Exhibit 10.35

 

HOTEL

 

MANAGEMENT AGREEMENT

 

Between

 

TRS LEASING, INC.,

 

TRS SUBSIDIARY, LLC

 

and

 

ROYAL HOST MANAGEMENT, INC.

 

Dated

 

August 1, 2004

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TABLE OF CONTENTS

 

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ARTICLE I DEFINITIONS

   1

Section 1.01.

   Definitions    1

ARTICLE II TERM OF AGREEMENT

   7

Section 2.01.

   Term    7

ARTICLE III OPERATION OF THE HOTEL

   9

Section 3.01.

   Representations by Operator; Engagement of Operator    9

Section 3.02.

   Standards of Operation    9

Section 3.03.

   Reservations Services    10

Section 3.04.

   Marketing    10

Section 3.05.

   Consultations Between Lessee and Operator    10

Section 3.06.

   Transactions with Affiliates and Other Relationships    11

Section 3.07

   Employees    11

Section 3.08.

   Regional Manager    11

Section 3.09.

   Certain Expenses    11

ARTICLE IV INDEPENDENT CONTRACTOR

   12

Section 4.01.

   Operator Status    12

Section 4.02.

   Employees    12

Section 4.03.

   Employee Expenses    13

Section 4.04.

   Employee Benefit Plans    13

Section 4.05.

   Execution of Agreements    14

ARTICLE V INDEMNIFICATION

   14

Section 5.01.

   Indemnification by Operator    14

Section 5.02.

   Limitations on Indemnification    15

Section 5.03.

   Indemnification by Lessee    15

Section 5.04.

   Survival of Indemnity    15

ARTICLE VI BUDGETS AND POLICY MEETINGS

   16

Section 6.01.

   Budgets    16

Section 6.02.

   Budget Meetings    17

Section 6.03.

   Approval by Lessee Required    17

ARTICLE VII OPERATING EXPENSES

   18

Section 7.01.

   Payment of Operating Expenses    18

Section 7.02.

   Operating Expenses Not an Obligation of Operator    18

ARTICLE VIII WORKING CAPITAL AND BANK ACCOUNTS

   18

Section 8.01.

   Working Capital    18

Section 8.02.

   Bank Accounts    19

 

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Section 8.03.

   Authorized Signatures    19

Section 8.04.

   Investment of Hotel Cash    20

ARTICLE IX BOOKS, RECORDS AND STATEMENTS

   20

Section 9.01.

   Books and Records    20

Section 9.02.

   Statements    21

Section 9.03.

   Costs    21

ARTICLE X OPERATOR’S FEE AND TRANSFERS TO LESSEE

   22

Section 10.01.

   Payment of Operator’s Basic Fee    22

Section 10.02.

   Payment of Operator’s Incentive Fee    22

Section 10.03.

   Distribution of Cash    22

Section 10.04.

   Adjustments to Allocations    22

ARTICLE XI REPAIRS AND MAINTENANCE

   23

ARTICLE XII INSURANCE

   23

Section 12.01.

   General    23

Section 12.02.

   Workers’ Compensation Insurance    23

Section 12.03.

   Approval of Companies and Cost by Owner and Lessee    23

Section 12.04.

   Maintenance of Coverages    24

Section 12.05.

   Waiver of Subrogation    24

Section 12.06.

   Blanket Coverage and Self-Insurance    24

ARTICLE XIII PROPERTY TAXES, LOCAL TAXES, LEVIES AND OTHER ASSESSMENTS

   24

Section 13.01.

   Property Taxes    24

Section 13.02.

   Lessee’s Right to Contest    24

ARTICLE XIV DAMAGE OR DESTRUCTION – CONDEMNATION

   25

Section 14.01.

   Damage    25

Section 14.02.

   Condemnation    25

ARTICLE XV USE OF NAME

   25

ARTICLE XVI OWNER’S RIGHT TO SELL

   25

ARTICLE XVII DEFAULT AND REMEDIES

   26

Section 17.01.

   Events of Default - Remedies    26

Section 17.02.

   Rights Not Exclusive    27

ARTICLE XVIII NOTICES

   28

Section 18.01.

   Notices    28

 

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ARTICLE XIX ASSIGNMENT

   29

Section 19.01.

   No Assignment by Operator    29

Section 19.02.

   Assignment by Lessee    29

ARTICLE XX SUBORDINATION

   29

Section 20.01.

   Subordination To Mortgage    29

Section 20.02.

   Foreclosure    30

Section 20.03.

   Estoppel Certificate    30

ARTICLE XXI MISCELLANEOUS

   30

Section 21.01.

   Further Documentation    30

Section 21.02.

   Captions    31

Section 21.03.

   Successors and Assigns    31

Section 21.04.

   Competitive Market Area    31

Section 21.05.

   Assumption of Post Termination Obligations    31

Section 21.06.

   Entire Agreement    31

Section 21.07.

   Governing Law    32

Section 21.08.

   No Political Contributions    32

Section 21.09.

   Eligible Independent Contractor    32

Section 21.10.

   Time of the Essence    33

Section 21.11.

   Offsets    33

Section 21.12.

   Attorney’s Fees    33

Section 21.13.

   Final Accounting    33

Section 21.14.

   Non-Solicitation    34

Section 21.15.

   Franchisor Communications    34

 

EXHIBIT A — Hotel Properties and Owners

EXHIBIT B — Franchise Agreements

EXHIBIT C — Total Investment

 

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HOTEL MANAGEMENT AGREEMENT

 

This HOTEL MANAGEMENT AGREEMENT is made and entered into effective as of August
1, 2004, by and among TRS Leasing, Inc., a Virginia corporation (“TRS”), TRS
Subsidiary, LLC, a Delaware limited liability company (“TRS Sub” and, together
with TRS, collectively, “Lessee”) and Royal Host Management, Inc., a Delaware
corporation (“Operator”), with reference to the following facts:

 

A. Lessee leases from the entities described on Exhibit A (each, an “Owner” and
collectively, the “Owners”) the hotel properties described on Exhibit A (each, a
“Hotel” and collectively, the “Hotels”) pursuant to one or more Lease Agreements
described on Exhibit A (each, a “Lease” and collectively, the “Leases”);

 

B. Lessee desires to engage Operator to operate and manage the Hotels listed on
Exhibit A in accordance with the terms of this Agreement;

 

C. Operator desires to supply the services and to operate the Hotels in
accordance with the terms of this Agreement; and

 

D. The parties desire that this Agreement represents an individual hotel
management agreement for each Hotel described on Exhibit A, as it may be amended
from time to time.

 

NOW, THEREFORE, for and in consideration of the mutual covenants, conditions,
stipulations, agreements and obligations hereinafter set forth and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties hereto, Lessee and Operator covenant and agree as
follows:

 

ARTICLE I

 

DEFINITIONS

 

Section 1.01. Definitions.

 

(a) As used herein, the following terms shall have the indicated meanings:

 

(1) “Affiliate” shall mean (a) any person that, directly or indirectly, controls
or is controlled by or is under common control with such person, (b) any 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, partner or trustee of such person or any person
controlling, controlled by, or under common control with such person.

 

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(2) “Agreement” shall mean this Hotel Management Agreement and all amendments,
modifications, supplements, consolidations, extensions and revisions to this
Hotel Management Agreement approved by Lessee and Operator.

 

(3) “Approved Budget” shall mean the Hotel Operating Budget prepared in
accordance with Section 6.01 of this Agreement and approved in writing by
Lessee.

 

(4) “CPI” shall mean the Consumer Price Index, all items for All Urban
Consumers, published by the Bureau of Labor Statistics of the United States
Department of Labor as reported in The Wall Street Journal.

 

(5) “Capital Improvements” will mean all expenditures for replacements,
substitutions and additions to Hotels and Hotel FF&E which are required to be
capitalized in accordance with generally accepted accounting principles.

 

(6) “Event(s) of Default” shall mean one or more of the events or occurrences
listed in Section 17.01 of this Agreement.

 

(7) “Excess NOI” shall mean all NOI in excess of 10% of Total Investment.

 

(8) “Fiscal Year” shall mean each twelve (12) month calendar year ending
December 31 during the Operating Term, except that the first Fiscal Year and the
last Fiscal Year of the Operating Term may not be full calendar years.

 

(9) “Franchisors” shall mean the franchisors under the Franchise Agreements.

 

(10) “Franchisor Agreements” shall mean the franchise license agreements held by
Lessee or Operator with respect to each Hotel as described in Exhibit B as it
may be amended from time to time.

 

(11) “GAAP” shall mean generally accepted accounting principles and procedures
in the United States, based on the Uniform System.

 

(12) “Gross Hotel Income” shall mean all income and proceeds of sales received
by Operator for guest use, occupancy or enjoyment of the Hotel or for the sale
of any goods, services or other items sold on or provided from the Hotel to
guests in the ordinary course of the Hotel operation, but excluding the
following: (i) any excise, sales or use taxes or similar government charges
collected directly from patrons or guests, or as a part of the sales price of
any goods, services or displays, such as gross receipts, admission, cabaret or
similar or equivalent taxes; (ii) receipts from condemnation awards or sales in
lieu of or under threat of condemnation; (iii) proceeds of insurance (other than
proceeds from business interruption insurance received by Lessee which shall be
allocated by Lessee to any applicable periods); (iv) proceeds of sales of
capital assets, furniture and Hotel Operating Equipment; (v) consideration
received at the Hotel for hotel accommodations, goods and services to be
provided at other hotels although arranged by, for or on behalf of, Operator;
(vi) proceeds of any financing; (vii) working capital provided

 

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by Lessee; (viii) any funds provided by Lessee to Operator whether for Operating
Expenses or otherwise; (ix) interest income and fees, rents and other revenues
from telecommunications tower or similar leases or other leases or sub-leases of
any part of the Property and (x) other income or proceeds resulting other than
from guest use or occupancy of the Hotel or the Property, or any part thereof,
or other than from the sale of goods, services or other items sold on or
provided in connection with guest services at the Hotel in the ordinary course
of business. The parties intend that Gross Hotel Income shall be computed in a
manner consistent with “room rentals and other hotel services” computation of
revenues on the Parent’s audited Consolidated Statements of Operations (which is
$61,708,000 for the year ended December 31, 2003 consisting of $58,611,000 plus
$3,097,000 included in discontinued operations).

