Exhibit 10.33

 

Tucson, Arizona (RI)

 

HOTEL LEASE AGREEMENT

 

EFFECTIVE AS OF DECEMBER 15, 2004

 

BETWEEN

 

APPLE HOSPITALITY FIVE, INC.,

A VIRGINIA CORPORATION,

 

AS LESSOR

 

AND

 

APPLE HOSPITALITY FIVE MANAGEMENT, INC.,

A VIRGINIA CORPORATION

 

AS LESSEE

 

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Exhibit 10.33

 

TABLE OF CONTENTS

 

          PAGE

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ARTICLE 1 LEASED PROPERTY; OTHER DEFINITIONS

   1

1.1

  

Leased Property

   1

1.2.

  

Definitions

   2

ARTICLE 2 TERM; TERMINATION

   14

2.1.

  

Term

   14

2.2.

  

Lessor’s Option to Terminate Lease

   14

2.3.

  

Transition Procedures

   15

2.4.

  

Holding Over

   16

ARTICLE 3 RENT; RENT ADJUSTMENTS

   17

3.1.

  

Rent

   17

3.2.

  

Confirmation of Percentage Rent

   20

3.3.

  

Additional Charges

   20

3.4.

  

Net Lease; No Termination, Abatement, Etc.

   21

3.5.

  

Material Changes in Economic Climate

   22

3.6.

  

Rent Adjustment: Basic Assumptions Incorrect

   23

ARTICLE 4 ANNUAL BUDGETS; BOOKS AND RECORDS

   24

4.1.

  

Annual Budget

   24

4.2.

  

Books and Records

   24

ARTICLE 5 IMPOSITIONS; HOTEL COSTS

   25

5.1.

  

Payment of Impositions

   25

5.2.

  

Notice of Impositions

   26

5.3.

  

Adjustment of Impositions

   26

5.4.

  

Utility Charges

   26

5.5.

  

Insurance Premiums

   26

5.6.

  

Franchise Fees

   26

5.7.

  

Ground Rent

   26

ARTICLE 6 LEASED PROPERTY; LESSEE’S PERSONAL PROPERTY

   26

6.1.

  

Ownership of the Leased Property

   26

6.2.

  

Lessee’s Personal Property

   26

6.3.

  

Lessor’s Lien

   27

6.4.

  

Lessor’s Option to Purchase Assets of Lessee

   27

ARTICLE 7 CONDITION AND USE OF LEASED PROPERTY

   28

7.1.

  

Condition of the Leased Property

   28

7.2.

  

Use of the Leased Property

   28

7.3.

  

Lessor to Grant Easements, Etc.

   29

ARTICLE 8 LESSEE’S COMPLIANCE WITH LAW; ENVIRONMENTAL COVENANTS

   29

8.1.

  

Compliance with Legal and Insurance Requirements, Etc.

   29

8.2.

  

Legal Requirement Covenants

   30

8.3.

  

Environmental Covenants

   31

ARTICLE 9 MAINTENANCE AND REPAIRS; ENCROACHMENTS AND RESTRICTIONS

   33

9.1.

  

Maintenance and Repairs

   33

9.2.

  

Encroachments, Restrictions, Etc.

   34

 

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ARTICLE 10 ALTERATIONS AND IMPROVEMENTS; FF&E RESERVE

   35

10.1.

  

Alterations

   35

10.2.

  

Salvage

   35

10.3.

  

Joint Use Agreements

   35

10.4.

  

[Reserved]

   35

10.5.

  

Furniture, Fixture and Equipment Allowance

   35

ARTICLE 11 COMPLIANCE WITH FRANCHISE

   36

11.1.

  

Compliance with Franchise Agreement and Management Agreement

   36

ARTICLE 12 PERMITTED LIENS AND CONTESTS

   36

12.1.

  

Liens

   36

12.2.

  

Permitted Contests

   37

ARTICLE 13 INSURANCE REQUIREMENTS

   38

13.1.

  

General Insurance Requirements

   38

13.2.

  

Replacement Cost

   39

13.3.

  

Waiver of Subrogation

   39

13.4.

  

Form Satisfactory, Etc.

   39

13.5.

  

Increase in Limits

   40

13.6.

  

Blanket Policy

   40

13.7.

  

No Separate Insurance

   40

13.8.

  

Reports On Insurance Claims

   41

ARTICLE 14 CASUALTY INSURANCE PROCEEDS; RECONSTRUCTION

   41

14.1.

  

Insurance Proceeds

   41

14.2.

  

Reconstruction in the Event of Damage or Destruction Covered by Insurance

   41

14.3.

  

Reconstruction in the Event of Damage or Destruction Not Covered by Insurance

   42

14.4.

  

Lessee’s Property

   43

14.5.

  

Abatement of Rent

   43

14.6.

  

Damage Near End of Term

   43

14.7.

  

Waiver

   43

ARTICLE 15 CONDEMNATION; AWARD ALLOCATION

   43

15.1.

  

Definitions

   43

15.2.

  

Parties’ Rights and Obligations

   44

15.3.

  

Total Taking

   44

15.4.

  

Allocation of Award

   44

15.5.

  

Partial Taking

   44

15.6.

  

Temporary Taking

   44

ARTICLE 16 DEFAULT BY LESSEE; LESSOR'S REMEDIES

   45

16.1.

  

Events of Default

   45

16.2.

  

Surrender

   46

16.3.

  

Damages

   47

16.4.

  

Waiver

   48

16.5.

  

Application of Funds

   48

16.6.

  

Lessor’s Right to Cure Lessee’s Default

   48

ARTICLE 17 DEFAULT BY LESSOR; LESSEE'S REMEDIES

   48

17.1.

  

Breach by Lessor

   48

17.2.

  

Lessee’s Right to Cure

   49

17.3.

  

Provisions Relating to Purchase of the Leased Property by Lessee

   49

 

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ARTICLE 18 INDEMNIFICATION

   50

18.1.

  

Indemnification

   50

ARTICLE 19 REIT REQUIREMENTS AND RESTRICTIONS

   51

19.1.

  

Personal Property Limitation

   51

19.2.

  

Sublease Rent Limitation

   51

19.3.

  

Sublease Tenant Limitation

   51

19.4.

  

Lessee Ownership Limitations

   51

19.5.

  

Lessee Officer and Employee Limitation

   51

19.6.

  

Payments to Affiliates of Lessee

   52

ARTICLE 20 SUBLETTING AND ASSIGNMENT

   52

20.1.

  

Subletting and Assignment

   52

20.2.

  

Attornment

   52

20.3.

  

Conveyance by Lessor

   53

ARTICLE 21 QUIET ENJOYMENT; RISK OF LOSS

   53

21.1.

  

Quiet Enjoyment

   53

21.2.

  

Risk of Loss

   53

ARTICLE 22 LESSOR MORTGAGES; SUBORDINATION OF LEASE

   53

22.1.

  

Lessor May Grant Liens

   53

22.2.

  

Subordination of Lease

   54

ARTICLE 23 ESTOPPEL CERTIFICATES; FINANCIAL STATEMENTS; INSPECTION RIGHTS

   54

23.1.

  

Estoppel Certificates; Financial Statements

   54

23.2.

  

Lessor’s Right to Inspect

   55

ARTICLE 24 APPRAISERS

   55

24.1.

  

Appraisers

   55

ARTICLE 25 ARBITRATION AND DISPUTE RESOLUTION PROCEDURES

   56

25.1.

  

Arbitration

   56

25.2.

  

Alternative Arbitration

   56

25.3.

  

Arbitration Procedure

   57

ARTICLE 26 NOTICES

   57

26.1.

  

Notices

   57

ARTICLE 27 MISCELLANEOUS

   57

27.1.

  

No Waiver

   57

27.2.

  

Remedies Cumulative

   58

27.3.

  

Waiver of Trial by Jury

   58

27.4.

  

Acceptance of Surrender

   58

27.5.

  

No Merger of Title

   58

27.6.

  

Waiver of Presentment, Etc.

   58

27.7.

  

Action for Damages

   58

27.8.

  

Lease Assumption in Bankruptcy Proceeding

   58

27.9.

  

Enforceability

   59

27.10.

  

Memorandum of Lease

   59

 

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Exhibit A - Legal Description

Schedule 2.1 – Commencement Dates

Schedule 3.1(a) – Base Rents

Schedule 3.1(b) – Suite Revenue Breakpoint

 

iv

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Exhibit 10.33

 

HOTEL LEASE AGREEMENT

 

THIS HOTEL LEASE AGREEMENT (hereinafter called “Lease”), effective as of the
15th of December, 2004, by and between Apple Hospitality Five, Inc., a Virginia
corporation (hereinafter called “Lessor”), and Apple Hospitality Five
Management, Inc., a Virginia corporation (hereinafter called “Lessee”), provides
as follows:

 

AGREEMENT:

 

Lessor, for and in consideration of the payment of rent by Lessee to Lessor, the
covenants and agreements to be performed by Lessee, and upon the terms and
conditions hereinafter stated, does hereby rent and lease unto Lessee, and
Lessee does hereby rent and lease from Lessor, the Leased Property.

 

ARTICLE 1

LEASED PROPERTY; OTHER DEFINITIONS

 

1.1. Leased Property. The Leased Property shall mean and is comprised of
Lessor’s interest in the following:

 

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

 

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

 

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

 

(d) all equipment, machinery, fixtures, and other items of property required for
or incidental to the use of the Leased Improvements as a hotel, including all
components thereof, now and hereafter permanently affixed to or incorporated
into the Leased Improvements, including, without limitation, all furnaces,
boilers, heaters, electrical equipment, heating, plumbing, lighting,
ventilating, refrigerating, incineration, air and water pollution control, waste
disposal, air-cooling and air-conditioning systems and apparatus, sprinkler
systems and fire and theft protection equipment, all of which to the greatest
extent permitted by law are hereby deemed by the parties hereto to constitute
real estate, together with all replacements, modifications, alterations and
additions thereto (collectively, the “Fixtures”);

 

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

 

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

 

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

 

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

 

Additional Charges: As defined in Section 3.3.

 

Affiliate: As used in this Lease the term “Affiliate” of a Person shall mean (a)
any Person that, directly or indirectly, controls or is controlled by or is
under common control with such Person, (b) any other Person that owns,
beneficially, directly or indirectly, ten percent (10%) or more of the
outstanding capital stock, shares or equity interests of such Person, or (c) any
officer, director, employee, partner, manager or trustee of such Person or any
Person controlling, controlled by or under common control with such Person or
any Person that owns, beneficially, directly or indirectly, ten percent (10%) or
more of the outstanding capital stock, shares or equity interests of such Person
(excluding trustees and Persons serving in similar capacities who are not
otherwise an Affiliate of such Person). For the purposes of this definition,
“control” (including the correlative meanings of the terms “controlled by” and
“under common control with”), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, through the ownership
of voting securities, partnership interests or other equity interests.

 

Annual Budget: As used in this Lease, the term “Annual Budget” shall mean an
operating and capital budget prepared by Lessee and delivered to Lessor in
accordance with Section 4.1.

 

Annual Revenues Computation: As defined in Subsection 3.1(b).

 

Award: As defined in Subsection 15.1(a).

 

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Base Rate: The rate of interest announced publicly by Citibank, N.A., in New
York, New York, from time to time, as such bank’s base rate. If no such rate is
announced or if such rate becomes discontinued, then such other rate as Lessor
may reasonably designate.

 

Base Rent: As defined in Subsection 3.1(a).

 

Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday that is not a
day on which national banks in the City of New York, New York, or in the
municipality wherein the Leased Property is located are closed.

 

CERCLA: The Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended.

 

Change of Control: The sale, conveyance, assignment, encumbering, pledging,
hypothecation, granting a security interest in, granting of options with respect
to, or other disposition of (directly or indirectly, voluntarily or
involuntarily, by operation of law or otherwise, and whether or not for
consideration) of any class stock or other equity interests in a Person (other
than among existing holders of interests in such Person on the Commencement Date
and/or family members of such holders and/or trusts for the benefit of any of
the foregoing) that, upon a transfer of any portion thereof, will create in the
transferee thereof, directly or indirectly, a majority of any class of stock or
other equity interests of such Person.

 

Claims: As defined in Section 12.2.

 

COBRA: As defined in Subsection 8.2(b).

 

Code: The Internal Revenue Code of 1986, as amended.

 

Commencement Date: As defined in Section 2.1.

 

Competitive Set: As defined in the STR Reports. Lessor and Lessee shall work in
good faith to determine any additions and deletions to the Hotel’s Competitive
Set, on or before November 15th of each year, with such changes to be applicable
for the following Fiscal Year. In the event Lessor and Lessee cannot agree to
the Hotel’s Competitive Set by November 15th of any year, such unagreed items
shall be determined by Smith Travel Research (or, if it refuses or is unable to
do so, by arbitration pursuant to Section 25.2). The costs of resetting the
Hotel’s Competitive Set shall be borne equally by the parties.

 

Comparison Month: As defined in Subsection 3.1(d).

 

Condemnation, Condemnor: As defined in Section 15.1

 

Consolidated Financials: For any fiscal year or other accounting period for
Lessee and its consolidated subsidiaries, if any, statements of earnings and
retained earnings and of changes in financial position for such period and for
the period from the beginning of the respective fiscal year to the end of such
period and the related balance sheet as at the end of such period,

 

3

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together with the notes thereto, all in reasonable detail and setting forth in
comparative form the corresponding figures for the corresponding period in the
preceding fiscal year, and prepared in accordance with generally accepted
accounting principles and audited by independent certified public accountants
acceptable to Lessor in its sole discretion.

 

Consumer Price Index: The “U.S. City Average, All Items” Consumer Price Index
for All Urban Consumers published by the Bureau of Labor Statistics of the
United States Department of Labor (Base: 1982-1984=100), or any successor index
thereto. If the Consumer Price Index is hereafter converted to a different
standard reference base or otherwise revised, any determination hereunder that
uses the Consumer Price Index shall be made with the use of such conversion
factor, formula or table for converting the Consumer Price Index as may be
published by the Bureau of Labor Statistics, or, if the Bureau shall no longer
publish the same, then with the use of such conversion factor, formula or table
as may be published by Prentice Hall, Inc., or, failing such publication, by any
other nationally recognized publisher of similar statistical information.

 

Date of Taking: As defined in Subsection 15.1(d).

 

Encumbrance: As defined in Section 22.1.

 

Environmental Audit: As defined in Subsection 8.3(b).

 

Environmental Authority: Any department, agency or other body or component of
any Government that exercises any form of jurisdiction or authority under any
Environmental Law.

 

Environmental Authorization: Any license, permit, order, approval, consent,
notice, registration, filing or other form of permission or authorization
required under any Environmental Law.

 

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

 

Environmental Liabilities: Any and all obligations to pay the amount of any
judgment or settlement, the cost of complying with any settlement, judgment or
order for injunctive or other equitable relief, the cost of compliance or
corrective action in response to any notice, demand or request from an
Environmental Authority, the amount of any civil penalty or criminal fine, and
any court costs and reasonable amounts for attorney’s fees, fees for witnesses
and experts, and costs of investigation and preparation for defense of any claim
or any Proceeding, regardless of whether such Proceeding is threatened, pending
or completed, that may be or have been asserted against or imposed upon Lessor,
Lessee, any Predecessor, the Leased Property or any property used therein and
arising out of:

 

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

 

4

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

 

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

 

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

 

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

 

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

 

Event of Default: As defined in Section 16.1.

 

Fair Market Rental: The fair market rental of the Leased Property means the
rental which a willing tenant not compelled to rent would pay a willing landlord
not compelled to lease for the use and occupancy of such Leased Property
pursuant to the Lease for the term in question, (a) assuming that Lessee is not
in default thereunder and (b) determined in accordance with the appraisal
procedures set forth in Article 24 or in such other manner as shall be mutually
acceptable to Lessor and Lessee.

 

Fair Market Value: The fair market value of the Leased Property means an amount
equal to the price that a willing buyer not compelled to buy would pay a willing
seller not compelled to sell for such Leased Property, (a) assuming the same is
unencumbered by this Lease, (b) determined in accordance with the appraisal
procedures set forth in Article 24 or in such other manner as shall be mutually
acceptable to Lessor and Lessee, (c) assuming that such seller must pay
customary closing costs and title premiums, and (d) taking into account the
positive or negative effect on the value of the Leased Property attributable to
the interest rate, amortization schedule, maturity date, prepayment penalty and
other terms and conditions of any encumbrance that is assumed by the transferee.
In addition, in determining the Fair Market Value with respect to damaged or
destroyed Leased Property such value shall be determined as if such Leased
Property had not been so damaged or destroyed.

 

FIFRA: The Federal Insecticide, Fungicide, and Rodenticide Act, as amended.

 

Fiscal Year: The twelve (12) month period from January 1 to December 31, or any
shorter period at the beginning or end of the Term.

 

5

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Fixtures: As defined in Section 1.1.

 

Force Majeure: An Unavoidable Occurrence, generally affecting travel and/or the
hotel or lodging business in the market and/or submarket in which the Hotel is
located.

 

Franchise Agreement: Any franchise agreement or license agreement with a
franchisor (such as Residence Inn by Marriott) under which the Hotel is
operated.

 

Furniture and Equipment: For purposes of this Lease, the terms “furniture and
equipment” shall mean collectively all furniture, furnishings, wall coverings,
fixtures and hotel equipment and systems located at, or used in connection with,
the Hotel, together with all replacements therefor and additions thereto,
including, without limitation, (i) all equipment and systems required for the
operation of kitchens and bars, laundry and dry cleaning facilities, (ii) office
equipment, (iii) material handling equipment, cleaning and engineering
equipment, (iv) telephone and computerized accounting systems, and (v) vehicles.

 

Government: The United States of America, any state, district or territory
thereof, any foreign nation, any state, district, department, territory or other
political division thereof, or any agency or political subdivision of any of the
foregoing.

