lessee
(including all interest and penalties thereon caused by any failure in payment
by Lessee), which at any time prior to, during or with respect to the Term
hereof may be assessed or imposed on or with respect to or be a lien upon (a)
Lessor’s interest in the Leased Property, (b) the Leased Property, or any part
thereof or any rent therefrom or any estate, right, title or interest therein,
or (c) any occupancy, operation, use or possession of, or sales from, or
activity conducted on or in connection with the Leased Property, or the leasing
or use of the Leased Property or any part thereof by Lessee. Nothing contained
in this definition of Impositions shall be construed to require Lessee to pay
(1) any tax based on net income (whether denominated as a franchise or capital
stock or other tax) imposed on Lessor or any other person, or (2) any net
revenue tax of Lessor or any other person, or (3) any tax imposed with respect
to the sale, exchange or other disposition by Lessor of any Leased Property or
the proceeds thereof, or (4) any single business, gross receipts (other than a
tax on any rent received by Lessor from Lessee), transaction, privilege or
similar taxes as the same relate to or are imposed upon Lessor, except to the
extent

 

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that any tax, assessment, tax levy or charge that Lessee is obligated to pay
pursuant to the first sentence of this definition and that is in effect at any
time during the Term hereof is totally or partially repealed, and a tax,
assessment, tax levy or charge set forth in clause (1) or (2) is levied,
assessed or imposed expressly in lieu thereof.

 

“Improvements” shall have the meaning as set forth in Section 1.1(b).

 

“Indemnified Party” shall mean either Lessee Indemnified Party or a Lessor
Indemnified Party.

 

“Indemnifying Party” shall mean any party obligated to indemnify an Indemnified
Party pursuant to Sections 8.3 or 22.1.

 

“Insurance Requirements” shall mean all terms of any insurance policy required
by this Lease and all requirements of the issuer of any such policy.

 

“Inventory” shall mean all “Inventories of Merchandise” and “Inventories of
Supplies” as defined in the Uniform System and including any property of the
type described in Section 1221(1) of the Code.

 

“Land” shall have the meaning as set forth in Section 1.1(a).

 

“Lease” shall mean this Lease Agreement.

 

“Lease Year” shall mean any 12-month period from January 1 through December 31
during the Term, or any shorter period at the beginning or end of the Term.

 

“Leased Property” shall have the meaning as set forth in Section 1.1.

 

“Legal Requirements” shall mean all federal, state, county, municipal and other
governmental statutes, laws, rules, orders, regulations, ordinances, judgments,
decrees and injunctions affecting either the Leased Property or the maintenance,
construction, use or alteration thereof (whether by Lessee or otherwise),whether
or not hereafter enacted and in force, including (a) all laws, rules or
regulations pertaining to the environment, occupational health and safety and
public health, safety or welfare, and (b) any laws, rules or regulations that
may (1) require repairs, modifications or alterations in or to the Leased
Property or (2) in any way adversely affect the use and enjoyment thereof; and
all permits, licenses and authorizations and regulations relating thereto and
all covenants, agreements, restrictions and encumbrances contained in any
instruments, either of record or known to Lessee (other than encumbrances
created by Lessor without the consent of Lessee), at any time in force affecting
the Leased Property.

 

“Lessee” shall mean the Lessee designated on this Lease and its respective
permitted successors and assigns.

 

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“Lessee Indemnified Party” shall mean the Lessee, any Affiliate of Lessee, any
other Person against whom any claim for indemnification may be asserted
hereunder as a result of a direct or indirect ownership interest (including a
stockholder’s interest) in Lessee, the officers, directors, stockholders,
employees, agents and representatives of Lessee and any corporate stockholder,
agent, or representative of Lessee, and the respective heirs, personal
representatives, successors and assigns of any such officer, director,
stockholder, employee, agent or representative.

 

“Lessee’s Personal Property” shall have the meaning as set forth in Section 6.2.

 

“Lessor” shall mean the Lessor designated on this Lease and its respective
successors and assigns.

 

“Lessor Indemnified Party” shall mean the Lessor, any Affiliate of Lessor,
including MHI, any other Person against whom any claim for indemnification may
be asserted hereunder as a result of a direct or indirect ownership interest in
Lessor, the officers, trustees, directors, stockholders, partners, members,
employees, agents and representatives of any of the foregoing Persons and of any
stockholder, partner, member, agent, or representative of any of the foregoing
Persons, and the respective heirs, personal representatives, successors and
assigns of any such officer, trustee, director, partner, member, stockholder,
employee, agent or representative.

 

“Licenses” shall have the meaning as set forth in Section 27.1.

 

“Management Agreement” shall have the meaning as set forth in Section 19.3.

 

“Manager” shall have the meaning as set forth in Section 19.3.

 

“MHI” shall mean MHI Hospitality Corporation, a Maryland corporation.

 

“Notice” shall mean a notice given pursuant to Article XXVI.

 

“Officer’s Certificate” shall mean a certificate of Lessee signed by the chief
financial officer or another officer authorized so to sign by the board of
directors or by-laws of Lessee, or any other person whose power and authority to
act has been authorized by delegation in writing by any such officer.

 

“Operating Budget” shall have the meaning as set forth in Section 24.2.

 

“Other Revenues” shall mean all revenues, receipts, and income of any kind
derived directly or indirectly from or in connection with the Facility and
included in Gross Revenues, other than Room Revenues, Food Sales and Beverage
Sales.

 

“Overdue Rate” shall mean on any date, a rate equal to the Prime Rate plus 3%
per annum, but in no event greater than the maximum rate then permitted under
applicable law.

 

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“Payment Date” shall mean any due date for the payment of any installment of
Base Rent.

 

“Percentage Rent” shall have the meaning as set forth in Section 3.1(b).

 

“Period Revenues Computation” shall have the meaning as set forth in Section
3.1(b).

 

“Person” shall mean any Government, natural person, corporation, partnership or
other legal entity.

 

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

 

“Primary Intended Use” shall have the meaning as set forth in Section 7.2(b).

 

“Prime Rate” shall mean the “prime rate” as published in the “Money Rates”
section of The Wall Street Journal; however, if such rate is, at any time during
the Term of this Agreement, no longer so published, the term “Prime Rate” shall
mean the average of the prime interest rates which are announced, from time to
time, by the three (3) largest banks (by assets) headquartered in the United
States which publish a “prime rate”.

 

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

 

“RCRA” shall mean The Resource Conservation and Recovery Act, as amended.

 

“Real Estate Taxes” shall mean all real estate taxes, including general and
special assessments, if any, which are imposed upon the Land, and any
improvements thereon.

 

“REIT Requirements” shall have the meaning as set forth in Section 19.1(a).

 

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

 

“Rent” shall have the meaning as set forth in Section 3.1.

 

“Room Revenues” shall mean gross revenue from the rental of guest rooms, whether
to individuals, groups or transients, but excluding the following:

 

(a) The amount of all credits, rebates or refunds to customers, guests or
patrons;

 

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(b) All sales taxes or any other taxes imposed on the rental of such guest
rooms; and

 

(c) Any fees collected for amenities including, but not limited to: telephone,
laundry, Internet, movies or concessions.

 

“SARA” shall mean the Superfund Amendments and Reauthorization Act of 1986, as
amended.

 

“Second Annual Room Revenues Break Point” shall mean the amount of Room Revenues
for the applicable Lease Year corresponding to such term as set forth on Exhibit
B.

 

“Second Tier Room Revenue Recognition” shall mean all Lease Year to date Room
Revenues in excess of the Second Annual Room Revenues Break Point.

 

“State” shall mean the State or Commonwealth of the United States in which the
Leased Property is located.

 

“Subsidiaries” shall mean one or more corporations in which Lessee owns,
directly or indirectly, more than 50% of the voting stock or control, as
applicable.

 

“Taking” shall mean a taking or voluntary conveyance during the Term hereof of
all or part of the Leased Property, or any interest therein or right accruing
thereto or use thereof, as the result of, or in settlement of, any Condemnation
or other eminent domain proceeding affecting the Leased Property whether or not
the same shall have actually been commenced.

 

“Term” shall have the meaning as set forth in Section 1.2.

 

“Termination Fee” shall have the meaning as set forth in Section 27.2.

 

“TSCA” shall mean the Toxic Substances Control Act, as amended.

 

“Unavoidable Delay” shall mean delays due to acts of God (including adverse
weather conditions), acts of the state or federal government in its sovereign or
contractual capacity, war, civil disturbance, riot or mob violence, terrorism,
earthquake, flood, fire or other casualty, epidemic, quarantine restriction,
labor strikes or lockout, freight embargo, or similar causes beyond the control
of the parties hereto.

 

“Uneconomic for its Primary Intended Use” shall mean a state or condition of the
Facility such that, in the good faith judgment of Lessee, reasonably exercised
and evidenced by the resolution of the board of directors or other governing
body of Lessee, the Facility cannot be operated on a commercially practicable
basis for its Primary Intended Use, taking into account, among other relevant
factors, the number of usable rooms and projected revenues, such that Lessee
intends to, and shall, complete the cessation of operations at the Leased
Facility.

 

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“Uniform System” shall mean the Uniform System of Accounts for the Lodging
Industry, 9th Revised Edition, as may be modified from time to time by the
International Association of Hospitality Accountants.

 

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

 

ARTICLE 3

 

BASE RENT; PERCENTAGE RENT; ADDITIONAL CHARGES

 

3.1 Rent. Lessee will pay to Lessor, in lawful money of the United States of
America which shall be legal tender for the payment of public and private debts,
in immediately available funds, at Lessor’s address set forth in Article XXVI
hereof or at such other place or to such other Person, as Lessor from time to
time may designate in a Notice, rent (“Rent”), which shall be equal to the
greater of the following:

 

(a) Base Rent: the annual amount of Base Rent set forth on Exhibit B (the “Base
Rent”), which shall be payable one-twelfth (1/12th) monthly in arrears on or
before the first Business Day of the subsequent calendar month beginning on the
date as set forth on Exhibit B; provided, however, that Base Rent shall be
prorated as to any partial Lease Year; plus

 

(b) Percentage Rent: an amount of percentage rent (“Percentage Rent”),
calculated for each calendar quarter, equal to the Period Revenues Computation
through the end of such calendar quarter for the applicable Lease Year, which
amount shall be payable on or before the fifteenth (15th) day of the following
calendar quarter, beginning on the date as set forth on Exhibit B.

 

The term “Period Revenues Computation” as used herein shall equal the sum of,
for the applicable Lease Year: (i) an amount equal to 0.35 times the First Tier
Room Revenue Recognition and (ii) an amount equal 0.70 times the Second Tier
Room Revenue Recognition.

 

If the Term begins or ends in the middle of a calendar year, then the number of
calendar quarters falling within the Term during such calendar year shall
constitute a separate Lease Year. In that event, the First Annual Room Revenues
Break Point and the Second Annual Room Revenues Break Point shall be multiplied
by a fraction equal to (x) the number of calendar quarters (including partial
calendar quarters) in the Lease Year divided by (y) four.

 

(c) Officer’s Certificates. Additionally, an Officer’s Certificate in a form
reasonably acceptable to Lessor shall be delivered to Lessor quarterly of each
Lease Year during the Term with each Percentage Rent payment, setting forth the
calculation of such rent payment for such quarter. Such quarterly payments shall
be as set forth in Section 3.1(b).

 

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In addition, on or before January 25 of each year, commencing with January 25
first following the end of the Fiscal Year in which the Commencement Date
occurs, Lessee shall deliver to Lessor an Officer’s Certificate reasonably
acceptable to Lessor setting forth the computation of Percentage Rent accrued
and paid during the Fiscal Year that ended on the immediately preceding December
31. If the annual Percentage Rent due and payable for any Fiscal Year (as shown
in the applicable Officer’s Certificate) exceeds the amount actually paid as
Percentage Rent by Lessee for such year, Lessee shall pay such excess to Lessor
at the time such certificate is delivered. If the Percentage Rent actually due
and payable for such Fiscal Year is shown by such certificate to be less than
the amount actually paid as Percentage Rent for the applicable Fiscal Year,
Lessor, at its option, shall reimburse such amount to Lessee or credit such
amount against the following months’ Rent payments.

