Exhibit 10.4

MANAGEMENT AGREEMENT

between

ESA LVP OPERATING LESSEE LLC

(LESSEE)

and

ESA MANAGEMENT, LLC

(MANAGER)

December 31, 2013

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TABLE OF CONTENTS

 

ARTICLE I

 

CERTAIN DEFINITIONS

     1   

ARTICLE II

 

ENGAGEMENT OF MANAGER AND COMMENCEMENT OF MANAGEMENT OF THE HOTELS

     4   

Section 2.1.

 

Engagement of Manager to Manage Hotels

     4   

Section 2.2.

 

Management Commencement Date

     4   

ARTICLE III

 

OPERATION OF THE HOTELS AFTER THE MANAGEMENT COMMENCEMENT DATE

     4   

Section 3.1.

 

Duty and Authority of Manager

     4   

Section 3.2.

 

Operational Standards

     7   

Section 3.3.

 

Agreements with Related Parties

     7   

Section 3.4.

 

Emergency Repairs

     7   

Section 3.5.

 

Major Policy Matters and Decisions

     7   

Section 3.6.

 

Compliance with Trademark License Agreement

     8   

Section 3.7.

 

Marketing and Reservation Services

     8   

Section 3.8.

 

Financing Permitted

     8   

Section 3.9.

 

Credit Policies

     8   

Section 3.10.

 

Collection Practices

     8   

Section 3.11.

 

Centralized Services

     8   

Section 3.12.

 

Intellectual Property

     8   

ARTICLE IV

 

OPERATING EXPENSES PAID BY LESSEE

     10   

Section 4.1.

 

Expenses Incurred by Manager on Behalf of Lessee

     10   

Section 4.2.

 

Debts and Liabilities to Third Parties

     10   

Section 4.3.

 

Manager Not Obligated to Advance Own Funds

     10   

ARTICLE V

 

CONSULTING SERVICES OF MANAGER’S AFFILIATES

     10   

ARTICLE VI

 

COMPLIANCE WITH LAWS

     10   

Section 6.1.

 

Compliance by Manager and Lessee After Management Commencement Date

     10   

Section 6.2.

 

Lessee’s Right to Contest or Postpone Compliance

     11   

Section 6.3.

 

Manager’s Right to Terminate Agreement

     11   

ARTICLE VII

 

HOTEL ACCOUNT, OPERATING FUNDS, AND RESERVE FUND ACCOUNT

     11   

Section 7.1.

 

Hotel Account

     11   

Section 7.2.

 

Operating Funds

     12   

Section 7.3.

 

Reserve Fund

     12   

Section 7.4.

 

 

Fidelity Bonds

 

    

 

12

 

  

 

 

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ARTICLE VIII  

BOOKS, RECORDS AND FINANCIAL STATEMENTS

     12   

Section 8.1.

 

Accounting System

     12   

Section 8.2.

 

Financial Statements

     13   

Section 8.3.

 

Periodic Delivery of Data in Electronic Form

     13   

ARTICLE IX

 

ANNUAL BUSINESS PLAN

     13   

Section 9.1.

 

Preparation of Annual Business Plan

     13   

Section 9.2.

 

Annual Business Plan Disputes

     14   

Section 9.3.

 

Deviations from Annual Business Plan

     14   

ARTICLE X

 

MANAGER’S FEES AND REIMBURSEMENTS

     14   

Section 10.1.

 

Management Fee

     14   

Section 10.2.

 

Reimbursement of Certain Expenses

     15   

Section 10.3.

 

Technical Services

     15   

Section 10.4.

 

Intentionally Omitted.

     15   

Section 10.5.

 

Other Hotel Revenue and Expenses

     15   

ARTICLE XI

 

INSURANCE

     16   

Section 11.1.

 

Insurance Coverage

     16   

Section 11.2.

 

Waiver of Subrogation; Lessee Assumes Risk of Adequacy

     16   

ARTICLE XII

 

TERM OF AGREEMENT AND TERMINATION

     16   

Section 12.1.

 

Term

     16   

Section 12.2.

 

Early Termination

     16   

Section 12.3.

 

Termination Procedure

     16   

Section 12.4.

 

Obligations Following Termination

     17   

Section 12.5.

 

Intentionally Omitted

     18   

Section 12.6.

 

Survival

     18   

ARTICLE XIII

 

REPRESENTATIONS AND COVENANTS

     18   

Section 13.1.

 

Lessee’s Representations

     18   

Section 13.2.

 

Manager’s Representations

     19   

Section 13.3.

 

Manager’s Covenants

     19   

ARTICLE XIV

 

ASSIGNMENT

     20   

ARTICLE XV

 

CONFIDENTIALITY

     20   

ARTICLE XVI

 

INDEMNIFICATION AND LIMITATION OF LIABILITY

     20   

Section 16.1.

 

Lessee’s Indemnification

     20   

 

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Section 16.2.

 

Manager’s Indemnification

     20   

Section 16.3.

 

Indemnification Procedure

     21   

Section 16.4.

 

Good Faith Judgment

     21   

Section 16.5.

 

Survival

     21   

ARTICLE XVII

 

MISCELLANEOUS

     21   

Section 17.1.

 

Severability

     21   

Section 17.2.

 

No Partnership

     21   

Section 17.3.

 

Meetings

     22   

Section 17.4.

 

Consents

     22   

Section 17.5.

 

Applicable Law

     22   

Section 17.6.

 

Successors Bound

     22   

Section 17.7.

 

Headings

     22   

Section 17.8.

 

Incorporation of Recitals

     22   

Section 17.9.

 

Notices

     22   

Section 17.10.

 

Entire Agreement; Amendments

     23   

Section 17.11.

 

Manager’s Authority Limited

     23   

Section 17.12.

 

Exclusive Compensation

     23   

Section 17.13.

 

Property Rights

     23   

Section 17.14.

 

Attorneys’ Fees

     23   

Section 17.15.

 

Complimentary/Discount Policies

     23   

Section 17.16.

 

No Third Party Beneficiary

     23   

Section 17.17.

 

REOC

     24   

 

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MANAGEMENT AGREEMENT

THIS MANAGEMENT AGREEMENT (this “Agreement”) is made as of December 31, 2013 by
and between ESA LVP OPERATING LESSEE LLC, a Delaware limited liability company
(“Lessee”), and ESA MANAGEMENT, LLC, a Delaware limited liability company
(“Manager”).

BACKGROUND

A. ESA LVP PORTFOLIO LLC, a Delaware limited liability company (“Owner”) is the
owner of those certain properties constituting various hotel properties more
specifically described in Schedule A attached hereto and the buildings,
structures, fixtures and additions now or hereafter located thereon
(collectively, the “Hotels”);

B. Owner has entered into that certain Lease Agreement dated as of December 31,
2013 with Lessee (as the same may be amended, restated, supplemented or
otherwise modified, the “Operating Lease”) pursuant to which Owner has leased
its Hotels to Lessee pursuant to the terms thereof;

C. Manager is an independent contractor engaged in the management of hotels
throughout the United States, and Manager is experienced in the various phases
of hotel operations; and

D. Lessee desires to utilize the services and experience of Manager in
connection with the management and operation of the Hotels, and Manager desires
to render such services, all upon the terms and conditions set forth in this
Agreement.

AGREEMENT

NOW THEREFORE, in consideration of the foregoing recitals and the premises and
the mutual covenants herein contained, the parties hereto agree as follows:

ARTICLE I

CERTAIN DEFINITIONS

“Accounting Period” shall mean each of 12 accounting periods of one calendar
month occurring each Fiscal Year.

“Affiliate” shall mean, with respect to any Person, any other Person that,
directly or indirectly, (a) controls, is under common control with, or is
controlled by such specified Person and (b) owns at least 10% of, is under
common ownership of at least 10% with, or is owned at least 10% by, such
specified Person. For purposes of this definition, the term “control” shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of management, policies, or activities of a Person, whether through
ownership of voting securities, by contract, or otherwise.

“Annual Business Plan” shall have the meaning set forth in Section 9.1.

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“Centralized Services” shall have the meaning set forth in Section 3.11.

“Code” shall mean the Internal Revenue Code of 1986 and, to the extent
applicable, the Treasury Regulations promulgated thereunder, each as amended
from time to time.

“Emergency Repairs” shall mean repairs which are necessary, as a result of
emergencies, to protect, maintain, or repair the Hotels. Emergencies, for the
purposes hereof, shall mean immediate threats of damage or injury to persons or
property or immediate threats of violations of law.

“ESH Hospitality” shall mean ESH Hospitality, Inc. (f/k/a ESH Hospitality, LLC),
a Delaware corporation, which will elect to be taxable as a real estate
investment trust under Section 856(c) of the Code, together with its successors
and assigns.