 

Gross Operating Expenses: The term “Gross Operating Expenses” shall include (i)
all costs and expenses of operating the Hotel included within the meaning of the
term “Total Costs and Expenses” contained in the Uniform System and, (ii)
without duplication, the following: all salaries and employee expense and
payroll taxes (including salaries, wages, bonuses and other compensation of all
employees of the Hotel, and benefits including life, medical and disability
insurance and retirement benefits), expenditures described in Section 9.1,
operational supplies, utilities, insurance to be provided by Lessee under the
terms of this Lease, governmental fees and assessments, common area maintenance
costs and other common area fees and assessments, food, beverages, laundry
service expense, the cost of Inventories, license fees, advertising, marketing,
reservation systems and any and all other operating expenses as are reasonably
necessary for the proper and efficient operation of the Hotel and the Leased
Property incurred by Lessee in accordance with the provisions hereof (excluding,
however, (i) federal, state and municipal excise, sales and use taxes collected
directly from patrons and guests or as a part of the sales price of any goods,
services or displays, such as gross receipts, admissions, cabaret or similar or
equivalent taxes paid over to federal, state or municipal governments, (ii) the
cost of insurance to be provided under Article 13, (iii) expenditures by Lessor
pursuant to Article 13 and (iv) payments on any Mortgage or other mortgage or
security instrument on the Hotel); all determined in accordance with generally
accepted accounting principles. No part of Lessee’s central office overhead or
general or administrative expense (as opposed to that of the Hotel) shall be
deemed to be a part of Gross Operating Expenses, as herein provided. Reasonable
out-of-pocket expenses of Lessee incurred for the account of or in connection
with the Hotel operations, including but not limited to postage, telephone
charges and reasonable travel expenses of employees, officers and other
representatives and consultants of Lessee and its Affiliates, shall be deemed to
be a part of Gross Operating Expenses and such Persons shall be afforded
reasonable accommodations, food, beverages, laundry, valet and other such
services by and at the Hotel without charge to such Persons or Lessee.

 

6

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Gross Operating Profit: For any Fiscal Year, the excess of Gross Revenues for
such Fiscal Year over Gross Operating Expenses for such Fiscal Year.

 

Gross Revenues: All revenues, receipts, and income of any kind derived directly
or indirectly by Lessee from or in connection with the Hotel (including rentals
or other payments from tenants, lessees, licensees or concessionaires but not
including their gross receipts) whether on a cash basis or credit, paid or
collected, determined in accordance with generally accepted accounting
principles, excluding, however: (i) funds furnished by Lessor, (ii) federal,
state and municipal excise, sales, and use taxes collected directly from patrons
and guests or as a part of the sales price of any goods, services or displays,
such as gross receipts, admissions, cabaret or similar or equivalent taxes and
paid over to federal, state or municipal governments, (iii) the amount of all
credits, rebates or refunds to customers, guests or patrons, and all service
charges, finance charges, interest and discounts attributable to charge accounts
and credit cards, to the extent the same are paid to Lessee by its customers,
guests or patrons, or to the extent the same are paid for by Lessee to, or
charged to Lessee by, credit card companies, (iv) gratuities or service charges
actually paid to employees, (v) proceeds of insurance and condemnation, (vi)
proceeds from sales other than sales in the ordinary course of business, (vii)
all loan proceeds from financing or refinancings of the Hotel or interests
therein or components thereof, (viii) judgments and awards, except any portion
thereof arising from normal business operations of the Hotel, and (ix) items
constituting “allowances” under the Uniform System.

 

Hazardous Materials: All chemicals, pollutants, contaminants, wastes and toxic
substances, including without limitation:

 

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

 

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

 

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

 

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

 

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

 

Hotel: The hotel and/or other facility offering lodging and other services or
amenities being operated or proposed to be operated on the Leased Property.

 

Hotel Market Decline: A period of six (6) consecutive calendar months during
which there is (i) a twenty percent (20%) decline in average hotel occupancy for
the Hotel from the average hotel occupancy levels for same period during the
prior calendar year and (ii) a twenty percent (20%) decline in average hotel
occupancy for the Hotel’s Competitive Set from the average

 

7

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hotel occupancy levels for the same period during the prior calendar year, as
published in the applicable STR Reports.

 

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

 

Indemnified Party: Either of a Lessee Indemnified Party or a Lessor Indemnified
Party.

 

Indemnifying Party: Any party obligated to indemnify an Indemnified Party
pursuant to Sections 8.3 or 18.1.

 

Insurance Requirements: All terms of any insurance policy required by this Lease
and all requirements of the issuer of any such policy.

 

Inventory: All “Inventories of Merchandise” and “Inventories of Supplies” as
defined in the Uniform System, including without limitation linens, china,
silver, glassware and other non-depreciable personal property, and including any
property of the type described in Section 1221(1) of the Code.

 

Land: As defined in Section 1.1.

 

Lease: This Lease.

 

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Leased Improvements; Leased Property: Each as defined in Section 1.1.

 

Legal Requirements: All federal, state, county, municipal and other governmental
statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and
injunctions affecting either the Leased Property or the maintenance,
construction, use or alteration thereof (whether by Lessee or otherwise),
whether now in force or hereafter enacted and in force, including (a) all laws,
rules or regulations pertaining to the environment, occupational health and
safety and public health, safety or welfare, and (b) any laws, rules or
regulations that may (1) require repairs, modifications or alterations in or to
the Leased Property or (2) in any way adversely affect the use and enjoyment
thereof; and all permits, licenses and authorizations and regulations relating
thereto and all covenants, agreements, restrictions and encumbrances contained
in any instruments, either of record or known to Lessee (other than encumbrances
created by Lessor without the consent of Lessee), at any time in force affecting
the Leased Property.

 

Lending Institution: Any insurance company, credit company, federally-insured
commercial or savings bank, national banking association, savings and loan
association, employees welfare, pension or retirement fund or system, corporate
profit sharing or pension trust, college or university, or real estate
investment trust, including any corporation qualified to be treated for federal
tax purposes as a real estate investment trust, such trust having a net worth of
at least $10,000,000.

 

Lessee: The Lessee designated on this Lease and its respective permitted
successors and assigns.

 

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

 

Lessee’s Personal Property: As defined in Section 6.2.

 

Lessor: The Lessor designated In this Lease and its respective successors and
assigns.

 

Lessor Indemnified Party: Lessor, any Affiliate of Lessor, any other Person
against whom any claim for indemnification may be asserted hereunder as a result
of a direct or indirect ownership interest (including a stockholder’s or
partnership interest) in Lessor, the officers, directors, stockholders, members,
managers, employees, agents and representatives of the general partner of Lessor
and any partner, agent, or representative of Lessor, and the respective heirs,
personal representatives, successors and assigns of any such officer, director,
stockholder, partner, member, manager, employee, agent or representative.

 

Licenses: As defined in Subsection 2.3(a).

 

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Management Agreement: The agreement pursuant to which Manager operates the
Hotel.

 

Manager: Texas Western Management Partners, L.P., a Texas limited partnership,
or any successor manager that is retained by Lessee to operate the Hotel
pursuant to this Lease and the Franchise Agreement.

 

Minimum Price: The sum of (a) the equity in the Leased Property at the time of
acquisition of the Leased Property by Lessor, plus (b) other capital
expenditures on the Leased Property by Lessor after the date hereof (less
depreciation and amortization thereof) plus (c) the unpaid principal balance of
all encumbrances against the Leased Property at the time of purchase of the
Leased Property by Lessee, less (x) all proceeds received by Lessor from any
financing or refinancing of the Leased Property after the date hereof (after
payment of any debt refinanced and net of any costs and expenses incurred in
connection with such financing or refinancing, including, without limitation,
loan points, commitment fees and commissions and legal fees) and (y) the net
amount (after deduction of all reasonable legal fees and other costs and
expenses, including without limitation expert witness fees, incurred by Lessor
in connection with obtaining any such proceeds or award) of all insurance
proceeds received by Lessor and awards received by Lessor from any partial
Taking of the Leased Property that are not applied to restoration.

 

Mortgage: As defined in Section 22.2.

 

National Economic Decline: A period of six (6) consecutive calendar months
during which there occurs or continues a ten percent (10%) decline in average
hotel occupancy, from average hotel occupancy levels for the same period during
the prior calendar year, for all open and operating hotels in the United States
as determined from the applicable STR Reports or, if the STR Reports are not
longer published, other reputable national economic data regarding the
hospitality industry.

 

Notice: As defined in Article 26.

 

Officer’s Certificate: A certificate of Lessee reasonably acceptable to Lessor,
signed by the chief financial officer or another officer authorized so to sign
by the board of directors or other governing body of Lessee, or bylaws or
limited liability company agreement of Lessee, or any other Person whose power
and authority to act has been authorized by delegation in writing by any such
officer.

 

Optional Termination Date: As defined in Section 2.2.

 

Overdue Rate: On any date, a rate equal to the Base Rate plus five percent (5%)
per annum, but in no event greater than the maximum rate then permitted under
applicable law.

 

Payment Date: Any due date for the payment of any installment of Base Rent.

 

Percentage Rent: As defined in Subsection 3.1(b).

 

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Person: Any Government, natural person, corporation, general or limited
partnership, limited liability company, stock company or association, joint
venture, association, company, trust, bank, trust company, land trust, business
trust, or other entity.

 

Personal Property Taxes: All personal property taxes imposed on the furniture,
furnishings or other items of personal property located on, and used in
connection with, the operation of the Leased Improvements as a hotel (other than
Inventory and other personal property owned by Lessee), together with all
replacement, modifications, alterations and additions thereto.

 

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

 

Primary Intended Use: As defined in Subsection 7.2(b).

 

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

 

RCRA: The Resource Conservation and Recovery Act, as amended.

 

Real Estate Taxes: All real estate taxes, including general and special
assessments, if any, which are imposed upon the Land, and any improvements
thereon.

 

Regional Market Decline: A period of six (6) consecutive calendar months during
which there is a twenty percent (20%) decline in average hotel occupancy from
hotel occupancy levels for the same period during the then prior calendar year,
for all open and operating hotels in the Smith Travel Research Region in which
the Hotel is located, as determined from applicable STR Reports or, if the STR
Reports are no longer published, other reputable regional economic data
regarding the hospitality industry.

 

Rejectable Offer Price: An amount equal to the greater of (a) the Fair Market
Value, determined as of the applicable purchase date, or (b) the Minimum Price.

 

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

 

Rent: Collectively, the Base Rent, Percentage Rent and Additional Charges.

 

Repositioning: As defined in Section 3.6.

 

SARA: The Superfund Amendments and Reauthorization Act of 1986, as amended.

 

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Solvent: As to any Person, (a) the sum of the assets of such Person exceeds its
liabilities and (b) such Person has sufficient capital with which to conduct its
business as presently conducted and as proposed to be conducted.

 

State: The state or commonwealth in which the Hotel is located.

 

STR Reports: Reports compiled by Smith Travel Research, or its successor, which
contain historical supply and demand, occupancy, and average rate information
for the Hotel and hotels with which it competes (or, in the event that Smith
Travel Research discontinues providing such information, reports of similar
nature compiled by an authority recognized nationally in the hospitality
industry).

 

Subsidiaries: Persons in which Lessee owns, directly or indirectly, more than
fifty percent (50%) of the voting stock or control, as applicable.

 

Suite Revenue Breakpoint: As defined in Subsection 3.1(b).

 

Suite Revenues: All revenues, receipts, and income of any kind derived directly
or indirectly by Lessee from or in connection with (i) the rental of guest rooms
or suites, whether to individuals, groups or transients, at the Hotel and (ii)
the Hotel’s meeting rooms, telephones, TV and movie rentals, check room,
washroom, laundry, valet, vending machines, and other sources, in each case,
whether on a cash basis or credit, paid or collected, determined in accordance
with generally accepted accounting principles, but, in each case, excluding the
following:

 

(a) The amount of all credits, rebates or refunds to customers, guests or
patrons, and all service charges, finance charges, interest and discounts
attributable to charge accounts and credit cards, to the extent the same are
paid to Lessee by its customers, guests or patrons, or to the extent the same
are paid for by Lessee to, or charged to Lessee by, credit card companies;

 

(b) All sales taxes or any other taxes imposed on the rental of such guest rooms
or suites or imposed in connection with the Hotel’s meeting rooms, telephones,
TV and movie rentals, check room, washroom, laundry, valet, vending machines,
and other sources of revenue;

 

(c) Gratuities or service charges actually paid to employees; and

 

(d) Proceeds of business interruption and other insurance.

 

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

 

Term: As defined in Section 2.1.

 

TSCA: The Toxic Substances Control Act, as amended.

 

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Unavoidable Delays: Delays due to strikes, lock-outs, labor unrest, inability to
procure materials, power failure, acts of God, governmental restrictions, enemy
action, civil commotion, fire, unavoidable casualty or other causes beyond the
control of the party responsible for performing an obligation hereunder,
provided that lack of funds shall not be deemed a cause beyond the control of
either party hereto unless such lack of funds is caused by the failure of the
other party hereto to perform any obligations of such party under this Lease or
any guaranty of this Lease.

 

Unavoidable Occurrence. The occurrence of strikes, lockouts, labor unrest,
gasoline and other energy shortages, widespread disruption of air, auto or other
travel, inability to procure materials or services, power or other utility
failure, acts of God (such as hurricanes, tornadoes, earthquakes, floods and mud
slides), governmental restrictions, war or other enemy or terrorist action,
civil commotion, fire, casualty, condemnation or other similar causes, in each
case, if such cause is beyond the reasonable control of Lessee; provided that
(i) lack of funds shall not be deemed a cause beyond the reasonable control of
either party hereto unless such lack of funds is caused by the failure of the
other party hereto to perform any obligations of such party under this Lease or
any guaranty of this Lease, and (ii) any such occurrence is an extraordinary, as
opposed to a routine or cyclical, material event that was not reasonably
foreseeable when the then-applicable Annual Budget was prepared.

 

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

 

Uniform System: The Uniform System of Accounts for Hotels (9th Revised Edition,
1996) as published by the Hotel Association of New York City, Inc., with such
later revisions as may be agreed to by both Lessor and Lessee.

 

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

 

WARN Act: As defined in Subsection 8.2(b).

 

Working Capital: Funds reasonably necessary for the day-to-day operation of the
Hotel’s business for a thirty (30) day period, including, without limitation,
amounts sufficient for the maintenance of change and petty cash funds, operating
bank accounts, payrolls, accounts payable, accrued current liabilities, and
funds required to maintain Inventories.

 

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ARTICLE 2

TERM; TERMINATION

 

2.1. Term.

 

(a) The term of the Lease (the “Term”) shall commence on the date specified in
Schedule 2.1 (the “Commencement Date”), and shall end on the tenth (10th)
anniversary of the Commencement Date, unless sooner terminated in accordance
with the provisions hereof or extended to an anniversary of the initial
expiration date pursuant to this Article 2.

 

(b) Lessee is granted the option to extend the Term of this Lease for a period
of five (5) years (the “First Extension”), provided that Lessee is not in
default hereunder either at the time of deemed exercise of the option or at the
end of the original Term, which option must be exercised by written notice to
Lessor at least one hundred twenty (120) days prior to the expiration of the
original Term. The First Extension shall be upon the same terms, conditions and
rentals as set forth herein for the original Term.

 

(c) Lessee is granted an option to extend the Term for a period of five (5)
years following the end of the First Extension (the “Second Extension”),
provided that Lessee is not in default hereunder either at the time of exercise
of the option or at the end of the First Extension, which option must be
exercised by written notice to Lessor at least one hundred twenty (120) days
prior to the expiration of the First Extension. If such option is exercised,
Lessor and Lessee shall negotiate in good faith modifications to the Rent for
the Second Extension to adjust such Rent to market rates for arms-length hotel
REIT leases between unrelated parties for similar hotel properties at that time.
In the event Lessor and Lessee are unable to agree upon Rent terms for the
Second Extension at least ninety (90) days prior to the expiration of the Term,
the Rent terms for the Second Extension shall be determined by a panel of three
(3) persons who have generally recognized expertise in evaluating hotel REIT
leases and who are not Affiliates of Lessor or Lessee. Lessee and the Lessor
each shall have the right to designate one panel member and the two (2) panel
members so designated will designate the third panel member. Rent terms approved
by at least two (2) of the three (3) panel members will be binding on Lessee and
Lessor for the Second Extension, which shall be otherwise on the terms set forth
herein. In determining the market rates for the Second Extension, the panel
members shall be instructed to consider hotel REIT lease terms with respect to
similar hotel property types. The Second Extension shall be otherwise upon the
same terms and conditions as set forth herein for the original Term.

 

2.2. Lessor’s Option to Terminate Lease. In the event Lessor enters into a bona
fide contract to sell the Leased Property to a non-Affiliate, there is a Change
of Control of Lessor, or the provisions of the Code are amended to permit Lessor
to operate hotels or otherwise render the structure embodied by this Lease to be
obsolete, Lessor may terminate the Lease by giving not less than thirty (30)
days’ prior Notice to Lessee of Lessor’s election to terminate the Lease
effective upon, as appropriate, the closing under such contract, the date of
such Change of Control, or the effective date of such amendment to the Code (or
any other specified date within 30 days after such date) (the “Optional
Termination Date”). Effective upon the Optional Termination Date, this Lease
shall terminate and be of no further force and effect except as to any
obligations of the parties existing as of such date that survive termination of
this Lease. As compensation for the early

 

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termination of its leasehold estate under this Section 2.2, Lessor shall within
12 months of the Optional Termination Date either (a) pay to Lessee the fair
market value of Lessee’s leasehold estate hereunder plus interest thereon at the
Base Rate as of the Optional Termination Date or (b) offer to lease to Lessee
one or more substitute hotel facilities pursuant to one or more leases that
would create for Lessee leasehold estates that have an aggregate fair market
value of no less than the fair market value of the original leasehold estate,
both such values as determined as of the Optional Termination Date. Lessor also
shall pay to Lessee, or reimburse Lessee for any assignment fees, termination
fees or other liabilities arising under the Franchise Agreement or Management
Agreement solely as a result of the assignment or termination of such Franchise
Agreement or Management Agreement in connection with the termination of this
Lease under this Section 2.2. If Lessor elects and complies with the option
described in (b) above, regardless of whether Lessee enters into the lease(s)
described therein, Lessor shall have no further obligations to Lessee with
respect to compensation for the early termination of this Lease. In the event
Lessor and Lessee are unable to agree upon the fair market value of an original
or replacement leasehold estate, it shall be determined by appraisal using the
appraisal procedure set forth in Article 24.