 

(13) “Holder” shall mean the holder of any Mortgage and the indebtedness secured
thereby, and such holder’s successors and assigns.

 

(14) “Hotel Capital Budget” shall mean the budget relating to capital
expenditures at a Hotel as described in Section 6.01.

 

(15) “Hotel FF&E” shall mean the furniture, furnishings, wall coverings,
fixtures and hotel equipment for a Hotel and which includes equipment required
for operation of the kitchens, restaurants and laundry, office equipment,
material handling equipment, cleaning and engineering equipment and vehicles.

 

(16) “Hotel Operating Account” shall mean the bank account opened and maintained
in Lessee’s name, or in a name designated by Lessee, with a banking institution
selected by Lessee, into which all income, receipts and proceeds included in the
definition of Gross Hotel Income (without exclusion of any of the items excluded
from the definition of such term) shall be deposited and from which
disbursements shall be made pursuant to the terms of this Agreement.

 

(17) “Hotel Operating Budget” shall mean the budget relating to the operation of
a Hotel as described in Section 6.01.

 

(18) “Hotel Operating Equipment” shall mean linens, chinaware, glassware,
silverware, uniforms, utensils and other non-consumable items of similar nature.

 

(19) “Hotel Operating Supplies” shall mean paper supplies, cleaning materials
and similar consumable items.

 

(20) “Hotel Standards” shall mean the standards established by the respective
Franchisors of the Hotels from time to time.

 

(21) “Hotels” shall mean the hotel properties described in Exhibit A hereto, as
it may be amended from time to time by mutual agreement of Lessee and Operator
to add hotel properties or to delete hotel properties as a result of termination
of this Agreement with respect to

 

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one or more hotel properties pursuant to the termination provisions set forth in
this Agreement. “Hotel” shall mean any hotel set forth on Exhibit A as it may be
amended from time to time.

 

(22) “Independent CPA” shall mean the firm of independent public accountants
which is selected by Lessee from time to time.

 

(23) “Land” shall mean the real property described in Exhibit A to the Lease.

 

(24) “Lease” shall have the meaning set forth in the recitals.

 

(25) “Lessee” shall have the meaning set forth in the recitals.

 

(26) “Mortgage” shall mean any mortgage or deed of trust hereafter, from time to
time, encumbering all or any portion of a Property, together with all other
instruments evidencing or securing payment of the indebtedness secured by such
mortgage or deed of trust and all amendments, modifications, supplements,
extensions, and revisions of such mortgage, deed of trust and other instruments.

 

(27) “NOI” shall mean Net Operating Income which shall be determined by
deducting Operating Expenses from Gross Hotel Income.

 

(28) “Operating Expenses” shall mean all costs and expenses of maintaining,
conducting and supervising the operation of the Property, to the extent set
forth in an Approved Budget and the provisions of Section 6.03, incurred
pursuant to this Agreement or as otherwise specifically provided herein which
are properly attributable to the period under consideration under Lessee’s
system of accounting, including without limitation:

 

  (i) The cost of all food and beverages sold or consumed and of all Hotel
Operating Equipment and Hotel Operating Supplies;

 

  (ii) Salaries and wages of on-site Hotel personnel, including costs of payroll
taxes and employee benefits and amounts payable under bonus plans approved by
Lessee. The salaries or wages of other employees or executives of Operator, or
any Affiliate of Operator shall in no event be Operating Expenses;

 

  (iii) The cost of all other goods and services obtained by Operator in
connection with its operation of the Property including, without limitation,
heat and utilities, office supplies and all services performed by third parties,
including leasing expenses in connection with telephone and data processing
equipment and such other equipment as Lessee shall designate;

 

  (iv) The cost of repairs to and maintenance of the Property to keep the
Property in good condition;

 

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  (v) Insurance premiums for all insurance maintained with respect to the
Property, including without limitation, property damage insurance, public
liability insurance, workers’ compensation insurance or insurance required by
similar employee benefits acts, employment liability practices insurance, and
such business interruption or other insurance as may be provided for protection
against claim, liabilities and losses arising from the use and operation of the
Hotel and losses incurred with respect to deductibles applicable to the
foregoing types of insurance;

 

  (vi) All taxes, assessments and other charges (other than federal, state or
local income taxes and franchise taxes or the equivalent) payable by or assessed
against Operator or Lessee with respect to the operation of the Hotel, including
water and sewer charges;

 

  (vii) Legal and accounting fees relating to Hotel operations, and real estate
tax abatement and appeal services;

 

  (viii) The costs and expenses of technical consultants and specialized
operational experts for specialized services in connection with non-recurring
work on operational, functional, decorating, design or construction problems and
activities, including reasonable third party fees reasonably deemed necessary by
Lessee for the efficient operation of the Hotels;

 

  (ix) All expenses for marketing and sales, including all expenses of
advertising, sales promotion and public relations activities for the Hotels;

 

  (x) Municipal, county and state license and permit fees;

 

  (xi) All normal and recurring fees, assessments and charges due and payable
under Franchisor Agreements;

 

  (xii) Credit card fees, travel agent commissions and other third party
reservation fees and charges;

 

  (xiii) All parking charges and other expenses associated with revenues
received by the Hotels related to parking operations, including valet services;

 

  (xiv) All expenses related to the revenues included in Gross Hotel Income,
including without limitation, expenses relating to telephone, vending,
television, cable television, pay television and similar services;

 

  (xv)

The costs of obtaining and keeping in force all licenses or permits (including
liquor licenses, if any) necessary for the operation of the Hotel

 

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and in complying with governmental laws, rules, regulations, ordinances, orders
and requirements;

 

  (xvi)  All reasonable travel expenses of Operator’s supervisory personnel for
visits to the Hotels in the performance of their duties hereunder, but not
including travel between Operator’s main office in Canada and Operator’s
regional offices; and

 

  (xvii)  Operator’s Base Fee and Operator’s Incentive Fee, if any.

 

Operating Expenses shall not include (a) depreciation and amortization except as
otherwise provided in this Agreement; (b) debt service; (c) capital expenditures
per the Hotel Capital Budget; and (d) lease payments to Owner.

 

The parties intend that Operating Expenses shall be computed in a manner
consistent with “Hotel and property operations expenses” computation of expenses
on the Parent’s Audited Consolidated Statements of Operations (which is
$45,433,000 for the year ended December 31, 2003, consisting of $42,868,000 plus
$2,565,000 in discontinued operations).

 

(29) “Operating Loss” shall mean for any period the amount by which Operating
Expenses exceed Gross Hotel Income.

 

(30) “Operating Term” shall mean, with respect to any Hotel, the term of this
Agreement as set forth in Section 2.01.

 

(31) “Operator” shall have the meaning set forth in the recitals.

 

(32) “Operator’s Basic Fee” shall mean a monthly fee equal to 4.75% of Gross
Hotel Income.

 

(33) “Operator’s Incentive Fee” shall mean the fee, if any, payable to Operator
as an incentive fee and determined for each twelve month period ending December
31 during the Operating Term, except beginning with the six month period ending
December 31, 2004, as the amount equal to 10% of all Excess NOI up to the first
$1,000,000 of Excess NOI, and then 20% of all Excess NOI, in excess of
$1,000,000.

 

(34) “Owners” shall mean the entities described on Exhibit A as it may be
amended from time to time as the owners of the Hotels. “Owner” shall mean any
entity described on Exhibit A as it may be amended from time to time.

 

(35) “Property” shall mean the Land, the Hotel, all real and personal property
now or hereafter situated upon the Land and all appurtenant rights and easements
thereto.

 

(36) “RevPAR” shall mean Hotel occupancy percentage multiplied by average daily
rate.

 

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(37) “Total Investment” shall mean Owner’s total investment in the Hotels as of
December 31, 2003, more particularly described in the Schedule attached hereto
as Exhibit C. If any Hotels are sold during the term of this Agreement, the
Total Investment will be reduced by an amount equal to the total investment for
that particular Hotel or Hotels (as shown on Exhibit C). If any Hotels are added
during the term of this Agreement, if there are any Capital Improvements for the
Hotels, the Total Investment will be increased by an amount equal to Lessee’s
total investment in said Hotel or Hotels and said Capital Improvements for the
Hotels, and Lessee will immediately advise Operator of said increase in the
Total Investment. Appropriate adjustment shall be made in the Total Investment
if Hotels are added or subtracted or Capital Improvements are made, during the
Fiscal Year. The Total Investment at December 31, 2003 was $166,692,208 as
reflected on Exhibit C attached hereto (which excludes construction in progress
and the office building).

 

(38) “Unrelated Persons” shall have the meaning set forth in Section 21.09.

 

(b) Terms with initial capital letters which appear within the foregoing
definitions are defined in this Article I or as indicated in this Agreement.
Dollars are denominated in U.S. Dollars.

 

ARTICLE II

 

TERM OF AGREEMENT

 

Section 2.01. Term.

 

(a) The initial term of this Agreement shall commence on the date set forth at
the beginning of this Agreement and shall terminate at midnight on December 31,
2009, subject to earlier termination as set forth herein. If, during the initial
term of this Agreement (i) Operator has achieved an average annual Excess NOI of
at least 10% of the Total Investment during the four (4) Fiscal Years ending
December 1, 2008 for all the Hotels in the aggregate and (ii) no Event of
Default by Operator shall have occurred prior to December 31, 2009, the term of
this Agreement shall automatically be extended for an additional five (5) years
unless Operator notifies Lessee on or prior to June 1, 2009 that Operator does
not wish to extend the term hereof. The initial term, as it may be extended
hereunder, is referred to herein as the “Operating Term.”

 

(b) This Agreement may be terminated by Lessee as to one or more Hotels at any
time and from time to time upon the sale of such Hotel(s) by delivery of written
notice by Lessee to Operator not less than sixty (60) days prior to the
effective date of termination which notice shall set forth (i) the effective
date of termination, and (ii) the Hotel or Hotels with respect to which this
Agreement is being terminated, subject to Article XVI.

 

(c) Lessee or Operator may terminate this Agreement if for any Fiscal Year
Operator fails to achieve annual Excess NOI of at least 8.5% of Total
Investment. Said termination will be

 

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exercised by delivery of written notice to the other party not less than sixty
(60) days prior to the effective date of termination which notice shall set
forth the effective date of termination.