“ESH IP” shall mean all names, trademarks, domain names and other intellectual
property used in connection with the ownership, management or operation of any
Hotel.

“FF&E Percentage Contribution” shall have the meaning set forth in Section 7.3.

“Fiscal Year” shall mean a Calendar Fiscal Year starting on January 1 and ending
on December 31 or portion thereof depending upon the Management Commencement
Date and the termination date hereunder.

“Furniture, Fixtures and Equipment” shall mean furniture, furnishings, light
fixtures, outfittings, equipment and all other items of personal property
customarily installed in or used in connection with the operation of the Hotels
(it being understood, for the avoidance of doubt, that Furniture, Fixtures and
Equipment shall not include major capital improvements to the Hotels).

“GAAP” shall mean generally accepted accounting principles, as in effect from
time to time in the United States of America, consistently applied.

“Gross Operating Revenues” shall mean all receipts, revenues, income and
proceeds of sales of every kind received by Manager from the operation of the
Hotels, and shall include, without limitation: room rentals; rent or other
payments received from sub-tenants, licensees, and occupants of commercial and
retail space located in the Hotels (provided that the income and/or revenue
received by any licensees, subtenants or other occupants which are Affiliates of
Owner or Lessee shall not be included in Gross Operating Revenues); the proceeds
of insurance received by Owner, Lessee or Manager with respect to use and
occupancy or business interruption insurance; deposits forfeited and not
refunded; frequent guest program payments; and any amount recovered in any legal
action or proceeding or settlement thereof pertaining to room revenues or other
income from the Hotels which arose out of the operation of the Hotels. Gross
Operating Revenues shall exclude all sales and excise taxes and any similar
taxes collected as direct taxes payable to taxing authorities; gratuities or
service charges collected for payment to and paid to employees; credit or
refunds to guests; proceeds of insurance, save and except for proceeds of
insurance with respect to use and occupancy or business interruption insurance;
proceeds of sales of depreciable property; and proceeds of condemnation.

 

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“Group Services” shall have the meaning set forth in Section 10.2.

“Hotel Account” shall have the meaning set forth in Section 7.1.

“Hotel Information” shall mean information collected and maintained by Manager
in connection with its operation and management of the Hotels pursuant to this
Agreement, regardless of the form or medium involved (e.g., paper, electronic,
disc, tape, etc.), including without limitation, books of account, guest
records, customer lists, front office records and other records relating to, or
reflecting the operation of, the Hotels.

“Hotels” shall have the meaning set forth in Paragraph A of the Background
section.

“Independent Auditor” shall mean a reputable national firm of independent
certified public accountants having hotel experience, recommended by Manager
from time to time and approved by Lessee.

“Laws” shall have the meaning set forth in Section 6.1.

“Licensed Intellectual Property” shall have the meaning set forth in
Section 3.12(b).

“Licensor” shall mean ESH Strategies Branding LLC, a Delaware limited liability
company, together with its successors and assigns.

“Management Commencement Date” shall have the meaning set forth in Section 2.2.

“Management Fee” shall have the meaning set forth in Section 10.1.

“Operating Equipment” shall mean non-consumable equipment and supplies required
for the operation of the Hotels, including chinaware, glassware, linens,
silverware, utensils, uniforms, and all other non-consumable supplies.

“Operating Funds” shall have the meaning set forth in Section 7.2.

“Operating Lease” shall have the meaning set forth in Paragraph B of the
Background section.

“Operating Licenses” shall have the meaning set forth in Section 3.1(e).

“Operating Supplies” shall mean food and beverages and other consumable items
used in the operation of a hotel, such as fuel, soap, cleaning materials,
matches, stationery, brochures, folios and all other items used in the routine
operation of the Hotels which are consumable by nature.

 

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“Owner” shall have the meaning set forth in Paragraph A of the Background
section.

“Parent” shall have the meaning set forth in Section 17.17.

“Person” means any individual or entity, and the heirs, executors,
administrators, legal representatives, successors, and assigns of such Person
where the context so admits.

“REOC” shall have the meaning set forth in Section 17.17.

“Reserve Fund” shall have the meaning set forth in Section 7.3.

“Trademark License Agreement” shall mean that certain Trademark License
Agreement dated as of the date December 31, 2013 by and between Licensor, as
licensor, and Lessee, as licensee, as the same may be amended, modified and/or
supplemented from time to time.

“Uniform System” shall mean the Uniform System of Accounts for Hotels, “Tenth
Revised Edition”, as revised and adopted by the Hotel Association of New York
City, Inc. from time to time.

ARTICLE II

ENGAGEMENT OF MANAGER AND

COMMENCEMENT OF MANAGEMENT OF THE HOTELS

Section 2.1. Engagement of Manager to Manage Hotels. Lessee hereby appoints
Manager as Lessee’s exclusive manager, subject to the terms of this Agreement,
to supervise, direct and control the management and operation of the Hotels, and
Manager hereby undertakes and agrees to perform, as an independent contractor of
Lessee, all of the services and to comply with all of the provisions of this
Agreement, upon all of the terms and conditions hereinafter set forth.

Section 2.2. Management Commencement Date. Manager shall assume management and
operation of the Hotels on the date hereof (the “Management Commencement Date”).

ARTICLE III

OPERATION OF THE HOTELS AFTER THE

MANAGEMENT COMMENCEMENT DATE

Section 3.1. Duty and Authority of Manager. On and after the Management
Commencement Date, except as expressly limited hereby, Manager shall have the
exclusive authority and duty to direct, supervise, manage and operate the Hotels
in an efficient and economical manner and to determine the programs and policies
to be followed in connection therewith, all in accordance with the provisions of
this Agreement and the Annual Business Plan. Manager shall at all times be an
independent contractor and not the employee of Owner or Lessee. Subject to the
provisions of this Agreement and the Annual Business Plan, Manager shall have
the discretion and control in all matters relating to the management and
operation of the Hotels. Without limiting the generality of the foregoing,
Manager shall have the authority (subject to the provisions of this Agreement
and the Annual Business Plan) and duty to:

(a) Hire, supervise, direct the work of, discharge and determine the
compensation and other benefits of all personnel working in the Hotels pursuant
to a written program of benefits, perquisites and policies which has been
delivered to and approved by Lessee. Manager shall be the judge of the fitness
and qualifications of such personnel and shall be vested with discretion in the
hiring, training, supervision, direction, discharging, and determination of the
compensation and other benefits of such personnel during the course of their
employment. It is expressly understood and agreed that all personnel are in the
sole employ of Manager or such company as Manager may contract with regarding
said personnel and are not in the employ of Lessee or Owner and Lessee will not
interfere with or give orders or instructions to personnel employed at the
Hotels.

 

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(b) Reasonably employ the resources of its home office and regional facilities
and personnel to supervise and assist in the operation of the Hotels. Manager
shall provide the following supervisory services: maintenance, human resources
and personnel, administration, hotel operations, housekeeping, advertising, food
and beverage operations, sales promotion, forecasting and operations analysis,
staff planning, accounting, marketing, revenue management, Information Systems,
travel commission, training and oversight of reservations. The foregoing
supervisory services may be provided by Manager’s corporate officers, Manager’s
employees, home office administrative heads or otherwise and shall be provided
by Manager at its own expense, including, without limitation, the out-of-pocket
expenses, and not charged to Owner, except as otherwise specifically provided
for in this Agreement.

(c) Establish all prices, price schedules, rates and rate schedules (with the
goal of maximizing revenue per available room), rents, lease charges, concession
charges, and, in connection therewith, the supervision, direction and control of
the collection, receipt and giving of receipts for all services or income of any
nature from the operations of the Hotels.

(d) Supervise and maintain complete books and records, including without
limitation, the books of accounts and accounting procedures of the Hotels.

(e) Obtain and maintain all licenses and permits required for the operation of
the Hotels (the “Operating Licenses”). The Operating Licenses may be in the name
of Manager, Lessee or Owner in accordance with or as required by local laws,
customs and practices.

(f) Administer leases, license and concession agreements for all public space at
the Hotels, including all stores, office space and lobby space. All such leases,
licenses or concessions shall be in Lessee’s name and may be executed by Manager
on Lessee’s behalf after any such lease, license or other agreement has been
approved by Lessee.