 

For the purposes of this Article, fair market value of the leasehold estate
means, as applicable, an amount equal to the price that a willing buyer not
compelled to buy would pay a willing seller not compelled to sell for Lessee’s
leasehold estate under this Lease or an offered replacement leasehold estate,
taking into account that the leasehold estate is encumbered by the Franchise
Agreement and an arm’s-length Management Agreement.

 

2.3. Transition Procedures. Upon the expiration or termination of the Term of
this Lease, for whatever reason (other than a purchase of the Leased Property by
Lessee), Lessor and Lessee shall do the following (and the provisions of this
Section 2.3 shall survive the expiration or termination of this Lease until they
have been fully performed) and, in general, shall cooperate in good faith to
effect an orderly transition of the management and/or lease of the Hotel:

 

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

 

(b) Leases and Concessions. Lessee shall assign to Lessor or Lessor’s nominee
simultaneously with the termination of this Lease, and the assignee shall
assume, all leases and concession agreements in effect with respect to the Hotel
then in Lessee’s name.

 

(c) Books and Records. All books and records for the Hotel kept by Lessee
pursuant to Section 4.2 shall be delivered promptly to Lessor or Lessor’s
nominee, simultaneously with the termination of this Lease, but such books and
records shall thereafter be available to Lessee at all reasonable times for
inspection, audit, examination, and transcription for a period of one (1) year
and Lessee may retain (on a confidential basis) copies or computer records
thereof.

 

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(d) Receivables and Payables. Lessee shall be entitled to retain all cash, bank
accounts and house banks, and to collect all Gross Revenues and accounts
receivable accrued through the termination date. Lessee shall be responsible for
the payment of Rent, all Gross Operating Expenses and all other obligations of
Lessee accrued under this Lease as of the termination date, and Lessor or
Lessor’s nominee shall be responsible for all Gross Operating Expenses of the
Hotel accruing after the termination date.

 

(e) Final Accounting. Lessee shall, within forty five (45) days after the
expiration or termination of the Term, prepare and deliver to Lessor a final
accounting statement, dated as of the date of the expiration or termination,
along with a statement of any sums due from Lessee to Lessor pursuant hereto and
payment of such funds.

 

(f) Inventory. Lessee shall insure that the Leased Property, at the date of such
termination or expiration, has Inventory of a substantially equivalent nature
and amount as exists at the Leased Property on the Commencement Date, and Lessor
or its designee shall acquire such Inventory from Lessee for a sale price equal
to the fair market value of such Inventory.

 

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

 

The provisions of this Section 2.3 shall survive the expiration or termination
of this Lease until they have been fully performed. Nothing contained herein
shall limit Lessor’s rights and remedies under this Lease if such termination
occurs as the result of an Event of Default.

 

2.4. Holding Over. If Lessee for any reason remains in possession of the Leased
Property after the expiration or earlier termination of the Term, such
possession shall be as a tenant at sufferance during which time Lessee shall pay
as rental each month 150% of the aggregate of (a) one-twelfth of the aggregate
Base Rent and Percentage Rent payable with respect to the last Fiscal Year of
the Term, (b) all Additional Charges accruing during the applicable month and
(c) all other sums, if any, payable by Lessee under this Lease with respect to
the Leased Property. During such period, Lessee shall be obligated to perform
and observe all of the terms, covenants and conditions of this Lease, but shall
have no rights hereunder other than the right, to the extent given by law to
tenancies at sufferance, to continue its occupancy and use of the Leased
Property. Nothing contained herein shall constitute the consent, express or
implied, of Lessor to the holding over of Lessee after the expiration or earlier
termination of this Lease.

 

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ARTICLE 3

RENT; RENT ADJUSTMENTS

 

3.1. Rent. Lessee will pay to Lessor in lawful money of the United States of
America which shall be legal tender for the payment of public and private debts,
in immediately available funds, at Lessor’s address set forth in Article 26
hereof or at such other place or to such other Person as Lessor from time to
time may designate in a Notice, all Base Rent, Percentage Rent and Additional
Charges, during the Term, as follows:

 

(a) Base Rent: The annual sum specified in Schedule 3.1(a) (prorated for fiscal
year 2004), as adjusted pursuant to Subsection 3.1(d) hereof, payable in advance
in equal, consecutive monthly installments, on or before the tenth day of each
calendar month of the Term (“Base Rent”); provided, however, that the first
monthly payment of Base Rent shall be payable during the second calendar month
of the Term, and that the first and last monthly payments of Base Rent shall be
pro rated as to any partial month (subject to adjustment as provided in Sections
14.5, 15.3 and 15.5).

 

(b) Percentage Rent: For each fiscal year during the Term commencing with the
fiscal year in which the Commencement Date falls and ending with the fiscal year
in which the Term (including any applicable extensions) ends, Lessee shall pay
percentage rent (“Percentage Rent”).

 

Percentage Rent for the applicable Fiscal Year shall be an amount equal to the
applicable Annual Revenues Computation (as defined below) less an amount equal
to the Base Rent paid with respect to such Fiscal Year.

 

For the purpose of the foregoing calculation:

 

The annual revenues computation (“Annual Revenues Computation”) is equal to the
amount obtained by adding, for the applicable Fiscal Year, an amount equal to
the sum of (i) seventeen percent (17%) of all Suite Revenues for the applicable
Fiscal Year up to the applicable suite revenue breakpoint (the “Suite Revenue
Breakpoint”) described in Schedule 3.1(b), attached hereto, (prorated for the
first and last Fiscal Year of the Term (including any applicable extensions))
and fifty-five percent (55%) of all Suite Revenues for the applicable Fiscal
Year in excess of the applicable Suite Revenue Breakpoint. At the beginning of
each Fiscal Year, the Suite Revenue Breakpoints shall be adjusted by the same
percentage that the Base Rent is adjusted pursuant to Subsection 3.1(d).

 

The Percentage Rent shall be payable as follows:

 

  (i)

with respect to each calendar month of the Term, Lessee shall pay on or before
the last day of the calendar month an amount equal to the excess, if any, of (A)
seventy-five percent (75%) of the amount of Lessee’s budgeted Percentage Rent
payable with respect to the then current calendar month (which budgeted amount
shall be equal to one-twelfth (1/12) of the annual estimate of Percentage Rent
included in the

 

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Annual Budget for the Fiscal Year in which the calendar month occurs) over (B)
Base Rent for such calendar month; and

 

  (ii) with respect to each Fiscal Year of the Term, Lessee shall pay on or
before the 15th day following the end of the Fiscal Year an amount equal to the
amount by which the aggregate amount of all payments pursuant to Section
3.1(b)(i) in respect of Percentage Rent for such Fiscal Year shall be less than
one hundred percent (100%) of the estimated Percentage Rent included in the
Annual Budget for such Fiscal Year.

 

In no event will the amount of Percentage Rent payable for any Fiscal Year or
the result of any Annual Revenues Computation be less than zero, and there shall
be no reduction in the Base Rent regardless of the result of any Annual Revenues
Computation.

 

(c) Officer’s Certificates. On or before March 1 of each year, commencing with
March 1, 2005, Lessee shall deliver to Lessor an Officer’s Certificate
reasonably acceptable to Lessor setting forth the computation of the actual
Percentage Rent that accrued for the Fiscal Year that ended on the immediately
preceding December 31. If the annual Percentage Rent due and payable for any
Fiscal Year (as shown in the applicable Officer’s Certificate) exceeds the
amount actually paid as Percentage Rent by Lessee for such year, Lessee shall
pay such excess to Lessor at the time such certificate is delivered. If the
Percentage Rent actually due and payable for such Fiscal Year is shown by such
certificate to be less than the amount actually paid as Percentage Rent for the
applicable Fiscal Year, Lessor, at its option, shall reimburse such amount to
Lessee or credit such amount against subsequent months’ Base Rent, and with
respect to Percentage Rent, to the extent necessary, subsequent months’
Percentage Rent payments. Any such credit to Base Rent shall not be applied for
purposes of calculating Percentage Rent payable for any subsequent month.

 

Any difference between the annual Percentage Rent due and payable for any Fiscal
Year (as shown in the applicable Officer’s Certificate or as adjusted pursuant
to Section 3.3) and the total amount of monthly payments for such Fiscal Year
actually paid by Lessee as Percentage Rent, whether in favor of Lessor or
Lessee, shall bear interest at the Overdue Rate, which interest shall accrue
from the due date of the last monthly payment for the Fiscal Year until the
amount of such difference shall be paid or otherwise discharged. Any such
interest payable to Lessor shall be deemed to be and shall be payable as
Additional Charges.

 

The obligation to pay Percentage Rent shall survive the expiration or earlier
termination of the Term, and a final reconciliation, taking into account, among
other relevant adjustments, any adjustments which are accrued after such
expiration or termination date but which related to Percentage Rent accrued
prior to such termination date, and Lessee’s good faith best estimate of the
amount of any unresolved contractual allowances, shall be made not later than
two (2) years after such expiration or termination date, but Lessee shall advise
Lessor within sixty (60) days after such expiration or termination date of
Lessee’s best estimate at that time of the approximate amount of such
adjustments, which estimate shall not be binding on Lessee or have any legal
effect whatsoever.

 

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(d) CPI Adjustments to Base Rent and Percentage Rent. For each year of the Term
beginning on or after January 1, 2005, the Base Rent shall be adjusted from time
to time as follows:

 

(1) If the most recently published Consumer Price Index as of the last day of
the last month (the “Comparison Month”) of any Fiscal Year is different than the
average Consumer Price Index for the twelve (12) month period prior thereto, the
Base Rent for the next Fiscal Year shall be adjusted by the percentage change in
the Consumer Price Index calculated as follows:

 

(A) The difference between the Consumer Price Index for the most recent
Comparison Month and the average Consumer Price Index for the twelve (12) month
period prior thereto shall be divided by the average Consumer Price Index for
the twenty four (24) month period prior thereto.

 

(B) The Base Rent shall be multiplied by the lesser of (i) seven percent (7%) or
(ii) the quotient obtained in subparagraph (d)(1)(A) above.

 

(C) The product obtained in subparagraph (d)(1)(B) above shall be added to the
Base Rent.

 

Adjustments in the Base Rent shall be effective on the first day of the first
calendar month of the Fiscal Year to which such adjusted Base Rent applies. The
Suite Revenue Breakpoint then included in the Annual Revenues Computation
pursuant to Subsection 3.1(b) shall be similarly adjusted, effective with any
such adjustment in the Base Rent.

 

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

 

(e) Manager Fund-up Cure Payments. If and to the extent that Manager pays
amounts to Lessee pursuant to the Management Agreement in order to avoid
termination of the Management Agreement by Lessee for Manager’s failure to meet
certain performance hurdles described therein, such amounts shall be treated as
additional Suite Revenues for purposes of the Percentage Rent calculation
hereunder.

 

(f) Allocation of Rent. The parties hereto acknowledge and agree that the Base
Rent paid or payable by Lessee to Lessor hereunder shall, to the extent
relevant, be allocated between the personal property and real property
constituting Leased Property hereunder in direct

 

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proportion to the then recognizable fair market value of such personal property
and real property. Percentage Rent in excess of Base Rent shall be allocated
solely to real property.

 

3.2. Confirmation of Percentage Rent. Lessee shall utilize, or cause to be
utilized, an accounting system for the Leased Property in accordance with its
usual and customary practices, and in accordance with generally accepted
accounting principles, that will accurately record all data necessary to compute
Percentage Rent, and Lessee shall retain, for at least four (4) years after the
expiration of each Fiscal Year (and in any event until the reconciliation
described in Subsection 3.1(c) for such Fiscal Year has been made), reasonably
adequate records conforming to such accounting system showing all data necessary
to compute Percentage Rent for the applicable Fiscal Years. Lessor, at its
expense (except as provided hereinbelow), shall have the right from time to
time, upon prior written notice to Lessee and Manager, by its accountants or
representatives to audit the information that formed the basis for the data set
forth in any Officer’s Certificate provided under Subsection 3.1(d) and, in
connection with such audits, to examine all Lessee’s records (including
supporting data and sales and excise tax returns) reasonably required to verify
Percentage Rent, subject to any prohibitions or limitations on disclosure of any
such data under Legal Requirements; provided, however that Lessor may only
inspect or audit records in Manager’s possession subject to the terms of
Lessee’s access thereto under the Management Agreement. If any such audit
discloses a deficiency in the payment of Percentage Rent, and either Lessee
agrees with the result of such audit or the matter is otherwise determined or
compromised, Lessee shall forthwith pay to Lessor the amount of the deficiency,
as finally agreed or determined, together with interest at the Overdue Rate from
the date when said payment should have been made to the date of payment thereof;
provided, however, that as to any audit that is commenced more than two (2)
years after the date Percentage Rent for any Fiscal Year is reported by Lessee
to Lessor, the deficiency, if any, with respect to such Percentage Rent shall
bear interest at the Overdue Rate only from the date such determination of
deficiency is made unless such deficiency is the result of gross negligence or
willful misconduct on the part of Lessee, in which case interest at the Overdue
Rate will accrue from the date such payment should have been made to the date of
payment thereof. If any such audit discloses that the Percentage Rent actually
due from Lessee for any Fiscal Year exceed those reported by Lessee by more than
three percent (3%), Lessee shall pay the cost of such audit and examination. Any
proprietary information obtained by Lessor pursuant to the provisions of this
Section shall be treated as confidential, except that such information may be
used, subject to appropriate confidentiality safeguards, in any litigation
between the parties and except further that Lessor may disclose such information
to prospective lenders. The obligations of Lessee contained in this Section
shall survive the expiration or earlier termination of this Lease.

 

3.3. Additional Charges. In addition to the Base Rent and Percentage Rent, (a)
Lessee also will pay and discharge as and when due and payable all other
amounts, liabilities, obligations and Impositions that Lessee assumes or agrees
to pay under this Lease, and (b) in the event of any failure on the part of
Lessee to pay any of those items referred to in clause (a) of this Section 3.3,
Lessee also will promptly pay and discharge every fine, penalty, interest and
cost that may be added for non-payment or late payment of such items (the items
referred to in clauses (a) and (b) of this Section 3.3 being additional rent
hereunder and being referred to herein collectively as the “Additional
Charges”), and Lessor shall have all legal, equitable and contractual rights,
powers and remedies provided either in this Lease or by statute or otherwise in
the case of non-payment of the Additional Charges as in the case of non-payment
of the Base Rent. If any installment of Base Rent

 

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and Percentage Rent or Additional Charges (but only as to those Additional
Charges that are payable directly to Lessor) shall not be paid on its due date,
Lessee will pay Lessor on demand, as Additional Charges, a late charge (to the
extent permitted by law) computed at the Overdue Rate on the amount of such
installment, from the due date of such installment to the date of payment
thereof. To the extent that Lessee pays any Additional Charges to Lessor
pursuant to any requirement of this Lease, Lessee shall be relieved of its
obligation to pay such Additional Charges to the entity to which they would
otherwise be due and Lessor shall pay same from monies received from Lessee.

 

3.4. Net Lease; No Termination, Abatement, Etc.

 

(a) The Rent shall be paid absolutely net to Lessor, so that this Lease shall
yield to Lessor the full amount of the installments of Base Rent, Percentage
Rent and Additional Charges throughout the Term, all as more fully set forth in
Article 5, but subject to any other provisions of this Lease that expressly
provide for adjustment or abatement of Rent or other charges or expressly
provide that certain expenses or maintenance shall be paid or performed by
Lessor.

 

(b) Except as otherwise specifically provided in this Lease, and except for loss
of the Franchise Agreement solely by reason of any action or inaction by Lessor,
Lessee, to the extent permitted by law, shall remain bound by this Lease in
accordance with its terms and shall neither take any action without the written
consent of Lessor (which shall not be unreasonably withheld or delayed) to
modify, surrender or terminate the same, nor seek nor be entitled to any
abatement, deduction, deferment or reduction of the Rent, or setoff against the
Rent, nor shall the obligations of Lessee be otherwise affected by reason of (a)
any damage to, or destruction of, any Leased Property or any portion thereof
from whatever cause or any Taking of the Leased Property or any portion thereof,
(b) the lawful or unlawful prohibition of, or restriction upon, Lessee’s use of
the Leased Property, or any portion thereof, or the interference with such use
by any Person other than Lessor, (c) any claim which Lessee has or might have
against Lessor by reason of any default or breach of any warranty by Lessor
under this Lease or any other agreement between Lessor and Lessee, or to which
Lessor and Lessee are parties, (d) any bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution, winding up or other
proceedings affecting Lessor or any assignee or transferee of Lessor, or (e) for
any other cause whether similar or dissimilar to any of the foregoing other than
a discharge of Lessee from any such obligations as a matter of law. Lessee
hereby specifically waives all rights, arising from any occurrence whatsoever,
which may now or hereafter be conferred upon it by law to (1) modify, surrender
or terminate this Lease or quit or surrender the Leased Property or any portion
thereof, or (2) entitle Lessee to any abatement, reduction, suspension or
deferment of the Rent or other sums payable by Lessee hereunder, except as
otherwise specifically provided in this Lease. The obligations of Lessee
hereunder shall be separate and independent covenants and agreements and the
Rent and all other sums payable by Lessee hereunder shall continue to be payable
in all events unless the obligations to pay the same shall be terminated
pursuant to the express provisions of this Lease or by termination of this Lease
other than by reason of an Event of Default.

 

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3.5. Material Changes in Economic Climate.