 

Any difference between the annual Percentage Rent due and payable for any Fiscal
Year (as shown in the applicable Officer’s Certificate or as adjusted pursuant
to this Section 3.1(c)) and the total amount of quarterly payments for such
Fiscal Year actually paid by Lessee as Percentage Rent, whether in favor of
Lessor or Lessee, shall bear interest at the Overdue Rate, which interest shall
accrue from the close of such Fiscal Year until the amount of such difference
shall be paid or otherwise discharged. Any such interest payable to Lessor shall
be deemed to be and shall be payable as Additional Charges.

 

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

 

(d) CPI Adjustments to Rent. For each Fiscal Year of the Term beginning on or
after the CPI Adjustment Year, the Base Rent then in effect, the First Annual
Room Revenues Break Point and the Second Annual Room Revenues Break Point shall
be adjusted from time to time beginning in the CPI Adjustment Year as follows:

 

(i) The average Consumer Price Index for the most recently ended Fiscal Year
shall be divided by the average Consumer Price Index for the immediately
preceding Fiscal Year.

 

(1) The new Base Rent for the then current Fiscal Year shall be the adjusted
amount obtained by multiplying the Base Rent for the immediately preceding
Fiscal Year by the quotient obtained in subparagraph (d)(1) above.

 

(2) The new threshold dollar amount in the Period Revenues Computations
described in Section 3.1(b) above for the then current Fiscal Year shall be the
product of the threshold dollar amount of Room Revenues in effect in the most
recently ended Fiscal Year and the quotient obtained in subparagraph
(d)(1)above.

 

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By way of example, if the CPI Adjustment Year were 2004, the amount of Base Rent
and the threshold Room Revenues amounts in the Period Revenues Computations for
the Fiscal Year commencing January 1, 2005 would be adjusted to reflect any
change in the average Consumer Price Index from the Fiscal Year ended December
31, 2003 as compared to the Fiscal Year ended December 31, 2004. Base Rent and
the threshold Room Revenues amounts in the Period Revenues Computations for the
Fiscal Year commencing January 1, 2005 would be the Base Rent and threshold Room
Revenues amounts applicable for the fiscal year ended December 31, 2004 as
further adjusted to reflect any change in the average Consumer Price Index from
December 31, 2004 as compared to December 31, 2003.

 

Lessor shall calculate the annual adjustments as soon as reasonably possible
after the Consumer Price Index becomes available and shall notify Lessee in
writing of the amount of the annual adjustment, together with a copy of the
computation showing the adjustment amount. Adjustments calculated as set forth
above in the Base Rent and threshold Room Revenues amounts shall be effective on
January 1 of the Fiscal Year to which such adjusted amounts apply. If Rent is
paid in any Fiscal Year prior to the determination of the amount of any
adjustment to Base Rent or the threshold Room Revenues applicable for such
Fiscal Year, payment adjustments for any shortfall in or overpayment of rent
paid shall be made with the first Base Rent payment due after the amount of the
adjustments are determined.

 

The “Average Consumer Price Index” for any period shall be the average of the
Consumer Price Index for each month during the period.

 

(ii) If (i) a significant change is made in the number or nature (or both) of
items used in determining the Consumer Price Index, or (ii) the Consumer Price
Index shall be discontinued for any reason, the Bureau of Labor Statistics shall
be requested to furnish a new index comparable to the Consumer Price Index,
together with information which will make possible a conversion to the new index
in computing the adjustments to Rent hereunder. If for any reason the Bureau of
Labor Statistics does not furnish such an index and such information, the
parties will instead mutually select, accept and use such other index or
comparable statistics on the cost of living that is computed and published by an
agency of the United States or a responsible financial periodical of recognized
authority.

 

3.2 Confirmation of Percentage Rent. Lessee shall utilize, or cause to be
utilized, an accounting system for the Leased Property in accordance with its
usual and customary practices, and in accordance with GAAP and the Uniform
System, that will accurately record all data necessary to compute Percentage
Rent, and Lessee shall retain, for at least four (4) years after the expiration
of each Fiscal Year (and in any event until the reconciliation described in
Section 3.1(c) for such Fiscal Year has been made), reasonably adequate records
conforming to such accounting system showing all data necessary to compute
Percentage Rent for the applicable Fiscal Years. Lessor, at its expense (except
as provided herein below), shall have the right from time to time to have its
accountants or representatives audit the information that formed the basis for
the data set forth in any Officer’s Certificate provided under Section 3.1(c)
and, in connection with such audits, to examine all Lessee’s records (including
supporting data, franchisor reports and sales and excise tax returns) reasonably
required to verify Percentage Rent, subject to any prohibitions or limitations
on disclosure of any such data under Legal

 

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Requirements. If any such audit discloses a deficiency in the payment of
Percentage Rent, and either Lessee agrees with the result of such audit or the
matter is otherwise determined or compromised, Lessee shall forthwith pay to
Lessor the amount of the deficiency, as finally agreed or determined, together
with interest at the Overdue Rate from the date when said payment should have
been made to the date of payment thereof; provided, however, that as to any
audit that is commenced more than two years after the date Percentage Rent for
any Fiscal Year is reported by Lessee to Lessor, the deficiency, if any, with
respect to such Percentage Rent shall bear interest at the Overdue Rate only
from the date such determination of deficiency is made unless such deficiency is
the result of gross negligence or willful misconduct on the part of Lessee, in
which case interest at the Overdue Rate will accrue from the date such payment
should have been made to the date of payment thereof. If any such audit
discloses that the Percentage Rent actually due from Lessee for any Fiscal Year
exceed those reported and paid by Lessee by more than 3%, Lessee shall pay the
cost of such audit and examination. Any proprietary information obtained by
Lessor pursuant to the provisions of this Section shall be treated as
confidential, except that such information may be used, subject to appropriate
confidentiality safeguards, in any litigation between the parties and except
further that Lessor may disclose such information to prospective lenders. The
obligations of Lessee contained in this Section shall survive the expiration or
earlier termination of this Lease.

 

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

 

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

 

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3.5 Conversion of Property. If, during the Term, Lessee wishes to cease food and
beverage operations or institute food and beverage operations at the Facility
(all in accordance with the requirements of any applicable Franchise Agreement),
Lessee shall give Notice of such desire to Lessor. If, during the Term, Lessor
wishes (a) Lessee to cease food and beverage operations or to institute food and
beverage operations at the Facility (all in accordance with the requirements of
any applicable Franchise Agreement), or (b) to change the franchise affiliation
of the Facility or to make substantial renovations to the Facility, Lessor shall
give Notice thereof to Lessee. Following any such notice, Lessor and Lessee
shall commence negotiations to adjust Rent to reflect the proposed renovation or
change to the operation of the Facility, each acting reasonably and in good
faith, and subject to Lessor’s reasonable satisfaction that any Rent adjustment
will not adversely affect MHI’s status as a real estate investment trust under
the Code. All other terms of this Lease will remain substantially the same.
During negotiations, which shall not extend beyond sixty (60) days, Lessee shall
not “convert” the Facility and Lessor shall not change the franchise or commence
substantial renovations and Lessee shall continue fulfilling its obligations
under the existing terms of this Lease. If no agreement is reached after such
60-day period, Lessee or Lessor, as appropriate, shall withdraw such notice and
this Lease shall continue in full force.

 

ARTICLE 4

 

IMPOSITIONS

 

4.1 Payment of Impositions. Subject to Article XII relating to permitted
contests, Lessee will pay, or cause to be paid, all Impositions (other than Real
Estate Taxes, which shall be paid by Lessor) before any fine, penalty, interest
or cost may be added for non-payment, such payments to be made directly to the
taxing or other authorities where feasible, and will promptly furnish to Lessor
copies of official receipts or other satisfactory proof evidencing such
payments. Lessee’s obligation to pay such Impositions shall be deemed absolutely
fixed upon the date such Impositions become a lien upon the Leased Property or
any part thereof. If any such Imposition may, at the option of the taxpayer,
lawfully be paid in installments (whether or not interest shall accrue on the
unpaid balance of such Imposition), Lessee may exercise the option to pay the
same (and any accrued interest on the unpaid balance of such Imposition) in
installments and in such event, shall pay such installments during the Term
hereof (subject to Lessee’s right of contest pursuant to the provisions of
Article XII) as the same respectively become due and before any fine, penalty,
premium, further interest or cost may be added thereto. Lessor, at its expense,
shall, to the extent required or permitted by applicable law, prepare and file
all tax returns in respect of Lessor’s net income, gross receipts, sales and
use, single business, transaction privilege, rent, ad valorem, franchise taxes,
Real Estate Taxes and taxes on its capital stock, and Lessee, at its expense,
shall, to the extent required or permitted by applicable laws and regulations,
prepare and file all other tax returns and reports in respect of any Imposition
as may be required by governmental authorities. If any refund shall be due from
any taxing authority in respect of any Imposition paid by Lessee, the same shall
be paid over to or retained by Lessee if no Event of Default shall have occurred
hereunder and be continuing. If an Event of Default shall have occurred and be
continuing, any such refund shall be paid over to or retained by Lessor. Any
such funds retained by Lessor due to an Event of Default shall be applied as

 

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provided in Article XVI. Lessor and Lessee shall, upon request of the other,
provide such data as is maintained by the party to whom the request is made with
respect to the Leased Property as may be necessary to prepare any required
returns and reports. Lessee shall file all personal property tax returns in such
jurisdictions where it is legally required to so file. Lessor, to the extent it
possesses the same, and Lessee, to the extent it possesses the same, will
provide the other party, upon request, with cost and depreciation records
necessary for filing returns for any property so classified as personal
property. Where Lessor is legally required to file personal property tax
returns, Lessor shall provide Lessee with copies of assessment notices in
sufficient time for Lessee to file a protest. Lessee may, upon notice to Lessor,
at Lessee’s option and at Lessee’s sole expense, protest, appeal, or institute
such other proceedings (in its or Lessor’s name) as Lessee may deem appropriate
to effect a reduction of real estate or personal property assessments for those
Impositions to be paid by Lessee, and Lessor, at Lessee’s expense as aforesaid,
shall fully cooperate with Lessee in such protest, appeal, or other action.
Lessee hereby agrees to indemnify, defend, and hold harmless Lessor from and
against any claims, obligations, and liabilities against or incurred by Lessor
in connection with such cooperation. Billings for reimbursement of personal
property taxes by Lessee to Lessor shall be accompanied by copies of a bill
therefor and payments thereof which identify the personal property with respect
to which such payments are made. Lessor, however, reserves the right to effect
any such protest, appeal or other action and, upon notice to Lessee, shall
control any such activity, which shall then go forward at Lessor’s sole expense.
Upon such notice, Lessee, at Lessor’s expense, shall cooperate fully with such
activities.