(g) Keep the Hotels and the Furniture, Fixtures and Equipment in good order,
repair and condition, including, without limitation, making necessary
replacements, improvements, additions and substitutions to the Hotels, subject
to the approved Annual Business Plan. Manager shall effect, institute, and/or
supervise all decorations, routine construction, maintenance, repairs and
alterations, including, but not limited to, the

 

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administration of a preventive maintenance program for all mechanical,
electrical and plumbing systems and equipment, for the Hotels to ensure that the
Hotels will be competitive in its market and in compliance with governmental
regulations, the requirements of the Trademark License Agreement and with
industry standards, provided that the costs therefor (unless the same relate to
emergencies) are included in the Annual Business Plan or are otherwise approved
in writing, in advance, by Lessee. Subject to the limitations set forth in and
imposed by the Annual Business Plan, Manager will have the right to make such
alterations, additions or improvements to the Hotels as are customarily made in
the operation or comparable hotels; provided, however, that no structural
alterations, additions or improvements involving a fundamental change in the
character of the Hotels will be made without Lessee’s prior written approval.
The cost of such customary alterations, additions or improvements will be paid
either out of the Gross Operating Revenues and charged directly to current
operating expenses of the Hotels or will be paid from the Reserve Fund and
capitalized and amortized on the books of the Hotels.

(h) Negotiate and enter into, on behalf of Lessee, service contracts and
licenses required in the ordinary course of business in operating the Hotels,
including, without limitation, contracts for life/safety systems maintenance,
electricity, gas, telephone, cleaning, elevator and boiler maintenance, air
conditioning maintenance, master television service, laundry and dry cleaning,
and other services which Manager deems advisable; provided, however, any
contract for a term in excess of one (1) year or which is not terminable without
fee or penalty upon not more than sixty (60) days written notice or under which
the total amount payable is $5,000 or more per Hotel and which is not covered in
the Annual Business Plan shall, be approved by Lessee, which approval shall not
be unreasonably withheld or delayed.

(i) Negotiate and enter into, on behalf of Lessee, agreements for banquet
facilities and guest rooms and agreements to provide entertainment for the
Hotels, and licenses for copyright music and videos.

(j) Supervise and purchase or arrange for the purchase in the most economical
manner of all inventories, provisions, Operating Equipment and Operating
Supplies, which, in the normal course of business, are necessary and proper to
maintain and operate the Hotels.

(k) Prepare and submit to Lessee the Annual Business Plan, as hereinafter
described in Section 9.1.

(l) Consult with Lessee at least quarterly to discuss the operation and
management of the Hotels and the performance of Manager’s duties under this
Agreement.

(m) Prepare, or engage an accounting firm reasonably approved by Lessee to
prepare, any tax returns and statements which must be filed in connection with
the ownership, operation or management of the Hotels (e.g., sales, use and
occupancy taxes, real property taxes, and the like), and shall file (or cause to
be filed) such returns and statements and, subject to the availability of Lessee
funds, pay (or cause to be paid) such taxes, all in accordance with applicable
Laws.

 

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(n) At Lessee’s request, advise and assist Lessee in connection with negotiating
and prosecuting any claims for the abatement, reduction or refund of property
taxes affecting the Hotels.

(o) Cooperate reasonably with and assist Lessee in any legal proceedings by or
against Lessee or Owner with regard to the Hotels and involving third parties.

(p) Perform such other tasks as are customary and usual in the operation of a
hotel of a class and standing consistent with the Hotels’ facilities.

(q) Prepare and maintain all records and reports relating to the
Hotels necessary to demonstrate and support ESH Hospitality’s status as a real
estate investment trust for tax purposes.

Section 3.2. Operational Standards. (a) Manager will operate the Hotels at the
expense of Lessee in accordance with and subject to the provisions of this
Agreement and the Annual Business Plan. Manager shall manage the Hotels in a
manner normally associated with extended stay hotels of similar size, type, or
usage in similar locations. Manager shall use due care with respect to the
management, maintenance, and protection of, and accounting for, Lessee’s and
Owner’s assets.

(b) Manager shall manage and operate the Hotels and its businesses, services,
and sales and shall exercise diligent efforts to do so at all times in a manner
consistent with the standards imposed by the Trademark License Agreement, the
Operating Lease, the requirements of all governmental regulations, and the
requirements of this Agreement.

(c) Manager shall implement policies and practices to: (i) facilitate effective
and efficient discharge of its obligations under this Agreement; and (ii) to
create and enhance goodwill among existing and prospective guests and patrons.

Section 3.3. Agreements with Related Parties. Manager shall not enter into any
contract with an Affiliate of Manager in connection with the Hotels or Manager’s
services under this Agreement, including, without limitation, for operating,
cleaning, maintaining, repairing or servicing the Hotels, without the express
prior written consent of Lessee, which consent may be evidenced by Lessee’s
approval of the Annual Business Plan.

Section 3.4. Emergency Repairs. In the event Emergency Repairs are needed at the
Hotels, Manager shall be required to use its good faith efforts to obtain
Lessee’s verbal approval of any Emergency Repairs prior to making any
expenditure therefor. In the event Manager is unable to contact Lessee to obtain
its verbal approval of Emergency Repairs, then Manager is authorized to enter
into contracts occasioned by such emergency that provide for expenditures not
contemplated by the Annual Business Plan up to a sum of $50,000. Manager will
promptly give Lessee written notice of any Emergency Repairs made by Manager.

Section 3.5. Major Policy Matters and Decisions. (a) Manager shall submit
outlines, in reasonable detail, to Lessee setting forth its plans for and/or any
major changes in its management and operation of the Hotels that are likely to
have a material effect upon the profitability of the Hotels prior to Manager’s
institution of such changes.

(b) Manager shall not make any major policy decisions or changes not reflected
in the applicable Annual Business Plan that would have a potentially material
effect on the operations of the Hotels without first obtaining Lessee’s approval
of such policy change.

 

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Section 3.6. Compliance with Trademark License Agreement. Manager shall
administer compliance with the Trademark License Agreement.

Section 3.7. Marketing and Reservation Services. Manager shall cause the Hotels
to be included in the national advertising programs and central reservation
system for all hotels operated under the trademarks and trade names covered by
the Trademark License Agreement.

Section 3.8. Financing Permitted. Nothing herein contained shall prevent Lessee
or Owner from encumbering the Hotels by mortgage, deed of trust, or trust deed
in the nature of a mortgage.

Section 3.9. Credit Policies. Manager shall establish and implement policies and
procedures for verifying, accepting, limiting, and rejecting the credit of
guests and patrons of the Hotels. In connection with the foregoing, Manager
shall make appropriate arrangements to honor American Express, Visa, MasterCard,
such credit cards as may be required or provided by Licensor, and such other
credit cards as Manager or Lessee may deem desirable. Manager shall utilize its
best efforts to make such arrangements on the most favorable terms available.

Section 3.10. Collection Practices. Manager shall employ its best efforts to
collect any and all credit card charges, checks, traveler’s checks, drafts, and
other accounts receivable. Manager shall employ collection agencies and legal
counsel, where appropriate, to pursue such claims.

Section 3.11. Centralized Services. Manager shall provide, or shall cause one or
more of its Affiliates to provide, in the operation of the Hotels and for the
benefit of its guests, those benefits, services, and facilities, including joint
advertising programs to the extent appropriate (all herein collectively called
“Centralized Services”), similar to those furnished to other hotels owned and/or
operated by Manager or its Affiliates.

Section 3.12. Intellectual Property.

(a) Manager acknowledges that the Licensor is the sole and exclusive owner of
all rights, title and interest to the ESH IP, which shall in all events remain
the exclusive property of the Licensor (or one or more of Licensor’s
Affiliates). Manager further acknowledges that, pursuant to the Trademark
License Agreement, Lessee and its Affiliates have a license to use the ESH IP,
which license shall in all events remain the exclusive property of Lessee (or
one or more of Lessee’s Affiliates). All use of the ESH IP at or in connection
with the Hotels or as otherwise contemplated by this Agreement, and all goodwill
arising therefrom or symbolized thereby, shall inure solely to the benefit of
Lessee, Licensor and their respective Affiliates, as applicable. Nothing in this
Agreement shall be construed to grant Manager any right of ownership in, or
right to use, or right to license others to use, the ESH IP, except in
connection with fulfilling its duties and obligations under this Agreement.
Manager may not otherwise use the ESH IP without the prior written consent of
Licensor or Lessee, which may be

 

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withheld in Licensor’s or Lessee’s sole and absolute discretion, in any manner
whatsoever and shall not apply for registration of any ESH IP or any other
intellectual property confusingly similar thereto in any jurisdiction.

(b) Manager acknowledges that Lessee or its Affiliates are or may become the
licensee of certain intellectual property including intellectual property that
may be embodied in software for use at one or more facilities leased by Lessee
or its Affiliates and all source and object code versions thereof and all
related documentation, flow charts, user manuals, service/operator manuals and
any enhancements, modifications or substitutions thereof (all such intellectual
property herein collectively called “Licensed Intellectual Property”). Except as
otherwise specified by Lessee, Manager may utilize the Licensed Intellectual
Property to the extent that Manager deems appropriate in connection with the
operation of the Hotels for the purpose of carrying out its obligations
hereunder, but such use shall be strictly on a non-exclusive basis and neither
such use nor anything contained in this Agreement shall confer any proprietary
or other rights in the Licensed Intellectual Property on Manager or any third
parties.