 

(a) In the event of the occurrence of a Force Majeure or a Hotel Market Decline,
Lessor and Lessee shall, in good faith, negotiate possible modifications to the
Base Rent and Percentage Rent to reduce such Base Rent and Percentage Rent to
recent market rates for hotel REIT leases for similar hotel properties in the
Hotel’s Competitive Set, retroactively effective as of the first calendar month
of the Term following the last day of the six-month period during which such
Hotel Market Decline has occurred with the excess of Base Rent and Percentage
Rent actually paid for such period over the reduced Base Rent and Percentage
Rent, plus interest thereon at the Base Rate, to be credited to the next
payments of Rent due and owing hereunder. If Lessor and Lessee are unable to
agree that a Force Majeure or a Hotel Market Decline has occurred, within thirty
(30) days after the date of written certification from Lessee to Lessor that a
Force Majeure and Hotel Market Decline has occurred (accompanied by reasonably
detailed computations and documentation to support such assertion), the matter
may be submitted by either party to arbitration under Section 25.2 hereof for
resolution (during which period Lessee shall continue to pay Base Rent and
Percentage Rent as required under Section 3.1 of this Lease). If, within ninety
(90) days (during which period Lessee shall continue to pay Base Rent and
Percentage Rent as required under Section 3.1 of this Lease) following the date
of such written certification from Lessee (or the date of a decision of an
arbitrator if required hereunder to determine that a Force Majeure and Hotel
Market Decline has occurred), Lessor and Lessee are unable to agree upon the
amount of reduction in Base Rent and Percentage Rent contemplated hereby, Lessee
shall have the option to terminate this Lease upon not less than thirty (30)
days prior written notice to Lessor.

 

(b) In the event of the occurrence of a National Economic Decline or a Regional
Market Decline, Lessor and Lessee shall, in good faith, negotiate (i) possible
modifications to the Base Rent and Percentage Rent to reduce such Base Rent and
Percentage Rent to recent market rates for hotel REIT leases for similar hotel
properties in the Hotel’s Competitive Set, and (ii) possible modifications to
the Base and Percentage Rent payable under each of the Other Leases for Other
Hotels in the same Region (as defined in the STR Reports) as the Hotel to reduce
such Base Rent and Percentage Rent to recent market rates for hotel REIT leases
for similar hotel properties in the Hotel’s Competitive Set, in each case
retroactively effective as of the first calendar month of the Term following the
last day of the six month period during which such Regional Market Decline has
occurred with the excess of Base Rent and Percentage Rent actually paid for such
period over the reduced Base Rent and Percentage Rent, plus interest thereon at
the Base Rent, to be credited to the next payments of Rent due and owing
hereunder. If, within thirty (30) days after the date of written certification
from Lessee to Lessor that a National Economic Decline and Regional Market
Decline has occurred (accompanied by reasonably detailed computations and
documentation to support such assertion), Lessor and Lessee are unable to agree
that a National Economic Decline or Regional Market Decline has occurred, the
matter may be submitted by either party to arbitration under Section 25.2 hereof
for resolution (during which period Lessee shall continue to pay Base Rent and
Percentage Rent as required under Section 3.1 of this Lease). If, within ninety
(90) days (during which period Lessee shall continue to pay Base Rent and
Percentage Rent as required under Section 3.1 of this Lease) following the date
of such initial written certification from Lessee (or the date of a decision of
an arbitrator if required hereunder to determine that a National Economic
Decline and Regional Market Decline has occurred), Lessor and Lessee are unable
to agree upon the amount of reduction in Base Rent and Percentage Rent
contemplated hereby, Lessee shall have the option, upon not less than sixty (60)
days prior written

 

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notice to Lessor, to terminate all (but not less than all) of the Existing
Leases of hotels in the same Region as the Hotel, including this Lease.

 

3.6. Rent Adjustment: Basic Assumptions Incorrect. Except to the extent that
doing so would cause Lessor to recognize income other than “rents from real
property” as defined in Section 856(d) of the Code, notwithstanding anything
herein (other than Article 19) to the contrary, if (i) the facts and
circumstances underlying the documented, basic assumptions upon which both
Lessor and Lessee have relied in determining the Base Rent, the Suite Revenue
Breakpoint, and the Percentage Rent payable hereunder become materially
incorrect solely as a result of (A) a decision to re-brand the Hotel that is
made after the Commencement Date, (B) the scope or cost of substantial
renovations or other capital improvements to the Hotel, or (C) the
implementation of any other hotel repositioning strategies (that were not
planned as of the Commencement Date) resulting in significant disruption of the
operations of the Hotel (collectively, a “Repositioning”), and (ii) Lessor and
Lessee so agree in writing, then Lessor and Lessee shall, in good faith,
negotiate modifications to the Base Rent, Suite Revenue Breakpoint and
Percentage Rent to adjust (i.e., increase, decrease or reallocate among revenue
categories) such Base Rent, Suite Revenue Breakpoint and Percentage Rent to
reflect such change in basic assumptions for the affected periods, using the
same methodology and other basic assumptions as were initially utilized in
determining the Base Rent, Suite Revenue Breakpoint and Percentage Rent
hereunder. If Lessor and Lessee are unable to agree, within thirty (30) days
after the date of written certification from either Lessee or Lessor to the
other party that a good faith dispute exists, as to the existence of the
occurrence of a Repositioning or the adjustments to be made to the amounts or
percentages for the Base Rent, Suite Revenue Breakpoint and Percentage Rent
hereunder as a result of any repositioning, the dispute may be submitted by
either party to arbitration under Section 25.2 hereof for resolution (during
which period Lessee shall continue to pay Base Rent and Percentage Rent as
required under Section 3.1 of this Lease); provided, however, that for purposes
of applying the procedures in Section 25.3 to such arbitration, the target
deadline therein for concluding the arbitration shall be shortened from ninety
(90) days to thirty (30) days.

 

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ARTICLE 4

ANNUAL BUDGETS; BOOKS AND RECORDS

 

4.1. Annual Budget. Not later than thirty (30) days prior to the commencement of
each Fiscal Year, Lessee shall submit the Annual Budget to Lessor. The Annual
Budget shall contain the following, to the extent included in the operating
budgets and capital budgets provided to Lessee by Manager under the management
agreement for the Hotel:

 

(a) Lessee’s reasonable estimate of Gross Revenues (including room rates and
Suite Revenues), Gross Operating Expenses, and Gross Operating Profits for the
forthcoming Fiscal Year itemized on schedules on a quarterly basis as approved
by Lessor and Lessee, as same may be revised or replaced from time to time by
Lessee and approved by Lessor, together with the assumptions, in narrative form,
forming the basis of such schedules.

 

(b) An estimate of the amounts to be dedicated to the repair, replacement, or
refurbishment of Furniture and Equipment.

 

(c) An estimate of any amounts Lessor will be required to provide for required
or desirable capital improvements to the Hotel or any of its components.

 

(d) A cash flow projection.

 

(e) A business plan, which shall describe business objectives and strategies for
the forthcoming Fiscal Year, and shall include without limitation an analysis of
the market area in which the Hotel competes, a comparison of the Hotel and its
business with competitive hotels, an analysis of categories of potential guests,
and a description of sales and marketing activities designed to achieve and
implement identified objectives and strategies.

 

4.2. Books and Records. Lessee 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 generally accepted accounting principles and the
obligations of Lessee under this Lease. The books of account and all other
records relating to or reflecting the operation of the Hotel shall be kept
either at the Hotel or at Lessee’s offices in Richmond, Virginia or at Manager’s
central offices, and shall be available to Lessor and its representatives and
its auditors or accountants, at all reasonable times, upon prior written notice
to Lessee and Manager, for examination, audit, inspection, and transcription;
provided, however that Lessor may only inspect or audit records in Manager’s
possession subject to the terms of Lessee’s access thereto under the Management
Agreement. All of 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 Lessor and shall not be removed from the
Hotel or Lessee’s offices or Manager’s central offices (but may be moved among
any of the foregoing) by Lessee without Lessor approval.

 

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ARTICLE 5

IMPOSITIONS; HOTEL COSTS

 

5.1. Payment of Impositions. Subject to Section 12.2 (relating to permitted
contests), Lessee will pay, or cause to be paid, all Impositions (other than
Real Estate Taxes and Personal Property Taxes, which shall be paid by Lessor)
before any fine, penalty, interest or cost may be added for non-payment, such
payments to be made directly to the taxing or other authorities where feasible,
and will promptly furnish to Lessor copies of official receipts or other
satisfactory proof evidencing such payments. Lessee’s obligation to pay such
Impositions shall be deemed absolutely fixed upon the date such Impositions
become a lien upon the Leased Property or any part thereof. If any such
Imposition may, at the option of the taxpayer, lawfully be paid in installments
(whether or not interest shall accrue on the unpaid balance of such Imposition),
Lessee may exercise the option to pay the same (and any accrued interest on the
unpaid balance of such Imposition) in installments and in such event, shall pay
such installments during the Term hereof (subject to Lessee’s right of contest
pursuant to the provisions of Section 12.2) as the same respectively become due
and before any fine, penalty, premium, further interest or cost may be added
thereto. Lessor, at its expense, shall, to the extent required or permitted by
applicable law, prepare and file all tax returns in respect of Lessor’s net
income, gross receipts, sales and use, single business, transaction privilege,
rent, ad valorem, franchise taxes, Real Estate Taxes, Personal Property Taxes
and taxes on its capital stock, and Lessee, at its expense, shall, to the extent
required or permitted by applicable laws and regulations, prepare and file all
other tax returns and reports in respect of any Imposition as may be required by
governmental authorities. If any refund shall be due from any taxing authority
in respect of any Imposition paid by Lessee, the same shall be paid over to or
retained by Lessee if no Event of Default shall have occurred hereunder and be
continuing. If an Event of Default shall have occurred and be continuing, any
such refund shall be paid over to or retained by Lessor. Any such funds retained
by Lessor due to an Event of Default shall be applied as provided in Article 16.
Lessor and Lessee shall, upon request of the other, provide such data as is
maintained by the party to whom the request is made with respect to the Leased
Property as may be necessary to prepare any required returns and reports. Lessee
shall file all Personal Property Tax returns in such jurisdictions where it is
legally required so to file. Lessor, to the extent it possesses the same, and
Lessee, to the extent it possesses the same, will provide the other party, upon
request, with cost and depreciation records necessary for filing returns for any
property classified as personal property. Where Lessor is legally required to
file Personal Property Tax returns, Lessee shall provide Lessor with copies of
assessment notices in sufficient time for Lessor to file a protest. Lessor may,
upon Notice to Lessee, at Lessor’s option and at Lessor’s sole expense, protest,
appeal, or institute such other proceedings (in its or Lessee’s name) as Lessor
may deem appropriate to effect a reduction of real estate or personal property
assessments for those Impositions to be paid by Lessor, and Lessee, at Lessor’s
expense as aforesaid, shall fully cooperate with Lessor in such protest, appeal,
or other action. Lessor hereby agrees to indemnify, defend, and hold harmless
Lessee from and against any claims, obligations, liabilities and loss against or
incurred by Lessee in connection with such cooperation. Billings for
reimbursement of Personal Property Taxes by Lessee to Lessor shall be
accompanied by copies of a bill therefor and payments thereof which identify the
personal property with respect to which such payments are made. Lessor, however,
reserves the right to effect any such protest, appeal or other action and, upon

 

25

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Notice to Lessee, shall control any such activity, which shall then go forward
at Lessor’s sole expense. Upon such Notice, Lessee, at Lessor’s expense, shall
cooperate fully with such activities.

 

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

 

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

 

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

 

5.5. Insurance Premiums. Lessee will pay or cause to be paid all premiums for
the insurance coverage’s required to be maintained by it under Article 13.

 

5.6. Franchise Fees. Lessee will maintain in full force and effect, and pay or
cause to be paid all fees and other charges payable pursuant to, any Franchise
Agreement with respect to the Hotel.

 

5.7. Ground Rent. In the event that Lessor’s interest in the Land is pursuant to
a Ground Lease or sublease, Lessor shall be solely responsible for the payment
of any ground rent, building rent or subrent, as the case may be, due with
respect to the Leased Property.

 

ARTICLE 6

LEASED PROPERTY; LESSEE’S PERSONAL PROPERTY

 

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

 

6.2. Lessee’s Personal Property. Lessee will acquire and maintain throughout the
Term such Inventory as is required to operate the Leased Property in the manner
contemplated by this Lease. Lessee may (and shall as provided hereinbelow), at
its expense, install, affix or assemble or place on any parcels of the Land or
in any of the Leased Improvements, any items of personal property (including
Inventory) owned by Lessee. Lessee, at the commencement of the Term, and from
time to time thereafter, shall provide Lessor with an accurate list of all such
items of Lessee’s personal property (collectively, the “Lessee’s Personal
Property”). Lessee may, subject to the first sentence of this Section 6.2 and
the conditions set forth below, remove any of Lessee’s Personal

 

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Property set forth on such list at any time during the Term or upon the
expiration or any prior termination of the Term. All of Lessee’s Personal
Property, other than Inventory, not removed by Lessee within ten (10) days
following the expiration or earlier termination of the Term shall be considered
abandoned by Lessee and may be appropriated, sold, destroyed or otherwise
disposed of by Lessor without first giving Notice thereof to Lessee, without any
payment to Lessee and without any obligation to account therefor. Lessee will,
at its expense, restore the Leased Property to the condition required by
Subsection 2.3(g), including repair of all damage to the Leased Property caused
by the removal of Lessee’s Personal Property, whether effected by Lessee or
Lessor. Upon the expiration or earlier termination of the Term, Lessor or its
designee shall have the option to purchase all Inventory on hand at the Leased
Property at the time of such expiration or termination for a sale price equal to
the fair market value of such Inventory. Lessee may make such financing
arrangements, title retention agreements, leases or other agreements with
respect to Lessee’s Personal Property as it sees fit provided that Lessee first
advises Lessor of any such arrangement and such arrangement expressly provides
that in the event of Lessee’s default thereunder, Lessor (or its designee) may
assume Lessee’s obligations and rights under such arrangement.

 

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

 

6.4. Lessor’s Option to Purchase Assets of Lessee. Effective on not less than
ninety (90) days’ prior Notice given at any time within one hundred eighty (180)
days before the expiration of the Term, but not later than ninety (90) days
prior to such expiration, or upon such shorter Notice period as shall be
appropriate if this Lease is terminated prior to its expiration date, Lessor
shall have the option to purchase all (but not less than all) of the assets of
Lessee, tangible and intangible, relating to the Leased Property (other than
this Lease), at the expiration or termination of this Lease for an amount
(payable in cash on the expiration date of this Lease) equal to the fair market
value thereof as appraised in conformity with Article 24, except that the
appraisers need not be members of the American Institute of Real Estate
Appraisers, but rather shall be appraisers having at least ten (10) years’
experience in valuing similar assets. Notwithstanding any such purchase, Lessor
shall obtain no rights to any trade name or logo used in connection with the
Franchise Agreement unless separate agreement as to such use is reached with the
applicable franchisor.

 

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ARTICLE 7

CONDITION AND USE OF LEASED PROPERTY

 

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

 

7.2. Use of the Leased Property.

 

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

 

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

 

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(c) Subject to the provisions of Articles 14, 15, 18 and 21, Lessee covenants
and agrees that during the Term it will (1) operate continuously the Leased
Property as a hotel facility, (2) keep in full force and effect and comply with
all the provisions of the Franchise Agreement and the Management Agreement, (3)
not terminate or amend the Franchise Agreement or the Management Agreement
without the consent of Lessor (which shall not be unreasonably withheld or
delayed), (4) maintain appropriate certifications and Licenses for such use and
(5) seek to maximize the Gross Revenues generated therefrom consistent with
sound business practices.

 

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

 

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

 

7.3. Lessor to Grant Easements, Etc. Lessor will, from time to time, so long as
no Event of Default has occurred and is continuing, at the request of Lessee and
at Lessee’s cost and expense (but subject to the approval of Lessor, which
approval shall not be unreasonably withheld or delayed), (a) grant easements and
other rights in the nature of easements with respect to the Leased Property to
third parties, (b) release existing easements or other rights in the nature of
easements which are for the benefit of the Leased Property, (c) dedicate or
transfer unimproved portions of the Leased Property for road, highway or other
public purposes, (d) execute petitions to have the Leased Property annexed to
any municipal corporation or utility district, (e) execute amendments to any
covenants and restrictions affecting the Leased Property and (f) execute and
deliver to any Person any instrument appropriate to confirm or effect such
grants, releases, dedications, transfers, petitions and amendments (to the
extent of its interests in the Leased Property), but only upon delivery to
Lessor of an Officer’s Certificate stating that such grant, release, dedication,
transfer, petition or amendment does not interfere with the proper conduct of
the business of Lessee on the Leased Property and does not materially reduce the
value of the Leased Property.

 

ARTICLE 8

LESSEE’S COMPLIANCE WITH LAW; ENVIRONMENTAL COVENANTS

 

8.1. Compliance with Legal and Insurance Requirements, Etc. Subject to
Subsection 8.3(b) below and Section 12.2 (relating to permitted contests),
Lessee, at its expense, will promptly (a) comply with all applicable Legal
Requirements and Insurance Requirements in respect of the use, operation,
maintenance, repair and restoration of the Leased Property (excluding any repair
or restoration of any portion of the Leased Property required to be made by
Lessor pursuant to Subsection 9.1(b) below, which repair shall be made by
Lessor), and (b) procure, maintain and comply with all appropriate Licenses and
other authorizations required for any use of the Leased Property and Lessee’s
Personal Property then being made, and for the proper erection, installation,
operation and maintenance of the Leased Property or any part thereof.

 

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8.2. Legal Requirement Covenants.