 

(d) This Agreement may be terminated by Lessee or Operator upon a change of
control of Lessee (as defined below) during the Operating Term. Said termination
will be exercised by delivery of written notice to the other party not less than
sixty (60) days prior to the effective date of termination which notice shall
set forth the effective date of termination. For purposes hereof, a “change of
control” shall be deemed to have occurred if, during the Operating Term, any of
the following events occurs:

 

  (i) any “person”, as that term is used in Section 13(d) and Section 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
becomes, is discovered to be, or files a report on Schedule 13D or 14D-1 (or any
successor schedule, form or report) disclosing that such person is, a beneficial
owner (as defined in Rule 13d-3 under the Exchange Act or any successor rule or
regulation), directly or indirectly, of securities of Humphrey Hospitality
Trust, Inc., the parent of Lessee (the “Parent”) representing 50% or more of the
combined voting power of the Parent’s then outstanding securities entitled to
vote generally in the election of directors;

 

  (ii) individuals who, as of the date of this Agreement, constitute the Board
of Directors of the Parent cease for any reason to constitute at least a
majority of the Board of Directors of the Parent;

 

  (iii) the Parent is merged, consolidated or reorganized into or with another
corporation or other legal person, or securities of the Parent are exchanged for
securities of another corporation or other legal person, and immediately after
such merger, consolidation, reorganization or exchange less than a majority of
the combined voting power of the then-outstanding securities of such corporation
or person immediately after such transaction are held, directly or indirectly,
in the aggregate by the holders of securities entitled to vote generally in the
election of directors of the Parent immediately prior to such transaction; or

 

  (iv) the Parent in any transaction or series of related transactions, sells
all or substantially all of its assets to any other corporation or other legal
person and less than a majority of the combined voting power of the
then-outstanding securities of such corporation or person immediately after such
sale or sales are held, directly or indirectly, in the aggregate by the holders
of securities entitled to vote generally in the election of directors of the
Parent immediately prior to such sale.

 

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In the event Lessee terminates this Agreement in accordance with this Section
2.01(d), Lessee shall pay Operator a termination fee equal to 50% of the
Operator’s Base Fee paid to Operator during the 12 months prior to the notice of
termination.

 

(e) This Agreement may be terminated by Lessee if any of the Hotels receives a
“failure” or its equivalent in any quality inspection report from any of the
Franchisors, if such deficiencies are within Operator’s reasonable control, for
three (3) successive inspections.

 

(f) Lessee may terminate this Agreement upon 60 days’ notice to Operator if the
United States tax laws change to allow a hotel REIT to self-manage its
properties. In such event, Lessee shall pay Operator a termination fee equal to
50% of the Operator’s Base Fee paid to Operator during the 12 months prior to
the notice of termination.

 

ARTICLE III

 

OPERATION OF THE HOTEL

 

Section 3.01. Representations by Operator; Engagement of Operator.

 

Operator hereby represents that Operator (i) is experienced and capable and will
remain experienced and capable in the management and operation of hotels
throughout the United States of America, (ii) has reviewed and understands the
terms and provisions of the Lease and the Franchise Agreements and the Hotel
Standards, and (iii) will, on the effective date of this Agreement, meet the
requirements to be an “eligible independent contractor” under Section 856(d)(9)
of the Internal Revenue Code. In reliance on the foregoing representations,
Lessee hereby engages Operator to manage and operate the Hotels during the
Operating Term and Operator agrees to manage and operate the Hotels during the
Operating Term, in accordance with this Agreement. Operator will provide all
property management, financial accounting, reporting, marketing and other
operational services for each Hotel, including the services of regional managers
of operations as necessary for all Hotels and will use commercially reasonable
efforts to maximize the operating profitability thereof. Lessee and Operator
acknowledge that it is the intention of the parties that the Hotels be operated
in a profitable manner and in a manner for comparable hotels operated by a
national operator within the Hotel’s market segment, all in accordance with the
Hotel Standards. Operator shall diligently pursue all commercially reasonable
measures to enable the Hotels to adhere to the Approved Budget.

 

Section 3.02. Standards of Operation.

 

Operator agrees to diligently and efficiently operate each Hotel and all of its
facilities and activities (i) at all times in accordance with the Hotel
Standards; (ii) consistent with the terms of the Lease and Lessee’s obligations
thereunder; (iii) in the same manner as is customary and usual in the
first-class operation of comparable hotels in its market; (iv) in compliance
with this Agreement, all easements, covenants and restrictions affecting the
Property (known or disclosed to Operator) and all applicable governmental laws,
rules, regulations, ordinances, orders and requirements; (v) in accordance with
the terms and conditions of any financing affecting the

 

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Property (known or disclosed to Operator); and (vi) in accordance with the
requirements of any carrier having insurance on the Hotel or any part thereof.
Operator shall also obtain and keep in force any and all licenses or permits
necessary for the operation of the Hotel (provided that, at Lessee’s option,
liquor licenses or other licenses or permits shall be obtained and held in
Lessee’s name). All such licenses and permits shall belong to Lessee and/or the
Hotel and upon expiration or termination of this Agreement, Operator shall take
any and all actions reasonably requested by Lessee to transfer such licenses and
permits to Lessee or its designee. Operator also acknowledges and agrees that
this Agreement is subject and subordinate to the Lease and liens, security
interest and Mortgages in accordance with Article XX hereof; provided, however,
Lessee shall use its commercially reasonable efforts to obtain from the holder
of any Mortgage a nondisturbance agreement, in form reasonably acceptable to
Operator providing that this Agreement shall remain in full force and effect
notwithstanding the fact that the Mortgage has been foreclosed.

 

Section 3.03. Reservations Services.

 

Operator shall sell, represent and promote the Hotel through the respective
Franchisors’ sales and reservations systems and will encourage the use of the
Hotel by all recognized sources of hotel business.

 

Section 3.04. Marketing.

 

(a) Operator shall arrange, contract for and carry out such marketing,
advertising and promotion of the Hotel as Operator shall deem advisable and
consistent with the Approved Budget and in accordance with the Hotel Standards.
Operator will make every effort to ensure that the Hotel shall receive an
equitable share of the benefit of the cooperative advertising and promotion
reasonably commensurate with its contribution to the costs thereof. The costs
thereof shall be equitably allocated by Operator between the Hotel and other
participating hotels, subject to Lessee’s prior written approval. Upon Lessee’s
request, Operator shall provide reasonable documentation to support such
allocations.

 

(b) Operator may, consistent with the Approved Budget, and otherwise, with the
consent of Lessee, cause the Hotel to participate in sales and promotional
campaigns and activities involving complimentary rooms, food and beverages,
consistent with customary practices in the travel industry.

 

Section 3.05. Consultations Between Lessee and Operator.

 

When requested by Lessee, Operator shall, from time to time, render advice and
assistance to Lessee and Owner in the negotiation and prosecution of all claims
for the reduction of real estate or other taxes or assessments affecting the
Hotel and for any award for taking by condemnation or eminent domain affecting
the Hotel.

 

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Section 3.06. Transactions with Affiliates and Other Relationships.

 

(a) Operator shall obtain the prior written consent of Lessee (which Lessee may
withhold in Lessee’s sole and absolute discretion) prior to contracting with any
Affiliate (or companies in which Operator has an ownership or other economic
interest if such interest is not sufficient to make such a company an Affiliate)
to provide goods and/or services to the Hotels.

 

(b) Prior to entering into any contract, agreement or arrangement with respect
to one or more of the Hotels pursuant to which Operator may receive rebates,
cash incentives, administration fees, concessions, profit participations, stock
or stock options, investment rights or similar payments or economic
consideration from or in, as applicable, vendors or suppliers of goods or
services (collectively, “Rebates”), Operator shall promptly disclose to Lessee
in writing the fact of and the estimated amount of such Rebates, and the charges
and other amounts expected to be incurred in connection with any such contracts
or agreements (which shall not exceed prevailing market rates with respect to
such goods or services). All Rebates will accrue to the benefit of Lessee and
will be applied against Operating Expenses.

 

Section 3.07. Employees.

 

Operator shall offer employment to all employees who work at the Hotels on the
date of this Agreement, at substantially the same salaries, wages, benefits and
terms of employment as they received immediately prior to the effective date of
this Agreement.

 

Section 3.08. Regional Manager.

 

Operator shall provide the services of one of its experienced management
employees to oversee and manage the operations of the Hotels (the “Regional
Manager”). Lessee shall have the right to approve the Regional Manager and any
successor provided that such approval shall not be unreasonably withheld. The
Regional Manager shall meet with the designated representatives of Lessee at
least monthly to discuss operations at the Hotels and consult with Lessee to
answer any questions Lessee may have, and to address any concerns of Lessee.
Operator shall also appoint the appropriate number of District Managers to
oversee the operations of the Hotels. Twenty-five (25) properties per District
Manager will be deemed appropriate. Lessee’s representatives shall have the
right to meet with the CEO of Operator or his/her mutually acceptable
alternative.

 

Section 3.09. Certain Expenses.

 

Manager shall not be entitled to charge Lessee for any of its costs and
expenses, except as follows:

 

(a) Lessee will provide appropriate office space for District Managers and
Regional Sales Managers at one of the Hotels, without charge to Operator.

 

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(b) Operator shall employ three (3) sales employees dedicated solely to the
Hotels who shall have their offices and have their principal residence in one of
the cities in which a Hotel is located. The compensation and all of the direct
and indirect employment costs of these personnel shall be included in Operating
Expenses, subject to approval in the Operating Budget.

 

(c) Operator shall not charge tuition for training courses provided by Operator
for employees employed at the Hotels or for course materials. Reasonable travel
and housing expenses of trainees shall be included in Operating Expenses,
subject to approval in the Operating Budget.

 

(d) Travel expenses described in Section 1.01(a)(27)(xvi) above.

 

ARTICLE IV

 

INDEPENDENT CONTRACTOR

 

Section 4.01. Operator Status.

 

In the performance of its duties in the administration, management and operation
of the Hotel, Operator shall act solely as an independent contractor. Nothing
herein shall constitute or be construed to be or create a partnership or joint
venture between Lessee and Operator, or be construed to appoint or constitute
Operator as an agent of Owner for any purpose, or be construed to create a lease
by Operator of the Hotel or the Property and Operator shall not constitute a
tenant or subtenant of Lessee or Owner. Operator’s rights under this Agreement
shall be those of an agent only and shall not constitute an interest in real
property. Lessee or Owner shall have the right to lease, develop or sell excess
land or structures not required for operation of the Hotel. It is expressly
covenanted that this Agreement is no more than an agreement for the rendering of
services by Operator on behalf of Lessee in the operation and management of the
Hotels.