(c) Upon the expiration or earlier termination of this Agreement, any use of or
right to use any of the ESH IP or Licensed Intellectual Property at or in
connection with the Hotels by Manager shall cease forthwith. In the event of the
expiration or earlier termination of this Agreement, Manager shall immediately
cease using all ESH IP and Licensed Intellectual Property, except to the extent
that Manager may be authorized to continue using the same pursuant to, and in
accordance with, the terms and conditions of any separate management or license
agreement between Manager and any Affiliate of Lessee or any licensee or
franchisee that is otherwise authorized to use any such ESH IP or Licensed
Intellectual Property. Further, Manager will have no right whatsoever from and
after the date of expiration or earlier termination to make use of or to dispose
of any furnishings and equipment, Operating Equipment and Operating Supplies
bearing or incorporating any ESH IP except upon and in accordance with the terms
and provisions of this Section 3.12(c). Specifically, it is understood and
agreed that Manager may not make any use of such property from and after the
effective date of such expiration or earlier termination unless Manager is
specifically authorized in writing (whether under license from Lessee, Licensor
or otherwise, other than by this Agreement) to use property bearing any ESH IP,
nor may Manager dispose of such property to any person or entity whatsoever
unless such person or entity is specifically authorized in writing by Lessee or
Licensor (whether under license from Lessee or Licensor or otherwise) to use
property bearing or incorporating any ESH IP.

(d) Lessee, Licensor and their respective Affiliates shall have the right to
injunctive relief and any other right or remedy available at law or in equity to
enforce the provisions of this Section 3.12.

(e) The provisions of this Section 3.12 shall survive expiration or earlier
termination of this Agreement.

 

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ARTICLE IV

OPERATING EXPENSES PAID BY LESSEE

Section 4.1. Expenses Incurred by Manager on Behalf of Lessee. Everything done
by Manager in the performance of its obligations and all expenses incurred under
and in accordance with this Agreement shall be for and on behalf of Lessee and
for Lessee’s account, except the services referred to in Article V, which shall
be rendered and performed by Manager or its Affiliates at their expense and not
separately charged to Lessee, except as otherwise provided in Section 10.2.

Section 4.2. Debts and Liabilities to Third Parties. As between Lessee and
Manager under this Agreement, all debts and liabilities arising in the course of
business of the Hotels are and shall be the obligations of Lessee, and, provided
such debts and liabilities have been incurred in accordance with the terms and
provisions of this Agreement, Manager shall not be liable for any of such
obligations by reason of its management, supervision and operation of the Hotels
for Lessee.

Section 4.3. Manager Not Obligated to Advance Own Funds. Neither Manager nor any
of its Affiliates shall be obligated to advance any of its own funds to or for
the account of Lessee, nor to incur any liability unless Lessee shall have
furnished Manager with funds necessary for the discharge thereof prior to
incurring such liability. If Manager shall have advanced any funds in payment of
a permitted expense in the maintenance and operation of the Hotels, Lessee shall
reimburse Manager therefor on demand. Notwithstanding the foregoing, Manager
shall pay from its own funds the expenses hereinafter described in Article V.

ARTICLE V

CONSULTING SERVICES OF MANAGER’S AFFILIATES

Except as hereinafter provided in Section 10.2, after the Management
Commencement Date, the normal consulting services of the corporate officers and
employees of Manager or Manager’s Affiliates, including its corporate executives
for operations, human resources, training, food and beverage, finance and
administration and real estate, to be rendered from time to time to Manager in
connection with the operations of the Hotels, shall be provided by corporate
officers and employees of Manager or Manager’s Affiliates to Manager at
Manager’s sole cost and expense and not charged to Lessee hereunder. In no event
shall Manager’s Affiliates be deemed a party to this Agreement or responsible in
any way for Manager’s obligations pursuant to this Agreement by virtue of
providing the foregoing services to Manager (or any of the services described in
Section 10.2 and Lessee reimbursing Manager for the expenses in connection
therewith).

ARTICLE VI

COMPLIANCE WITH LAWS

Section 6.1. Compliance by Manager and Lessee After Management Commencement
Date. Manager shall make all reasonable efforts, at expense of Lessee, to assure
full compliance with all laws, rules, regulations, requirements, orders,
notices, determinations and ordinances of any governing authority (collectively,
“Laws”) relating to the management, leasing, use, operation, repair, supervision
and maintenance of the Hotels, including, without limitation, the state and
local liquor authorities, the Board of Fire Underwriters and the requirements of
any insurance companies covering any of the risks against which the Hotels is

 

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insured. Unless otherwise directed by Lessee, Manager shall, at Lessee’s
expense, promptly remedy any violation of any such governmental regulation which
comes or should have come to its attention, which remedy shall be carried out
solely at Lessee’s expense (subject to the limitations set forth elsewhere
herein) unless caused by an action or omission of Manager not authorized
pursuant to this Agreement or unless Manager has failed to fulfill its duty as
required in the immediately preceding sentence, in which event all costs shall
be paid solely by Manager.

Section 6.2. Lessee’s Right to Contest or Postpone Compliance. With respect to a
violation of any Laws, Lessee shall have the right to contest any of the
foregoing and postpone compliance pending the determination of such contest, if
so permitted by law and not detrimental to the operation of the Hotels, but in
such event, Lessee shall indemnify and hold harmless Manager from any loss,
cost, damage or expense, as a result thereof.

Section 6.3. Manager’s Right to Terminate Agreement. Notwithstanding anything in
this Agreement to the contrary, if within 30 days of receiving Manager’s written
request (accompanied by a statement of Manager’s intention to elect to cancel
this Agreement if Lessee fails to give its approval as provided below) Lessee
fails to approve the changes, repairs, alterations, improvements, renewals or
replacements to the Hotels which Manager determines in its reasonable judgment
are necessary to protect the Hotels, Lessee and/or Manager from innkeeper
liability exposure then Manager may terminate this Agreement any time after such
30 day period upon 7 days’ written notice.

ARTICLE VII

HOTEL ACCOUNT, OPERATING FUNDS, AND RESERVE FUND ACCOUNT

Section 7.1. Hotel Account. (a) All monies received by Manager in the operation
of the Hotels, excluding the Operating Funds furnished by Lessee, shall be
deposited in a special account or accounts (collectively, the “Hotel Account”),
in Lessee’s name (or in Manager’s name, as agent of Lessee), in the bank or
trust company recommended by Manager and approved by Lessee. Such monies shall
not be mingled with Manager’s other funds. Out of the Hotel Account, Manager
shall periodically withdraw funds and pay all operating expenses of the Hotels
and any fees or compensation of any kind due it pursuant to this Agreement in
accordance with the provisions of this Agreement. Withdrawals from accounts
established pursuant to this Article VII shall be signed by representatives of
Manager only, provided such representatives are bonded or otherwise insured, and
Manager shall supply Lessee with bonds or other insurance upon Lessee’s request
unless said bond or other insurance shall have been placed by Lessee and
delivered directly by the bonding or insurance company to Lessee. Manager may
utilize its centralized disbursement accounts in its name for accounts payable
and payroll disbursements, provided that Manager shall only transfer the
necessary amount of funds from the Hotel Account to such centralized
disbursement accounts required to make such disbursements on behalf of the
Hotels.

(b) Manager will maintain the Hotel Account on Lessee’s behalf and all funds
received from Lessee will be and remain the property of Lessee and will be
disbursed by Manager only as set forth in this Agreement. Any and all expenses
of the Hotels paid by Manager must pass through and be withdrawn from the Hotel
Account. Lessee shall have the right from time to time to direct Manager to
change either the depository bank or the depository

 

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arrangements and Manager shall implement such changes promptly. Lessee shall
have the right to approve and to maintain control of signature cards for the
Hotel Account; provided, however, Lessee shall not withdraw funds from such
accounts except as provided below.

Section 7.2. Operating Funds. From and after the Management Commencement Date,
Lessee shall, if and as required, maintain cash in the Hotel Account (“Operating
Funds”) sufficient in amount to enable Manager to properly manage and operate
the Hotels.

Section 7.3. Reserve Fund. To the extent Operating Funds exceed the amount
described in Section 7.2 and the amounts needed for capital expenditures
anticipated pursuant to the Annual Business Plan, Manager shall deposit from
such excess, if any, in a reserve fund (“Reserve Fund”) an amount equal to 4% of
Gross Operating Revenues or such other percentage of Gross Operating Revenues as
Lessee may, from time to time, require (the “FF&E Percentage Contribution”).
Manager shall deduct the FF&E Percentage Contribution, if any, on a monthly
basis from Gross Operating Revenues and deposit such amount in the Reserve Fund.
The Reserve Fund shall be used only for additions or replacements to Furniture,
Fixtures and Equipment in accordance with the Annual Business Plan.