 

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

 

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

 

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

 

ARTICLE 5

 

NO TERMINATION; ABATEMENT

 

5.1 No Termination, Abatement, etc. Except as otherwise specifically provided in
this Lease, Lessee, to the extent permitted by law, shall remain bound by this
Lease in accordance with its terms and shall neither take any action without the
written consent of Lessor

 

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to modify, surrender or terminate the same, nor seek nor be entitled to any
abatement, deduction, deferment or reduction of the Rent, or setoff against the
Rent, nor shall the obligations of Lessee be otherwise affected by reason of (a)
any damage to, or destruction of, any Leased Property or any portion thereof
from whatever cause or any Taking of the Leased Property or any portion thereof,
(b) the lawful or unlawful prohibition of, or restriction upon, Lessee’s use of
the Leased Property, or any portion thereof, or the interference with such use
by any Person, corporation, partnership or other entity, or by reason of
eviction by paramount title, (c) any claim which Lessee has or might have
against Lessor by reason of any default or breach of any warranty by Lessor
under this Lease or any other agreement between Lessor and Lessee, or to which
Lessor and Lessee are parties, (d) any bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution, winding up or other
proceedings affecting Lessor or any assignee or transferee of Lessor, or (e) for
any other cause whether similar or dissimilar to any of the foregoing other than
a discharge of Lessee from any such obligations as a matter of law. Lessee
hereby specifically waives all rights, arising from any occurrence whatsoever,
which may now or hereafter be conferred upon it by law to (1) modify, surrender
or terminate this Lease or quit or surrender the Leased Property or any portion
thereof, or (2) entitle Lessee to any abatement, reduction, suspension or
deferment of the Rent or other sums payable by Lessee hereunder, except as
otherwise specifically provided in this Lease. The obligations of Lessee
hereunder shall be separate and independent covenants and agreements and the
Rent and all other sums payable by Lessee hereunder shall continue to be payable
in all events unless the obligations to pay the same shall be terminated
pursuant to the express provisions of this Lease or by termination of this Lease
other than by reason of an Event of Default.

 

5.2 Abatement Procedures. In the event of a partial Taking as described in
Section 15.5, the Lease shall not terminate, but the Base Rent shall be abated
in the manner and to the extent that is fair, just and equitable to both Lessee
and Lessor, taking into consideration, among other relevant factors, the number
of usable rooms, the amount of square footage, or the revenues affected by such
partial Taking. If Lessor and Lessee are unable to agree upon the amount of such
abatement within thirty (30) days after such partial Taking, the matter may be
submitted by either party to a court of competent jurisdiction for resolution.

 

ARTICLE 6

 

PERSONAL PROPERTY; LANDLORD’S LIEN

 

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

 

6.2 Lessee’s Personal Property. At all times during the Term, Lessee will
maintain Inventory as is required to operate the Leased Property in the manner
contemplated by this Lease. Lessee may (and shall as provided herein below), at
its expense, install, affix or assemble or place on any parcels of the Land or
in any of the Improvements, any items of personal property (including Inventory)
owned by Lessee (the “Lessee’s Personal Property”). Lessee may, subject to the
conditions set forth herein, remove any of Lessee’s Personal Property upon the

 

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expiration or any prior termination of the Term. All of Lessee’s Personal
Property, other than Inventory, not removed by Lessee within ten days following
the expiration or earlier termination of the Term shall be considered abandoned
by Lessee and may be appropriated, sold, destroyed or otherwise disposed of by
Lessor without first giving Notice thereof to Lessee, without any payment to
Lessee and without any obligation to account therefor. Lessee will, at its
expense, restore the Leased Property to the condition required by Section
9.1(d), including repair of all damage to the Leased Property caused by the
removal of Lessee’s Personal Property, whether effected by Lessee or Lessor.

 

6.3 Lessor’s Lien. To the fullest extent permitted by applicable law, Lessor is
granted a lien and security interest on all of Lessee’s Personal Property now or
hereinafter placed in or upon the Leased Property, and such lien and security
interest shall remain attached to Lessee’s Personal Property until payment in
full of all Rent and satisfaction of all of Lessee’s obligations hereunder;
provided, however, Lessor shall subordinate its lien and security interest to
that of any non-Affiliate of Lessee which finances such Lessee’s Personal
Property or any non-Affiliate conditional seller of such Lessee’s Personal
Property, the terms and conditions of such subordination to be satisfactory to
Lessor in the exercise of reasonable discretion. Lessee shall, upon the request
of Lessor, execute such financing statements or other documents or instruments
reasonably requested by Lessor to perfect the lien and security interests herein
granted.

 

ARTICLE 7

 

CONDITIONS; USE

 

7.1 Condition of the Leased Property. Lessee acknowledges receipt and delivery
of possession of the Leased Property. Lessee has examined and otherwise has
knowledge of the condition of the Leased Property and has found the same to be
satisfactory for its purposes hereunder. LESSEE IS LEASING THE LEASED PROPERTY
“AS IS” IN ITS PRESENT CONDITION. LESSEE WAIVES ANY CLAIM OR ACTION AGAINST
LESSOR IN RESPECT OF THE CONDITION OF THE LEASED PROPERTY. LESSOR MAKES NO
WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED
PROPERTY, OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR
CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO THE QUALITY OF
THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL
SUCH RISKS ARE TO BE BORNE BY LESSEE. LESSEE ACKNOWLEDGES THAT THE LEASED
PROPERTY HAS BEEN INSPECTED BY LESSEE AND IS SATISFACTORY TO IT. Provided,
however, to the extent permitted by law, Lessor hereby assigns to Lessee all of
Lessor’s rights to proceed against any predecessor in title other than Lessee
for breaches of warranties or representations or for defects in the Leased
Property. Lessor shall fully cooperate with Lessee in the prosecution of any
such claim, in Lessor’s or Lessee’s name, all at Lessee’s sole cost and expense.
Lessee hereby agrees to indemnify, defend and hold harmless Lessor from and
against any claims, obligations and liabilities against or incurred by Lessor in
connection with such cooperation.

 

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7.2 Use of the Leased Property.

 

(a) Lessee covenants that it will proceed with all due diligence and will
exercise its best efforts to obtain and to maintain all approvals needed to use
and operate the Leased Property and the Facility under applicable local, state
and federal law.

 

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

 

(c) Subject to the provisions of Articles XIV, XV, XXI and XXII, Lessee
covenants and agrees that during the Term it will (1) operate or cause to
operate continuously the Leased Property as a hotel facility, (2) keep in full
force and effect and comply with all the provisions of the Franchise Agreement,
(3) not terminate or amend the Franchise Agreement without the consent of
Lessor, (4) maintain appropriate certifications and licenses for such use and
(5) will seek to maximize the gross revenues generated therefrom consistent with
sound business practices.

 

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

 

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

 

7.3 Lessor to Grant Easements, etc. Lessor will, from time to time, so long as
no Event of Default has occurred and is continuing, at the request of Lessee and
at Lessee’s cost and expense (but subject to the approval of Lessor, which
approval shall not be unreasonably withheld or delayed), (a) grant easements and
other rights in the nature of easements with respect to the Leased Property to
third parties, (b) release existing easements or other rights in the nature of
easements which are for the benefit of the Leased Property, (c) dedicate or
transfer unimproved portions of the Leased Property for road, highway or other
public purposes, (d) execute petitions to have the Leased Property annexed to
any municipal corporation or utility

 

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district, (e) execute amendments to any covenants and restrictions affecting the
Leased Property and (f) execute and deliver to any person any instrument
appropriate to confirm or effect such grants, releases, dedications, transfers,
petitions and amendments (to the extent of its interests in the Leased
Property), but only upon delivery to Lessor of an Officer’s Certificate stating
that such grant, release, dedication, transfer, petition or amendment is not
detrimental to the proper conduct of the business of Lessee on the Leased
Property and does not materially reduce the value of the Leased Property.

 

ARTICLE 8

 

COMPLIANCE WITH APPLICABLE LAWS

 

8.1 Compliance with Legal and Insurance Requirements, etc. Subject to Section
8.3(b) below and Article XII relating to permitted contests, and subject further
to the obligations of Lessor with respect to Capital Improvements as set forth
in Section 9.1 (b), Lessee, at its expense, will promptly (a) comply with all
applicable Legal Requirements and Insurance Requirements in respect of the use,
operation, maintenance, repair and restoration of the Leased Property, and (b)
procure, maintain and comply with all appropriate licenses and other
authorizations required for any use of the Leased Property and Lessee’s Personal
Property then being made, and for the proper erection, installation, operation
and maintenance of the Leased Property or any part thereof.

 

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

 

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(a) furnishes to Lessor security reasonably satisfactory to Lessor against any
loss or injury by reason of such contest or delay and (b) prosecutes the contest
with due diligence and in good faith.

 

8.3 Environmental Covenants. Lessor and Lessee (in addition to, and not in
diminution of, Lessee’s covenants and undertakings in Sections 8.1 and 8.2
hereof) covenant and agree as follows:

 

(a) At all times hereafter until such time as all liabilities, duties or
obligations of Lessee to the Lessor under the Lease have been satisfied in full,
Lessee shall fully comply with all Environmental Laws applicable to the Leased
Property and the operations thereon unless caused by the acts or grossly
negligent failures to act of Lessor. Lessee agrees to give Lessor written notice
of the following, promptly after Lessee receives knowledge thereof: (1) all
Environmental Liabilities; (2) all pending, threatened or anticipated
Proceedings, and all notices, demands, requests or investigations, relating to
any Environmental Liability or relating to the issuance, revocation or change in
any Environmental Authorization required for operation of the Leased Property;
(3) all Releases at, on, in, under or in any way affecting the Leased Property,
or any Release at, on, in or under any property adjacent to the Leased Property;
and (4) all facts, events or conditions that could reasonably lead to the
occurrence of any of the above-referenced matters.

 

(b) Lessee hereby agrees to defend, indemnify and save harmless any and all
Lessor Indemnified Parties from and against any and all Environmental
Liabilities except to the extent caused by the willful misconduct or gross
negligence of Lessor.

 

(c) Lessor hereby agrees to defend, indemnify and save harmless any and all
Lessee Indemnified Parties from and against any and all Environmental
Liabilities caused by the willful misconduct or gross negligence of Lessor.

 

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

 

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

 

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

 

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

 

(h) For purposes of this Section 8.3, all amounts for which any Indemnified
Party seeks indemnification shall be computed net of (a) any actual income tax
benefit resulting therefrom to such Indemnified Party, (b) any insurance
proceeds received (net of tax effects) with respect thereto, and (c) any amounts
recovered (net of tax effects) from any third parties based on claims the
Indemnified Party has against such third parties which reduce the damages that
would otherwise be sustained; provided that in all cases, the timing of the
receipt or realization of insurance proceeds or income tax benefits or
recoveries from third parties shall be taken into account in determining the
amount of reduction of damages. Each Indemnified Party agrees to use its
reasonable efforts to pursue, or assign to Lessee or Lessor, as the case may be,
any claims or rights it may have against any third party which would materially
reduce the amount of damages otherwise incurred by such Indemnified Party.

 

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

 

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

 

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

 

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

 

ARTICLE 9

 

MAINTENANCE AND REPAIRS

 

9.1 Maintenance and Repair.

 

(a) Except as provided in Section 9.1(b) or Articles VIII or XIV, Lessee, at its
sole expense, will keep the Leased Property in good order and repair except for
ordinary wear and tear (whether or not the need for such repairs occurred as a
result of Lessee’s use, any prior use, the elements or the age of the Leased
Property, or any portion thereof), and, with reasonable promptness, make all
necessary and appropriate repairs, replacements, and improvements thereto of
every kind and nature, whether interior or exterior, ordinary or extraordinary,
foreseen or unforeseen or arising by reason of a condition existing prior to the
commencement of the Term of this Lease (concealed or otherwise), or required by
any governmental agency having jurisdiction over the Leased Property. Lessee,
however, shall be permitted to prosecute claims against Lessor’s predecessors in
title for breach of any representation or warranty or for any latent defects in
the Leased Property to be maintained by Lessee unless Lessor is already
diligently pursuing such a claim. All repairs shall, to the extent reasonably
achievable, be at least equivalent in quality to the original work. Lessee will
not take or omit to take any action, the taking or omission of which might
materially impair the value or the usefulness of the Leased Property or any part
thereof for its Primary Intended Use.

 

(b) Except as set forth in Article XVIII of this Lease, Lessee shall be required
to make (at the sole cost and expense of Lessor) all Capital Expenditures
required in connection with (i) Emergency Situations, (ii) Legal Requirements,
(iii) maintenance of the Franchise Agreement, (iv) the performance by Lessee of
its obligations under this Lease, and (v) other additions to the Leased Property
as it may reasonably deem appropriate and that are permitted hereunder during
the Term.