 

Section 4.02. Employees.

 

(a) Each Hotel employee shall be the employee of Operator and not of Lessee, and
every person performing services in connection with this Agreement shall be
acting as the employee of Operator, but their salaries and other related
expenses shall be an Operating Expense.

 

(b) Operator shall provide evidence to Lessee of statutory Worker’s Compensation
Insurance and Employer’s Liability Insurance for each such employee. The
insurance coverages (including, without limitation, the carrier, policy limits
of each and waiver of subrogation endorsements) must be in form, substance and
amount satisfactory to Lessee in all respects. Upon request of Lessee, Operator
will deliver to Lessee waiver of subrogation endorsements in favor of Lessee and
Owner.

 

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(c) The hiring policies and the discharge of employees at the Hotel shall in all
respects comply with all “applicable” laws and regulations, and Operator shall
comply with all laws, regulations and ordinances regarding the employment and
payment of persons engaged in the operation of each Hotel.

 

(d) Lessee shall have the right to participate in any negotiations with labor
unions representing employees at the Hotel, and Operator shall not sign any
union contracts covering such employees at the Hotel which have not been
previously approved in writing by Lessee.

 

(e) Lessee agrees that it will not hire any of Operator’s General Managers for a
period of 12 months after the expiration or other termination of this Agreement,
without the consent of Operator.

 

Section 4.03. Employee Expenses.

 

(a) All costs of every nature pertaining to all employees at the Hotel,
including, without limitation, salaries, benefits, the terms of any bonus plan
or arrangement, costs incurred in connection with governmental laws and
regulations and insurance rules, shall be set forth in the Approved Budget as an
Operating Expense.

 

(b) Compensation, overhead costs and other expenses of Operator and its
Affiliates not specifically provided for herein shall not be Operating Expenses
and shall not be payable or reimbursable by Lessee; provided, however, Operator
may include in the calculation of Operating Expenses the salary of any of
Operator’s employees located at the Operator’s corporate headquarters which have
been temporarily transferred to a Hotel to serve that Hotel exclusively;
provided, further, that Operator may only include in Operating Expenses that
portion of that employee’s salary equal to the normal rate charged for that
employment position.

 

Section 4.04. Employee Benefit Plans.

 

Operator shall enroll employees at the Hotels in medical and health, life
insurance and employee benefit plans which are approved by Lessee. Operator’s
contributions to such plans, reasonable administrative fees, at cost, which may
be expended in connection therewith, and reasonable expenses for such plans will
be estimated and disclosed to Lessee in advance and provided for in the Approved
Budget and will be an Operating Expense. Except for employer matching
contributions under any 401(k) plan, Lessee, in its sole discretion shall
determine whether to require employees at the Hotels to pay all or a portion of
the costs of the employees’ participation in such plans. Except as otherwise
provided in Section 6.03, all costs referenced in Section 4.03 and this Section
4.04 will be the responsibility of Lessee only to the extent the same are
provided for in the Approved Budget. Upon Lessee’s request, Operator will
establish a 401(k) plan as an employee benefit plan. All costs incurred by
Operator pursuant to actions taken by Operator at Lessee’s direction will be
Operating Expenses.

 

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Section 4.05. Execution of Agreements.

 

(a) Except as provided in Section 4.05(b), Operator shall execute as agent of
Lessee all leases and other agreements relating to equipment and/or services
provided to each Hotel, all of which, unless otherwise approved in writing in
advance by Lessee, shall either be a term of one year or less or be cancelable
upon not more than thirty (30) days’ written notice by Operator or Lessee
without the payment of a penalty or fee. Notwithstanding the foregoing, without
the prior written approval of Lessee, Operator shall not enter into any
agreement (i) which provides for the payment of sums not authorized by Lessee in
an Approved Budget, (ii) which would give rise to a lien upon all or any part of
the Property, (iii) which would result in liability to Lessee for sums other
than as set forth in the applicable Approved Budget, (iv) to lease any part of
any Property, (v) relating to alterations to the exterior, interior or
structural design of the Hotel, (vi) which requires the payment of more than
$5,000 per Hotel per year or over the term of the agreement, (vii) which is not
cancelable by Lessee upon 30 days’ notice or less unless the term of said
agreement is one year or less, or (viii) which provides for any automatic
renewal terms. If Operator desires to enter into any such agreements that
violate any of the terms of the preceding sentence, Operator shall first send
written notice of intent to enter into such agreement to Lessee, and Lessee
shall either approve or disapprove within five (5) business days of receipt of
such notice. Lessee’s failure to timely respond to said request shall be deemed
disapproval.

 

(b) Subject to Lessee’s prior approval of the same and upon Lessee’s request,
Operator shall execute, as agent for Lessee, (i) all leases, as sub-lessor, of
any space at any Property, and (ii) equipment rental and/or lease agreements
which cannot be terminated upon thirty (30) days notice or less without the
payment of a penalty or fee. Operator shall exercise its best efforts to obtain
in each equipment agreement a right on the part of the lessee of such equipment
to terminate the same on thirty (30) days notice or less without the payment of
a penalty fee. Notwithstanding anything in this Section 4.05 to the contrary,
Lessee reserves the right, exercisable at Lessee’s option, subject to Operator’s
consent to the same (which consent will not be unreasonably withheld), to
execute any lease or other agreement relating to equipment and/or services being
provided to the Hotel.

 

ARTICLE V

 

INDEMNIFICATION

 

Section 5.01. Indemnification by Operator.

 

In addition to all other obligations of Operator to Lessee hereunder, Operator
shall indemnify and hold Lessee harmless against all claims, demands, actions,
liabilities, losses, damages, lawsuits and other proceedings at law or in
equity, judgments, awards, commissions, fees, costs and expenses (including,
without limitation, attorneys’ fees and expenses), of every kind and nature
whatsoever to or of any party connected with, or arising out of, or by reason of
any negligent act or omission, breach of contract, willful misconduct, or
tortious actions by Operator, or any Affiliate of Operator, or any officer,
employee, agent, contractor, subcontractor, or other person or entity working
for Operator or any Affiliate of Operator other than

 

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employment related claims by hotel level employees (general manager of the hotel
and below). The indemnification provisions of this Section 5.01 are subject to
the limitations set forth in Section 5.02.

 

Section 5.02. Limitations on Indemnification.

 

None of the indemnifications set forth in Section 5.01 shall be applicable to
(1) liability resulting from the design or construction of the Hotel, or (2)
that portion of a liability which is covered and paid for by insurance
maintained for the Hotel. The standard of performance of which Operator is to be
responsible under this Agreement shall be that, reasonably and diligently
exercised, of a professional hotel operator. Settlement of a third party claim
shall not be prima facie evidence that a party has triggered an indemnification
obligation hereunder. Notwithstanding the provisions of Section 5.01 above,
neither Lessee nor Operator will assert against the other and each does hereby
waive with respect to the other any claims for any losses, damages, liabilities
and expenses (including lawyers’ fees and disbursements) incurred or sustained
by that party as a result or damage or injury to persons or property arising out
of the ownership, operation or management of the Hotels, to the extent that the
damage and injury are covered by insurance and the proceeds are actually
recovered from the insurer.

 

Section 5.03. Indemnification by Lessee.

 

Lessee shall indemnify and hold Operator harmless against all claims, demands,
actions, liabilities, losses, damages, lawsuits and other proceedings at law or
in equity, judgments, awards, commissions, fees, costs and expenses (including,
without limitation, attorneys’ fees and expenses), of every kind and nature
whatsoever to or of any party connected with or arising out of, or by reason of
any negligent act or omission, breach of contract, willful misconduct, or
tortious actions by Lessee or any Affiliate of Lessee, or any officer, employee,
agent, contractor, subcontractor, or other person or entity working for Lessee
or any Affiliate of Lessee. The indemnification provisions of this Section 5.03
are subject to the limitations set forth in Section 5.02. Lessee will indemnify
and hold Operator harmless from all costs, expenses, claims, damages and
liabilities, including without limitation, lawyers’ fees and disbursements,
arising or resulting from Lessee’s failure following the expiration or earlier
termination (for whatever cause) of this Agreement to provide all of the
services contracted for in connection with the business booked on commercially
reasonable terms for the Hotels on or prior to the date of such expiration or
termination. The provisions of this Section will survive any expiration or
termination of this Agreement and will be binding upon Lessee and its successors
and assigns, including any successor or assign that becomes the beneficial or
legal owner of the Hotels after the effective date of any such expiration or
termination.

 

Section 5.04. Survival of Indemnity.

 

The provisions of this Article V shall survive the expiration or sooner
termination of this Agreement with respect to matters arising out of facts or
circumstances occurring during the period prior to such expiration or
termination.

 

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ARTICLE VI

 

BUDGETS AND POLICY MEETINGS

 

Section 6.01. Budgets.

 

(a) No later than November 1 of each year, Operator will prepare and submit
(following discussions with Lessee) to Lessee an annual capital budget for each
Fiscal Year for each Hotel (the “Hotel Capital Budget”). Notwithstanding the
foregoing, Operator shall manage the Hotels in accordance with the existing
Hotel Capital Budget through the end of the Fiscal Year expiring December 31,
2004. The Hotel Capital Budget will set forth all projected Capital Improvements
for such Fiscal Year, which budget shall also be month-to-month as well as
annual. The Hotel Capital Budget will be subject to the approval of Lessee and
Owner, in their sole and absolute discretion, provided however that Lessee
agrees to budget for each Fiscal Year for Capital Improvements at all the Hotels
in the aggregate an amount at least equal to four percent (4%) of Gross Hotel
Income for all the Hotels in the aggregate for the prior Fiscal Year (net of any
Hotels which have been sold), but provided further that the actual amount of
Capital Improvements at any one Hotel, in Lessee’s or Owner’s sole and absolute
discretion, may be greater than or less than four percent (4%) of that Hotel’s
Gross Hotel Income, provided that a total of 4% of the Gross Hotel Income in the
aggregate is spent on all Hotels. No later than November 1 of each year,
Operator shall prepare and submit (following discussions with Lessee) to Lessee
an annual budget for the operation of each Hotel for the forthcoming Fiscal Year
containing detailed projections of Gross Hotel Income and budgets of Operating
Expenses (the “Hotel Operating Budget”). Notwithstanding the foregoing, Operator
shall manage the Hotels in accordance with the existing Hotel Operating Budget
through the end of the Fiscal Year expiring December 31, 2004. The Hotel
Operating Budget shall be month-to-month as well as annual and shall be in the
form designated by Lessee, and approved by Operator, which approval of the form
shall not be unreasonably withheld. The Hotel Operating Budget and the Hotel
Capital Budget shall provide for operating, equipping and maintaining the Hotel
in accordance with the Hotel Standards. Additionally, before the commencement of
each Fiscal Year, Operator shall submit to Lessee monthly budgeted occupancy,
average daily rate and RevPAR statistics for each hotel. The Hotel Operating
Budget and the monthly budgeted hotel operating statistics shall contain
Operator’s reasonable good faith estimates of the amounts set forth therein.
Operator shall provide Lessee, upon request, all details, information and
assumptions used in preparing the Hotel Capital Budget and the Hotel Operating
Budget. Owner shall be responsible for implementing the Hotel Capital Budget and
may, in Owner’s sole discretion, increase, decrease, delete or modify in any
respect any capital expenditure in any Hotel Capital Budget subject to
maintaining an annual Capital Budget for all Hotels of at least 4% of Gross
Hotel Income in the aggregate.