Section 7.4. Fidelity Bonds. Manager shall obtain a fidelity bond or insurance,
in an amount not less than $1,000,000 (or such other amount reasonably required
by Lessee consistent with the commercial availability thereof, the size and
scope of Lessee ‘s business being handled by Manager hereunder and reasonable
business practice), issued by a company reasonably acceptable to Lessee,
covering Manager and such of Manager’s on-site employees who may handle or be
responsible for monies or property of Lessee and place policies of insurance
covering the Hotels as directed by Lessee.

ARTICLE VIII

BOOKS, RECORDS AND FINANCIAL STATEMENTS

Section 8.1. Accounting System. Manager shall keep full and adequate books of
account and other records reflecting the results of operation of the Hotels on
an accrual basis, all in accordance with GAAP and, as and to the extent
applicable to the Hotels, the Uniform System. The Fiscal Year used by Manager
will consist of 12 Accounting Periods of one calendar month each. The Hotel
Information shall be kept at the Hotels and/or Manager’s home office and
computer storage systems and shall be available to Lessee and its
representatives at all reasonable times for examination, audit, inspection and
transcription. All of the Hotel Information, at all times, shall be the property
of Lessee. Manager shall treat as confidential any Hotel Information in its
possession, and shall not disclose to any third party, without the prior written
consent of Lessee (which approval and consent may be withheld in Lessee’s sole
discretion) any Hotel Information, except as may be necessary to perform its
duties and obligations under this Agreement or as may be necessitated by any
applicable Laws. Upon the expiration or earlier termination of this Agreement,
all Hotel Information shall be turned over to Lessee to ensure the orderly
continuation of the operation of the Hotels, but the books and records shall
thereafter be available to Manager at all reasonable times for inspection,
audit, examination and transcription.

 

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Section 8.2. Financial Statements.

(a) Manager shall deliver to Lessee within twenty (20) days after the end of
each Accounting Period a profit and loss statement showing the results of the
operation of the Hotels for such Accounting Period, the Fiscal Year to date, and
the trailing twelve (12) month period, and a statement of gross revenues
received from rooms, food and beverage and other sources, guest room occupancy
percentage, average room rates, total expenses paid and a cash forecast.
Information relating to other matters pertaining to the management, operation,
maintenance, and supervision of the Hotels not covered in such monthly operating
reports as Lessee shall reasonably request will be provided to Lessee (provided
such information is generally within the scope of Manager’s other obligations
and duties hereunder), within 20 days of such request.

(b) Manager shall deliver to Lessee within forty-five (45) days after the end of
each of the first, second and third calendar quarters, quarterly financial
statements in consistent form and presentation to the annual combined balance
sheet, income statement and statement of cash flows, exclusive of footnotes,
accompanied by a reconciliation to the year-to-date monthly property operations
reports and capital expenditures report.

(c) Manager shall cooperate with the Independent Auditor so as to allow the
Independent Auditor to deliver to Lessee within 90 days after the end of each
Fiscal Year a profit and loss statement showing the result of operation of the
Hotels during such Fiscal Year, and the net operating income or loss, if any,
for such Fiscal Year and a balance sheet for the Hotels as of the close of such
Fiscal Year. Manager shall, together with such statement, deliver to Lessee a
statement of income and expenses for such Fiscal Year and a statement of
balances in the Hotel Account. Any disputes as to the contents of any such
statements or any accounting matter hereunder, shall be determined by the
Independent Auditor whose decision shall be final and conclusive on Manager and
Lessee.

Section 8.3. Periodic Delivery of Data in Electronic Form. Upon request by
Lessee (but not more than twice in any calendar year), Manager shall deliver to
Lessee, within a reasonable period of time after such request, a copy of such
Hotel Information as may be requested by Lessee (or if Lessee has previously
made a request under this Section 8.3 for such Hotel Information, a copy of all
such Hotel Information collected since such previous request) collected or
maintained by Manager, in such electronic format as Lessee may reasonably
require.

ARTICLE IX

ANNUAL BUSINESS PLAN

Section 9.1. Preparation of Annual Business Plan. (a) No later than November 15
of each Fiscal Year, Manager shall submit to Lessee an annual business plan for
the succeeding Fiscal Year. Each annual business plan proposed by Manager and
approved by Lessee in accordance with this Article IX (an “Annual Business
Plan”) shall include: an operating budget showing estimated Gross Operating
Revenues, department profits, operating expenses, and net operating income or
loss for the forthcoming Fiscal Year for the Hotels; a marketing plan; a cash
flow forecast; projected average daily room rates; the budget for replacing
Furniture, Fixtures and Equipment and for making capital improvements; and the
basis of

 

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allocation of the Group Services, all in reasonable detail and, where
appropriate, with the basis for all assumptions expressly set forth, and
otherwise complying with the applicable requirements set forth in the Operating
Lease.

(b) Within 5 business days after the proposed Annual Business Plan is submitted
to Lessee, Lessee shall approve such proposed Annual Business Plan or notify
Manager of any revisions therein which Lessee deems reasonably necessary. If
Lessee approves the proposed Annual Business Plan or if Lessee requires
revisions to the proposed Annual Business Plan, and Manager does not make
reasonable objections to such proposed revisions within 5 business days after
receipt thereof, then such proposed Annual Business Plan, together with the
proposed revisions required by Lessee, shall be deemed thereafter to constitute
the Annual Business Plan for the Fiscal Year in question for all purposes
hereof. In the event Manager timely makes any reasonable objection to any
proposed revision by Lessee to the proposed Annual Business Plan, Lessee and
Manager shall cooperate with each other to resolve any questions with respect to
such revisions to the proposed Annual Business Plan and shall use their best
efforts to agree upon an approved Annual Business Plan for the Hotels for the
Fiscal Year in question prior to November 30.

Section 9.2. Annual Business Plan Disputes. In the event Lessee and Manager are
unable to agree upon an Annual Business Plan, or as to any revisions requested
by Lessee to the proposed Annual Business Plan, for any Fiscal Year by
November 30, Lessee shall prevail and the proposed Annual Business Plan shall be
deemed approved as so revised by Lessee and shall thereafter constitute the
Annual Business Plan for the Fiscal Year in question for all purposes hereof. No
action shall be taken and no expenditures shall be made under any proposed
Annual Business Plan unless and until the proposed Annual Business Plan is
approved by Lessee.

Section 9.3. Deviations from Annual Business Plan. Manager shall diligently
pursue all feasible measures to enable the Hotels to adhere to the Annual
Business Plan. To the extent ascertainable in advance, Manager shall notify
Lessee of any projected material variance from the Annual Business Plan.
Notwithstanding anything herein to the contrary, Manager is not warranting or
guaranteeing in any respect that the actual operating results of the Hotels
during the period covered by the Annual Business Plan will not materially vary
from the projections described in the Annual Business Plan.

ARTICLE X

MANAGER’S FEES AND REIMBURSEMENTS

Section 10.1. Management Fee. During each Fiscal Year after the Management
Commencement Date (and for a fraction of any partial Fiscal Year) during the
term hereof, in consideration of the services Manager is to render under this
Agreement, Manager will be paid a fee (the “Management Fee”) equal to the sum of
(a) 2.50% of all Gross Operating Revenues up to $1,750,000 for such Fiscal Year
plus (b) 0.5% of all Gross Operating Revenues over $1,750,000 for such Fiscal
Year. The Management Fee will be paid in installments by deducting such fee from
Gross Operating Revenues immediately following each Accounting Period at the
rate of (i) 2.50% of Gross Operating Revenues for that Accounting Period until
Gross Operating Revenues for the applicable Fiscal Year are equal to $1,750,000
and (ii) 0.5% of Gross

 

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Operating Revenues for that Accounting Period thereafter. At the end of each
Fiscal Year following the annual audit, an adjustment will be made, if
necessary, and all sums due either Manager or Lessee shall be paid promptly.