 

(a) Subject to Subsection 8.3(b) and Subsection 9.1(b) below, Lessee covenants
and agrees that the Leased Property and Lessee’s Personal Property shall not be
used for any unlawful purpose, and that Lessee shall not permit or suffer to
exist any unlawful use of the Leased Property by others. Lessee shall acquire
and maintain all appropriate licenses, certifications, permits and other
authorizations and approvals needed to operate the Leased Property in its
customary manner for the Primary Intended Use, and any other lawful use
conducted on the Leased Property as may be permitted from time to time
hereunder. Lessee further covenants and agrees that Lessee’s use of the Leased
Property and maintenance, alteration, and operation of the same, and all parts
thereof, shall at all times conform to all Legal Requirements, unless the same
are finally determined by a court of competent jurisdiction to be unlawful (and
Lessee shall cause all sub-tenants, invitees or others within its control so to
comply with all Legal Requirements). Lessee may, however, upon prior Notice to
Lessor, contest the legality or applicability of any such Legal Requirement or
any licensure or certification decision if Lessee maintains such action in good
faith, with due diligence, without prejudice to Lessor’s rights hereunder, and
at Lessee’s sole expense. If by the terms of any such Legal Requirement
compliance therewith pending the prosecution of any such proceeding may legally
be delayed without the occurrence of any charge or liability of any kind, or the
filing of any lien, against the Hotel or Lessee’s leasehold interest therein and
without subjecting Lessee or Lessor to any liability, civil or criminal, for
failure so to comply therewith, Lessee may delay compliance therewith until the
final determination of such proceeding. If any lien, charge or civil or criminal
liability would be incurred by reason of any such delay, Lessee, on the prior
written consent of Lessor, which consent shall not be unreasonably withheld or
delayed, may nonetheless contest as aforesaid and delay as aforesaid provided
that such delay would not subject Lessor to criminal liability and Lessee both
(a) furnishes to Lessor security reasonably satisfactory to Lessor against any
loss or injury by reason of such contest or delay and (b) prosecutes the contest
with due diligence and in good faith.

 

(b) As between Lessor and Lessee, Lessee is solely responsible for all
liabilities or obligations of any kind with respect to employees at the Leased
Property during the Term. Without limiting the generality of the foregoing
sentence, Lessee is solely responsible for any required compliance with the
Worker Adjustment, Retraining and Notification Act of 1988 (the “WARN Act”) or
any similar state law applicable to the Leased Property; any required compliance
with the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
(“COBRA”); and all alleged and actual obligations and claims arising from or
relating to any employment agreement, collective bargaining agreement or
employee benefit plans, any grievances, arbitration’s, or unfair labor practice
charges, and relating to compliance with any applicable state or federal labor
employment law, including but not limited to all laws pertaining to
discrimination, workers’ compensation, unemployment compensation, occupational
safety and health, unfair labor practices, family and medical leave, and wages,
hours or employee benefits. Lessee agrees to indemnify and defend and hold
harmless Lessor from and against any claims relating to any of the foregoing
matters. Lessee further agrees to reimburse Lessor for any and all losses,
damages, costs, expenses, liabilities and obligations of any kind, including
without limitation reasonable attorney’s fees and other legal costs and
expenses, incurred by Lessor in connection with any of the foregoing matters.

 

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(c) Notwithstanding the Lessee’s obligations under Section 8.1 to obtain and
maintain all permits and licenses required for the use of the Leased Property,
and without limiting any obligations of Lessee hereunder, if (i) applicable law
requires that the owner (rather than a lessee) of a hotel be the licensee under
the required liquor license for the Hotel or (ii) the former owner of the Hotel
is holding the liquor license and continuing to exercise management and
supervision of the liquor services at the Hotel pending transfer of the license
to Lessor or Lessee, the Lessee shall indemnify and hold Lessor harmless from
any liability, damages or claims (a) arising in connection with liquor
operations at the Hotel during such period of time following the Commencement
Date, except to the extent caused by Lessor’s gross negligence or willful
misconduct or (b) made by or through the former owner with respect to liquor
operations at the Hotel following the Commencement Date.

 

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

 

(a) At all times hereafter until the later of (i) such time as all liabilities,
duties or obligations of Lessee to Lessor under the Lease have been satisfied in
full and (ii) such time as Lessee completely vacates the Leased Property and
surrenders possession of the same to Lessor, Lessee shall fully comply with all
Environmental Laws applicable to the Leased Property and the operations thereon.
Lessee agrees to give Lessor prompt Notice of (1) all Environmental Liabilities;
(2) all pending, threatened or anticipated Proceedings, and all notices,
demands, requests or investigations, relating to any Environmental Liability or
relating to the issuance, revocation or change in any Environmental
Authorization required for operation of the Leased Property; (3) all Releases
at, on, in, under or in any way affecting the Leased Property, or any Release
known by Lessee at, on, in or under any property adjacent to the Leased
Property; and (4) all facts, events or conditions that could reasonably lead to
the occurrence of any of the above-referenced matters.

 

(b) Lessor hereby agrees to defend, indemnify and save harmless any and all
Lessee Indemnified Parties from and against any and all Environmental
Liabilities other than (i) Environmental Liabilities resulting from conditions
disclosed in any environmental audit obtained by Lessor and provided to Lessee
prior to the execution of this Lease (the “Environmental Audit”), and (ii)
Environmental Liabilities which were caused by the acts or negligent failures to
act of Lessee.

 

(c) Lessee hereby agrees to defend, indemnify and save harmless any and all
Lessor Indemnified Parties from and against any and all Environmental
Liabilities which were (i) resulting from conditions disclosed in the
Environmental Audit, and (ii) caused by the acts or negligent failures to act of
Lessee.

 

(d) If any Proceeding is brought against any Indemnified Party in respect of an
Environmental Liability with respect to which such Indemnified Party may claim
indemnification under either Subsection 8.3(b) or (c), the Indemnifying Party,
upon request, shall at its sole expense resist and defend such Proceeding, or
cause the same to be resisted and defended by counsel designated by the
Indemnified Party and approved by the Indemnifying Party, which approval shall

 

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

 

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

 

(f) The indemnification rights and obligations provided for in this Article 8
shall be in addition to any indemnification rights and obligations provided for
elsewhere in this Lease.

 

(g) The indemnification rights and obligations provided for in this Article 8
shall survive the termination of this Lease.

 

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

 

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

 

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

 

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

 

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

 

ARTICLE 9

MAINTENANCE AND REPAIRS; ENCROACHMENTS AND RESTRICTIONS

 

9.1. Maintenance and Repairs.

 

(a) Lessee, at its sole expense, will keep the Leased Property, and all private
roadways, sidewalks and curbs appurtenant thereto that are under Lessee’s
control, including windows and plate glass, mechanical, electrical and plumbing
systems and equipment (including conduit and ductware), and non-load bearing
interior walls, and parking lot surfaces, in good order and repair, except (i)
for ordinary wear and tear (whether or not the need for such repairs occurred as
a result of Lessee’s use, any prior use, the elements or the age of the Leased
Property, or any portion thereof) and (ii) to the extent of damage caused by
Lessor’s gross negligence or willful misconduct or that of its employees or
agents, and, except as otherwise provided in Subsection 9.1(b), Article 14 or
Article 15, with reasonable promptness, make all necessary and appropriate
repairs replacements, and improvements thereto of every kind and nature, whether
interior or exterior ordinary or extraordinary, foreseen or unforeseen or
arising by reason of a condition existing prior to the commencement of the Term
of this Lease (concealed or otherwise), or required by any governmental agency
having jurisdiction over the Leased Property, except as to the structural
elements of the Leased Improvements. Lessee, however, shall be permitted to
prosecute claims against Lessor’s predecessors in title for breach of any
representation or warranty or for any latent defects in the Leased Property to
be maintained by Lessee unless Lessor is already diligently pursuing such a
claim. All repairs shall, to the extent reasonably achievable, be at least
equivalent in quality to the original work. Lessee will not take or omit to take
any action, the taking or omission of which might materially impair the value or
the usefulness of the Leased Property or any part thereof for its Primary
Intended Use.

 

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(b) Notwithstanding Lessee’s obligations under Subsection 9.1(a) above, except
to the extent of damage caused by Lessee’s negligence or willful misconduct or
that of its employees or agents, Lessor shall be required to bear the cost of
maintaining any underground utilities and the structural elements of the Leased
Improvements, including exterior walls and the roof of the Hotel (but excluding
windows and plate glass, mechanical, electrical and plumbing systems and
equipment, including conduit and ductware, and non-load bearing walls, and
parking lot surfaces). Except as set forth in the preceding sentence and in
Section 10.5, Lessor shall not under any circumstances be required to build or
rebuild any improvement on the Leased Property, or to make any repairs,
replacements, alterations, restorations or renewals of any nature or description
to the Leased Property, whether ordinary or extraordinary, foreseen or
unforeseen, or to make any expenditure whatsoever with respect thereto, in
connection with this Lease, or to maintain the Leased Property in any way.
Lessee hereby waives, to the extent permitted by law, the right to make repairs
at the expense of Lessor, pursuant to any law in effect at the time of the
execution of this Lease or hereafter enacted, except following default by Lessor
under this Lease, to the extent of repairs (for which Lessor is obligated
hereunder) required to be made in order for the Hotel, and Lessee’s use thereof,
to comply with Lessee’s obligations under the Franchise Agreement and the
Management Agreement. Lessor shall have the right to give, record and post, as
appropriate, notices of nonresponsibility under any mechanic’s lien laws now or
hereafter existing.

 

(c) Nothing contained in this Lease and no action or inaction by Lessor shall be
construed as (1) constituting the request of Lessor, expressed or implied, to
any contractor, subcontractor, laborer, materialman or vendor to or for the
performance of any labor or services or the furnishing of any materials or other
property for the construction, alteration, addition, repair or demolition of or
to the Leased Property or any part thereof, or (2) giving Lessee any right,
power or permission to contract for or permit the performance of any labor or
services or the furnishing of any materials or other property in such fashion as
would permit the making of any claim against Lessor in respect thereof or to
make any agreement that may create, or in any way be the basis for any right,
title, interest, lien, claim or other encumbrance upon the estate of Lessor in
the Leased Property, or any portion thereof.

 

9.2. Encroachments, Restrictions, Etc. Lessor represents and warrants that the
Leased Improvements do not materially encroach upon any property, street or
right-of-way adjacent to the Leased Property, or violate the agreements or
conditions contained in any lawful restrictive covenant or other agreement
affecting the Leased Property, or any part thereof, or impair the rights of
others under any easement or right-of-way to which the Leased Property is
subject. Except to the extent that such representation and warranty is breached
by Lessor, if any of the Leased Improvements, at any time hereafter, materially
encroach upon any property, street or right-of-way adjacent to the Leased
Property, or violate the agreements or conditions contained in any lawful
restrictive covenant or other agreement affecting the Leased Property, or any
part thereof, or impair the rights of others under any easement or right-of-way
to which the Leased Property is subject, then promptly upon the request of
Lessor or at the behest of any Person affected by any such encroachment,
violation or impairment, Lessee shall, at its expense, subject to its right to
contest the existence of any encroachment, violation or impairment and in such
case, in the event of an adverse final determination, either (a) obtain valid
and effective waivers or settlements of all claims, liabilities and damages
resulting from each such encroachment, violation or impairment,

 

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whether the same shall affect Lessor or Lessee or (b) make such changes in the
Leased Improvements, and take such other actions, as Lessee in the good faith
exercise of its judgment deems reasonably practicable to remove such
encroachment, and to end such violation or impairment, including, if necessary,
the alteration of any of the Leased Improvements, and in any event take all such
actions as may be necessary in order to be able to continue the operation of the
Leased Improvements for the Primary Intended Use substantially in the manner and
to the extent the Leased Improvements were operated prior to the assertion of
such violation, impairment or encroachment. Any such alteration shall be made in
conformity with the applicable requirements of Article 10. Lessee’s obligations
under this Section 9.2 shall be in addition to and shall in no way discharge or
diminish any obligation of any insurer under any policy of title or other
insurance held by Lessor.

 

ARTICLE 10

ALTERATIONS AND IMPROVEMENTS; FF&E RESERVE

 

10.1. Alterations. After receiving approval of Lessor, which approval shall not
be unreasonably withheld or delayed, Lessee shall have the right to make such
additions, modifications or improvements to the Leased Property from time to
time as Lessee deems desirable for its permitted uses and purposes, provided
that such action will not significantly alter the character or purposes or
significantly detract from the value or operating efficiency thereof and will
not significantly impair the revenue-producing capability of the Leased Property
or adversely affect the ability of Lessee to comply with the provisions of this
Lease. The cost of such additions, modifications or improvements to the Leased
Property shall be paid by Lessee, and all such additions, modifications and
improvements shall, without payment by Lessor at any time, be included under the
terms of this Lease and upon expiration or earlier termination of this Lease
shall pass to and become the property of Lessor.

 

10.2. Salvage. All materials which are scrapped or removed in connection with
the making of repairs required by Articles 9 or 10 shall be or become the
property of Lessor or Lessee depending on which party is paying for or providing
the financing for such work.

 

10.3. Joint Use Agreements. If Lessee constructs additional improvements that
are connected to the Leased Property or share maintenance facilities, HVAC,
electrical, plumbing or other systems, utilities, parking or other amenities,
the parties shall enter into a mutually agreeable cross-easement or joint use
agreement, the form of which has been approved in advance by Lessor, to make
available necessary services and facilities in connection with such additional
improvements, to protect each of their respective interests in the properties
affected, and to provide for separate ownership, use, and/or financing of such
improvements.

 

10.4. [Reserved].

 

10.5. Furniture, Fixture and Equipment Allowance. Lessor shall be obligated to
pay Lessee, when and as required to meet the requirements of the Franchise
Agreement and the Management Agreement for a reserve for periodic repair,
replacement or refurbishing of furniture, fixtures and equipment that constitute
Leased Property, an amount equal up to five percent (5%) of Suite Revenues
monthly. Upon written request by Lessee to Lessor stating the specific use to be

 

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made and the reasonable approval thereof by Lessor (or as otherwise required by
the franchisor under the Franchise Agreement or Manager under the Management
Agreement), such reserve funds (and additional funds of Lessor, if necessary)
shall be made available by Lessor for use by Lessee for replacement or
refurbishing of furniture, fixtures and equipment that constitute Leased
Property in connection with the Primary Intended Use; provided, however, that no
amounts made available under this Article shall be used to purchase property
(other than “real property” within the meaning of Treasury Regulations Section
1.856-3(d)), to the extent that doing so would cause Lessor to recognize income
other than “rents from real property” as defined in Section 856(d) of the Code.
Lessor’s obligation shall be cumulative, but not compounded, and any amounts
that have accrued hereunder shall be payable in future periods for such uses and
in accordance with the procedure set forth herein. Lessee shall have no interest
in any accrued obligation of Lessor hereunder after the termination of this
Lease.

 

ARTICLE 11

COMPLIANCE WITH FRANCHISE

 

11.1. Compliance with Franchise Agreement and Management Agreement. To the
extent any of the provisions of the Franchise Agreement or Management Agreement
impose a greater obligation on Lessee than the corresponding provisions of the
Lease, then Lessee shall be obligated to comply with, and to take all reasonable
actions necessary to prevent breaches or defaults under, the provisions of the
Franchise Agreement and the Management Agreement. It is the intent of the
parties hereto that Lessee shall comply in every respect with the provisions of
the Franchise Agreement and the Management Agreement so as to avoid any material
default thereunder during the term of this Lease. Lessee shall not terminate,
extend or enter into any material modification of the Franchise Agreement or the
Management Agreement without in each instance first obtaining Lessor’s prior
written consent, which shall not be unreasonably withheld. Lessor and Lessee
agree to cooperate with each other in the event it becomes necessary to obtain a
franchise extension or modification (or, at Lessor’s option, a new franchise)
for the Leased Property, and in any transfer of the Franchise Agreement or
Management Agreement to Lessor or any designee of Lessor or any successor to
Lessee upon the termination of this Lease. In the event of expiration or
termination of a Franchise Agreement or Management Agreement, for whatever
reason, Lessor will have the right, in the exercise of its sole discretion, to
approve any new Franchise Agreement or Management Agreement for the Hotel.

 

ARTICLE 12

PERMITTED LIENS AND CONTESTS

 

12.1. Liens. Subject to the provisions of Section 12.2 relating to permitted
contests, Lessee will not directly or indirectly create or allow to remain and
will promptly discharge at its expense any lien, encumbrance, attachment, title
retention agreement or claim upon the Leased Property or any attachment, levy,
claim or encumbrance in respect of the Rent, not including, however, (a) this
Lease, (b) the matters included as exceptions in the title policy insuring
Lessor’s interest in the Leased Property, (c) restrictions, liens and other
encumbrances which are consented to in writing by Lessor or any easements
granted pursuant to the provisions of Section 7.3 of this Lease, (d) liens for
those taxes upon Lessor or the Leased Property which Lessee is not required to
pay hereunder, (e) subleases permitted by Article 20 hereof, (f) liens for
Impositions or for sums

 

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resulting from noncompliance with Legal Requirements so long as (1) the same are
not yet payable or are payable without the addition of any fine or penalty or
(2) such liens are in the process of being contested as permitted by Section
12.2, (g) liens of mechanics, laborers, materialmen, suppliers or vendors for
sums either disputed or not yet due provided that (1) the payment of such sums
shall not be postponed under any related contract for more than sixty (60) days
after the completion of the action giving rise to such lien and such reserve or
other appropriate provisions as shall be required by law or generally accepted
accounting principles shall have been made therefor or (2) any such liens are in
the process of being contested as permitted by Section 12.2 hereof, and (h) any
liens which are the responsibility of Lessor pursuant to the provisions of
Article 22 of this Lease.