 

(b) Operator shall review the Hotel Capital Budget and the Hotel Operating
Budget with Lessee, and upon Lessee’s written approval of the Budget, it shall
constitute the Approved Budget for the succeeding Fiscal Year and shall be
implemented by Operator. In the event Lessee does not provide Operator with
written objections to the Hotel Capital Budget and Hotel Operating Budget within
30 days following Lessee’s receipt of the same, they shall be deemed

 

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approved. If Lessee objects to any portion of the Hotel Capital Budget or the
Hotel Operating Budget within 30 days after receipt of the same, or to any
portion of the revisions within 20 days after submission of the revisions by
Operator to Lessee, the parties hereto will call a special budget meeting to
resolve the points of disagreement. In the event that Lessee and Operator are
unable to agree on the Hotel Operating Budget for a Hotel prior to the
commencement of the applicable Fiscal Year, an interim operating budget shall be
implemented which will reflect CPI increases for expenses and RevPAR increases
based on the appropriate previous 12-month RevPAR growth percentage for the
sector in which the Hotel is included, as published by Smith Travel Research,
for revenue growth over the prior year’s actual amounts.

 

Section 6.02. Budget Meetings.

 

A budget meeting between Lessee and Operator will be held at least quarterly. At
each budget meeting and at any additional meetings during a Fiscal Year
reasonably called by Lessee, Operator shall consult with Lessee on matters of
policy concerning management, sales, room rates, wage scales, personnel, general
overall operating procedures, economics and operation and any other matters
affecting the operation of the Hotel as requested by Lessee.

 

Section 6.03. Approval by Lessee Required.

 

Any request by Operator for Lessee or a Hotel to make any expenditure or incur
any obligations in excess of the Approved Budget shall be submitted to Lessee in
writing with an explanation of and accompanied by supporting information for the
request. Operator shall not make any such expenditure without Lessee’s prior
written consent (which consent will not be unreasonably withheld), except as is
necessary, in Operator’s reasonable good faith judgment, for the immediate
emergency protection of life or property. Lessee shall endeavor to respond to
any such request within five (5) business days of the receipt thereof; provided,
however, Lessee shall have no obligation to agree to any such request and no
liability for failing to respond and failure to respond to such request within
such five (5) business day period shall be deemed a denial of the request. The
Approved Budget for each Hotel shall be prepared in both dollar amounts and
percentages. Variances from the amounts set forth for the expense categories in
the Approved Budget for all Hotels (in the aggregate) shall not require Lessee’s
prior written consent until such amounts exceed the budgeted year to date
percentages (of total line item expenses to revenue) by 5% or more of the
applicable percentages reflected in the Approved Budgets for all Hotels on a
year-to-date basis, but, in any such event, Operator shall promptly provide to
Lessee an explanation of any such variance from the Approved Budget. By way of
example, if a line item of expense to revenue was 12%, a 5% change will be
exceeded if the variance in the line item exceeds 12.6% as reflected in the
Approved Budget.

 

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ARTICLE VII

 

OPERATING EXPENSES

 

Section 7.01. Payment of Operating Expenses.

 

(a) In performing its authorized duties hereunder, Operator shall promptly pay
all Operating Expenses, except that if requested by Lessee certain Operating
Expenses shall be paid by Operator directly to Lessee for payment by Lessee to
the appropriate lender, taxing authority, insurer or other party so identified
by Lessee to Operator.

 

(b) Subject to Article V, all reasonable third party Operating Expenses incurred
by Operator in performing its authorized duties shall be reimbursed or borne by
Lessee; provided that such Operating Expenses are incurred pursuant to and
within the limits set forth in an Approved Budget or otherwise pursuant to the
terms of this Agreement.

 

Section 7.02. Operating Expenses Not an Obligation of Operator.

 

Except as may be otherwise specifically provided in this Agreement, Operator
shall in no event be required to advance any of its own funds for Operating
Expenses of the Hotel, nor to incur any liability in connection therewith unless
Lessee shall have furnished Operator with funds as required of Lessee under the
terms of this Agreement. However, if Lessee has provided funds required of
Lessee hereunder, Operator shall advance such funds necessary to pay expenses
incurred by Operator in performing its duties and obligations hereunder. Unless
agreed to by Lessee in this Agreement, in the Hotel Operating Budget or
otherwise in writing in advance, compensation, overhead costs, and other
expenses of Operator and its Affiliates unrelated to the operation of the Hotels
shall not be reimbursable to Operator by Lessee.

 

ARTICLE VIII

 

WORKING CAPITAL AND BANK ACCOUNTS

 

Section 8.01. Working Capital.

 

As of August 1, 2004, Lessee will provide Operator with sufficient working
capital required to operate the Hotels. Upon the close of each month, if and as
requested by Operator in writing on or before the tenth (10th) day of each
calendar month, Lessee shall provide to Operator on or before the thirtieth
(30th) day of the same calendar month additional working capital. Lessee shall
have the right, in its sole discretion, to determine the amount of additional
working capital required to be provided by Lessee. Each written request for
additional working capital shall itemize and compare the request with the
Approved Budget and shall be accompanied by a written explanation from Operator
of any variance from the Approved Budget. Lessee shall have the right, in its
reasonable discretion, to approve or disapprove any such request.

 

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Section 8.02. Bank Accounts.

 

(a) All funds to be made available to Operator by Lessee for the operation of
the Hotel, exclusive of funds designated as capital expenditures, shall be
deposited in the Hotel Operating Account. Lessee may also establish one or more
“sweep” accounts into which funds from one or more Hotel Operating Accounts may
be deposited. The Hotel Operating Account and any sweep account made available
to Operator are Lessee’s accounts and the signing of the checks and handling of
the Hotel Operating Account and any sweep account as long as such account
remains open shall be subject to the check signing requirements of Section 8.03,
and shall be effected exclusively by the individuals designated for such
purposes by Operator and approved in writing by Lessee, and the signatures of
such persons shall be formally and expressly recognized to this end by the bank
in which such account or accounts are maintained. Designees of Operator shall
only be authorized to draw upon the Hotel Operating Account for purposes
authorized by this Agreement and in accordance with the terms of this Agreement.
Operator shall have the responsibility for payment of all Operating Expenses
(which may include Operator’s Basic Fee and the monthly accruals of the Hotels)
and shall be reimbursed by Lessee for such expenses (including the funding of
monthly accruals of the Hotels that have been assumed by Operator) upon
submission of receipts and documentation reasonably requested by Lessee. Lessee
funds shall not be commingled with Operator’s funds and Operator shall provide
to Lessee monthly a detailed accounting of all Hotel Operating Account receipts
and disbursements. Operator shall comply with Lessee’s or Owner’s or their
lenders’ requirements with respect to lock-box accounts provided that Lessee
shall be responsible for any incremental out-of-pocket costs of Operator
resulting from any such lock-box arrangement (which shall not be an Operating
Expense).

 

(b) Operator may establish one or more separate bank accounts for handling
payroll costs. Such accounts shall be in a bank selected by Lessee, and shall be
handled exclusively by the individuals designated by Operator and approved in
writing by Lessee. Funds shall be deposited in the payroll account or accounts
from the Hotel Operating Account, as needed, in order to meet payroll
requirements; provided, however, all expenditures from such accounts shall be
subject to and in accordance with the terms of this Agreement.

 

Section 8.03. Authorized Signatures.

 

The Hotel Operating Account shall be under the day-to-day control of Operator,
subject to Operator’s obligation to account to Lessee as and when provided for
herein. Lessee shall have signatory authority with respect to the Hotel
Operating account, provided, however, Lessee shall not remove any funds from the
Hotel Operating Account without first providing at least one week notice to
Operator. All receipts and income, including, without limitation, Gross Hotel
Income shall be promptly deposited in the Hotel Operating Account. Operator will
remit to Lessee such funds from the Hotel Operating Account as Lessee may
request from time to time in accordance with Section 10.03. Checks or other
documents of withdrawal shall be signed only by the individual representatives
of Operator approved in writing by Lessee and duly recognized for such purpose
by the bank or banks in which the referenced accounts are maintained. Upon
Lessee’s request, Operator shall supply Lessee with fidelity bonds or other
insurance insuring the

 

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fidelity of authorized signatories to such accounts, unless said bonds or other
insurance shall have been placed by Lessee and delivered directly by the bonding
or insurance company to Lessee. The cost of such fidelity bonds or other
insurance shall be an Operating Expense and subject to Lessee’s approval.
Neither Lessee nor Operator shall be responsible for any losses occasioned by
the failure or insolvency of the bank or banks in which the referenced accounts
are maintained. Upon expiration or termination of this Agreement and the payment
to Operator of all amounts due Operator hereunder upon such expiration or
termination, as provided in this Agreement, all remaining amounts in the
referenced accounts shall be transferred forthwith to Lessee, or made freely
available to Lessee.

 

Section 8.04. Investment of Hotel Cash.

 

Operator shall invest Hotel Operating Account balances in a cash management
program approved in writing by Lessee and which provides for Lessee to receive
the interest income thereon or as otherwise instructed by Lessee in writing.