Section 10.2. Reimbursement of Certain Expenses. Notwithstanding the provisions
of Article V (but subject to the Annual Business Plan), Lessee shall reimburse
Manager for all of the following property-level costs and expenses incurred in
managing and operating the Hotels: (i) the salaries or wages of any officers,
directors or employees of Manager or any of Manager’s Affiliates who shall be
regularly or temporarily employed or assigned on a full-time basis at the Hotels
for the period of such employment or assignment; (ii) personnel providing
in-house legal services to Manager or any of Manager’s Affiliates in connection
with matters involving the Hotels, which services shall be charged at rates
equal to or less than Manager’s or such Affiliate’s costs associated with such
services (provided, that to the extent such services are provided to Lessee and
other lessees, owners or other clients of Manager and/or Manager’s Affiliates on
a group rather than on an individual basis, the cost of such services shall be
allocated on a fair and equitable basis among Lessee and such other lessees,
owners or other clients benefiting therefrom in the manner, if any, described in
the Annual Business Plan); (iii) the out-of-pocket expenses of employees of
Manager or any of Manager’s Affiliates incurred in connection with the
management and operation of the Hotels (provided, that to the extent such
services are provided to Lessee and other lessees, owners or other clients of
Manager and/or Manager’s Affiliates on a group rather than on an individual
basis, the cost of such services shall be allocated on a fair and equitable
basis among Lessee and such other lessees, owners or other clients benefiting
therefrom in the manner, if any, described in the Annual Business Plan); and
(iv) certain other services (including general and administrative)
(collectively, the “Group Services”) best provided to Lessee and other lessees,
owners or other clients of Manager and/or Manager’s Affiliates on a group rather
than on an individual basis, the cost of which Group Services shall be allocated
on a fair and equitable basis among Lessee and such other lessees, owners or
other clients benefiting therefrom in the manner described in the Annual
Business Plan, including, without limitation, the following: (A) advertising,
sales and marketing, (B) payroll processed through Automatic Data Processing
Inc. (or other companies providing similar services), and MIS support services;
(C) accounting services; (D) revenue management; (E) facilities and purchasing
services; (F) information technology services; (G) reservation services;
(H) travel agent commissions; and (I) Centralized Services.

Section 10.3. Technical Services. Service fees for technical services for the
Hotels shall be paid to Manager or its Affiliates if Lessee requests such
services of Manager, or any other services beyond the scope of services to be
provided pursuant to this Agreement. The amount of fees shall be agreed to by
Lessee and Manager prior to commencing such services. Technical services include
renovation coordination, design review, construction management and related
services.

Section 10.4. Intentionally Omitted.

Section 10.5. Other Hotel Revenue and Expenses. Lessee acknowledges that Manager
and Manager’s Affiliates have the right to, and currently do, manage, operate
and otherwise provide services to hotel and lodging facilities and enterprises
other than the Hotels. Each of Lessee and Manager acknowledges and agrees that
any and all income derived from, and

 

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expenses incurred by, Manager or any of Manager’s Affiliates, directly or
indirectly, from the management and operation of, and provision of services to,
such other hotel and lodging facilities and enterprises shall be, as between
Lessee (on the one hand), and Manager and Manager’s Affiliates (on the other
hand), solely for the account of Manager and/or Manager’s Affiliates and shall
in no event be borne by or credited to Lessee.

ARTICLE XI

INSURANCE

Section 11.1. Insurance Coverage. Lessee, or Manager at the direction of Lessee,
shall provide and maintain, at Lessee’s cost and expense and in Lessee’s and
Owner’s name, insurance sufficient to furnish to Lessee, Owner and Manager
reasonable and adequate protection in the management and operation of the
Hotels. All insurance shall be in the name of Lessee, Owner and Manager as the
insured and shall contain riders and endorsements adequately protecting the
interests of Lessee, Manager and Owner as it may appear including, without
limitation, provisions for at least 20 days’ notice to Manager, Lessee and Owner
of cancellation or of any material change therein. Prior to the Management
Commencement Date and the commencement of each Fiscal Year thereafter, Manager
shall furnish Lessee and each Owner with certificates evidencing the insurance
coverages required pursuant to this Agreement and with evidence of the payment
of premiums therefor.

Section 11.2. Waiver of Subrogation; Lessee Assumes Risk of Adequacy. Lessee
shall have all policies of insurance provide that the insurance company will
have no right of subrogation against either party hereto, their agents or
employees. Lessee assumes all risks in connection with the adequacy of any
insurance or self-insurance program.

ARTICLE XII

TERM OF AGREEMENT AND TERMINATION

Section 12.1. Term. This Agreement shall be for a period commencing on
Management Commencement Date and ending on December 31, 2025 (the “Expiration
Date”), unless sooner terminated as hereinafter provided.

Section 12.2. Early Termination. This Agreement can be terminated by either
party hereto at its option for any or no reason. If either party exercises its
right to terminate this Agreement prior to the Expiration Date, the rights and
obligations of the parties will cease (other than those that expressly survive
the termination of this Agreement) except as to fees and reimbursements due
Manager or its Affiliates or Lessee pursuant to this Agreement, including
without limitation, Article X, and claims for non-performance by Lessee against
Manager and other claims of liabilities of either party which accrued or arose
before termination.

Section 12.3. Termination Procedure.

(a) If a termination occurs pursuant to Section 12.2, the party electing to
terminate shall give the other party at least 60 days’ prior written notice of
such election, specifying the date of such termination. On the date specified in
such notice, Manager shall cease all activities at the Hotels and shall have no
further obligations under this Agreement except those obligations which
specifically survive any termination hereof.

 

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(b) If one or more (but less than substantially all) of the Hotels are (i) sold,
conveyed or otherwise transferred to another party, (ii) damaged or destroyed by
casualty and Owner has elected not to restore, or (iii) taken in a condemnation
proceeding, then this Agreement shall automatically terminate with respect to
such Hotel(s) from the date of such sale, casualty or condemnation but shall
continue with respect to the other Hotels in accordance with the terms of this
Agreement.

(c) Prior to the date Manager ceases activities at the Hotels, Manager shall be
paid any and all fees earned or expenses due it pursuant to this Agreement, and
as soon thereafter as is reasonably practicable, pay any fees or expenses upon
the final accounting in Section 12.4(a), and Manager shall cooperate with Lessee
(and Owner, if applicable) in effectuating an orderly transition to any new
manager of the Hotels (or to any new owner, or to Lessee or Owner, or to any of
their respective designee’s, as the case may be) so as to avoid any interruption
in the rendering of services at the Hotels and take such other actions as are
required under Section 12.4.

Section 12.4. Obligations Following Termination. Upon the expiration or earlier
termination of this Agreement for any reason, Manager’s authority to act for the
Lessee or the Owners shall immediately cease and Manager shall do, and execute
and/or deliver to Lessee, the following with respect to the Hotels, all of which
shall be done, and executed and/or delivered to or as directed by Lessee,
promptly upon the expiration or earlier termination hereof or as soon thereafter
as is reasonably practicable.

(a) A final accounting, reflecting receipts and disbursements in connection with
the operations of the Hotels during the current Fiscal Year through the date of
termination.

(b) Any balance of monies of Lessee, including, without limitation, any
undisbursed funds in the Hotel Account.

(c) All Hotel Information (including all Hotel Information stored in any
electronic format), service contracts, reservations, leases, receipts for
deposits, unpaid bills and other papers or documents which pertain to the
Hotels, including, but not limited to, all original documents. In addition,
Manager shall assist Lessee (or its designee) in migrating and porting any Hotel
Information stored in electronic format from the system or systems used by
Manager to any new system or systems designated employed by Lessee or its
designee, including, to the extent necessary, parsing and decoding the existing
content and format of such electronic data to facilitate such transfer, all such
reasonable out-of-pocket costs to be reimbursed to Manager.

(d) All documents and instruments necessary to transfer to Lessee or its
designee or nominee, to the extent transferable, all Operating Licenses held by
Manager necessary to operate the Hotels.

(e) Manager will assign to Lessee or its nominee, and Lessee and its nominee, if
any, will assume, all space leases and concession agreements in effect with
respect to the Hotels then in Manager’s, rather than Lessee’s, name, except for
blanket concessions affecting other hotels or conference centers operated by
Manager or its Affiliates.

 

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(f) Manager will take such further actions as Lessee may reasonably require to
assure an orderly transition of the Hotels’ operations, including, without
limitation, providing inventories of Furniture, Fixtures and Equipment,
Operating Equipment and Operating Supplies.

(g) Any and all Furniture, Fixtures and Equipment (along with then existing
warranties, operating instructions, and service contracts), Operating Equipment,
Operating Supplies, keys, locks and safe combinations, reservation lists,
ledgers, bank statements for the Hotel Account, budgets, accounting books and
records, insurance policies, bonds and other documents, memoranda, schedules,
lists, contracts, agreements, leases, licenses, correspondence, and other items
required for the operation of the Hotels.

(h) Manager shall remove all of Manager’s personal property from the Hotel
premises.

(i) Without limiting the provisions of clause (d) above, Manager shall cooperate
with Lessee to transfer all liquor licenses to, or to obtain new liquor
licenses, in the name of Lessee or Lessee’s designee. Manager shall make
commercially reasonable efforts to provide interim liquor licenses for up to one
hundred eighty (180) days to Lessee or Lessee’s designee, provided that Manager
may condition such provision on its receipt of market standard fees and a
commercially reasonable indemnity from such party with respect to such claims as
may arise in connection with the sale of liquor from Hotels.

