Exhibit 10.4

 
 

HOTEL

MANAGEMENT AGREEMENT

Between

TRS SAN SPRING, LLC

and

PEACHTREE HOSPITALITY MANAGEMENT, LLC

Dated

October 1, 2015

 
 

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TABLE OF CONTENTS
 
                                                                                                                                                                                                   Page
                                                                                        Page                                                                                      Page
HOTEL MANAGEMENT
AGREEMENT ....................................................................................................................................................................................................................................................................................1
 
ARTICLE 1
DEFINITIONS..............................................................................................................................................................................................................................................................................................................1
Section
1.01.                         Definitions. ................................................................................................................................................................................................................................................................................1
 
ARTICLE 2 TERM OF
AGREEMENT .........................................................................................................................................................................................................................................................................................10
Section
2.01.                         Term. .........................................................................................................................................................................................................................................................................................10
 
ARTICLE 3 OPERATION OF THE
HOTEL ................................................................................................................................................................................................................................................................................10
Section 3.01.                         Representations by Operator; Engagement of
Operator. .................................................................................................................................................................................................10
Section 3.02.                         Standards of
Operation. .........................................................................................................................................................................................................................................................11
Section 3.03.                         Reservations Services and Revenue
Management. ..........................................................................................................................................................................................................11
Section
3.04.                         Marketing. ................................................................................................................................................................................................................................................................................11
Section 3.05.                         Consultations Between Lessee and
Operator. Section 3.06.                         Transactions with Affiliates and
Other
Relationships. .....................................................................................................................................................................................................12
Section 3.07.                         Regional
Manager. .................................................................................................................................................................................................................................................................12
Section 3.08.                         Certain
Expenses. ...................................................................................................................................................................................................................................................................13
ARTICLE 4 INDEPENDENT
CONTRACTOR ...........................................................................................................................................................................................................................................................................13
Section 4.01.                         Operator
Status. ..............................................................................................................................................................................................................................................................................13
Section
4.02.                         Employees. .......................................................................................................................................................................................................................................................................................13
Section 4.03.                         Employee
Expenses. .......................................................................................................................................................................................................................................................................14
Section 4.04.                         Employee Benefit
Plans. ................................................................................................................................................................................................................................................................15
Section 4.05.                         Execution of
Agreements. .....................................................................................................................................................................................................................................................15
 
ARTICLE 5
INDEMNIFICATION ...............................................................................................................................................................................................................................................................................................16
Section 5.01.                         Indemnification by
Operator. ...............................................................................................................................................................................................................................................16
Section 5.02.                         Limitations on
Indemnification. ...........................................................................................................................................................................................................................................16
Section 5.03.                         Indemnification by
Lessee. ...................................................................................................................................................................................................................................................17
Section 5.04.                         Survival of
Indemnity. ...........................................................................................................................................................................................................................................................17
 
ARTICLE 6 BUDGETS AND POLICY
MEETINGS ..................................................................................................................................................................................................................................................................17
Section
6.01.                         Budgets. ..................................................................................................................................................................................................................................................................................17
Section 6.02.                         Budget
Meetings. ..................................................................................................................................................................................................................................................................19
 
ARTICLE 7 OPERATING
EXPENSES .......................................................................................................................................................................................................................................................................................19
Section 7.01.                         Payment of Operating
Expenses. ........................................................................................................................................................................................................................................19
Section 7.02.                         Operating Expenses Not an Obligation of
Operator. .......................................................................................................................................................................................................21
 
ARTICLE 8 BANK
ACCOUNTS ...............................................................................................................................................................................................................................................................................................21
Section 8.01.                         Lessee Revenue
Account. ..................................................................................................................................................................................................................................................21
Section 8.02.                         Bank
Accounts. ....................................................................................................................................................................................................................................................................21
Section 8.03.                         Authorized
Signatures. .......................................................................................................................................................................................................................................................22
 