 

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

 

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9.2 Encroachments, Restrictions, etc. If any of the Improvements, at any time,
materially encroach upon any property, street or right-of-way adjacent to the
Leased Property, or violate the agreements or conditions contained in any lawful
restrictive covenant or other agreement affecting the Leased Property, or any
part thereof, or impair the rights of others under any easement or right-of-way
to which the Leased Property is subject, then promptly upon the request of
Lessor or at the behest of any person affected by any such encroachment,
violation or impairment, Lessee shall, at its expense, subject to its right to
contest the existence of any encroachment, violation or impairment and in such
case, in the event of an adverse final determination, either (a) obtain valid
and effective waivers or settlements of all claims, liabilities and damages
resulting from each such encroachment, violation or impairment, whether the same
shall affect Lessor or Lessee or (b) make such changes in the Improvements, and
take such other actions, as Lessee in the good faith exercise of its judgment
deems reasonably practicable to remove such encroachment, and to end such
violation or impairment, including, if necessary, the alteration of any of the
Improvements, and in any event take all such actions as may be necessary in
order to be able to continue the operation of the Improvements for the Primary
Intended Use substantially in the manner and to the extent the Improvements were
operated prior to the assertion of such violation, impairment or encroachment.
Any such alteration shall be made in conformity with the applicable requirements
of Article X. Lessee’s obligations under this Section 9.2 shall be in addition
to and shall in no way discharge or diminish any obligation of any insurer under
any policy of title or other insurance held by Lessor.

 

ARTICLE 10

 

ALTERATIONS

 

10.1 Alterations. Lessor shall have the right to make additions, modifications
or improvements to the Leased Property from time to time as Lessor, in its
discretion, may deem to be desirable for the permitted uses and purposes of the
Leased Property, provided that such action will not significantly alter the
character or purposes or significantly detract from the value or operating
efficiency thereof and will not significantly impair the revenue-producing
capability of the Leased Property or adversely affect the ability of the Lessee
to comply with the provisions of this Lease. The cost of such additions,
modifications or improvements to the Leased Property shall be paid by Lessor,
and all such additions, modifications and improvements shall, be included under
the terms of this Lease and shall at all times be the property of Lessor.

 

ARTICLE 11

 

PROHIBITED LIENS AND ENCUMBRANCES

 

11.1 Liens. Subject to the provision of Article XII relating to permitted
contests, Lessee will not directly or indirectly create or allow to remain and
will promptly discharge at its expense any lien, encumbrance, attachment, title
retention agreement or claim upon the Leased Property or any attachment, levy,
claim or encumbrance in respect of the Rent, not including,

 

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however, (a) this Lease, (b) the matters, if any, included as exceptions in the
title policy insuring Lessor’s interest in the Leased Property, (c)
restrictions, liens and other encumbrances which are consented to in writing by
Lessor or any easements granted pursuant to the provisions of Section 7.3 of
this Lease, (d) liens for those taxes upon Lessor which Lessee is not required
to pay hereunder, (e) subleases permitted by Article XXIII hereof, (f) liens for
Impositions or for sums resulting from noncompliance with Legal Requirements so
long as (1) the same are not yet payable or are payable without the addition of
any fine or penalty or (2) such liens are in the process of being contested as
permitted by Article XII, (g) liens of mechanics, laborers, material-men,
suppliers or vendors for sums either disputed or not yet due provided that (1)
the payment of such sums shall not be postponed under any related contract for
more than sixty (60) days after the completion of the action giving rise to such
lien and such reserve or other appropriate provisions as shall be required by
law or generally accepted accounting principles shall have been made therefor or
(2) any such liens are in the process of being contested as permitted by Article
XII hereof, and (h) any liens which are the responsibility of Lessor pursuant to
the provisions of Article IV of this Lease.

 

ARTICLE 12

 

PERMITTED CONTESTS

 

12.1 Permitted Contests. Lessee shall have the right to contest the amount or
validity of any Imposition to be paid by Lessee or any Legal Requirement or
Insurance Requirement or any lien, attachment, levy, encumbrance, charge or
claim (“Claims”) not otherwise permitted by Article XI, by appropriate legal
proceedings in good faith and with due diligence (but this shall not be deemed
or construed in any way to relieve, modify or extend Lessee’s covenants to pay
or its covenants to cause to be paid any such charges at the time and in the
manner as in this Article XII provided), on condition, however, that such legal
proceedings shall not operate to relieve Lessee from its obligations hereunder
and shall not cause the sale or risk the loss of the Leased Property, or any
part thereof, or cause Lessor or Lessee to be in default under any mortgage,
deed of trust or security deed encumbering the Leased Property or any interest
therein. Upon the request of Lessor, Lessee shall either (a) provide a bond or
other assurance reasonably satisfactory to Lessor that all Claims which may be
assessed against the Leased Property together with interest and penalties, if
any, thereon will be paid, or (b) deposit within the time otherwise required for
payment with a bank or trust company as trustee upon terms reasonably
satisfactory to Lessor, as security for the payment of such Claims, money in an
amount sufficient to pay the same, together with interest and penalties in
connection therewith, as to all Claims which may be assessed against or become a
Claim on the Leased Property, or any part thereof, in said legal proceedings.
Lessee shall furnish Lessor and any lender of Lessor with reasonable evidence of
such deposit within five days of the same. Lessor agrees to join in any such
proceedings if the same be required to legally prosecute such contest of the
validity of such Claims; provided, however, that Lessor shall not thereby be
subjected to any liability for the payment of any costs or expenses in
connection with any proceedings brought by Lessee; and Lessee covenants to
indemnify and save harmless Lessor from any such costs or expenses. Lessee shall
be entitled to any refund of any Claims and such charges and penalties or
interest thereon which have been paid by Lessee or paid by Lessor and for which
Lessor has been fully reimbursed. In the event

 

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that Lessee fails to pay any Claims when due or to provide the security therefor
as provided in this paragraph and to diligently prosecute any contest of the
same, Lessor may, upon ten days advance Notice to Lessee, pay such charges
together with any interest and penalties and the same shall be repayable by
Lessee to Lessor as Additional Charges at the next Payment Date provided for in
this Lease. Provided, however, that should Lessor reasonably determine that the
giving of such Notice would risk loss to the Leased Property or cause damage to
Lessor, then Lessor shall give such Notice as is practical under the
circumstances. Lessor reserves the right to contest any of the Claims at its
expense not pursued by Lessee. Lessor and Lessee agree to cooperate in
coordinating the contest of any Claims.

 

ARTICLE 13

 

INSURANCE REQUIREMENTS

 

13.1 General Insurance Requirements. During the Term of this Lease, Lessee
and/or Lessor, as applicable shall at all times keep the Leased Property insured
(or cause the Leased Property to be insured) with the kinds and amounts of
insurance described below. This insurance shall be written by companies
authorized to issue insurance in the State. The policies must name Lessor and/or
Lessee, as the insured or as an additional named insured, as the case may be.
Losses shall be payable to Lessor or Lessee as provided in this Lease. Any loss
adjustment shall require the written consent of Lessor and Lessee, each acting
reasonably and in good faith. Evidence of insurance shall be deposited with
Lessor (with a copy to Lessee). The policies on the Leased Property, including
the Improvements, Fixtures and Lessee’s Personal Property, shall include:

 

(a) To be paid for by Lessor as primary insured, with Lessee (lender or ground
lessor, as applicable) as additional insured:

 

(i) Building insurance on the “Special Form” (formerly “All Risk” form)
(including earthquake and flood in reasonable amounts as determined by Lessor)
in an amount not less than 100% of the then full replacement cost thereof (as
defined in Section 13.2) or such other amount which is acceptable to Lessor, and
personal property insurance on the “Special Form” in the full amount of the
replacement cost thereof;

 

(ii) Insurance for loss or damage (direct and indirect) from steam boilers,
pressure vessels or similar apparatus, now or hereafter installed in the
Facility, in the minimum amount of $5,000,000 or in such greater amounts as are
then customary or as may be reasonably requested by Lessor from time to time;

 

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(b) To be paid for by Lessee as primary insured, with Lessor, franchisor and
Manager, as required, as additional insured:

 

(i) Personal property insurance on the “Special Form” in the full amount of the
replacement cost thereof for any personal property owned by Lessee;

 

(ii) Loss of income insurance on the “Special Form”, in the amount of one year
of the sum of Base Rent plus Percentage Rent (based on the most recently
completed Lease Year of operation or, to the extent the Leased Property has not
been operated for an entire 12-month Lease Year, based on prorated Percentage
Rent) for the benefit of Lessor, and business interruption insurance on the
“Special Form” in the amount of one year of gross operating profit, for the
benefit of Lessee;

 

(iii) Commercial general liability insurance, with amounts not less than
$1,000,000 combined single limit for each occurrence and $2,000,000 for the
aggregate of all occurrences within each policy year, as well as excess
liability (umbrella) insurance with limited of at least $35,000,000 per
occurrence, covering each of the following: bodily injury, death, or property
damage liability per occurrence, personal and advertising injury, general
aggregate, products and completed operations, with respect to Lessor, and “all
risk legal liability” including liquor law or “dram shop” liability if liquor or
alcoholic beverages are served on the Leased Property) with respect to Lessor
and Lessee;

 

(c) To be paid for by Lessee for the benefit of Manager as primary insured, with
Lessor and Lessee as additional insured:

 

(i) Automobile insurance on vehicles operating in conjunction with the Facility
with limits of liability of at least $1,000,000 combined, single limit coverage;

 

(ii) Workers’ compensation and employer’s liability insurance as may be required
under applicable laws to the extent necessary to protect Lessor, Lessee, and the
Leased Property against workers’ compensation claims covering all employees at
the Facility, with such deductible limits or self insured retentions as may be
established from time to time by Lessee and/or it’s Manager;

 

(iii) Fidelity bonds, or dishonest employee insurance with limits and
deductibles as may be reasonably requested by Lessor, covering Manager’s
employees in job classifications normally bonded under prudent hotel management
practices in the United States or otherwise required by law; and

 

(d) Such other insurance covering such other hazards and in such amounts as may
be customary for comparable properties in the area of the Leased Property to be
paid for and carried by Lessor or Lessee, as customary, and which is available
from insurance companies, insurance pools or other appropriate companies
authorized to do business in the State at rates which are economically
practicable in relation to the risks covered as may be reasonably requested by
Lessor.

 

13.2 Replacement Cost. The term “Full Replacement Cost” as used herein shall
mean the actual replacement cost of the Leased Property requiring replacement
from time to time including an increased cost of construction endorsement, if
available, and the cost of debris removal. In the event either party believes
that full replacement cost (the then-replacement cost

 

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less such exclusions) has increased or decreased at any time during the Term, it
shall have the right to have such full replacement cost re-determined.

 

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

 

13.4 Form Satisfactory, etc. All of the policies of insurance referred to in
this Article XIII shall be written in a form, with deductibles and by insurance
companies satisfactory to Lessor and shall satisfy the requirements of the
Franchise Agreement, if any. Lessee shall pay or cause the payment of all of the
premiums required for any insurance required to be carried by Lessee hereunder,
and shall deliver such policies or certificates thereof to Lessor prior to their
effective date (and, with respect to any renewal policy, thirty (30) days prior
to the expiration of the existing policy), and in the event of the failure by
Lessee either to effect such insurance as herein called for or to pay the
premiums therefor, or to deliver such policies or certificates thereof to Lessor
at the times required, Lessor shall be entitled, but shall have no obligation,
after ten (10) days’ Notice to Lessee, to effect such insurance and pay the
premiums therefor, and to be reimbursed for any premium or premiums upon written
demand therefore. Each insurer mentioned in this Article XIII shall agree, by
endorsement to the policy or policies issued by it, or by independent instrument
furnished to Lessee, that it will give to Lessor thirty (30) days’ written
notice before the policy or policies in question shall be materially altered,
allowed to expire or canceled.