 

12.2. Permitted Contests. Lessee shall have the right to contest the amount or
validity of any Imposition to be paid by Lessee or any Legal Requirement or
Insurance Requirement or any lien, attachment, levy, encumbrance, charge or
claim (“Claims”) not otherwise permitted by Section 12.1, by appropriate legal
proceedings in good faith and with due diligence (but this shall not be deemed
or construed in any way to relieve, modify or extend Lessee’s covenants to pay
or its covenants to cause to be paid any such charges at the time and in the
manner as in this Section provided), on condition, however, that such legal
proceedings shall not operate to relieve Lessee from its obligations hereunder
and shall not cause the sale or risk the loss of any portion of the Leased
Property, or any part thereof, or cause Lessor or Lessee to be in default under
any mortgage, deed of trust, security deed or other agreement encumbering the
Leased Property or any interest therein. Upon the request of Lessor, Lessee
shall either (a) provide a bond or other assurance reasonably satisfactory to
Lessor that all Claims which may be assessed against the Leased Property
together with interest and penalties, if any, thereon will be paid, or (b)
deposit within the time otherwise required for payment with a bank or trust
company as trustee upon terms reasonably satisfactory to Lessor, as security for
the payment of such Claims, money in an amount sufficient to pay the same,
together with interest and penalties in connection therewith, as to all Claims
which may be assessed against or become a Claim on the Leased Property, or any
part thereof, in said legal proceedings. Lessee shall furnish Lessor and any
lender of Lessor with reasonable evidence of such deposit within five (5) days
of the same. Lessor agrees to join in any such proceedings if the same be
required legally to prosecute such contest of the validity of such Claims;
provided, however, that Lessor shall not thereby be subjected to any liability
or loss for the payment of any costs or expenses in connection with any
proceedings brought by Lessee; and Lessee covenants to indemnify and save
harmless Lessor from any such liabilities, losses, costs or expenses. Lessee
shall be entitled to any refund of any Claims and such charges and penalties or
interest thereon which have been paid by Lessee or paid by Lessor and for which
Lessor has been fully reimbursed. In the event that Lessee fails to pay any
Claims when due or to provide the security therefor as provided in this Section
and diligently to prosecute any contest of the same, Lessor may, upon ten (10)
days’ advance Notice to Lessee, and Lessee’s failure to correct the same within
such ten (10) day period, pay such charges together with any interest and
penalties and the same shall be repayable by Lessee to Lessor as Additional
Charges at the next Payment Date provided for in this Lease; provided, however,
that should Lessor reasonably determine that the giving of such Notice would
risk loss to the Leased Property or cause damage to Lessor, then Lessor shall
give such Notice as is practical under the circumstances. Lessor reserves the
right to contest any of the Claims at its expense not pursued by Lessee. Lessor
and Lessee agree to cooperate in coordinating the contest of any Claims.

 

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ARTICLE 13

INSURANCE REQUIREMENTS

 

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

 

(a) Lessor shall obtain and maintain, at its own expense:

 

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

 

(ii) Insurance for loss or damage (direct and indirect) from steam boilers,
pressure vessels or similar apparatus, now or hereafter installed in the Hotel,
in the minimum amount of $5,000,000 or in such greater amounts as are then
customary; and

 

(iii) Loss of income insurance on the “Special Form”, in the amount of one year
of Base Rent and Additional Charges (to the extent quantifiable) for the benefit
of Lessor.

 

(b) Lessee shall obtain and maintain, at its own expense:

 

(i) Personal property insurance on Lessee’s Personal Property on the “Special
Form” in the full amount of the replacement cost thereof;

 

(ii) Comprehensive general liability insurance, with amounts not less than
$10,000,000 covering each of the following: bodily injury, death, or property
damage liability per occurrence, personal and advertising injury, general
aggregate, products and completed operations, with respect to Lessor, and “all
risk legal liability” (including liquor law or “dram shop” liability, if liquor
or alcoholic beverages are served on the Leased Property) with respect to Lessor
and Lessee;

 

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

 

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

 

(v) Worker’s compensation insurance coverage for all persons, if any, employed
by Lessee on the Leased Premises, to the extent necessary to protect Lessor and
the Leased Property against Lessee’s worker’s compensation claims, such worker’s
compensation insurance to be in accordance with the requirements of applicable
local, state and federal law;

 

(vi) Vehicle liability insurance for owned, non-owned, and hired vehicles, in
the amount of $5,000,000; and

 

(vii) Such other insurance as Lessor may reasonably request for facilities such
as the Leased Property and the operation thereof.

 

13.2. Replacement Cost. The term “full replacement cost” as used herein shall
mean the actual replacement cost of the Leased Property requiring replacement
from time to time including an increased cost of construction endorsement, if
available, and the cost of debris removal. In the event either party believes
that full replacement cost (the then-replacement cost less such exclusions) has
increased or decreased at any time during the Lease Term, it shall have the
right to have such full replacement cost re-determined.

 

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

 

13.4. Form Satisfactory, Etc.

 

(a) All of the policies of insurance referred to in this Article 13 to be
maintained by Lessee shall be written in a form, with deductibles and by
insurance companies satisfactory to Lessor. Lessee shall pay all of the premiums
therefor, and deliver such policies or certificates thereof to Lessor prior to
their effective date (and, with respect to any renewal policy, thirty (30) days
prior to the expiration of the existing policy), and in the event of the failure
of Lessee either to effect such insurance as herein called for or to pay the
premiums therefor, or to deliver such

 

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policies or certificates thereof to Lessor at the times required, Lessor shall
be entitled, but shall have no obligation, to effect such insurance and pay the
premiums therefor, and Lessee shall reimburse Lessor for any premium or premiums
paid by Lessor for the coverages required of Lessee under this Article 13 upon
written demand therefor, and Lessee’s failure to repay the same within thirty
(30) days after Notice of such failure from Lessor shall constitute an Event of
Default within the meaning of Section 16.1. Each insurer mentioned in this
Article 13 shall agree, by endorsement to the policy or policies issued by it,
or by independent instrument furnished to Lessor, that it will give to Lessor
thirty (30) days’ written notice before the policy or policies in question shall
be materially altered, allowed to expire or canceled.

 

(b) All of the policies of insurance referred to in this Article 13 to be
maintained by Lessor shall be written in a form, with deductibles and by
insurance companies satisfactory to Lessee. Lessor shall pay all of the premiums
therefor, and deliver such policies or certificates thereof to Lessee prior to
their effective date (and, with respect to any renewal policy, thirty (30) days
prior to the expiration of the existing policy), and in the event of the failure
of Lessor either to effect such insurance as herein called for or to pay the
premiums therefor, or to deliver such policies or certificates thereof to Lessee
at the times required, Lessee shall be entitled, but shall have no obligation,
to effect such insurance and pay the premiums therefor, and Lessor shall
reimburse Lessee for any premium or premiums paid by Lessee for the coverages
required under this Section upon written demand therefor. Each insurer mentioned
in this Article 13 shall agree, by endorsement to the policy or policies issued
by it, or by independent instrument furnished to Lessee, that it will give to
Lessee thirty (30) days’ written notice before the policy or policies in
question shall be materially altered, allowed to expire or canceled.

 

13.5. Increase in Limits. If either Lessor or Lessee at any time deems the
limits of the personal injury or property damage under the comprehensive public
liability insurance then carried to be either excessive or insufficient, Lessor
and Lessee shall endeavor in good faith to agree on the proper and reasonable
limits for such insurance to be carried and such insurance shall thereafter be
carried with the limits thus agreed on until further change pursuant to the
provisions of this Article 13.

 

13.6. Blanket Policy. Notwithstanding anything to the contrary contained in this
Article 13. Lessee or Lessor may bring the insurance provided for herein within
the coverage of a so-called blanket policy or policies of insurance carried and
maintained by Lessee (or Manager) or Lessor; provided, however, that the
coverage afforded to Lessor and Lessee will not be reduced or diminished or
otherwise be different from that which would exist under a separate policy
meeting all other requirements of this Lease by reason of the use of such
blanket policy of insurance, and provided further that the requirements of this
Article 13 are otherwise satisfied.

 

13.7. No Separate Insurance. Lessee shall not, on Lessee’s own initiative or
pursuant to the request or requirement of any third party, take out separate
insurance concurrent in form or contributing in the event of loss with that
required in this Article to be furnished, or increase the amount of any then
existing insurance by securing an additional policy or additional policies,
unless all parties having an insurable interest in the subject matter of the
insurance, including in all cases Lessor, are included therein as additional
insured, and the loss is payable under such additional separate insurance in the
same manner as losses are payable under this Lease. Lessee

 

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shall immediately notify Lessor of any such separate insurance that Lessee has
obtained or of the increase of any of the amounts of the then existing
insurance.

 

13.8. Reports On Insurance Claims. Lessee shall promptly investigate and make a
complete and timely written report to the appropriate insurance company as to
all accidents, claims for damage relating to the ownership, operation, and
maintenance of the Hotel, any damage or destruction to the Hotel and the
estimated cost of repair thereof and shall prepare any and all reports required
by any insurance company in connection therewith. All such reports shall be
timely filed with the insurance company as required under the terms of the
insurance policy involved, and a final copy of such report shall be furnished to
Lessor. Lessee shall be authorized to adjust, settle, or compromise any
insurance loss, or to execute proofs of such loss, in the aggregate amount of
$25,000 or less, with respect to any single casualty or other event.

 

ARTICLE 14

CASUALTY INSURANCE PROCEEDS; RECONSTRUCTION

 

14.1. Insurance Proceeds. Subject to the provisions of Section 14.4, all
proceeds payable by reason of any loss or damage to the Leased Property, or any
portion thereof, insured under any policy of insurance required by Article 13 of
this Lease, shall be paid to Lessor and held in trust by Lessor in an
interest-bearing account, shall be made available, if applicable, for
reconstruction or repair, as the case may be, of any damage to or destruction of
the Leased Property, or any portion thereof, and, if applicable, shall be paid
out by Lessor from time to time for the reasonable costs of such reconstruction
or repair upon satisfaction of reasonable terms and conditions specified by
Lessor. Any excess proceeds of insurance (and accrued interest) remaining after
the completion of the restoration or reconstruction of the Leased Property, as
hereinafter set forth, shall be paid to Lessee. If neither Lessor nor Lessee is
required or elects to repair and restore, and the Lease is terminated without
purchase by Lessee as described in Section 14.2, all such insurance proceeds
shall be retained by Lessor. All salvage resulting from any risk covered by
insurance shall belong to Lessor.

 

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

 

(a) Except as provided in Section 14.6, if during the Term the Leased Property
is totally or partially destroyed by a risk covered by the insurance described
in Article 13 and the Hotel thereby is rendered Unsuitable for its Primary
Intended Use, Lessee shall, at Lessee’s option, either (1) restore the Hotel to
substantially the same condition as existed immediately before the damage or
destruction and otherwise in accordance with the terms of the Lease, or (2)
offer to acquire the Leased Property from Lessor for a purchase price equal to
the Rejectable Offer Price of the Leased Property. If Lessee restores the Hotel,
the insurance proceeds shall be paid out by Lessor from time to time for the
reasonable costs of such restoration upon satisfaction of reasonable terms and
conditions, and any excess proceeds remaining after such restoration shall be
paid to Lessee. If Lessee acquires the Leased Property, Lessee shall receive the
insurance proceeds. If Lessor does not accept Lessee’s offer so to purchase the
Leased Property within ninety (90) days, Lessee may withdraw its offer to
purchase the Leased Property and, if so withdrawn, Lessee may terminate the
Lease with respect to the Leased Property without further liability hereunder
and Lessor shall be entitled to retain all insurance proceeds.

 

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(b) Except as provided in Section 14.6, if during the Term the Leased Property
is partially destroyed by a risk covered by the insurance described in Article
13, but the Hotel is not thereby rendered Unsuitable for its Primary Intended
Use, Lessee shall restore the Hotel to substantially the same condition as
existed immediately before the damage or destruction and otherwise in accordance
with the terms of the Lease. Such damage or destruction shall not terminate this
Lease; provided, however, that if Lessee cannot within a reasonable time obtain
all necessary government approvals, including building permits, licenses and
conditional use permits, after diligent efforts to do so, to perform all
required repair and restoration work and to operate the Hotel for its Primary
Intended Use in substantially the same manner as that existing immediately prior
to such damage or destruction and otherwise in accordance with the terms of the
Lease, Lessee may offer to purchase the Leased Property for a purchase price
equal to the Rejectable Offer Price of the Leased Property, determined without
regard to such damage or destruction if insurance proceeds are available to
restore the Hotel. If Lessee makes such offer and Lessor does not accept the
same, Lessee shall withdraw such offer, in which event this Lease shall remain
in full force and effect and Lessee shall immediately proceed to restore the
Hotel to substantially the same condition as existed immediately before such
damage or destruction and otherwise in accordance with the terms of the Lease.
If Lessee restores the Hotel, the insurance proceeds shall be paid out by Lessor
from time to time for the reasonable costs of such restoration upon satisfaction
of reasonable terms and conditions specified by Lessor, and any excess proceeds
remaining after such restoration shall be paid to Lessee.

 

(c) If the cost of the repair or restoration exceeds the amount of proceeds
received by Lessor from the insurance it maintains as required under Article 13,
Lessee shall be obligated to contribute any excess amounts needed to restore the
Hotel. Such difference shall be paid by Lessee to Lessor promptly after Lessee
receives Lessor’s written invoice therefor, to be held in trust in an
interest-bearing account, together with any other insurance proceeds, for
application to the cost of repair and restoration.

 

(d) If Lessor accepts Lessee’s offer to purchase the Leased Property under this
Article, this Lease shall terminate as to the Leased Property upon payment of
the purchase price, and Lessor shall remit to Lessee all insurance proceeds
pertaining to the Leased Property being held in trust by Lessor.

 

14.3. Reconstruction in the Event of Damage or Destruction Not Covered by
Insurance. Except as provided in Section 14.6, if during the Term the Hotel is
totally or materially destroyed by a risk not covered by the insurance described
in Article 13, whether or not such damage or destruction renders the Hotel
Unsuitable for its Primary Intended Use, Lessee at its option shall either, (a)
at Lessee’s sole cost and expense, restore the Hotel to substantially the same
condition it was in immediately before such damage or destruction and such
damage or destruction shall not terminate this Lease, or (b) offer to purchase
the Leased Property for a purchase price equal to the Rejectable Offer Price of
the Leased Property without regard to such damage or destruction. If such damage
or destruction is not material, Lessee shall restore the Hotel to substantially
the same condition as existed immediately before the damage or destruction and
otherwise in accordance with the terms of the Lease. If Lessor does not accept
Lessee’s offer so to purchase the Leased Property within ninety (90) days,
Lessee may withdraw its offer to purchase the Leased Property

 

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and, if so withdrawn, Lessee may terminate the Lease with respect to the Leased
Property without further liability hereunder.

 

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

 

14.5. Abatement of Rent. Any damage or destruction due to casualty
notwithstanding, this Lease shall remain in full force and effect and Lessee’s
obligation to make rental payments and to pay all other charges required by this
Lease shall remain unabated during the first three (3) months of any period
required for the applicable repair and restoration. Thereafter, Base Rent shall
be equitably abated.

 

14.6. Damage Near End of Term. Notwithstanding any provisions of Section 14.2 or
14.3 appearing to the contrary, if damage to or destruction of the Hotel
rendering it unsuitable for its Primary Intended Use occurs during the last
twenty-four (24) months of the Term, then Lessor or Lessee shall have the right
to terminate this Lease by giving Notice, respectively, to Lessee or Lessor
within thirty (30) days after the date of damage or destruction, whereupon all
accrued Rent shall be paid immediately, and this Lease shall automatically
terminate five (5) days after the date of such Notice.

 

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

 

ARTICLE 15

CONDEMNATION; AWARD ALLOCATION

 

15.1. Definitions.

 

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

 

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

 

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

 

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

 

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15.2. Parties’ Rights and Obligations. If during the Term there is any
Condemnation of all or any part of the Leased Property or any interest in this
Lease, the rights and obligations of Lessor and Lessee shall be determined by
this Article 15.

 

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

 

15.4. Allocation of Award. The total Award made with respect to the Leased
Property or for loss of rent, or for Lessor’s loss of business beyond the Term,
shall be solely the property of and payable to Lessor. Any Award made for loss
of Lessee’s business during the remaining Term, if any, for the taking of
Lessee’s Personal Property, or for removal and relocation expenses of Lessee in
any such proceedings shall be the sole property of and payable to Lessee. In any
Condemnation proceedings Lessor and Lessee shall each seek its Award in
conformity herewith, at its respective expense; provided, however, Lessee shall
not initiate, prosecute or acquiesce in any proceedings that may result in a
diminution of any Award payable to Lessor.

 

15.5. Partial Taking. If title to less than the whole of the Leased Property is
condemned, and the Leased Property is not Unsuitable for its Primary Intended
Use, and not Uneconomic for its Primary Intended Use, or if Lessee or Lessor is
entitled but neither elects to terminate this Lease as provided in Section 15.3,
Lessee at its cost shall with all reasonable dispatch restore the untaken
portion of any Leased Improvements so that such Leased Improvements constitute a
complete architectural unit of the same general character and condition (as
nearly as may be possible under the circumstances) as the Leased Improvements
existing immediately prior to the Condemnation. Lessor shall contribute to the
cost of restoration that part of its Award specifically allocated to such
restoration, if any, together with severance and other damages awarded for the
taken Leased Improvements; provided, however, that the amount of such
contribution shall not exceed such cost. In the event of such a partial Taking,
this Lease shall not terminate, but the Base Rent shall be abated in the manner
and to the extent that is fair, just and equitable to both Lessee and Lessor,
taking into consideration, among other relevant factors, the number of usable
rooms, the amount of square footage, or the revenues affected by such partial
Taking. If Lessor and Lessee are unable to agree upon the amount of such
abatement within thirty (30) days after such partial Taking, the matter may be
submitted by either party to a court of competent jurisdiction for resolution.

 

15.6. Temporary Taking. If the whole or any part of the Leased Property (other
than the fee) or of Lessee’s interest under this Lease is condemned by any
Condemnor for its temporary use or occupancy (which shall mean a period not to
exceed two years), this Lease shall not terminate by reason thereof, and Lessee
shall continue to pay, in the manner and at the terms herein specified, the full
amounts of Base Rent and Additional Charges. In addition, Lessee shall pay
Percentage Rent at a rate equal to the average Percentage Rent during the last
three (3) preceding Fiscal Years

 

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(or if three (3) Fiscal Years shall not have elapsed, the average during the
preceding Fiscal Years). Except only to the extent that Lessee may be prevented
from so doing pursuant to the terms of the order of the Condemnor, Lessee shall
continue to perform and observe all of the other terms, covenants, conditions
and obligations hereof on the part of Lessee to be performed and observed, as
though such Condemnation had not occurred. In the event of any Condemnation as
in this Section 15.6 described, the entire amount of any Award made for such
Condemnation allocable to the Term of this Lease, whether paid by way of
damages, rent or otherwise, shall be paid to Lessee. Lessee covenants that upon
the termination of any such period of temporary use or occupancy it will, at its
sole cost and expense (subject to Lessor’s contribution as set forth below),
restore the Leased Property as nearly as may be reasonably possible to the
condition in which the same was immediately prior to such Condemnation, unless
such period of temporary use or occupancy extends beyond the expiration of the
Term, in which case Lessee shall not be required to make such restoration. If
restoration is required hereunder, Lessor shall contribute to the cost of such
restoration that portion of its entire Award that is specifically allocated to
such restoration in the judgment or order of the court, if any, and Lessee shall
fund the balance of such costs in a manner reasonably satisfactory to Lessor.