 

ARTICLE IX

 

BOOKS, RECORDS AND STATEMENTS

 

Section 9.01. Books and Records.

 

(a) Operator shall keep full and adequate books of account and other records
reflecting the results of operation of the Hotel on an accrual basis, all in
accordance with the Uniform System and generally accepted accounting principles.

 

(b) Except for the books and records which may be kept in Operator’s home office
or other location approved by Lessee the books of account and all other records
relating to or reflecting the operation of the Hotel shall be kept at the Hotel.
All such books and records pertaining to the Hotel, including, without
limitation, books of account, guest records and front office records, at all
times shall be the property of Lessee and, except for books of account, accounts
payable invoices, night audit packages, deposit records and similar documents
which may be sent to Operator’s accounting department shall not be removed from
any Hotel by Operator without Lessee’s written approval and consent. All books
and records pertaining to the Hotel and of Operator (including all budgetary
records of Operator), wherever kept, shall be available to Lessee and its
representatives at all reasonable times for examination, audit, inspection,
transcription and copying. Operator shall not remove, destroy or delete any
books and records of the Hotels without the prior written consent of Lessee.
Upon any termination of this Agreement, all of such books and records pertaining
to the Hotel forthwith shall be turned over to Lessee so as to insure the
orderly continuance of the operation of the Hotel, but such books and records
shall be available to Operator for a period of seven (7) years at all reasonable
times for inspection, audit, examination, and transcription of particulars
relating to the period in which Operator managed the Hotel.

 

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Section 9.02. Statements.

 

(a) Operator shall deliver to Lessee by the first (1st) business day following
the fifteenth (15th) calendar day of each month, for each Hotel, a monthly
report of the state of the business and affairs of the operation of the Hotel
for the immediately preceding month and for the Fiscal Year to date and within
fifteen (15) days after the end of each quarter, a quarterly report with respect
to the preceding quarter. Such reports shall include at least (i) a balance
sheet, (ii) a profit and loss statement, comparing current month and Fiscal
Year-to-date profit, loss, and operating expenses to the Approved Budget and the
prior year and comparing current month, quarter and Fiscal Year-to-date average
daily rate, occupancy and RevPAR to the Approved Budget and the prior year,
(iii) a statement which details the computation of all fees payable to Operator
for the month and quarter, (iv) the balance of all bank accounts, and (v) an
adjusting statement showing the actual cash position of the Hotel for the month,
quarter and Fiscal Year-to-date. Additionally, Operator shall deliver to Lessee
fifteen (15) days following the end of each month and twenty-five (25) days
following the end of each quarter a written narrative discussing any of the
aforementioned reports and year-to-date variances from the Approved Budget,
without thereby implying Lessee’s approval of such variance.

 

(b) Such reports and statements (i) shall be in form and in detail satisfactory
to Lessee as reasonably requested by Lessee and consistent with standard hotel
reporting procedures, (ii) shall be taken from the books and records maintained
by Operator in the manner hereinabove specified, and (iii) if requested by
Lessee, shall be in electronic form.

 

(c) Within thirty (30) days after the end of each quarter of each Fiscal Year,
Operator shall deliver to Lessee unaudited financial statements for Operator and
within seventy-five (75) days after the end of each Fiscal Year audited
financial statements for Operator. In the event of any amendments or
modifications to Securities and Exchange Commission or stock exchange reporting
requirements which reduce the time available for period-end reporting, Operator
agrees to expedite delivery of such information so as to permit timely
reporting.

 

(d) In addition, Operator shall timely deliver to Lessee a copy of (i) a monthly
STAR report from Smith Travel Research for each Hotel, where available (which
Operator hereby agrees to order with respect to each Hotel and provide to
Lessee, (ii) each Guest Satisfaction report, (iii) a new competition report
prepared with respect to each Hotel describing franchise changes, new
groundbreakings, new openings and similar market supply changes, (iv) upon
receipt, each Franchisor inspection report, and (v) such other reports or
information in such form as may be reasonably requested by Lessee. Any
out-of-pocket costs incurred by Operator to generate such reports will be
included in Operating Expenses.

 

Section 9.03. Costs.

 

The cost of providing all financial and operating data and accounting services
hereunder shall be included within Operator’s Basic Fee; provided, however,
Lessee will provide Operator with access to computer software and hardware to be
located at Operator’s accounting office in Norfolk, Nebraska to be used to
prepare such data and services.

 

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ARTICLE X

 

OPERATOR’S FEE AND TRANSFERS TO LESSEE

 

Section 10.01. Payment of Operator’s Basic Fee.

 

Effective September 1, 2004 and on the first (1st) day of each month thereafter
during the Operating Term, Operator shall be paid out of the Hotel Operating
Account the Operator’s Basic Fee for the immediately prior month, based upon
Gross Hotel Income for the immediately prior month, as determined from the books
and records referred to in Article IX.

 

Section 10.02. Payment of Operator’s Incentive Fee.

 

On or before each March 31 during the Operating Term, beginning with March 31,
2005, Lessee shall pay to Operator, the Operator’s Incentive Fee, if any, for
the prior Fiscal Year (prorated as applicable) which shall be determined
consistent with the audited annual financial statements.

 

Section 10.03. Distribution of Cash.

 

On or before the tenth (10th) day of each month during the Operating Term or as
requested at any time by Lessee, Operator shall, after transferring to the Hotel
Operating Account all funds held in other accounts which Lessee has permitted to
be established for the efficient operation of the Hotels and after payment of
Operator’s Basic Fee pursuant to Sections 10.01 for the preceding month and
retention of working capital sufficient, in the sole judgment of Lessee, to
assure the uninterrupted operation of the Hotels for the next Accounting Period,
remit to Lessee all remaining funds in the Hotel Operating Account, including
but not limited to funds for items which are excluded from the definition of
Gross Hotel Income. Lessee shall be responsible for returning additional funds
to the Hotel Operating Account in the event that there is not sufficient working
capital in the Hotel Operating Account after the funds have been remitted to
Lessee.

 

Section 10.04. Adjustments to Allocations.

 

If at the time calculations are made to determine amounts to be allocated or
distributed in accordance with Sections 10.01, 10.02 and 10.03, or if at the end
of each Fiscal Year and following receipt by Lessee of the annual audit, if any,
it is determined that any amounts have been allocated or distributed in excess
of the amounts properly allocable or distributable pursuant to Sections 10.01,
10.02 and 10.03, an adjustment will be made based on said calculations or audit,
if necessary, so that the proper allocations and distributions will have been
made. Such calculations or annual audit shall set forth the proper calculations,
allocations and distributions required to implement such an adjustment. Within
thirty (30) days of receipt by Lessee of such audit, Lessee or Operator, as the
case may be, shall deposit in the Hotel Operating Account any excess amounts
which may have been distributed to them.

 

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ARTICLE XI

 

REPAIRS AND MAINTENANCE

 

Subject to the provisions of the Approved Budget, Operator shall from time to
time make such expenditures for repairs and maintenance as are necessary to keep
the Hotel in good operating condition in accordance with the Hotel Standards. If
any repairs or maintenance shall be made necessary by any condition against the
occurrence of which Operator, Lessee or Owner has received the guaranty or
warranty of any contractor for the building of the Hotel or of any supplier of
labor or materials for the construction of the Hotel, then Operator shall, on
Lessee’s or Owner’s request, cooperate with Lessee and Owner in invoking such
guarantees or warranties. Notwithstanding the Approved Budget, Owner or Lessee
may from time to time at its expense make such alterations, additions, or
improvements (including structural changes or repairs) in or to the Hotel as
they deem desirable, in their sole discretion and responsibility, for the
efficient operation of the Hotels.

 

ARTICLE XII

 

INSURANCE

 

Section 12.01. General.

 

Owner and Lessee shall maintain insurance policies with respect to the Hotels as
set forth in each Lease. Operator agrees to cooperate with Lessee and Owner in
obtaining any such insurance.

 

Section 12.02. Workers’ Compensation Insurance.

 

The Hotel Operating Budget shall include, as an Operating Expense, (i) workers’
compensation insurance with respect to all Hotel employees in such amounts as
may be required by applicable law, and (ii) crime insurance in connection with
all operations, business and affairs arising out of or in connection with the
Hotel, including coverage on persons employed by Operator in an amount specified
by Lessee; provided that the cost of such insurance shall be reasonable and
shall be approved by Lessee.

 

Section 12.03. Approval of Companies and Cost by Owner and Lessee.

 

All insurance shall be with such insurance company or companies as may be
selected by Owner or Lessee. Lessee will obtain all insurance but, upon the
request of Lessee not less than one hundred twenty (120) days prior to the
coverage date, Operator will obtain such insurance, subject to Lessee’s approval
of the insurance companies and coverages. Comprehensive general liability
insurance and such other liability insurance as may be obtained or afforded
shall be in the name of Owner and Lessee, and shall name Operator as an
additional named insured as respects liability arising from the operation,
maintenance and use of the Hotel and operations

 

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incidental thereto. All property insurance policies shall be endorsed
specifically to the effect that the proceeds of any building, contents or
business interruption insurance shall be made payable to Lessee.

 

Section 12.04. Maintenance of Coverages.

 

Lessee shall hold all insurance policies obtained hereunder, and certificates of
such policies, if any, shall be delivered to each of Lessee and Operator.

 

Section 12.05. Waiver of Subrogation.

 

To the extent obtainable from carriers and to the extent that endorsement forms
are approved by the Insurance Commissioner (or comparable office or department)
of the state in which the Hotel is located, all policies of property insurance
shall provide that the insurance companies will have no rights to subrogation
against Lessee or Operator or the agents or employees thereof.

 

Section 12.06. Blanket Coverage.

 

Owner and Lessee reserve the right to provide any insurance referenced in this
Article XII by one or more so-called “blanket” or “umbrella” policies of
insurance. Operator further acknowledges that the insurance coverage of the
Hotel may be part of the general insurance plan of Owner or Lessee or of any of
their affiliates. Owner or Lessee may elect to obtain any of the insurance
coverages set forth in this Article XII with a “deductible loss” clause
providing for per occurrence deductibles.

 

ARTICLE XIII

 

PROPERTY TAXES, LOCAL TAXES, LEVIES AND OTHER ASSESSMENTS

 

Section 13.01. Property Taxes.