 

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

 

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

 

13.7 No Separate Insurance. Lessee shall not on Lessee’s own initiative or
pursuant to the request or requirement of any third party, take out separate
insurance concurrent in form or contributing in the event of loss with that
required in this Article XIII to be furnished, or increase the amount of any
then existing insurance by securing an additional policy or additional policies,

 

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unless all parties having an insurable interest in the subject matter of the
insurance, including in all cases Lessor, are included therein as additional
insureds, and the loss is payable under such additional separate insurance in
the same manner as losses are payable under this Lease. Lessee shall immediately
notify Lessor that Lessee has obtained any such separate insurance or of the
increasing of any of the amounts of the then existing insurance.

 

ARTICLE 14

 

INSURANCE PROCEEDS

 

14.1 Insurance Proceeds. Subject to the provisions of Section 14.6 and the terms
of any lender mortgage, all proceeds payable by reason of any loss or damage to
the Leased Property, or any portion thereof, and insured under any policy of
insurance required by Article XIII of this Lease shall be paid to Lessor and
held by Lessor in an interest-bearing account, shall be made available, if
applicable, for reconstruction or repair, as the case may be, of any damage to
or destruction of the Leased Property, or any portion thereof, and, if
applicable, shall be paid out by Lessor from time to time for the reasonable
costs of such reconstruction or repair upon satisfaction of reasonable terms and
conditions specified by Lessor. Any excess proceeds of insurance remaining after
the completion of the restoration or reconstruction of the Leased Property shall
be paid to Lessor. If neither Lessor nor Lessee is required or elects to repair
and restore, all insurance proceeds shall be retained by Lessor. All salvage
resulting from any risk covered by insurance shall belong to Lessor.

 

14.2 Reconstruction in the Event of Damage or Destruction Covered by Insurance.

 

(a) Except as provided in Section 14.6, if during the Term the Leased Property
is totally or partially destroyed by a risk covered by the insurance described
in Article XIII, whether or not such damage or destruction renders the Facility
Unsuitable for its Primary Intended Use, Lessee shall be obligated, but only to
the extent of any insurance proceeds made available to Lessee and any other sums
advanced by Lessor pursuant to the next sentence, to restore the Facility to
substantially the same condition as existed immediately before the damage or
destruction and otherwise in accordance with the terms of the Lease. If the
insurance proceeds are not adequate to restore the Facility to that condition,
each of Lessor and Lessee shall have the right to terminate this Lease, without
in any way affecting any other leases in effect between Lessor and Lessee, by
giving Notice to the other and all insurance proceeds shall be retained by
Lessor; provided, however, that, if such termination is by Lessee, Lessor shall
have the right, in its sole discretion, to nullify the termination and keep this
Lease in full force by providing, within thirty (30) days after Lessee’s Notice
of termination, a Notice to Lessee of Lessor’s unconditional, legally binding
obligation to be responsible for all restoration costs in excess of the
insurance proceeds. If this Lease is not terminated and Lessee restores the
Facility, the insurance proceeds, and any other sums made available by Lessor as
aforesaid, shall be paid out by Lessor from time to time for the reasonable
costs of such restoration upon satisfaction of reasonable terms and conditions,
and any excess proceeds remaining after such restoration shall be retained by
Lessor.

 

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(b) Notwithstanding the provisions of Section 14.2(a) above, if Lessee cannot
within a reasonable time obtain all necessary government approvals, including
building permits, licenses and conditional use permits, after diligent efforts
to do so, to perform all required repair and restoration work and to operate the
Facility for its Primary Intended Use in substantially the same manner as that
existing immediately prior to such damage or destruction and otherwise in
accordance with the terms of the Lease, either Lessor or Lessee may terminate
this Lease by providing Notice to the other party, without in any way affecting
any other Leases then in effect between Lessor and Lessee.

 

14.3 Reconstruction in the event of Damage or Destruction not covered by
Insurance. Except as provided in Section 14.6, if during the Term the Facility
is totally or materially destroyed by a risk not covered by the insurance
described in Article XIII, whether or not such damage or destruction renders the
Facility Unsuitable for its Primary Intended Use, the provisions of Section 14.2
applicable to casualties for which insurance proceeds are inadequate shall
govern.

 

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

 

14.5 Abatement of Rent. Any damage or destruction due to casualty
notwithstanding, this Lease shall remain in full force and effect (unless
otherwise terminated as set forth hereinabove) and Lessee’s obligation to make
rental payments and to pay Rent required by this Lease shall remain unabated by
any damage or destruction which does not result in a reduction of Gross
Revenues. If and to the extent that any damage or destruction results in a
reduction of Gross Revenues which would otherwise be realizable from the
operation of the Facility, then Lessor shall receive all loss of income
insurance and Lessee shall have no obligation to pay Rent in excess of the
amount of Percentage Rent, if any, realizable from Gross Revenues generated by
the operation of the Leased Property during the existence of such damage or
destruction.

 

14.6 Damage near end of Term. Notwithstanding any provisions of Section 14.2 or
14.3 to the contrary, if damage to or destruction of the Facility unsuitable for
its Primary Intended Use occurs during the last twenty-four (24) months of the
Term, then Lessee shall have the right to terminate this Lease by giving written
notice to Lessor within thirty (30) days after the date of damage or
destruction, whereupon all accrued Rent shall be paid immediately, and this
Lease shall automatically terminate five days after the date of such notice.

 

14.7 Waiver. Lessee hereby waives any statutory rights of termination that may
arise by reason of any damage or destruction of the Facility that Lessor is
obligated to restore or may restore under any of the provisions of this Lease.

 

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ARTICLE 15

 

CONDEMNATION; TAKING

 

15.1 Definitions.

 

(a) “Condemnation” means a Taking resulting from (1) the exercise of any
governmental power, whether by legal proceedings or otherwise, by a Condemnor,
and (2) a voluntary sale or transfer by Lessor to any Condemnor, either under
threat of condemnation or while legal proceedings for condemnation are pending.

 

(b) “Date of Taking” means the date the Condemnor has the right to possession of
the property being condemned.

 

(c) “Award” means all compensation, sums or anything of value awarded, paid or
received on a total or partial Condemnation.

 

(d) “Condemnor” means any public or quasi-public authority, or private
corporation or individual, having the power of Condemnation.

 

15.2 Parties’ Rights and Obligations. If during the Term there is any
Condemnation of all or any part of the Leased Property or any interest in this
Lease, the rights and obligations of Lessor and Lessee shall be determined by
this Article XV.

 

15.3 Total Taking. If title to the fee of the whole of the Leased Property is
condemned by any Condemnor, this Lease shall cease and terminate as of the Date
of Taking by the Condemnor. If title to the fee of less than the whole of the
Leased Property is so taken or condemned, which nevertheless renders the Leased
Property Unsuitable or Uneconomic for its Primary Intended Use, Lessee and
Lessor shall each have the option, by notice to the other, at any time prior to
the Date of Taking, to terminate this Lease as of the Date of Taking. Upon such
date, if such Notice has been given, this Lease shall thereupon cease and
terminate. All Base Rent, Percentage Rent and Additional Charges paid or payable
by Lessee hereunder shall be apportioned as of the Date of Taking, and Lessee
shall promptly pay Lessor such amounts.

 

15.4 Allocation of Award. The total Award made with respect to the Leased
Property in connection with a Total Taking shall be equitably apportioned
between Lessor and Lessee in proportion to the then fair market values of the
respective estates and interests of Lessor and Lessee in and to the Leased
Property and under this Lease.

 

15.5 Partial Taking. If less than the whole of the Leased Property is condemned,
and the Leased Property is still suitable for its Primary Intended Use, and not
Uneconomic for its Primary Intended Use, or if Lessee or Lessor is entitled but
neither elects not to terminate this Lease as provided in Section 15.3, Lessee
at its cost shall with all reasonable dispatch, but only to the extent of any
condemnation awards made available to Lessee and any other sums advanced by
Lessor pursuant to the next sentence, restore the untaken portion of any
Improvements so that such Improvements constitute a complete architectural unit
of the same general character and condition (as nearly as may be possible under
the circumstances) as the Improvements existing immediately prior to the
Condemnation. If the condemnation awards are

 

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not adequate to restore the Facility to that condition, each of Lessor and
Lessee shall have the right to terminate this Lease, without in any way
affecting any other leases in effect between Lessor and Lessee, by giving Notice
to the other; provided, however, that if such termination is by Lessee, Lessor
shall have the right, in its sole discretion, to nullify the termination and
keep this Lease in full force by providing, within thirty (30) days after
Lessee’s Notice of termination, a Notice to Lessee of Lessor’s unconditional,
legally binding obligation to be responsible for all restoration costs in excess
of the condemnation awards. If this Lease is not terminated and Lessee restores
the Facility, the condemnation awards, and any other sums made available by
Lessor as aforesaid, subject to the terms of any lender mortgage, shall be held
in trust by Lessor and paid out by Lessor from time to time for the reasonable
costs of such restoration upon satisfaction of reasonable terms and conditions,
and any excess awards remaining after such restoration shall be retained by
Lessor unless the partial condemnation materially impairs the operations or
financial performance of the Facility, in which latter event the award shall be
equitably apportioned between Lessor and Lessee in proportion to the then fair
market values of the respective estates and interests of Lessor and Lessee in
and to the Leased Property and under this Lease.

 

15.6 Temporary Taking. If the whole or any part of the Leased Property or of
Lessee’s interest under this Lease is condemned by any Condemnor for its
temporary use or occupancy, this Lease shall not terminate by reason thereof,
and Lessee shall continue to pay, in the manner and at the terms herein
specified, the full amounts of the Base Rent, Percentage Rent and Additional
Charges. In addition, the entire amount of any Award made for such Condemnation
allocable to the Term of this Lease, whether paid by way of damages, rent or
otherwise, shall be paid to Lessee and, except for any portion thereof utilized
for restoration, shall be deemed to be Room Revenues for the purpose of
calculating the Percentage Rent payable hereunder during such temporary taking.
Except only to the extent that Lessee may be prevented from so doing pursuant to
the terms of the order of the Condemnor, Lessee shall continue to perform and
observe all of the other terms, covenants, conditions and obligations hereof on
the part of the Lessee to be performed and observed, as though such Condemnation
had not occurred. Lessee covenants that upon the termination of any such period
of temporary use or occupancy it will, at its sole cost and expense (subject to
Lessor’s contribution as set forth below), restore the Leased Property as nearly
as may be reasonably possible to the condition in which the same was immediately
prior to such Condemnation, unless (a) such period of temporary use or occupancy
extends beyond the expiration of the Term, in which case Lessee shall not be
required to make such restoration, or (b) the condemnation award is inadequate
to cover the costs of such restoration, in which case the provisions of Section
15.5 applicable to inadequate awards shall govern. If restoration is required in
connection with such temporary taking and the condemnation award (together with
any other sums Lessor elects, in its sole discretion, to advance) is adequate to
pay the costs thereof, the provisions of Section 15.5 shall govern the
disbursement of the awards (and other sums, if applicable) and the disposition
of any awards in excess of restoration costs. If restoration is required
hereunder, Lessor shall contribute to the cost of such restoration that portion
of its entire Award that is specifically allocated to such restoration in the
judgment or order of the court, if any, and Lessee shall fund the balance of
such costs in advance of restoration in a manner reasonably satisfactory to
Lessor.