 

ARTICLE 16

DEFAULT BY LESSEE; LESSOR’S REMEDIES

 

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

 

(a) if an Event of Default occurs under any other lease between Lessor or any
Affiliate of Lessor and Lessee or any Affiliate of Lessee; or

 

(b) if Lessee fails to make payment of the Base Rent within ten (10) days after
the same becomes due and payable; or

 

(c) if Lessee fails to make payment of Percentage Rent when the same becomes due
and payable and such condition continues for a period of thirty (30) days after
the end of the applicable quarter; or

 

(d) if Lessee fails to observe or perform any other term, covenant or condition
of this Lease and such failure is not cured by Lessee within a period of thirty
(30) days after receipt by Lessee of Notice thereof from Lessor, unless such
failure cannot with due diligence be cured within a period of thirty (30) days,
in which case it shall not be deemed an Event of Default if Lessee proceeds
promptly and with due diligence to cure the failure and diligently completes the
curing thereof provided, however, in no event shall such cure period extend
beyond ninety (90) days after such Notice; or

 

(e) if Lessee shall file a petition in bankruptcy or reorganization for an
arrangement pursuant to any federal or state bankruptcy law or any similar
federal or state law, or shall be adjudicated a bankrupt or shall make an
assignment for the benefit of creditors or shall admit in writing its inability
to pay its debts generally as they become due, or if a petition or answer
proposing the adjudication of Lessee as a bankrupt or its reorganization
pursuant to any federal or

 

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state bankruptcy law or any similar federal or state law shall be filed in any
court and Lessee shall be adjudicated a bankrupt and such adjudication shall not
be vacated or set aside or stayed within sixty (60) days after the entry of an
order in respect thereof, or if a receiver of Lessee or of the whole or
substantially all of the assets of Lessee shall be appointed in any proceeding
brought by Lessee or if any such receiver, trustee or liquidator shall be
appointed in any proceeding brought against Lessee and shall not be vacated or
set aside or stayed within sixty (60) days after such appointment; or

 

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

 

(g) if, except as expressly permitted herein, the estate or interest of Lessee
in the Leased Property or any part thereof is voluntarily or involuntarily
transferred, assigned, conveyed, levied upon or attached in any proceeding
(unless Lessee is contesting such lien or attachment in good faith in accordance
with Section 12.2 hereof) or there is a Change of Control of Lessee; or

 

(h) if, except as a result of damage, destruction or a partial or complete
Condemnation as contemplated by this Lease, Lessee voluntarily ceases operations
on the Leased Property for a period in excess of thirty (30) days; or

 

(i) if an event of default has been declared by the franchisor under the
Franchise Agreement with respect to the Hotel as a result of any action or
failure to act by Lessee or any Person with whom Lessee contracts for management
services at the Hotel, and such default is not cured by the earlier of (A) ten
(10) days following notice from Lessor or (B) such earlier date as is required
for Lessee to avoid termination of the Franchise Agreement by the franchisor;

 

then, and in any such event, Lessor may exercise one or more remedies available
to it herein or at law or in equity, including but not limited to its right to
terminate this Lease by giving Lessee not less than ten (10) days’ Notice of
such termination.

 

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

 

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

 

16.2. Surrender. If an Event of Default occurs (and the event giving rise to
such Event of Default has not been cured within the curative period relating
thereto as set forth in Section 16.1) and is continuing, whether or not this
Lease has been terminated pursuant to Section 16.1, Lessee shall, if requested
by Lessor so to do, immediately surrender to Lessor the Leased Property
including, without limitation, any and all books, records, files, licenses,
permits and keys relating

 

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thereto, and quit the same and Lessor may enter upon and repossess the Leased
Property by summary proceedings, ejectment or otherwise, and may remove Lessee
and all other Persons and any and all personal property from the Leased
Property, subject to rights of any hotel guests and to any requirement of law.
Lessee hereby waives any and all requirements of applicable laws for service of
notice to re-enter the Leased Property. Lessor shall be under no obligation to,
but may if it so chooses, relet the Leased Property or otherwise mitigate
Lessor’s damages.

 

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

 

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

 

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

 

(ii) the sum of:

 

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

 

(B) the worth at the time of termination, repossession or reletting of the
amount by which the unpaid Rent for the balance of the Term after the time of
termination, repossession or reletting, exceeds the amount of such rental loss
that Lessee proves could be reasonably avoided and as reduced for rentals
received after the time of termination, repossession or reletting, if and to the
extent required by applicable law, and

 

(C) any other amount necessary to compensate Lessor for all the detriment
proximately caused by Lessee’s failure to perform its obligations under this
Lease or which in the ordinary course of things, would be likely to result
therefrom.

 

The worth at the time of termination, repossession or reletting of the amount
referred to in subparagraph (B) is computed by discounting such amount at the
discount rate of the Federal Reserve Bank of New York at the time of award plus
one percent (1%). Percentage Rent for the purposes of this Section 16.3 shall be
a sum equal to (i) the average of the annual amounts of the Percentage Rent for
the three (3) Fiscal Years immediately preceding the Fiscal Year in

 

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which the termination, re-entry or repossession takes place, or (ii) if three
(3) Fiscal Years shall not have elapsed, the average of the Percentage Rent
during the preceding Fiscal Years during which the Lease was in effect, or (iii)
if one Fiscal Year has not elapsed, the amount derived by annualizing the
Percentage Rent from the effective date of this Lease.

 

16.4. Waiver. If this Lease is terminated pursuant to Section 16.1, Lessee
waives, to the extent permitted by applicable law, (a) any right to a trial by
jury in the event of summary proceedings to enforce the remedies set forth in
this Article 16, and (b) the benefit of any laws now or hereafter in force
exempting property from liability for rent or for debt and Lessor waives any
right to “pierce the corporate veil” of Lessee other than to the extent funds
shall have been fraudulently paid by Lessee to any Affiliate of Lessee following
a default resulting in an Event of Default.

 

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

 

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

 

ARTICLE 17

DEFAULT BY LESSOR; LESSEE’S REMEDIES

 

17.1. Breach by Lessor. It shall be a breach of this Lease if Lessor fails to
observe or perform any term, covenant or condition of this Lease on its part to
be performed and such failure continues for a period of thirty (30) days after
Notice thereof from Lessee, unless such failure cannot with due diligence be
cured within a period of thirty (30) days, in which case such failure shall not
be deemed to continue if Lessor, within such thirty (30) day period, proceeds
promptly and with due diligence to cure the failure and diligently completes the
curing thereof; provided, however, that such default shall be cured by Lessor in
any event prior to the date on which the default becomes an event of default
under the terms of the Franchise Agreement for the Hotel. The time within which
Lessor shall be obligated to cure any such failure also shall be subject to

 

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extension of time due to the occurrence of any Unavoidable Delay. If Lessor
fails to cure any such breach within the grace period described above, Lessee,
without waiving or releasing any obligations hereunder, and in addition to all
other remedies available to Lessee at law or in equity, may purchase the Leased
Property from Lessor for a purchase price equal to the then Fair Market Value.
If Lessee elects to purchase the Leased Property it shall deliver a Notice
thereof to Lessor specifying a settlement date to occur not less than ninety
(90) days subsequent to the date of such Notice on which it shall purchase the
Leased Property, and the same shall be thereupon conveyed in accordance with the
provisions of Section 17.3; provided, however, that Lessor shall pay the cost of
Lessee’s title insurance and all closing costs associated with such purchase by
Lessee following default by Lessor.

 

17.2. Lessee’s Right to Cure. Subject to the provisions of Section 17.1, if
Lessor breaches any covenant to be performed by it under this Lease, Lessee,
after Notice to and demand upon Lessor, without waiving or releasing any
obligation hereunder, and in addition to all other remedies available to Lessee,
may (but shall be under no obligation at any time thereafter to) make such
payment or perform such act for the account and at the expense of Lessor. All
sums so paid by Lessee and all costs and expenses (including, without
limitation, reasonable attorneys’ fees) so incurred, together with interest
thereon at the Overdue Rate from the date on which such sums or expenses are
paid or incurred by Lessee, shall be paid by Lessor to Lessee on demand or,
following entry of a final, nonappealable judgment against Lessor for such sums,
may be offset by Lessee against the Base Rent and/or Percentage Rent payments
next accruing or coming due. The rights of Lessee hereunder to cure and to
secure payment from Lessor in accordance with this Section 17.2 shall survive
the termination of this Lease with respect to the Leased Property.

 

17.3. Provisions Relating to Purchase of the Leased Property by Lessee. If
Lessee purchases the Leased Property from Lessor pursuant to any of the terms of
this Lease, Lessor shall, upon receipt from Lessee of the applicable purchase
price, together with full payment of any unpaid Rent due and payable with
respect to any period ending on or before the date of the purchase, deliver to
Lessee an appropriate limited or special warranty deed or other conveyance
conveying the entire interest of Lessor in and to the Leased Property to Lessee
free and clear of all encumbrances other than (a) those that Lessee has agreed
hereunder to pay or discharge, (b) those mortgage liens, if any, that Lessee has
agreed in writing to accept and to take title subject to, (c) those liens and
encumbrances subject to which the Leased Property was conveyed to Lessor, to the
extent not released in connection with the transactions contemplated by this
Lease, (d) encumbrances, easements, licenses or rights of way required to be
imposed on the Leased Property under Section 7.3, and (e) any other encumbrances
permitted to be imposed on the Leased Property under the provisions of Article
22 that are assumable at no cost to Lessee or to which Lessee may take subject
without cost to Lessee. The difference between the applicable purchase price and
the total of the encumbrances assumed or taken subject to shall be paid in cash
to Lessor or as Lessor may direct, in federal or other immediately available
funds, except as otherwise mutually agreed by Lessor and Lessee. All expenses of
such conveyance, including, without limitation, the cost of title examination or
title insurance, if desired by Lessee, Lessee’s attorneys’ fees incurred in
connection with such conveyance and release, and one-half of any transfer taxes
and recording fees, shall be paid by Lessee. Lessor shall pay one-half of any
transfer taxes and recording fees and its attorney’s fees.

 

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ARTICLE 18

INDEMNIFICATION

 

18.1. Indemnification.

 

(a) Notwithstanding the existence of any insurance, and without regard to the
policy limits of any such insurance or self-insurance, but subject to Section
13.3 and Section 8.3, Lessee will protect, indemnify, hold harmless and defend
Lessor from and against all liabilities, losses, obligations, claims, damages,
penalties, causes of action, costs and expenses (including, without limitation,
reasonable attorneys’ fees and expenses), to the extent permitted by law,
imposed upon or incurred by or asserted against Lessor Indemnified Parties by
reason of: (a) any accident, injury to or death of persons or loss of or damage
to property occurring on or about the Leased Property or adjoining sidewalks,
including without limitation any claims under liquor liability, “dram shop” or
similar laws, (b) any use, misuse, non-use, condition, management, maintenance
or repair by Lessee or any of its agents, employees or invitees of the Leased
Property or Lessee’s Personal Property during the Term or any litigation,
proceeding or claim by governmental entities or other third parties to which a
Lessor Indemnified Party is made a party or participant related to such use,
misuse, non-use, condition, management, maintenance, or repair thereof by Lessee
or any of its agents, employees or invitees, including any failure of lessee or
any of its agents, employees or invitees to perform any obligations under this
Lease or imposed by applicable law (other than arising out of Condemnation
proceedings), (c) any Impositions that are the obligations of Lessee pursuant to
the applicable provisions of this Lease, (d) any failure on the part of Lessee
to perform or comply with any of the terms of this Lease, and (e) the
non-performance of any of the terms and provisions of any and all existing and
future subleases of the Leased Property to be performed by the landlord
thereunder.

 

(b) Notwithstanding the existence of any insurance, and without regard to the
policy limits of any such insurance or self-insurance, but subject to Section
13.3 and Section 8.3, Lessor shall indemnify, save harmless and defend Lessee
Indemnified Parties from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses imposed upon or
incurred by or asserted against Lessee Indemnified Parties as a result of (a)
the gross negligence or willful misconduct of Lessor arising in connection with
this Lease or (b) any failure on the part of Lessor to perform or comply with
any of the terms of this Lease. Any amounts that become payable by an
Indemnifying Party under this Section shall be paid within ten (10) days after
liability therefor on the part of the Indemnifying Party is determined by
litigation or otherwise, and if not timely paid, shall bear a late charge (to
the extent permitted by law) at the Overdue Rate from the date of such
determination to the date of payment. An Indemnifying Party, at its expense,
shall contest, resist and defend any such claim, action or proceeding asserted
or instituted against the Indemnified Party. The Indemnified Party, at its
expense, shall be entitled to participate in any such claim, action, or
proceeding, and the Indemnifying Party may not compromise or otherwise dispose
of the same without the consent of the Indemnified Party, which may not be
unreasonably withheld or delayed. Nothing herein shall be construed as
indemnifying a Lessor Indemnified Party against its own (or Lessor’s) grossly
negligent acts or omissions or willful misconduct.

 

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

 

ARTICLE 19

REIT REQUIREMENTS AND RESTRICTIONS

 

19.1. Personal Property Limitation. Anything contained in this Lease to the
contrary notwithstanding, the average of the adjusted tax bases of the items of
personal property that are leased to Lessee under this Lease at the beginning
and at the end of any Fiscal Year shall not exceed fifteen percent (15%) of the
average of the aggregate adjusted tax bases of the Leased Property at the
beginning and at the end of such Fiscal Year. This Section 19.1 is intended to
ensure that the Rent qualifies as “rents from real property,” within the meaning
of Section 856(d) of the Code, or any similar or successor provisions thereto,
and shall be interpreted in a manner consistent with such intent.

 

19.2. Sublease Rent Limitation. Anything contained in this Lease to the contrary
notwithstanding, Lessee shall not sublet the Leased Property on any basis such
that the rental to be paid by the sublessee thereunder would be based, in whole
or in part, on either (a) the 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 Code, or any similar or successor provision thereto.

 

19.3. Sublease Tenant Limitation. Anything contained in this Lease to the
contrary notwithstanding, Lessee shall not sublease the Leased Property to any
Person in which Lessor owns, directly or indirectly, a ten percent (10%) or more
interest, within the meaning of Section 856(d)(2)(B) of the Code, or any similar
or successor provisions thereto.

 

19.4. Lessee Ownership Limitations.

 

(a) Anything contained in this Lease to the contrary notwithstanding, neither
Lessee nor an Affiliate of Lessee shall acquire, directly or indirectly, a ten
percent (10%) or more interest in Lessor within the meaning of Section
856(d)(2)(B) of the Code, or any similar or successor provision thereto.

 

(b) Lessee shall not own, operate, manage or have any interest in any hotel or
motel property in which Lessor or an Affiliate of Lessor does not have an
interest, pursuant to this Lease or another lease, agreement or arrangement with
Lessor or an Affiliate of Lessor. Lessor agrees to notify Lessee promptly of the
location of any hotel or motel property in which Lessor or an Affiliate of
Lessor has an interest.

 

19.5. Lessee Officer and Employee Limitation. If a Person serves as both (a) a
director of Lessee (or any Person who furnishes or renders services to the
tenants of the Leased Property, or manages or operates the Leased Property) and
(b) an officer (or employee) of the Lessor that Person shall not receive any
compensation for serving as a director of Lessee (or any Person who furnishes or
renders services to the tenants of the Leased Property, or manages or operates
the

 

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Leased Property). Furthermore, if a Person serves as both (a) a director of the
Lessor and (b) an officer (or employee) of Lessee (or any Person who furnishes
or renders services to the tenants of the Leased Property, or manages or
operates the Leased Property), that Person shall not receive any compensation
for serving as a director of the Lessor. No Person, other than Justin G. Knight,
shall serve as an officer (or employee) of both Lessor and Lessee.

 

19.6. Payments to Affiliates of Lessee. During the Term, Lessee shall not pay,
or become obligated to pay, any fees to any Affiliate of Lessee in connection
with the Hotel, other than fees that are subordinated to the payments that are
required to be made to Lessor pursuant to this Lease.

 

ARTICLE 20

SUBLETTING AND ASSIGNMENT

 

20.1. Subletting and Assignment. Subject to the provisions of Article 19 and
Section 20.2 and any other express conditions or limitations set forth herein,
Lessee may, but only with the consent of Lessor (which shall not be unreasonably
withheld or delayed), (a) assign this Lease or sublet all or any part of the
Leased Property to an Affiliate of Lessee, or (b) sublet any retail or
restaurant portion of the Leased Improvements in the normal course of the
Primary Intended Use; provided that any subletting to any party other than an
Affiliate of Lessee shall not individually as to any one such subletting, or in
the aggregate, materially diminish the actual or potential Percentage Rent
payable under this Lease. In the case of a subletting, the sublessee shall
comply with the provisions of Section 20.2, and in the case of an assignment,
the assignee shall assume in writing and agree to keep and perform all of the
terms of this Lease on the part of Lessee to be kept and performed and shall be,
and become, jointly and severally liable with Lessee for the performance
thereof. Notwithstanding the above, Lessee may assign the Lease to an Affiliate
without the consent of Lessor; provided that any such assignee assumes in
writing and agrees to keep and perform all of the terms of the Lease on the part
of Lessee to be kept and performed and shall be and become jointly and severally
liable with Lessee for the performance thereof. In case of either an assignment
or subletting made during the Term, Lessee shall remain primarily liable, as
principal rather than as surety, for the prompt payment of the Rent and for the
performance and observance of all of the covenants and conditions to be
performed by Lessee hereunder. An original counterpart of each such sublease and
assignment and assumption, duly executed by Lessee and such sublessee or
assignee, as the case may be, in form and substance satisfactory to Lessor,
shall be delivered promptly to Lessor.