(j) Without limiting any of the foregoing, Manager shall, for a period of ninety
(90) days after such expiration or earlier termination of this Agreement, make
itself available at all reasonable times to consult with and advise Lessee or
Lessee’s designee regarding the management, operation and maintenance of the
Hotels; in such event, Lessee, Owner or the purchaser of the Hotels shall
reimburse Manager for all of Manager’s reasonable out-of-pocket costs and
expenses incurred during such 90-day period in connection with providing such
consulting and advisory services, including, without limitation, the
appropriately allocable portion of Manager’s payroll expenses for personnel
involved in assisting with such transition.

Section 12.5. Intentionally Omitted.

Section 12.6. Survival. The provisions of Sections 12.3 and 12.4 shall survive
the expiration or earlier termination of this Agreement.

ARTICLE XIII

REPRESENTATIONS AND COVENANTS

Section 13.1. Lessee’s Representations. Lessee covenants, represents and
warrants as follows: (a) as of the date hereof, Lessee will be the tenant under
the Operating Lease with respect to the Hotels and has full power and authority
to enter into this Agreement; (b) throughout the term of this Agreement and
except as provided in the Operating Lease, Lessee will pay, keep, observe and
perform all payments, terms, covenants, conditions and obligations under any
lease or other concession and any real estate taxes or assessments covering or
affecting the Hotels; (c) the execution of this Agreement is permitted by the
Articles of Incorporation, By-Laws or other organizational documents of Lessee
and this Agreement has

 

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been duly authorized, executed and delivered and constitutes the legal, valid
and binding obligation of Lessee; (d) there is no claim, litigation, proceeding
or governmental investigation pending, or as far as is known to Lessee,
threatened, against or relating to Lessee, the properties or business of Lessee
or the transactions contemplated by this Agreement that does, or may reasonably
be expected to, materially and adversely affect the ability of Lessee to enter
into this Agreement or to carry out its obligations under this Agreement; and
(e) neither the consummation of the actions contemplated by this Agreement on
the part of Lessee to be performed, or the fulfillment of the terms, conditions
and provisions of this Agreement, conflicts with or will result in the breach of
any of the terms, conditions or provisions of, or constitute a default under,
any agreement, indenture, instrument or undertaking to which Lessee is a party
or by which it is bound.

Section 13.2. Manager’s Representations. Manager covenants, represents and
warrants as follows: (a) the execution of this Agreement is permitted by the
limited liability company agreement or other organizational documents of Manager
and this Agreement has been duly authorized, executed and delivered and
constitutes the legal, valid and binding obligation of Manager enforceable in
accordance with its terms; (b) there is no claim, litigation, proceedings or
governmental investigation pending, or as far as is known to Manager,
threatened, against or relating to Manager, the properties or business of
Manager or the transactions contemplated by this Agreement that does, or may
reasonably be expected to, materially and adversely affect the ability of
Manager to enter into this Agreement; (c) neither the consummation of the
actions contemplated by this Agreement on the part of Manager to be performed,
nor the fulfillment of the terms, conditions and provisions of this Agreement,
conflicts with or will result in the breach of any of the terms, conditions or
provisions of, or constitute a default under, any agreement, indenture,
instrument or undertaking to which Manager is a party or by which it is bound;
and (d) this Agreement shall be modified in the event that it is reasonably
determined by Owner under the Operating Lease that the terms of this Agreement
cause the Rent (as defined in the Operating Lease) to fail to qualify as “rents
from real property” within the meaning of Section 856(d) of the Code; provided
however, no such modification shall affect the amount of the Management Fee or
the practical realization of the rights and benefits of Manager hereunder.

Section 13.3. Manager’s Covenants. From the Management Commencement Date until
the Expiration Date or earlier termination of this Agreement, Manager covenants
that it shall satisfy the following requirements: (a) Manager shall not permit
wagering activities to be conducted at or in connection with the Hotels by any
Person who is engaged in the business of accepting wagers and who is legally
authorized to engage in such business at or in connection with the Hotels; and
(b) Manager shall not sublet the Hotels or enter into any similar arrangement on
any basis such that the rental or other amounts to be 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 would fail to qualify as “rents from
real property” within the meaning of Section 856(d) of the Code, or any similar
or successor provision thereto.

 

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ARTICLE XIV

ASSIGNMENT

Neither party shall assign or transfer or permit the assignment of transfer of
this Agreement without the prior written consent of the other. In the event of
consent by either party to an assignment of this Agreement by the other, no
further assignment shall be made without the express consent in writing of such
party, unless such assignment may otherwise be made without such consent
pursuant to the terms of this Agreement. An assignment by either Lessee or
Manager of its interest in this Agreement shall not relieve Lessee or Manager,
as the case may be, from their respective obligations hereunder unless the
assignee accepts full responsibility for performance of the same.

ARTICLE XV

CONFIDENTIALITY

The matters set forth in this Agreement are strictly confidential and Lessee and
Manager will make every reasonable effort to ensure that the information is not
disclosed to any person or entities (including the press) other than those
persons or entities needed to carry out the provisions of this Agreement without
first consulting with and obtaining the consent of the other party, which
consent shall not be unreasonably withheld. The provisions of this Article XV
shall survive the expiration or earlier termination of this Agreement.

ARTICLE XVI

INDEMNIFICATION AND LIMITATION OF LIABILITY

Section 16.1. Lessee’s Indemnification. Lessee shall hold harmless, indemnify
and defend Manager and its Affiliates and their respective agents, employees,
officers, directors and shareholders from and against all claims (administrative
or judicial), damages, losses and expenses (including, but not limited to,
attorneys’ fees for pre-trial, trial and appellate proceedings, accounting fees,
appraisal fees and consulting and expert witness fees) arising out of or
resulting from Manager’s activities performed pursuant to this Agreement, any
franchise agreement, any past or future building code or life/safety code
violations, and injury to person(s) and damage to property or business by reason
of any cause whatsoever in and about the Hotels or elsewhere, and any
requirement or award relating to course of employment, working conditions, wages
and/or compensation of employees or former employees at the Hotels, unless such
injury or damage is caused by the gross negligence or willful misconduct or
fraud on the part of Manager, its agents, employees, representatives or
independent contractors or by any breach of Manager’s obligations under this
Agreement. Lessee ‘s foregoing indemnification obligation to indemnify Manager
and its Affiliates shall extend to any claims between Lessee and Manager or its
Affiliates arising out of this Agreement or otherwise. Any indemnification shall
apply regardless of whether or not said claim, damage, loss or expense is
covered by insurance as herein provided.

Section 16.2. Manager’s Indemnification. Manager shall hold harmless, indemnify
and defend Lessee and its Affiliates, and their respective agents, employees,
officers, directors and shareholders, from and against all claims
(administrative or judicial), damages, losses and expenses (including, but not
limited to, attorneys’ fees for pre-trial, trial and appellate proceedings
accounting fees, appraisal fees and consulting and expert witness fees) arising
out of or resulting from Manager’s gross negligence, willful misconduct or fraud
or from Manager’s breach of its obligations under this Agreement. Manager’s
foregoing indemnification obligation

 

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to indemnify Lessee and its Affiliates shall extend to any claims between
Manager and Lessee or its Affiliates arising out of this Agreement or otherwise.
Any indemnification shall apply regardless of whether or not said claim, damage,
loss or expense is covered by insurance as herein provided.

Section 16.3. Indemnification Procedure. Upon the occurrence of an event giving
rise to indemnification, the party seeking indemnification shall notify the
other party hereto and provide the other party hereto with copies of any
documents reflecting the claim, damage, loss or expense. The party seeking
indemnification is entitled to engage such attorneys and other persons to defend
against the claim, damage, loss or expense, as it may choose. The party
providing indemnification shall pay the reasonable charges and expenses of such
attorneys and other persons on a current basis within 20 days of submission of
invoices or bills. Except as otherwise provided in the Operating Lease, if any
claim, lawsuit or action (administrative or judicial) is maintained against
Manager, Lessee or the Hotels due to allegations or actions arising prior to the
Management Commencement Date and Manager had no involvement with the Hotels
prior to such date, Lessee shall bear full and complete responsibility for the
defense of Lessee and Manager, specifically including all legal fees and
necessary and attendant expenses for the vigorous defense and representation of
the interests of Manager (for pre-trial, trial and appellate proceedings) and
Lessee. Lessee shall support and pay for all legal fees and representations
necessary to remove Manager from any claim, action (administrative or judicial),
or lawsuit covered by the immediately preceding sentence.