 

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ARTICLE 16

 

EVENTS OF DEFAULT; REMEDIES; DAMAGES

 

16.1 Events of Default.

 

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

 

(a) if Lessee fails to make payment of the Base Rent or Percentage Rentor
Additional Charges when the same become due and payable for a period of ten (10)
days after receipt by the Lessee of Notice from the Lessor thereof;

 

(b) if Lessee fails to observe or perform any term, covenant or condition of
this Lease, other than the payment of Rent or Additional Rent, and such failure
is not cured by Lessee within a period of thirty (30) days after receipt by the
Lessee of Notice thereof from Lessor, unless such failure cannot with due
diligence be cured within a period of thirty (30) days, in which case it shall
not be deemed an Event of Default if Lessee proceeds promptly and with due
diligence to cure the failure and diligently completes the curing thereof
provided, however, that in no event shall such cure period extend beyond one
hundred and twenty (120) days after such Notice; or

 

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

 

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

 

(e) if the estate or interest of Lessee in the Leased Property or any part
thereof is voluntarily or involuntarily transferred, assigned, conveyed, levied
upon or attached in any proceeding (unless Lessee is contesting such lien or
attachment in good faith in accordance with Article XII hereof); or

 

(f) if, except as a result of and to the extent required by damage, destruction,
partial or complete Condemnation or Unavoidable Delay, Lessee voluntarily ceases
operations on the Leased Property for a period in excess of thirty (30) days; or

 

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(g) if: (A) an Event of Default has been declared by the franchisor under the
Franchise Agreement with respect to the Facility on the Leased Premises as a
result of any action or failure to act by Lessee or any Person with whom Lessee
contracts for management services at the Facility, and (B) Lessee has failed,
within thirty (30) days thereafter, to cure such default by either (1) curing
the underlying default under the Franchise Agreement and paying all costs and
expenses associated therewith, or (2) obtaining at Lessee’s sole cost and
expense a substitute franchise license agreement with a substitute franchisor
acceptable to Lessor, on terms and conditions acceptable to Lessor; provided,
however, that if Lessee is in good faith disputing an assertion of default by
the franchisor or is proceeding diligently to cure such default, the 30-day
period shall be extended for such period of time as Lessee continues to dispute
such default in good faith or diligently proceeds to cure such default, so long
as there is no period during which the Facility is not operated pursuant to a
Franchise Agreement approved by Lessor; then, and in any such event, Lessor may
exercise one or more remedies available to it herein or at law or in equity,
including, but not limited to, its right to terminate this Lease by giving
Lessee not less than ten (10) days’ Notice of such termination.

 

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

 

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

 

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

 

16.3 Damages. Neither (a) the termination of this Lease, (b) the repossession of
the Leased Property, (c) the failure of Lessor to re-let the Leased Property,
nor (d) the re-letting of all or any portion thereof, shall relieve Lessee of
its liability and obligations hereunder, all of which shall survive any such
termination, repossession or re-letting. In the event of any such termination,
Lessee shall forthwith pay to Lessor all Rent due and payable with respect to
the Leased Property to and including the date of such termination.

 

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Lessee shall forthwith pay to Lessor, at Lessor’s option, as and for liquidated
and agreed current damages for Lessee’s default, either:

 

(a) Without termination of Lessee’s right to possession of the Leased Property,
each installment of Rent and other sums payable by Lessee to Lessor under the
Lease as the same becomes due and payable, which Rent and other sums shall bear
interest at the Overdue Rate, and Lessor may enforce, by action or otherwise,
any other term or covenant of this Lease; or

 

(b) the sum of:

 

(i) the unpaid Rent which had been earned at the time of termination,
repossession or reletting, and

 

(ii) the amount at the time of termination, repossession or reletting of the
amount by which the unpaid Rent for the balance of the Term after the time of
termination, repossession or reletting, exceeds the amount of such rental loss
that Lessee proves could be reasonably avoided, and

 

(iii) any other amount necessary to compensate Lessor for all the detriment
proximately caused by Lessee’s failure to perform its obligations under this
Lease or which in the ordinary course of things, would be likely to result
therefrom. The amount at the time of termination, repossession or reletting
referred to in subparagraph (B) is computed by discounting such amount at the
discount rate of the Federal Reserve Bank of New York at the time of award plus
1%.

 

Rent for the purposes of this Section 16.3 shall be a sum equal to (i) the
average of the annual amounts of the greater of the Base Rent or Percentage Rent
for the three Fiscal Years immediately preceding the Fiscal Year in which the
termination, re-entry or repossession takes place, or (ii) if three Fiscal Years
shall not have elapsed, the average of the greater of the Base Rent or
Percentage Rent during the preceding Fiscal Years during which the Lease was in
effect, or (iii) if one Fiscal Year has not elapsed, the amount derived by
annualizing the greater of the Base Rent or Percentage Rent from the effective
date of this Lease.

 

16.4 Waiver. If this Lease is terminated pursuant to Section 16.1, Lessee
waives, to the extent permitted by applicable law, (a) any right to a trial by
jury in the event of summary proceedings to enforce the remedies set forth in
this Article XVI, and (b) the benefit of any laws now or hereafter in force
exempting property from liability for rent or for debt and Lessor waives any
right to “pierce the corporate veil” of Lessee other than to the extent funds
shall have been inappropriately paid to any Affiliate of Lessee following a
default resulting in an Event of Default.

 

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

 

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ARTICLE 17

 

LESSOR’S RIGHT TO CURE

 

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

 

ARTICLE 18

 

RESERVED

 

ARTICLE 19

 

REIT REQUIREMENTS

 

19.1 REIT Requirements.

 

(a) Lessee understands that, in order for MHI to qualify as a REIT, the
following requirements (the “REIT Requirements”) must be satisfied:

 

(i) The average of the fair market values of Lessor’s personal property that is
leased to Lessee under a lease at the beginning and end of a calendar year
cannot exceed 15% of the average of the aggregate fair market values of all of
Lessor’s property that is leased to Lessee under such lease at the beginning and
end of such calendar year.

 

(ii) Lessee cannot sublet the property that is leased to it by Lessor, or enter
into any similar arrangement, on any basis such that the rental or other amounts

 

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paid by the sublessee thereunder would be based, in whole or in part, on either
(i) the net income or profits derived by the business activities of the
sublessee or (ii) any other formula such that any portion of the rent paid by
Lessee to Lessor would fail to qualify as “rents from real property” within the
meaning of Section 856(d) of the Code.

 

(iii) Lessee cannot sublease the property leased to it by Lessor to, or enter
into any similar arrangement with, any person in which MHI owns, directly or
indirectly, a 10% or more interest, within the meaning of Section 856(d)(2)(B)
of the Code.

 

(iv) Lessee agrees to make an election to be, and to operate as a “Taxable REIT
Subsidiary” of MHI within the meaning of Section 856(l) of the Code.

 

(v) No person can own, directly or directly, capital stock of MHI that exceeds
the “LIMIT” (as defined in MHI’s certificate of incorporation, as amended and
restated).

 

(vi) Lessee shall not (i) directly or indirectly operate or manage a “Lodging
Facility” within the meaning of Section 856(d)(9)(D)(ii) of the Code or a
“Health Care Facility” within the meaning of Section 856(e)(6)(D)(ii) or (ii)
directly or indirectly provide to any other person (under a franchise, license,
or otherwise) rights to any brand name under which any lodging facility or
health care facility is operated; provided, however, that Lessee may provide
such rights to Manager to operate or manage a lodging facility as long as such
rights are held by Lessee as a franchisee, licensee, or in a similar capacity
and such lodging facility is either owned by Lessee or is leased to Lessee by
Lessor or one of its Affiliates.

 

(b) Lessee agrees, and agrees to use reasonable efforts to cause its Affiliates,
to use its best efforts to permit the REIT Requirements to be satisfied. Lessee
agrees, and agrees to use reasonable efforts to cause its Affiliates, to
cooperate in good faith with MHI and Lessor to ensure that the REIT Requirements
are satisfied, including but not limited to, providing MHI with information
about the ownership of Lessee, and its Affiliates to the extent that such
information is reasonably available. Lessee agrees, and agrees to use reasonable
efforts to cause its Affiliates, upon request by MHI, and, where appropriate, at
MHI’s expense, to take reasonable action necessary to ensure compliance with the
REIT Requirements. Immediately after becoming aware that the REIT Requirements
are not, or will not be, satisfied, Lessee shall notify, or use reasonable
efforts to cause its Affiliates to notify, MHI of such noncompliance.

 

19.2 Lessee Officer and Employee Limitation. Anything contained in this Lease to
the contrary notwithstanding, none of the officers or employees of the Lessee or
any subsidiary of Lessee shall be officers or employees of Manager (or any
Person who operates or manages the Leased Property). In addition, if a Person
serves as both (a) a director of the Lessee or any subsidiary of Lessee and (b)
a director and officer (or employee) of Manager (or any Person who operates or
manages the Leased Property), that Person shall not receive any compensation for
serving as a director of the Lessee or any subsidiary of Lessee. If a person
serves as both (a) a director of Manager or any subsidiary of Manager (or any
Person who operates or manages the Leased Property) and (b) a director and
officer (or employee) of Lessee, that Person shall not receive any compensation
for serving as a director of Manager.

 

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19.3 Management Agreement. Lessee agrees that, in order to comply with certain
of the REIT Requirements, it will, at all times during the Term, cause the
Leased Property to be operated and managed by a management company (“Manager”)
that is an Eligible Independent Contractor. Effective as of the Commencement
Date, the Lessee shall enter into an initial management agreement in the form of
Exhibit C attached hereto (the “Management Agreement”) and Lessee shall provide
Lessor with an executed copy thereof. The Management Agreement is a hotel master
management agreement which covers the Leased Property and all of the other hotel
properties currently (or to be in the future) leased by Lessee from Affiliates
of Lessor. Lessee may not amend, modify or terminate the Management Agreement in
any material respect or change the Manager without the prior written consent of
Lessor, which consent shall not be unreasonably withheld; provided that a
majority of the independent directors of MHI as determined under the AMEX rules
and regulations approves such amendment, modification or termination of the
Management Agreement. Lessee shall also provide Lessor with copies of any
amendments or modifications to the Management Agreement which are entered into
from time to time or any other management agreement. Lessor shall have the right
to approve in advance any Manager.

 

ARTICLE 20

 

HOLDING OVER

 

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

 

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ARTICLE 21

 

RISK OF LOSS

 

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

 

ARTICLE 22

 

INDEMNIFICATION

 

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

 

Lessor shall indemnify, save harmless and defend Lessee Indemnified Parties from
and against all liabilities, obligations, claims, damages, penalties, causes of
action, costs and expenses imposed upon or incurred by or asserted against
Lessee Indemnified Parties as a result of (a) the gross negligence or willful
misconduct of Lessor arising in connection with this Lease or (b) any failure on
the part of Lessor to perform or comply with any of its obligations under this
Lease.

 

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Any amounts that become payable by an Indemnifying Party under this Section
shall be paid within ten days after liability therefor on the part of the
Indemnifying Party is determined by litigation or otherwise, and if not timely
paid, shall bear a late charge (to the extent permitted by law) at the Overdue
Rate from the date of such determination to the date of payment. An Indemnifying
Party, at its expense, shall contest, resist and defend any such claim, action
or proceeding asserted or instituted against the Indemnified Party. The
Indemnified Party, at its expense, shall be entitled to participate in any such
claim, action, or proceeding, and the Indemnifying Party may not compromise or
otherwise dispose of the same without the consent of the Indemnified Party,
which may not be unreasonably withheld. Nothing herein shall be construed as
indemnifying a Lessor Indemnified Party against its own grossly negligent acts
or omissions or willful misconduct.