 

20.2. Attornment. Lessee shall insert in each sublease permitted under Section
20.1 provisions to the effect that (a) such sublease is subject and subordinate
to all of the terms and provisions of this Lease and to the rights of Lessor
hereunder, (b) if this Lease terminates before the expiration of such sublease,
the sublessee thereunder will, at Lessor’s option, attorn to Lessor and waive
any right the sublessee may have to terminate the sublease or to surrender
possession thereunder as a result of the termination of this Lease, and (c) if
the sublessee receives a Notice from Lessor or Lessor’s assignees, if any,
stating that an uncured Event of Default exists under this Lease, the sublessee
shall thereafter be obligated to pay all rentals accruing under said sublease
directly to the party giving such Notice, or as such party may direct. All
rentals received from the sublessee by Lessor or Lessor’s assignees, if any, as
the case may be, shall be credited against the amounts owing by Lessee under
this Lease.

 

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

 

ARTICLE 21

QUIET ENJOYMENT; RISK OF LOSS

 

21.1. Quiet Enjoyment. So long as Lessee pays all Rent as the same becomes due
and complies with all of the terms of this Lease and performs its obligations
hereunder, in each case within the applicable grace periods, if any, Lessee
shall peaceably and quietly have, hold and enjoy the Leased Property for the
Term hereof, free of any claim or other action by Lessor or anyone claiming by,
through or under Lessor, but subject to all liens and encumbrances subject to
which the Leased Property was conveyed to Lessor, to the extent not released in
connection with the transactions contemplated by this Lease, or hereafter
consented to by Lessee or provided for herein. Notwithstanding the foregoing,
Lessee shall have the right by separate and independent action to pursue any
claim it may have against Lessor as a result of a breach by Lessor of the
covenant of quiet enjoyment contained in this Section.

 

21.2. Risk of Loss. During the Term, the risk of loss or of decrease in the
enjoyment and beneficial use of the Leased Property in consequence of the damage
or destruction thereof by fire, the elements, casualties, thefts, riots, wars or
otherwise, or in consequence of foreclosures, attachments, levies or executions
(other than those caused by Lessor and those claiming from, through or under
Lessor) is assumed by Lessee, and, in the absence of gross negligence, willful
misconduct or breach of this Lease by Lessor pursuant to Section 17.1, Lessor
shall in no event be answerable or accountable therefor, nor shall any of the
events mentioned in this Section entitle Lessee to any abatement of Rent except
as specifically provided in this Lease.

 

ARTICLE 22

LESSOR MORTGAGES; SUBORDINATION OF LEASE

 

22.1. Lessor May Grant Liens. Without the consent of Lessee, Lessor may, subject
to the terms and conditions set forth below in this Section 22.1, from time to
time, directly or indirectly, create or otherwise cause to exist any lien,
encumbrance or title retention agreement (“Encumbrance”) upon the Leased
Property, or any portion thereof or interest therein, whether to secure any
borrowing or other means of financing or refinancing. Upon the request of
Lessor, Lessee shall subordinate this Lease to the lien of a new mortgage on the
Leased Property, on the condition that the proposed mortgagee executes a
non-disturbance agreement recognizing this Lease in accordance with the
provisions of Section 22.2, and agreeing, for itself and its successors and
assigns, to comply with the provisions of this Article 22.

 

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22.2. Subordination of Lease. This Lease and Lessee’s interest hereunder shall
at all times be subject and subordinate to the lien and security title of any
deeds to secure debt, deeds of trust, mortgages, or other Encumbrances
heretofore or hereafter granted by Lessor or which otherwise encumber or affect
the Leased Property and to any and all advances to be made thereunder and to all
renewals, modifications, consolidations, replacements, substitutions, and
extensions thereof (all of which are herein called the “Mortgage”); provided,
however, that with respect to any Mortgage hereafter granted, such subordination
is conditioned upon delivery to Lessee of a non-disturbance agreement which
provides that Lessee shall not be disturbed in its possession of the Leased
Property hereunder following a foreclosure of such Mortgage (or delivery of a
deed-in-lieu-of-foreclosure) and that the holder of such Mortgage or the
purchaser at a foreclosure sale (or grantee under such
deed-in-lieu-of-foreclosure) shall perform all obligations of Lessor under this
Lease. In confirmation of such subordination, however, Lessee shall, at Lessor’s
request, promptly execute, acknowledge and deliver any instrument which may be
required to evidence subordination to any Mortgage and to the holder thereof. In
the event of Lessee’s failure to deliver such subordination and if the Mortgage
does not change any term of the Lease, Lessor may, in addition to any other
remedies for breach of covenant hereunder, execute, acknowledge, and deliver the
instrument as the agent or attorney-in-fact of Lessee, and Lessee hereby
irrevocably constitutes Lessor its attorney-in-fact for such purpose, Lessee
acknowledging that the appointment is coupled with an interest and is
irrevocable.

 

ARTICLE 23

ESTOPPEL CERTIFICATES; FINANCIAL STATEMENTS; INSPECTION RIGHTS

 

23.1. Estoppel Certificates; Financial Statements.

 

(a) At any time and from time to time upon not less than ten (10) days Notice by
Lessor, Lessee will furnish to Lessor an Officer’s Certificate certifying that
this Lease is unmodified and in full force and effect (or that this Lease is in
full force and effect as modified and setting forth the modifications), the date
to which the Rent has been paid, whether to the knowledge of Lessee there is any
existing default or Event of Default exists thereunder by Lessor or Lessee, and
such other information as may be reasonably requested by Lessor. Any such
certificate furnished pursuant to this Section may be relied upon by Lessor, any
lender and any prospective purchaser of the Leased Property.

 

(b) Lessee will furnish the following statements to Lessor:

 

(i) with reasonable promptness, such information respecting the financial
condition and affairs of Lessee including audited financial statements prepared
by the same certified independent accounting firm that prepares the returns for
Lessor or such other accounting firm as may be approved by Lessor, as Lessor may
request from time to time; and

 

(ii) the most recent Consolidated Financials of Lessee within forty-five (45)
days after each quarter of any Fiscal Year (or, in the case of the final quarter
in

 

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any Fiscal Year, the most recent audited Consolidated Financials of Lessee
within ninety (90) days); and

 

(iii) on or about the 20th day of each month, a detailed profit and loss
statement for the Leased Property for the preceding month, a balance sheet for
the Leased Property as of the end of the preceding month, and a detailed
accounting of revenues for the Leased Property for the preceding month, each in
form acceptable to Lessor.

 

Lessee will permit the inclusion of such statements in any filings required to
be made by Lessor under the Securities Act of 1933 and the Securities Exchange
Act of 1934.

 

(c) At any time and from time to time upon not less than ten (10) days Notice by
Lessee, Lessor will furnish to Lessee or to any Person designated by Lessee an
estoppel certificate certifying that this Lease is unmodified and in full force
and effect (or that this Lease is in full force and effect as modified and
setting forth the modifications), the date to which Rent has been paid, whether
to the knowledge of Lessor there is any existing default or Event of Default on
Lessee’s part hereunder, and such other information as may be reasonably
requested by Lessee.

 

(d) Lessee shall at all times be Solvent. Furthermore, as of the date of this
Agreement, Lessee agrees to establish and maintain, in a form satisfactory to
Lessor, a funding commitment in an amount equal to $2,000,000 upon which Lessee
may draw upon to pay to Lessor Base Rent, Percentage Rent and Additional
Charges. Repayment of the funding commitment shall be subordinated to all
payments of Base Rent, Percentage Rent and additional charges under all Leases
between Lessor and Lessee.

 

23.2. Lessor’s Right to Inspect. Lessee shall permit Lessor and its authorized
representatives as frequently as reasonably requested by Lessor to inspect the
Leased Property and Lessee’s accounts and records pertaining thereto and make
copies thereof, during usual business hours upon reasonable advance Notice,
subject only to any business confidentiality requirements reasonably requested
by Lessee.

 

ARTICLE 24

APPRAISERS

 

24.1. Appraisers. If it becomes necessary to determine the Fair Market Value or
Fair Market Rental of the Leased Property for any purpose of this Lease, the
party required or permitted to give Notice of such required determination shall
include in the Notice the name of a Person selected to act as appraiser on its
behalf. Within ten (10) days after Notice, Lessor (or Lessee, as the case may
be) shall by Notice to Lessee (or Lessor, as the case may be) appoint a second
Person as appraiser on its behalf. The appraisers thus appointed, each of whom
must be a member of the American Institute of Real Estate Appraisers (or any
successor organization thereto) with at least five (5) years’ experience in the
State appraising property similar to the Leased Property, shall, within
forty-five (45) days after the date of the Notice appointing the first
appraiser, proceed to appraise the Leased Property to determine the Fair Market
Value or Fair Market Rental thereof as of the relevant date (giving effect to
the impact, if any, of inflation from the date of their decision to

 

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the relevant date); provided, however, that if only one appraiser shall have
been so appointed, then the determination of such appraiser shall be final and
binding upon the parties. To the extent consistent with sound appraisal practice
as then existing at the time of any such appraisal, such appraisal shall be made
on a basis consistent with the basis on which the Leased Property was appraised
for purposes of determining its Fair Market Value at the time the Leased
Property was acquired by Lessor. If two (2) appraisers are appointed and if the
difference between the amounts so determined does not exceed five percent (5%)
of the lesser of such amounts, then the Fair Market Value or Fair Market Rental
shall be an amount equal to fifty percent (50%) of the sum of the amounts so
determined. If the difference between the amounts so determined exceeds five
percent (5%) of the lesser of such amounts, then such two appraisers shall have
twenty (20) days to appoint a third appraiser. If no such appraiser shall have
been appointed within such twenty (20) days or within ninety (90) days of the
original request for a determination of Fair Market Value or Fair Market Rental,
whichever is earlier, either Lessor or Lessee may apply to any court having
jurisdiction to have such appointment made by such court. Any appraiser
appointed by the original appraisers or by such court shall be instructed to
determine the Fair Market Value or Fair Market Rental within forty-five (45)
days after appointment of such appraiser. The determination of the appraiser
which differs most in the terms of dollar amount from the determinations of the
other two appraisers shall be excluded, and fifty percent (50%) of the sum of
the remaining two determinations shall be final and binding upon Lessor and
Lessee as the Fair Market Value or Fair Market Rental of the Leased Property, as
the case may be. This provision for determining by appraisal shall be
specifically enforceable to the extent such remedy is available under applicable
law, and any determination hereunder shall be final and binding upon the parties
except as otherwise provided by applicable law. Lessor and Lessee shall each pay
the fees and expenses of the appraiser appointed by it and each shall pay
one-half of the fees and expenses of the third appraiser and one-half of all
other costs and expenses incurred in connection with each appraisal.

 

ARTICLE 25

ARBITRATION AND DISPUTE RESOLUTION PROCEDURES

 

25.1. Arbitration. Except as set forth in Section 25.2, in each case specified
in this Lease in which it shall become necessary to resort to arbitration, such
arbitration shall be determined as provided in this Section 25.1. The party
desiring such arbitration shall give Notice to that effect to the other party,
and an arbitrator shall be selected by mutual agreement of the parties, or if
they cannot agree within thirty (30) days of such notice, by appointment made by
the American Arbitration Association (“AAA”) from among the members of its
panels who are qualified and who have experience in resolving matters of a
nature similar to the matter to be resolved by arbitration.

 

25.2. Alternative Arbitration. In each case specified in this Lease for a matter
to be submitted to arbitration pursuant to the provisions of this Section 25.2,
Lessor and Lessee will agree upon a nationally recognized accounting firm with a
hospitality division of which neither party nor their Affiliates of Lessor is a
significant client to serve as arbitrator of such dispute within fifteen (15)
days after written demand for arbitration is received or sent by either party.
In the event the parties fail to make such designation within such fifteen (15)
day period, Lessor shall be entitled to designate any nationally recognized
accounting firm with a hospitality division of which Lessor or an Affiliate of
Lessor is not a significant client to serve as arbitrator of such dispute within
fifteen (15) days after the parties fail to timely make such designation. In the
event Lessor

 

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fails to make such designation within such fifteen (15) day period, Lessee shall
be entitled to designate any nationally recognized accounting firm with
hospitality division of which Lessee or an Affiliate of Lessee is not a
significant client to serve as arbitrator of such dispute within fifteen (15)
days after the parties fail to timely make such designation. In the event no
nationally recognized accounting firm satisfying such qualifications is
available and willing to serve as arbitrator, the arbitrator shall instead be
administered as set forth in Section 25.1.

 

25.3. Arbitration Procedure. In any arbitration commenced pursuant to Sections
25.1 or 25.2, a single arbitrator shall be designated and shall resolve the
dispute. The arbitrator’s decision shall be binding on all parties, shall not be
subject to further review or appeal except as otherwise allowed by applicable
law and may be filed in and enforced by a court of competent jurisdiction. Upon
the failure of either party (the “non-complying party”) to comply with his
decision, the arbitrator shall be empowered, at the request of the other party,
to order such compliance by the non-complying party and to supervise or arrange
for the supervision of the non-complying party’s obligation to comply with the
arbitrator’s decision, all at the expense of the non-complying party. To the
maximum extent practicable, the arbitrator and the parties, and the AAA if
applicable, shall take any action necessary to insure that the arbitration shall
be concluded within ninety (90) days of the filing of such dispute. The fees and
expenses of the arbitrator shall be shared equally by Lessor and Lessee except
as otherwise specified above in this Section 25.3. Unless otherwise agreed in
writing by the parties or required by the arbitrator or AAA, if applicable,
arbitration proceedings hereunder shall be conducted in the State.
Notwithstanding formal rules of evidence, each party may submit such evidence as
each party deems appropriate to support its position and the arbitrator shall
have access to and right to examine all books and records of Lessee and Lessor
regarding the Hotel during the arbitration.

 

ARTICLE 26

NOTICES

 

26.1. Notices. All notices, demands, requests, consents approvals and other
communications (“Notice” or “Notices”) hereunder shall be in writing and
hand-delivered, sent by FedEx or other nationally recognized overnight courier
service, or mailed (by registered or certified mail, return receipt requested
and postage prepaid), if to Lessor at 814 East Main Street, Richmond, Virginia
23219, Attn: Justin G. Knight and if to Lessee at 814 East Main Street,
Richmond, Virginia 23219, Attn: Justin G. Knight or to such other address or
addresses as either party may hereafter designate. Personally delivered Notice
shall be effective upon receipt, and Notice given by overnight courier service
or by mail shall be complete at the time of deposit with the courier service or
in the U.S. Mail system, respectively, but any prescribed period of Notice and
any right or duty to do any act or make any response within any prescribed
period or on a date certain after the service of such Notice given by overnight
courier service shall be extended one (1) day and by mail shall be extended five
(5) days.

 

ARTICLE 27

MISCELLANEOUS

 

27.1. No Waiver. No failure by Lessor or Lessee to insist upon the strict
performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof, and

 

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no acceptance of full or partial payment of Rent during the continuance of any
such breach, shall constitute a waiver of any such breach or of any such term.
To the extent permitted by law, no waiver of any breach shall affect or alter
this Lease, which shall continue in full force and effect with respect to any
other then existing or subsequent breach.

 

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

 

27.3. Waiver of Trial by Jury. LESSOR AND LESSEE EACH WAIVE, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A TRIAL BY JURY IN THE EVENT OF
A PROCEEDING WITH RESPECT TO THIS LEASE, INCLUDING, WITHOUT LIMITATION, SUMMARY
PROCEEDINGS TO ENFORCE THE REMEDIES SET FORTH IN ARTICLE 16.

 

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

 

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

 

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

 

27.7. Action for Damages. Except as otherwise expressly provided herein, in any
suit or other claim brought by either party seeking damages against the other
party for breach of its obligations under this Lease, the party against whom
such claim is made shall be liable to the other party only for actual damages
and not for consequential, punitive or exemplary damages.

 

27.8. Lease Assumption in Bankruptcy Proceeding. If an Event of Default occurs
and Lessee has filed or has had filed against it a petition in bankruptcy or for
reorganization or other relief pursuant to the federal bankruptcy code, Lessee
shall promptly move the court presiding over the proceeding to assume this Lease
pursuant to 11 U.S.C. §365, without seeking an extension of the time to file
said motion.

 

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27.9. Enforceability. Anything contained in this Lease to the contrary
notwithstanding, all claims against, and liabilities of, Lessee or Lessor
arising prior to any date of termination of this Lease shall survive such
termination. If any term or provision of this Lease or any application thereof
is invalid or unenforceable, the remainder of this Lease and any other
application of such term or provisions shall not be affected thereby. If any
late charges or any interest rate provided for in any provision of this Lease
are based upon a rate in excess of the maximum rate permitted by applicable law,
the parties agree that such charges shall be fixed at the maximum permissible
rate. Neither this Lease nor any provision hereof may be changed, waived,
discharged or terminated except by a written instrument in recordable form
signed by Lessor and Lessee. All the terms and provisions of this Lease shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. The headings in this Lease are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
This Lease shall be governed by and construed in accordance with the laws of the
State, but not including its conflicts of laws rules.

 

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

 

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

 

“LESSOR”

APPLE HOSPITALITY FIVE, INC., a Virginia
corporation     By:  

/s/ Justin G. Knight

 

“LESSEE”

APPLE HOSPITALITY FIVE
MANAGEMENT, INC., a Virginia corporation     By:  

/s/ Justin G. Knight

 

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EXHIBIT A

LEGAL DESCRIPTION

 

Block 27 of Williams Center, as shown by subdivision map recorded in Book 49 of
Maps and Plats at page 57, records of Pima County, Arizona.

 

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SCHEDULE 2.1

COMMENCEMENT DATE

 

December 15, 2004

 

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SCHEDULE 3.1(a)

BASE RENT

 

$1,186,012

 

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SCHEDULE 3.1(b)

SUITE REVENUE BREAKPOINT

 

     2004

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   2005

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   2006

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   2007

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   2008

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   2009

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   2010

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   2011

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   2012

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   2013

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   2014

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Yearly Breakpoint

   $ 11,169    $ 290,384    $ 296,192    $ 302,116    $ 308,158    $ 314,321   
$ 320,608    $ 327,020    $ 333,560    $ 340,232    $ 347,036