 

At Lessee’s request, Operator shall pay from the Hotel Operating Account prior
to the dates the same become delinquent, with the right upon Lessee’s request to
pay the same in installments to the extent permitted by law, all real and
personal property taxes levied against the Property or any of its component
parts.

 

Section 13.02. Lessee’s Right to Contest.

 

Notwithstanding the foregoing, Lessee or Owner may contest the validity or the
amount of any real or personal tax or assessment. Operator agrees to cooperate
with Lessee and Owner and execute any documents or pleadings required for such
purpose.

 

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ARTICLE XIV

 

DAMAGE OR DESTRUCTION - CONDEMNATION

 

Section 14.01. Damage.

 

If at any time during the Operating Term any Hotel or any portion thereof should
be damaged or destroyed, Owner and Lessee shall have the respective rights and
obligations set forth in the Lease with respect to damage or destruction. In the
event the Hotel is not repaired, rebuilt or replaced, Lessee may terminate this
Agreement by written notice to Operator, effective as of the date sent and the
parties shall treat such termination as if it were in connection with the sale
of the Hotel in accordance with Section 2.01(b).

 

Section 14.02. Condemnation.

 

If at any time during the Operating Term the whole or any part of the Property
shall be taken or condemned in any eminent domain, condemnation, compulsory
acquisition or like proceeding or sale in lieu thereof by any competent
authority, or if such a portion thereof shall be taken or condemned as to make
it imprudent or unreasonable to use the remaining portion as a hotel of the type
and class immediately preceding such taking or condemnation, then the parties
shall treat such termination as if it were in connection with the sale of Hotel
in accordance with Section 2.01(b). Operator shall have no right to the award
from the taking or condemning authority in any such proceeding; provided,
however, that this shall not prevent Operator from making a separate claim
against the condemning authority for loss of its business or profits.

 

ARTICLE XV

 

USE OF NAME

 

During the term of this Agreement, each Hotel shall at all times be known by
such name as from time to time may be selected by Lessee or Owner.

 

ARTICLE XVI

 

OWNER’S RIGHT TO SELL

 

At any time during the Operating Term, Owner may sell or otherwise dispose of
one or more Hotels to any other person, partnership, firm or corporation. In
such event, Lessee may notify Operator in writing no less than sixty (60) days
prior to any such Sale of a Hotel and this Agreement shall terminate with
respect to such Hotel(s) upon the closing of the sale. The sale of the first
five Hotels identified on Exhibit A, after the date of this Agreement, shall
have no effect on any amounts owed by Lessee to Operator under this ARTICLE XVI.
Following any such five Hotel sales, if Owner sells more than three Hotels in
any 12-month period, then Lessee shall pay Operator, upon the fourth and
subsequent Hotel sales in any 12-month period, a termination fee equal to 50% of
the Operator’s Basic Fee paid with respect to such fourth and subsequent sold

 

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Hotel during the prior 12 months; provided, that if Lessee acquires another
Hotel or otherwise replaces any sold Hotel within 12 months following such sale,
such sale shall not be treated as a sale for purposes of this ARTICLE XVI.

 

ARTICLE XVII

 

DEFAULT AND REMEDIES

 

Section 17.01. Events of Default- Remedies.

 

(a) The following shall constitute Events of Default:

 

(1) The failure of Operator to diligently and efficiently operate the Hotel in
accordance with the provisions of this Agreement;

 

(2) The failure of Operator to pay any amount to Lessee provided for herein for
a period of five (5) days after written notice by Lessee of failure to pay such
sum when payable;

 

(3) The failure of Lessee to pay any amount to Operator provided for herein for
a period of five (5) days after written notice by Operator of failure to pay
such sum when payable;

 

(4) The filing of a voluntary petition in suspension of payments, bankruptcy or
insolvency by either Lessee or Operator or any entity which owns or controls
such party or if any such party otherwise voluntarily avails itself of any
federal or state laws for the relief of debtors or admits in writing its
inability to pay its debts as they become due;

 

(5) The consent to an involuntary petition in bankruptcy or the failure to
vacate within sixty (60) days from the date of entry thereof any order approving
an involuntary petition by or against either Lessee or Operator;

 

(6) The entering of an order, judgment or decree by any court of competent
jurisdiction, on the application of a creditor, adjudicating Lessee or Operator
a bankrupt or insolvent or appointing a judicial receiver, trustee or liquidator
of all or a substantial part of such party’s assets, and such order, judgment or
decree shall continue unstayed and in effect for a period of one hundred twenty
(120) consecutive days;

 

(7) The failure of either Lessee or Operator to perform, keep or fulfill any of
the other covenants, undertakings, obligations or conditions set forth in this
Agreement, and the continuance of any such default for a period of thirty (30)
days after written notice of such failure;

 

(8) Loss of the franchise license for a Hotel as a result of any action, or
failure to act, on the part of Operator;

 

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(9) Failure by Operator to pay, when due, the accounts payable for the Hotels
for which Lessee had previously reimbursed Operator.

 

(b) Upon the occurrence of any Event of Default, the nondefaulting party shall
give to the defaulting party notice of its intention to terminate this Agreement
after the expiration of a period of ten (10) days from such date of notice and,
upon the expiration of such period, this Agreement shall terminate and expire
without penalty. If, however, with respect to the Events of Default referred to
in items (1), (4), (5), (6), (7) and (9) of subsection (a) above, unless a
specific right of termination is specified elsewhere in this Agreement for the
breach in question, upon receipt of such notice, the defaulting party shall
promptly and with all due diligence cure the default or take and continue action
to cure such default within such ten (10) day period. If such default shall not
be capable of being cured within such ten (10) day period, then provided the
defaulting party diligently pursues the cure of such default, such party shall
have an additional five (5) days to cure any such default unless otherwise
extended by the non-defaulting party. The procedure set forth in the preceding
two sentences shall not be available for the curing of any default under items
(2), (3) or (8) of subsection (a) above. In the event such default is not cured
by the expiration of such period, the non-defaulting period may terminate this
Agreement effective upon expiration of such period without penalty or payment of
any fee.

 

Section 17.02. Rights Not Exclusive.

 

(a) The rights granted under this Article XVII shall not be in substitution for,
but shall be, except as otherwise provided in this Agreement, in addition to any
and all rights and remedies for breach of contract granted by applicable
provisions of law; provided, however, upon any termination of this Agreement by
Operator or Lessee as provided in this Agreement, Operator shall be entitled to
recover only such sums as are owing to Operator under this Agreement on the date
of any such termination and in no event will Operator have any claim or cause of
action for “future profits,” damages resulting from termination or otherwise
under this Agreement.

 

(b) No failure of Operator or Lessee to insist upon the strict performance of
any covenant, agreement, term or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof, shall constitute a waiver of
any such breach or any subsequent breach of such covenant, agreement, term or
condition. No covenant, agreement, term or condition of this Agreement and no
breach thereof shall be waived, altered or modified except by written instrument
signed by both Lessee and Operator. No waiver of any breach shall affect or
alter this Agreement but each and every covenant, agreement, term and condition
of this Agreement shall continue in full force and effect with respect to any
other then existing or subsequent breach thereof.

 

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ARTICLE XVIII

 

NOTICES

 

Section 18.01. Notices.

 

(a) Any notice, statement or demand required to be given under this Agreement
shall be in writing and shall be delivered by certified or registered mail,
postage prepaid, return receipt requested, or by overnight delivery with proof
of delivery, or by facsimile with receipt of transmission, addressed to the
parties hereto at their respective addresses listed below:

 

  (1) Notices to Lessee shall be addressed:

 

TRS Leasing, Inc.

309 North 5th Street

Norfolk, NE 68702

Attention: Paul Schulte

Facsimile: (402-371-4229

 

and

 

TRS Subsidiary, LLC

309 North 5th Street

Norfolk, NE 68702

Attention: Paul Schulte

Facsimile: (402) 371-4229

 

  (2) Notices to Operator shall be addressed:

 

Royal Host Management, Inc.

5940 Macleod Trail South, Suite 500

Calgary, Alberta, Canada

Attention: Terrance Royer

Facsimile: (403) 259-8580

 

(b) All notices, statements, demands and requests shall be effective three (3)
days after being deposited in the United States or Canadian mail or one day
after being sent by overnight delivery or by facsimile. However, the time period
in which a response to any such notice, statement, demand or request must be
given shall commence to run from date of receipt by the addressee thereof as
shown on the return receipt of the notice, statement, demand or request, but in
all events not later than the tenth (10th) day after it shall have been mailed
as required herein.

 

(c) By giving to the other party at least thirty (30) days written notice
thereof, either party shall have the right from time to time and at any time
during the Operating Term to change

 

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their respective addresses for notices, statements, demands and requests,
provided such new address shall be within the United States of America.

 

ARTICLE XIX

 

ASSIGNMENT

 

Section 19.01. No Assignment by Operator.

 

Notwithstanding anything to the contrary set forth in this Agreement, without
the prior written consent of Lessee (which consent may be withheld in Lessee’s
sole and absolute discretion), Operator shall have no right to sell, transfer or
assign (or permit the sale, transfer or assignment of) any of its rights, duties
or obligations under this Agreement in any manner, either directly or
indirectly, voluntarily, or by operation of law.

 

Section 19.02. Assignment by Lessee.

 

Lessee may transfer or assign its rights and obligations under this Agreement
without the consent of Operator but shall deliver to Operator written notice of
such transfer or assignment not less than ten (10) days prior to the effective
date thereof; provided, however, in the event of the assignment of this
Agreement to a party that is not an Affiliate, Operator shall have the right to
terminate this Agreement within 15 days after receipt of written notice of such
assignment, which termination will be effective within 30 days of Lessee’s
receipt of such termination notice. Any transfer or assignment of this Agreement
by Lessee shall include an express assumption by the transferee or assignee of
Lessee’s obligations hereunder. Nothing herein shall be deemed to require Lessee
to assign or attempt to assign this Agreement to any third party, including any
buyer of a Hotel.

 

ARTICLE XX

 

SUBORDINATION

 

Section 20.01. Subordination To Mortgage.