Section 16.4. Good Faith Judgment. To the extent that any provision of this
Agreement leaves something to the discretion of Manager, Manager will not be
liable for any action taken by Manager in the exercise of its discretion as long
as in exercising such discretion, Manager was using its good faith judgment.

Section 16.5. Survival. The provisions of this Article XVI shall survive the
expiration or earlier termination of this Agreement.

ARTICLE XVII

MISCELLANEOUS

Section 17.1. Severability. In the event that any portion of this Agreement
shall be declared invalid by order, decree or judgment of a court, this
Agreement shall be construed as if such portion had not been inserted herein
except when such construction would operate as an undue hardship to Manager or
Lessee or constitute a substantial deviation from the general intent and purpose
of said parties as reflected in this Agreement. The failure of either party to
insist upon a strict performance of any of the terms or provisions of this
Agreement or to exercise any option, right or remedy herein contained, shall not
be construed as a waiver or as a relinquishment for the future of such term,
provision, option, right or remedy, but the same shall continue and remain in
full force and effect. No waiver by either party of any term or provision hereof
shall be deemed to have been made unless expressed in writing and signed by such
party.

Section 17.2. No Partnership. The relationship of Lessee and Manager shall be
that of principal and independent contractor. Nothing contained in this
Agreement shall be construed to create a partnership or joint venture between
Lessee and Manager or their respective

 

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Affiliates or successors in interest. In the performance of its duties in the
management and operation of the Hotels, Manager shall act solely as an
independent contractor. It is expressly covenanted that this Agreement is no
more than an agreement for the rendering of services by Manager on behalf of
Lessee in the operation and management of the Hotels. Manager shall not be
Lessee’s fiduciary, nor shall Manager owe Lessee a fiduciary duty.

Section 17.3. Meetings. Lessee and Manager shall meet with each other from time
to time so that Manager and Lessee may discuss the status of operations and
future plans, recommendations and projections. The meetings will be held at
mutually convenient dates and locations.

Section 17.4. Consents. Except as herein otherwise provided, whenever in this
Agreement the consent or approval of Lessee or Manager is required, such consent
or approval shall not be unreasonably withheld or delayed. Such consent or
approval shall be in writing only and shall be duly executed by an authorized
officer or agent of the party granting such consent or approval.

Section 17.5. Applicable Law. This Agreement shall be construed under, and
governed in accordance with, the laws of the State of New York.

Section 17.6. Successors Bound. This Agreement shall be binding upon and inure
to the benefit of Lessee, its successors and assigns, and shall be binding and
inure to the benefit of Manager and its permitted assigns.

Section 17.7. Headings. Headings of Articles and Sections are inserted only for
convenience and are in no way to be construed as a limitation on the scope of
the particular Articles or Sections to which they refer.

Section 17.8. Incorporation of Recitals. The recitals set forth in the preamble
of this Agreement are hereby incorporated into this Agreement as if fully set
forth herein.

Section 17.9. Notices. Notices, statements and other communications to be given
under the terms of this Agreement shall be in writing and (a) delivered by hand
against receipt, (b) sent by certified or registered mail or by Federal Express
or other similar overnight mail service, return receipt requested or (c) sent by
telecopier (with answer back acknowledged), (or at such other address as from
time to time designated by the party receiving the notice):

 

If to Lessee:    11525 N. Community House Road, Suite 100    Charlotte, NC 28277
   Attention: President    Facsimile No.: (980) 335-3089    Attention: General
Counsel    Facsimile No.: (980) 335-3089 With a copy to:    Fried, Frank,
Harris, Shriver & Jacobson LLP    One New York Plaza    New York, New York 10004
   Attention: Harry R. Silvera, Esq.    Facsimile No.: (212) 859-4000

 

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If to Manager:    11525 N. Community House Road, Suite 100    Charlotte, NC
28277    Attention: President    Facsimile No.: (980) 335-3089    Attention:
General Counsel    Facsimile No.: (980) 335-3089 With a copy to:    Fried,
Frank, Harris, Shriver & Jacobson LLP    One New York Plaza    New York, New
York 10004    Attention: Harry R. Silvera, Esq.    Facsimile No.: (212) 859-4000

Section 17.10. Entire Agreement; Amendments. This Agreement, together with other
writings signed by the parties hereto expressly stated to be supplementing this
Agreement and together with any instruments to be executed and delivered
pursuant to this Agreement, constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof. This Agreement may be amended,
modified or changed only by a writing signed by the parties hereto.

Section 17.11. Manager’s Authority Limited. Manager’s authority shall be derived
wholly from this Agreement, and Manager has no authority to act for or represent
Lessee except as herein specified.

Section 17.12. Exclusive Compensation. The payments to be made to Manager
hereunder shall be in lieu of all other or further compensation or commissions
of any nature whatsoever for the services described herein and this Agreement
shall be considered as a special agreement between the parties hereto covering
the appointment and compensation of Manager to the exclusion of any other method
of compensation unless otherwise agreed to in writing.

Section 17.13. Property Rights. This Agreement and the rights created hereunder
are personal to Lessee and Manager and shall not create in favor of Manager any
property rights in the Hotels.

Section 17.14. Attorneys’ Fees. In the event of any litigation arising out of
this Agreement, the prevailing party shall be entitled to reasonable costs and
expenses, including without limitation, attorneys’ fees.

Section 17.15. Complimentary/Discount Policies. Manager will be permitted to
provide customary gratuitous accommodations, services and amenities to such
employees and representatives of Manager visiting the Hotels in accordance with
Manager’s normal policies, provided that such employees shall in no way displace
the Hotels’ third-party business.

Section 17.16. No Third Party Beneficiary. Nothing herein contained shall be
understood or construed to create or grant any third party benefits, rights or
property interests

 

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unless the person claiming such rights is expressly identified herein and the
rights claimed are expressly set forth herein. Notwithstanding the foregoing, it
is acknowledged and agreed that the Licensor is an intended third-party
beneficiary of Section 3.12.

Section 17.17. REOC. The parties acknowledge that Lessee is a direct or indirect
controlled subsidiary of an entity, Extended Stay America, Inc., a Delaware
corporation (“Parent”), that is intended to qualify as a “real estate operating
company” (a “REOC”) within the meaning of the U.S. Department of Labor plan
assets regulation (Section 2510.3-101, Part 2510 of Chapter XXV, Title 29 of the
Code of Federal Regulations) and that it is intended that Lessee will have the
rights, pursuant to this Agreement, as would be reasonably necessary to result
in the qualification of Parent as a REOC. Without limiting the generality of the
foregoing, notwithstanding any other provision of this Agreement, without
prejudice to the other rights provided to Lessee under this Agreement, Manager
agrees to: (i) permit Lessee and Parent to visit and inspect the Hotels and
inspect and copy the books and records of Manager, at such times as Lessee shall
reasonably request; (ii) periodically (at least quarterly) provide Lessee and
Parent with information and reports regarding Manager’s operation and management
of the Hotels and the performance of its duties under this Agreement and with
respect to renovations, alterations, general maintenance, repairs and
development activities that Manager has engaged in or intends to engage in with
respect to the Hotels and their surroundings; (iii) periodically (at least
quarterly) consult with Lessee and Parent in advance with respect to any
significant leasing, management and development matters, as appropriate,
including, without limitation, with respect to matters relating to renovations,
alterations, general maintenance, repairs and development activities with
respect to the Hotels and their surroundings and the management, participatory
and development rights retained by Lessee under this Agreement; and (iv) to
provide Lessee and Parent with such other rights as may reasonably be determined
by Lessee to be necessary to enable Parent to qualify as a REOC, provided the
rights described in clauses (i)-(iv) above do not materially adversely affect
(X) Manager’s ability to perform its duties under this Agreement or the economic
benefits enjoyed by Manager under this Agreement or (Y) the status of ESH
Hospitality as a real estate investment trust under the Code. Manager agrees to
consider, in good faith, the recommendations of Lessee in connection with the
matters on which it is consulted as described above.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS HEREOF, the parties hereto have caused this Agreement to be executed
and delivered as of the date first above written.

 

LESSEE:

ESA LVP OPERATING LESSEE LLC,

a Delaware limited liability company

By:  

/s/ Bill McCanless

  Name:   Bill McCanless   Title:   Vice President & Secretary MANAGER:

ESA MANAGEMENT, LLC,

a Delaware limited liability company

By:  

/s/ Bill McCanless

  Name:   Bill McCanless   Title:   Vice President & Secretary

[Signature page to Management Agreement – ESA LVP Operating Lessee LLC]

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SCHEDULE A

HOTELS

 

SITE #

  

ADDRESS

5050    15385 Katy Freeway, Houston, TX 77094 5051    13420 Southwest Freeway,
Houston, TX 77478