 

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

 

ARTICLE 23

 

SUBLETTING AND ASSIGNMENT

 

23.1 Subletting and Assignment. Subject to the provisions of Article XIX and
Section 23.2 and any other express conditions or limitations set forth herein,
Lessee may, but only with the prior written consent of Lessor which consent
shall not be unreasonably withheld, (a) assign this Lease or sublet all or any
part of the Leased Property to an Affiliate of Lessee, or (b) sublet any retail
or restaurant portion of the Improvements in the normal course of the Primary
Intended Use; provided that any subletting to any party other than an Affiliate
of Lessee shall not individually as to any one such subletting, or in the
aggregate, materially diminish the actual or potential Percentage Rent payable
under this Lease. In the case of a subletting, the sublessee shall comply with
the provisions of Section 23.2, and in the case of an assignment, the assignee
shall assume in writing and agree to keep and perform all of the terms of this
Lease on the part of Lessee to be kept and performed and shall be, and become,
jointly and severally liable with Lessee for the performance thereof. In case of
either an assignment or subletting made during the Term, Lessee shall remain
primarily liable, as principal rather than as surety, for the prompt payment of
the Rent and for the performance and observance of all of the covenants and
conditions to be performed by Lessee hereunder. An original counterpart of each
such sublease and assignment and assumption, duly executed by Lessee and such
sublessee or assignee, as the case may be, in form and substance satisfactory to
Lessor, shall be delivered promptly to Lessor.

 

23.2 Attornment. Lessee shall insert in each sublease permitted under Section
23.1 provisions to the effect that (a) such sublease is subject and subordinate
to all of the terms and provisions of this Lease and to the rights of Lessor
hereunder, (b) if this Lease terminates before the expiration of such sublease,
the sublessee thereunder will, at Lessor’s option, attorn to Lessor and waive
any right the sublessee may have to terminate the sublease or to surrender
possession thereunder as a result of the termination of this Lease, and (c) if
the sublessee receives a written Notice from Lessor or Lessor’s assignees, if
any, stating that an uncured Event of Default exists

 

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under this Lease, the sublessee shall thereafter be obligated to pay all rentals
accruing under said sublease directly to the party giving such Notice, or as
such party may direct. All rentals received from the sublessee by Lessor or
Lessor’s assignees, if any, as the case may be, shall be credited against the
amounts owing by Lessee under this Lease.

 

ARTICLE 24

 

REPORTING AND CERTIFICATION REQUIREMENTS

 

24.1 Officer’s Certificates; Financial Statements; Budgets; Lessor’s Estoppel
Certificates and Covenants.

 

(a) At any time and from time to time upon not less than twenty (20) days Notice
by Lessor, Lessee will furnish to Lessor an Officer’s Certificate certifying
that this Lease is unmodified and in full force and effect (or that this Lease
is in full force and effect as modified and setting forth the modifications),
the date to which the Rent has been paid, whether to the knowledge of Lessee
there is any existing default or Event of Default exists thereunder by Lessor or
Lessee, and such other information as may be reasonably requested by Lessor. Any
such certificate furnished pursuant to this Section may be relied upon by
Lessor, any lender and any prospective purchaser of the Leased Property.

 

(b) Throughout the Term, Lessee will furnish to Lessor such historical financial
information of Lessee and the Facility as Lessor may reasonably request and
shall provide Lessor access to Lessee’s books and records with respect thereto.

 

(c) Within five (5) days of Lessee’s receipt thereof, any inspection reports
received from the franchisor under the Franchise Agreement.

 

(d) At any time and from time to time upon not less than twenty (20) days notice
by Lessee, Lessor will furnish to Lessee or to any person designated by Lessee
an estoppel certificate certifying that this Lease is unmodified and in full
force and effect (or that this Lease is in full force and effect as modified and
setting forth the modifications), the date to which Rent has been paid, whether
to the knowledge of Lessor there is any existing default or Event of Default on
Lessee’s part hereunder, and such other information as may be reasonably
requested by Lessee.

 

24.2 Operating Budget. Not later than forty-five (45) days prior to the
commencement of each Lease Year, Lessee, in consultation with the Manager, shall
prepare and submit to Lessor an operating budget for the Lease Year (the
“Operating Budget”) in form and substance reasonably satisfactory to Lessor,
prepared in accordance with the requirements of this Section 24.2. The Operating
Budget shall be prepared in accordance with the Uniform System to the extent
applicable and show by month and quarter and for the Lease Year as a whole in
the degree of detail specified by the Uniform System for monthly statements, and
in accordance with the detail level of monthly financial statements, the
following:

 

(a) Lessee’s reasonable estimate of Gross Revenues, Room Revenues, Food Sales
and Beverage Sales (including room rates) for the Facility for the forthcoming
Lease Year itemized on schedules on a monthly and quarterly basis as approved by
Lessor and Lessee, together with the assumptions, in narrative form, forming the
basis of such schedules;

 

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(b) A cash flow projection for the Lease Year; and

 

(c) Lessee’s reasonable estimate for each quarter of the Lease Year of
Percentage Rent.

 

24.3 Capital Budget. Not later than forty-five (45) days prior to the
commencement of each Lease Year, Lessee shall prepare and submit to Lessor a
capital improvement budget for the Lease Year (the “Capital Budget”) prepared in
accordance with the Uniform System to the extent applicable, and shall set forth
the proposed Capital Expenditures for the ensuing Lease Year.

 

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ARTICLE 25

 

LESSOR’S DEFAULT; CURE RIGHTS

 

25.1 Lessee’s Right to Cure. Subject to the provisions of Section 25.2, if
Lessor breaches any covenant to be performed by it under this Lease, Lessee,
after Notice to and demand upon Lessor, without waiving or releasing any
obligation hereunder, and in addition to all other remedies available to Lessee,
may (but shall be under no obligation at any time thereafter to) make such
payment or perform such act for the account and at the expense of Lessor. All
sums so paid by Lessee and all costs and expenses (including, without
limitation, reasonable attorneys’ fees) so incurred, together with interest
thereon at the Overdue Rate from the date on which such sums or expenses are
paid or incurred by Lessee, shall be paid by Lessor to Lessee on demand or,
following entry of a final, nonappealable judgment against Lessor for such sums,
may be offset by Lessee against the Base Rent payments next accruing or coming
due. The rights of Lessee hereunder to cure and to secure payment from Lessor in
accordance with this Section 25.1 shall survive the termination of this Lease
with respect to the Leased Property.

 

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

 

ARTICLE 26

 

NOTICES

 

26.1 Notices. All notices, demands, requests, consents approvals and other
communications (“Notice” or “Notices”) hereunder shall be in writing and
personally served, mailed (by registered or certified mail, return receipt
requested and postage prepaid) or sent by facsimile, addressed to Lessor at 814
Capital Landing Road, Williamsburg, VA 23185, Facsimile 757-564-8801, Attention:
Andrew M. Sims, and addressed to Lessee at 6411 Ivy Lane, Suite 510, Greenbelt,
MD 20770, Attention: William Zaiser, Facsimile 301-474-0807, or to such other
address or addresses as either party may hereafter designate. Personally
delivered Notice shall be effective upon receipt, and Notice given by mail shall
be complete at the time of deposit in the U.S. Mail system, but any prescribed
period of Notice and any right or duty to do any act or make any response within
any prescribed period or on a date certain after the service of such Notice
given by mail shall be extended five days.

 

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ARTICLE 27

 

MISCELLANEOUS PROVISIONS

 

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

 

27.2 Early Termination Rights; Termination Fees. Lessor may terminate the Lease
as to any Leased Property prior to the Expiration Date by reason of a sale of
the Facility, (pursuant to the notice requirements contained herein), provided
Lessor pays to Lessee a termination fee (the “Termination Fee”) equal to the
fair market value of the leasehold estate.

 

27.3 Substitution of Initial Hotel. Notwithstanding the foregoing Section 27.2,
in the event of a termination of this Lease, Lessor may (in its sole and
absolute discretion) avoid payment of the Termination Fee by offering to
substitute for the Leased Property within 120 days of such termination, another
hotel facility reasonably comparable in size, number of rooms, quality of
franchise operation, market and geographical location, and gross revenues, to be
governed by the terms and conditions of this Lease from and after the date of
such substitution, and, in the event Lessee desires to lease such substitute
hotel, this Lease shall be amended accordingly. In the event of a substitution,
any Rent and other charges payable under this Lease shall be suspended until the
substitution is fully consummated.

 

27.4 Compliance with Franchise Agreement. To the extent any of the provisions of
the Franchise Agreement impose a greater obligation on Lessee than the
corresponding provisions of this Lease, then Lessee shall be obligated to comply
with the provisions of the Franchise Agreement except in regard to those
obligations which are the responsibility of Lessor as provided herein. It is the
intent of the parties hereto that Lessee shall comply in every respect with the
provisions of the Franchise Agreement so as to avoid any default thereunder
during the term of this Lease. Lessee shall not terminate, extend or enter into
any modification of the Franchise Agreement without in each instance first
obtaining Lessor’s prior written consent. Lessor and Lessee agree to cooperate
with each other in the event it becomes necessary to obtain a franchise
extension or modification or a new franchise for the Leased Property, and in any
transfer of the Franchise Agreement to Lessor (if applicable) or any designee of
or any successor to Lessee (as applicable) upon the termination of this Lease.
In the event of expiration or termination of a Franchise Agreement, for whatever
reason, the Lessor will have the right, in its sole discretion, to approve any
new Franchise Agreement for the Facility. If, upon any expiration or earlier
termination of this Lease (other than upon an Event of Default by Lessee), a
Franchise Agreement remains in effect, or would but for such expiration or
termination remain in effect,

 

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Lessor shall indemnify, defend and hold Lessee harmless with respect to the
obligations and liabilities arising thereunder after the date of expiration or
termination of this Lease.

 

27.5 Lessor’s Right to Inspect. Lessee shall permit Lessor and its authorized
representatives as frequently as reasonably requested by Lessor to inspect the
Leased Property and Lessee’s accounts and records pertaining thereto and make
copies thereof, during usual business hours upon reasonable advance notice,
subject only to any business confidentiality requirements reasonably requested
by Lessee, provided that Lessor shall not cause any interference with the
operation of the Leased Property.

 

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

 

27.7 Lessor may Grant Liens. Without the consent of Lessee, Lessor may, subject
to the terms and conditions set forth below in this Section 27.7, from time to
time, directly or indirectly, create or otherwise cause to exist any lien,
encumbrance or title retention agreement (“Encumbrance”) upon the Leased
Property, or any portion thereof or interest therein, whether to secure any
borrowing or other means of financing or refinancing. Upon the request of
Lessor, Lessee shall subordinate this Lease to the lien of a new mortgage on the
Leased Property.

 

27.8 Non Disturbance Agreement. Lessor agrees, subject to any restrictions or
limitations imposed by any lender of Lessor, to execute in favor of Manager a
non disturbance and attornment agreement in form and substance reasonably
acceptable to Lessor and Manager.

 

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

 

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

 

27.11 Usury. If any late charges or any interest rate provided for in any
provision of this Lease are based upon a rate in excess of the maximum rate
permitted by applicable law, the parties agree that such charges shall be fixed
at the maximum permissible rate.

 

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

 

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

 

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

 

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

 

27.16 Quiet Enjoyment. So long as Lessee pays all Rent as the same becomes due
and complies with all of the terms of this Lease and performs its obligations
hereunder, in each case within the applicable grace periods, if any, Lessee
shall peaceably and quietly have, hold and enjoy the Leased Property for the
Term hereof, free of any claim or other action by Lessor or anyone claiming by,
through or under Lessor, but subject to all liens and encumbrances subject to
which the Leased Property was conveyed to Lessor or hereafter consented to by
Lessee or provided for herein. Notwithstanding the foregoing, Lessee shall have
the right by separate and independent action to pursue any claim it may have
against Lessor as a result of a breach by Lessor of the covenant of quiet
enjoyment contained in this Section.

 

27.17 Binding Effect. The covenants, terms, conditions, provisions and
undertakings in this Lease shall extend to and be binding upon the heirs,
personal representatives, executors, administrators and permitted successors and
assigns of the respective parties hereto.

 

27.18 Entire Agreement; No Offer. This Lease contains the entire agreement of
Lessor and Lessee with respect to the subject matter hereof, and no
representations, warranties, inducements, promises or agreements, oral or
otherwise, between the parties not embodied in this Lease shall be of any force
or effect. This Lease may be modified only by a written agreement executed by
both parties with the same formalities as this Lease. All prior agreements or
communications are and shall be merged into this Lease and shall have no force
or effect.