 

Operator hereby agrees that this Agreement, including, but not limited to
Operator’s Basic Fee and Operator’s Incentive Fee, shall in all respects be and
is hereby expressly made subordinate and inferior to the liens, security
interest and/or any Mortgage and to any promissory note and other indebtedness
secured or to be secured thereby and to all other instruments evidencing or
securing or to evidence or secure indebtedness, and all amendments,
modifications, supplements, consolidations, extensions and revisions of such
note and other instruments and any other indebtedness of Lessee or Owner,
secured or unsecured. Operator shall execute any and all subordination
agreements, estoppel certificates and other documents requested by Lessee or
Owner and/or the Holder to further evidence the subordination of this Agreement
and Operator’s rights hereunder including without limitation providing any
purchaser of a Hotel at a foreclosure sale or deed-in-lieu of foreclosure
(including the lender) with the right to terminate this

 

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Agreement; provided, however, Lessee shall use its commercially reasonable
efforts to obtain from the holder of any Mortgage a nondisturbance agreement, in
form reasonably acceptable to Operator providing that this Agreement shall
remain in full force and effect notwithstanding the fact that the Mortgage has
been foreclosed.

 

Section 20.02. Foreclosure.

 

Prior to termination of this Agreement by foreclosure under the Mortgage or by
acquisition of the property to be covered by the Mortgage by deed in lieu of
foreclosure, Operator shall have the right to enjoy all rights and privileges
conferred upon it pursuant to this Agreement, including, without limitation the
rights to the Operator’s Basic Fee and Operator’s Incentive Fee, and Operator
shall incur no liability to the Holder for acting pursuant to the terms of this
Agreement; provided, however, Operator shall be required to (and does hereby
agree to) repay to the Holder any Operator’s Basic Fee and Operator’s Incentive
Fee paid to Operator under this Agreement from and after the date which is
thirty (30) days after the date of receipt by Operator of a notice of default
under the Mortgage, which default is not cured and results in the acceleration
of the indebtedness secured by the Mortgage and the ultimate foreclosure of the
liens and/or security interest under the Mortgage and/or other acquisition of
the property covered thereby by the Holder in lieu of foreclosure. In the event
of such foreclosure, Operator shall have the right to terminate this Agreement
on thirty (30) days’ written notice to Lessee. Notwithstanding the foregoing,
Operator may pursue, as an unsecured creditor, a claim for all amounts due and
owing to Operator under this Management Agreement in accordance with the terms
of this Section 20.02.

 

Section 20.03. Estoppel Certificates.

 

Lessee and Operator agree, at any time and from time to time, upon not less than
10 days prior written notice from the other party or any purchaser or lender, to
provide a statement in writing certifying that this Agreement is unmodified and
in full force and effect (or, if there have been modifications, that the same is
full and force and effect as modified and stating the modifications), and
stating whether or not to the best knowledge of the signer of such certificate,
there exists any default in the performance of any obligation contained in this
Agreement, and if so, specifying each such default of which a signer may have
knowledge. Any statement delivered pursuant to this Section may be relied upon
by the other party and by the prospective lender or purchaser.

 

ARTICLE XXI

 

MISCELLANEOUS

 

Section 21.01. Further Documentation.

 

Lessee and Operator shall execute and deliver all appropriate supplemental
agreements and other instruments, and take any other action necessary to make
this Agreement fully and

 

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legally effective, binding, and enforceable in accordance with the terms hereof
as between them and as against third parties.

 

Section 21.02. Captions.

 

The titles to the several articles of this Agreement are inserted for
convenience only and are not intended to affect the meaning of any of the
provisions hereof.

 

Section 21.03. Successors and Assigns.

 

This Agreement shall be binding upon and inure to the benefit of Lessee, its
successors and/or assigns, and subject to the provisions of Article XIX, shall
be binding upon and inure to the benefit of Operator, its permitted successors
and assigns.

 

Section 21.04. Competitive Market Area.

 

Operator hereby agrees, for the benefit of Lessee, its successors and assigns,
that Operator (and its Affiliates) will not own, operate, lease, manage, or
otherwise have an interest in, directly or indirectly, any hotel within a five
(5) mile radius of any Hotel during the Operating Term unless expressly
consented to in writing by Lessee in advance, which consent may be withheld in
Lessee’s sole and absolute discretion.

 

Section 21.05. Assumption of Post Termination Obligations.

 

In the event of termination of this Agreement, Lessee shall be responsible for
assuming obligations under contracts entered into by Operator only to the extent
that any such contract shall have been entered into in accordance with Section
4.05(a) and Lessee shall be responsible for the payment of obligations incurred
by Operator in the operation of the Hotel only to the extent that such
obligations shall have been incurred in accordance with the terms of this
Agreement, and Operator hereby agrees to indemnify and to hold Lessee harmless
from and against any liability in connection with any such contracts, agreements
or obligations not so approved in writing by Lessee. Lessee will indemnify and
hold Operator harmless from all costs, expenses, claims, damages and
liabilities, including without limitation, lawyers’ fees and disbursements,
arising or resulting from Lessee’s failure following the expiration or earlier
termination (for whatever cause) of this Agreement to provide all of the
services contracted for in connection with the business booked on commercially
reasonable terms for the Hotels on or prior to the date of such expiration or
termination. The provisions of this Section will survive any expiration or
termination of this Agreement and will be binding upon Lessee and its successors
and assigns, including any successor or assign that becomes the beneficial or
legal owner of the Hotels after the effective date of any such expiration or
termination.

 

Section 21.06. Entire Agreement.

 

This Agreement, together with the Exhibits hereto, constitutes the entire
Agreement between the parties relating to the subject matter hereof, superseding
all prior agreements or

 

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undertakings, oral or written. This Agreement and the Exhibits hereto shall be
construed and interpreted without reference to any canon or rule of law
requiring interpretation against the party drafting or causing the drafting of
this Agreement or the portions in question, it being agreed and understood that
all parties have participated in the preparation of this Agreement.

 

Section 21.07. Governing Law.

 

This Agreement shall be construed and enforced in accordance with the laws of
the State of Nebraska.

 

Section 21.08. No Political Contributions.

 

Any provision hereof to the contrary notwithstanding, no money or property of
the Hotel shall be paid or used or offered, nor shall Lessee or Operator
directly or indirectly pay or use or offer, consent or agree to pay or use or
offer any money or property of the Hotel, for or in aid of any political party,
committee or organization, or for or in aid of, any corporation, joint stock or
other association organized or maintained for political purposes, or for, or in
aid or, any candidate for political office or for nomination for such office, or
in connection with any election including referendum for constitutional
amendment, or for any political purpose whatever, or for lobbying in connection
with legislation or regulation thereunder, or for the reimbursement for
indemnification of any person for money or property so used.

 

Section 21.09. Eligible Independent Contractor.

 

(a) At the effective time of this Agreement, Operator shall qualify as an
“eligible independent contractor” as defined in Section 856(d)(9) of the
Internal Revenue Code of 1986, as amended (the “Code”). To that end:

 

  (i) during the Operating Term, Operator shall not permit wagering activities
to be conducted at or in connection with the Hotels;

 

  (ii) during the Operating Term, Operator shall not own, directly or indirectly
(within the meaning of Section 856(d)(5) of the Code), more than 35% of the
shares of Humphrey Hospitality Trust, Inc.;

 

  (iii) during the Operating Term, no more than 35% of the total combined voting
power of Operator’s outstanding stock (or 35% of the total shares of all classes
of its outstanding stock) shall be owned, directly or indirectly, by one or more
persons owning 35% or more of the outstanding stock of Humphrey Hospitality
Trust, Inc.; and

 

  (iv)

At the effective time, Operator shall be actively engaged in the trade or
business of operating “qualified lodging facilities” (defined below) for a
person who is not a “related person” within the meaning of Section 856(d)(9)(F)
of the Code with respect to the Parent or Lessee (“Unrelated

 

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Persons”). In order to meet this requirement, Operator agrees that it (i) shall
derive at least 10% of both its revenue and profit from operating “qualified
lodging facilities” for Unrelated Persons and (ii) shall comply with any
regulations or other administrative guidance under Section 856(d)(9) of the Code
with respect to the amount of hotel management business with Unrelated Persons
that is necessary to qualify as an “eligible independent contractor” with the
meaning of such Code Section.

 

(b) 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 legally 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 part 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
Humphrey Hospitality Trust, Inc.

 

(c) Operator shall not sublet any Hotel 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 (a) the net income or
profits derived by the business activities of the sublessee, or (b) 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 Internal Revenue
Code, or any similar or successor provision thereto.

 

Section 21.10. Time of the Essence.

 

Time is of the essence of this Agreement.

 

Section 21.11. Offsets.

 

Each party may offset amounts owed to another party hereunder against any
amounts owed to such party, except to the extent any such offset is prohibited
by the terms of the Lessee (or its Affiliates) credit agreements.

 

Section 21.12. Attorney’s Fees.

 

If any party brings an action against another party to enforce any provision of
this Agreement, the prevailing party in such action shall be entitled to recover
its court costs, attorney’s fees and expenses in the judgment rendered through
such action.

 

Section 21.13. Final Accounting.

 

(a) Within sixty (60) days following the effective date of expiration or
termination of this Agreement, Operator shall prepare and submit to Lessee a
final accounting of Hotel

 

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operations through the effective date of such expiration or termination, which
accounting shall be in the form of the financial statements required hereunder.

 

(b) Upon the effective date of expiration or termination of this Agreement,
Operator shall deliver possession of the Hotel, and any cash, property and other
assets pertaining thereto, together with any and all keys or other access
devices, to Lessee.

 

(c) Upon the expiration or termination of this Agreement, Operator shall
reasonably cooperate with and assist Lessee as may be necessary for the transfer
of any and all Hotel licenses and permits to Lessee or Lessee’s designee.

 

Section 21.14. Non-Solicitation.

 

Lessee shall not, during the Operating Term, or for a period of six (6) months
thereafter, without the consent of Operator, solicit for employment any
corporate level employee of Operator. The foregoing prohibition shall not apply
to any employee at the Hotels and shall not prohibit Lessee from hiring any
employee of Operator who solicits employment by Lessee or Lessee’s affiliates.

 

Section 21.15. Franchisor Communications.

 

During the Operating Term, Operator shall promptly deliver to Lessee copies of
any deficiency notices or similar notices received from a Franchisor and any
response thereto.

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first set forth above.

 

LESSEE: TRS LEASING, INC. By:  

/s/ Paul J. Schulte

Title:

 

Chairman

TRS SUBSIDIARY, LLC By:  

/s/ Paul J. Schulte

Title:

 

Chairman

 

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OPERATOR:

ROYAL HOST MANAGEMENT, INC.

By:  

/s/ Terrance Royer

Title:

 

President

 

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