 

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Neither any submission of this Lease by one party to the other, nor any
correspondence or other communications between the parties in connection
therewith, is intended or shall be deemed to constitute an offer of any kind or
to create any obligations between the parties unless and until one or more
duplicates of this Lease has been fully executed and delivered between the
parties. Accordingly, any such submission or communications or correspondence
between the parties or their respective agents or attorneys is intended only as
non-binding discussions, and either party shall have the absolute right to
withdraw from such discussions without any liability whatsoever to the other
party.

 

27.19 Severability. If any clause or provision of this Lease is illegal, invalid
or unenforceable under applicable present or future Laws effective during the
Term, the remainder of this Lease shall not be affected. In lieu of each clause
or provision of this Lease which is illegal, invalid or unenforceable, there
shall be added as a part of this Lease a clause or provision as nearly identical
as may be possible and as may be legal, valid and enforceable. Notwithstanding
the foregoing, in the event any clause or provision of this Lease is illegal,
invalid or unenforceable as aforesaid and the effect of such illegality,
invalidity or unenforceability is that Lessor no longer has the substantial
benefit of its bargain under this Lease, then, in such event, Lessor may in its
discretion cancel and terminate this Lease upon providing at least ninety (90)
days advance notice thereof to Lessee.

 

27.20 Counterparts. This Lease may be executed in several counterparts, each of
which shall be deemed an original, and all of such counterparts together shall
constitute one and the same instrument.

 

27.21 Governing Law. This lease and its interpretation, validity and performance
shall be governed by the laws of the state in which the Land is situate. In the
event any court of law of appropriate judicial authority shall hold or declare
that the law of another jurisdiction is applicable, this lease shall remain
enforceable under the laws of the appropriate jurisdiction. The parties hereto
agree that venue for any action in connection herewith shall be proper in the
state or federal courts in or having jurisdiction over the county where the Land
is situated. Each party hereto consents to the jurisdiction of any local, state
or federal court situated in any of such locations and waives any objection
which it may have pertaining to improper venue or forum non conveniens to the
conduct of any proceeding in any such court.

 

27.22 Recitals; Headings. The recitals set forth in this Lease are true and
correct, and are incorporated herein by this reference. The use of headings,
captions and numbers in this Lease is solely for the convenience of identifying
and indexing the various paragraphs and shall in no event be considered in
construing or interpreting any provision in this Lease.

 

27.23 Survival. Notwithstanding anything to the contrary contained in this
Lease, the provisions (including, without limitation, covenants, agreements,
representations, warranties, obligations and liabilities described therein) of
this Lease which from their sense and context are intended to survive the
expiration or sooner termination of this Lease shall survive such expiration or
sooner termination of this Lease and continue to be binding upon the applicable
party.

 

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27.24 Exhibits. The exhibits referred to in, and attached to, this Lease are
hereby incorporated in full by reference. Unless otherwise expressly provided in
the exhibit or the body of this Lease, in the event of any conflict or
inconsistency with the provisions contained in the body of this Lease and the
exhibits, the provisions contained in the body of this Lease shall control.

 

[Signatures follow on next page]

 

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

 

“LESSOR” Philadelphia Hotel Associates LP, a Virginia limited partnership By:  
MHI GP LLC     its General Partner By:   MHI GP Hospitality, L.P.     its sole
member By:   MHI Hospitality Corporation     its General Partner By:  
/s/    Andrew M. Sims Andrew M. Sims Its: President

 

“LESSEE” MHI Hospitality TRS, LLC A Delaware limited liability company By:  
/s/    Andrew M. Sims Andrew M. Sims Its: Manager

 

 

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Exhibit A

Land

 

DESCRIPTION OF REAL PROPERTY

 

ALL of that certain lot, piece or parcel of land, with the

buildings and improvements erected thereon, lying and being

 

SITUATE in the 40th Ward of the City of Philadelphia, described according to a
survey and Plan of property made for Marriott Corporation by Israel Zeitz,
Surveyor and Regulator of the 10th Survey District, dated August 19, 1982, to
wit:

 

BEGINNING at a point on the Southerly side of Penrose Avenue (170 feet wide)
State Highway Route #67053 which point is measured South 75 degrees 49 minutes
42 seconds East along the said Southerly side of Penrose Avenue and Penrose
Avenue produced the distance of 92.287 feet from a point of intersection formed
by the said Southern side of Penrose Avenue and the Northeasterly side of Island
Avenue both lines produced thence extending South 75 degrees 49 minutes 42
seconds East along the said Southerly side of Penrose Avenue the distance of
137.081 feet to a point of curve thence Southeastwardly still along the said
Southerly side of Penrose Avenue on the arc of a circle curving to the left
having a radius of 1514.825 feet the arc distance of 475.891 feet to a point
thence South 27 degrees 02 minutes 21.52 seconds West crossing a relocated 16
inch pipe line 819.427 feet to a point on the said Northeasterly side of Island
Avenue thence North 19 degrees 04 minutes 48 seconds West along the said
Northeasterly side of Island Avenue recrossing said relocated 16 inch pipe line
361.732 feet to an angle point; thence North 22 degrees 41 minutes 49 seconds
West still along the said Northeasterly side of Island Avenue 430.04 feet to a
point of curve; thence along the arcs of circles curving to the right connecting
the said Northeasterly side of Island Avenue and the Southerly side of Penrose
Avenue the two following courses and distances (1) Northeastwardly on the arc of
a circle having a radius of 79.066 feet the arc distance of 45.383 feet to a
point of compound curve; (2) Northeastwardly, Eastwardly and Southeastwardly arc
of a circle having a radius of 40.000 feet the arc distance of 56.596 feet to a
point of tangent on the said Southerly side of Penrose Avenue being the first
mentioned point and place of beginning.

 

56

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Exhibit B

Base Rent and Percentage Rent

 

Base Rent equals $3,100,000

 

 

First Tier Rent Floor

   Second Annual Room Revenues Break Point

$7,850,000

   $8,400,000

Commencement Date: December 21, 2004

    

 

57

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Schedule of Differences to Exhibit 10.13

 

MHI Hospitality Corporation

 

Filed herewith as Exhibit 10.13 to the Form 10-Q for the quarterly period ended
September 30, 2011, is a copy of the Lease Agreement by and between MHI
Hospitality TRS, LLC and Philadelphia Hotel Associates LP, entered into
effective as of December 21, 2004 (the “Lease Agreement”). The Company has also
entered into eight additional lease agreements that are substantially identical
in all material respects to the Lease Agreement except as to the parties
thereto, dates of execution, terms, base and percentage rent and other details
as indicated below (the “Additional Agreements”). Per Instruction 2 to Item 601
of Regulation S-K, the Company is not filing the Additional Agreements as
exhibits to the Form 10-Q, but is filing this Schedule with Exhibit 10.13
describing the differences between the Lease Agreement and the Additional
Agreements.

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Description of Differences

 

Name of Agreement   Parties   Date   Term   Hotel Asset   Base and Percentage 
Rent Lease Agreement by and between  Capitol Hotel Associates, L.P., L.L.P. and
MHI Hospitality TRS, LLC dated as of the 21st day of December, 2004 and as
amended by Amendment No. 1 dated July 15, 2010.  

Lessee: MHI Hospitality TRS, LLC

 

Lessor: Capitol Hotel Associates, L.P., L.L.P.

  12/21/2004   12/31/2013   Hilton Wilmington
Riverside  

Base Rent – $3,000,000

 

First Tier Rent Floor – $7,000,000

 

Second Annual Room Revenues Break Point –
$7,300,000

Lease Agreement by and between Savannah Hotel Associates LLC and MHI Hospitality
TRS, LLC dated as of the 21st day of December, 2004 and as amended by Amendment
No. 1 dated July 15, 2010.  

Lessee: MHI Hospitality TRS, LLC

 

Lessor: Savannah Hotel Associates, L.L.C.

  12/21/2004   12/31/2013   Hilton Savannah DeSoto  

Base Rent – $3,100,000

 

First Tier Rent Floor – $8,200,000

 

Second Annual Room Revenues Break Point –
$8,500,000

Lease Agreement by and between Brownestone Partners, LLC, and MHI Hospitality
TRS, LLC dated as of the 21st day of December, 2004 and as amended by Amendment
No. 1 dated July 15, 2010.  

Lessee: MHI Hospitality TRS, LLC

 

Lessor: Brownestone Partners, LLC

  12/21/2004   12/31/2013   Holiday Inn Brownstone
Raleigh  

Base Rent – $800,000

 

First Tier Rent Floor – $2,850,000

 

Second Annual Room Revenues Break Point –
$3,500,000

Lease Agreement by and between Laurel Hotel Associates LLC, and MHI Hospitality
TRS, LLC dated as of the 21st day of December, 2004 and as amended by Amendment
No. 1 dated July 15, 2010.  

Lessee: MHI Hospitality TRS, LLC

 

Lessor: Laurel Hotel Associates LLC

  12/21/2004   12/31/2013   Holiday Inn Laurel West  

Base Rent – $800,000

 

First Tier Rent Floor – $4,200,000

 

Second Annual Room Revenues Break Point –
$4,600,000

Lease Agreement by and between MHI Jacksonville LLC and MHI Hospitality TRS,
LLC, dated as of the 22nd day of July, 2005 and as amended by Amendment No. 1
dated July 15, 2010.  

Lessee: MHI Hospitality TRS, LLC

 

Lessor: MHI Jacksonville LLC

  07/22/2005   12/31/2013   Crowne Plaza Jacksonville
Riverfront  

Base Rent – $924,000

 

First Tier Rent Floor – $3,352,000

 

Second Annual Room Revenues Break Point –
$6,146,000

Lease Agreement by and between Capitol Hotel Associates L.P., L.L.P. and MHI
Hospitality TRS, LLC, dated as of the 21st day of December, 2004 and as amended
by Amendment No. 1 by and between Capitol Hotel Associates, L.P., L.L.P., MHI
Hospitality TRS, LLC and Louisville Hotel Associates LLC dated July 15, 2010 and
Amendment No. 2 dated July 15, 2010.  

Lessee: MHI Hospitality TRS, LLC

 

Lessor: Louisville Hotel Associates, LLC

  12/21/2004   12/31/2013   Sheraton Louisville
Riverside  

Base Rent – $1,377,000

 

First Tier Rent Floor – $3,633,000

 

Second Annual Room Revenues Break Point –
$6,661,000

Lease Agreement by and between Hampton Hotel Associates LLC and MHI Hospitality
TRS, LLC as of the 24th day of April, 2008 and as amended by Amendment No. 1
dated October 7, 2008.  

Lessee: MHI Hospitality TRS, LLC

 

Lessor: Hampton Hotel Associates LLC

  04/24/2008   10/07/2018   Crowne Plaza Hampton
Marina   Rent – 20% of Gross Room Revenue

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Name of Agreement   Parties   Date   Term   Hotel Asset   Base and Percentage 
Rent Lease Agreement by and between Tampa Hotel Associates LLC and MHI
Hospitality TRS, LLC as of the 1st day of January, 2009.  

Lessee: MHI Hospitality TRS, LLC

 

Lessor: Tampa Hotel Associates LLC

  01/01/2009   01/01/2019   Crowne Plaza Tampa
Westshore  

Base Rent – $2,683,296

 

First Tier Rent Floor

 

1st full Lease Year plus any initial stub Lease Year – 20%

 

2nd full Lease Year – 25%

 

3rd full Lease Year – $400,000

 

Thereafter until Expiration Date prior year’s First Tier Rent Floor plus a
Consumer Price Index adjustment calculated consistent with Section 3.1(d)

 

First Annual Room Revenues Break Point shall equal the applicable First Tier
Rent Floor