ARTICLE 9 BOOKS, RECORDS AND
STATEMENTS .........................................................................................................................................................................................................................................................22
Section 9.01.                         Books and
Records. .............................................................................................................................................................................................................................................................22
Section
9.02.                         Statements. ............................................................................................................................................................................................................................................................................23
 
ARTICLE 10 FEES AND TRANSFERS TO
LESSEE ...............................................................................................................................................................................................................................................................24
 
ARTICLE 11 REPAIRS AND
MAINTENANCE ......................................................................................................................................................................................................................................................................24
ARTICLE 12
INSURANCE ..........................................................................................................................................................................................................................................................................................................25
Section
12.01.                         General. .................................................................................................................................................................................................................................................................................25
Section 12.02.                         Workers’ Compensation and Other
Employment
Insurance. .......................................................................................................................................................................................25
Section 12.03.                         Approval of Companies and Cost by Owner
and
Lessee. ............................................................................................................................................................................................25
Section 12.04.                         Maintenance of
Coverages. ...............................................................................................................................................................................................................................................25
Section 12.05.                         Waiver of
Subrogation. ......................................................................................................................................................................................................................................................26
Section 12.06.                         Blanket
Coverage. ...............................................................................................................................................................................................................................................................26
Section 12.07.                         Employment Practice
Liability. ..........................................................................................................................................................................................................................................26
Section 12.08.                         Cyber/Network/Privacy
Liability. .....................................................................................................................................................................................................................................26
Section 12.09.                         Liquor
Liability. ...................................................................................................................................................................................................................................................................26
Section 12.10.                         Automobile
Liability. ..........................................................................................................................................................................................................................................................26
Section 12.11.                         General
Liability. ..................................................................................................................................................................................................................................................................27
Section
12.12.                         Property. ...............................................................................................................................................................................................................................................................................27
Section
12.13.                         Crime. ....................................................................................................................................................................................................................................................................................27
 
ARTICLE 13 PROPERTY TAXES, LOCAL TAXES, LEVIES AND OTHER
ASSESSMENTS .........................................................................................................................................................................................27
Section 13.01.                         Property
Taxes. ....................................................................................................................................................................................................................................................................27
Section 13.02.                         Lessee’s Right to
Contest. .................................................................................................................................................................................................................................................27
 
ARTICLE 14 DAMAGE OR DESTRUCTION -
CONDEMNATION ....................................................................................................................................................................................................................................28
Section
14.01.                         Damage. ...............................................................................................................................................................................................................................................................................28
Section
14.02.                         Condemnation. ...................................................................................................................................................................................................................................................................28
 
ARTICLE 15 USE OF
NAME .....................................................................................................................................................................................................................................................................................................28
 
ARTICLE 16
TERMINATION ...................................................................................................................................................................................................................................................................................................29
Section 16.01.                         Lessee’s Right to
Terminate. ...........................................................................................................................................................................................................................................29
Section 16.02.                         Sale of
Hotel. ......................................................................................................................................................................................................................................................................29
Section 16.03.                         Performance
Failure. ..........................................................................................................................................................................................................................................................29
Section 16.04.                         Termination
Fees. ..............................................................................................................................................................................................................................................................30
Section 16.05.                         WARN
Act. ........................................................................................................................................................................................................................................................................30
 
ARTICLE 17 DEFAULT AND
REMEDIES .............................................................................................................................................................................................................................................................................31
Section 17.01.                         Events of Default-
Remedies. ..........................................................................................................................................................................................................................................31
Section 17.02.                         Rights Not
Exclusive. .......................................................................................................................................................................................................................................................32
 
ARTICLE 18
NOTICES ..............................................................................................................................................................................................................................................................................................................33
Section
18.01.                         Notices. ..............................................................................................................................................................................................................................................................................33
 
ARTICLE 19
ASSIGNMENT ....................................................................................................................................................................................................................................................................................................34
Section 19.01.                         No Assignment by
Operator. .........................................................................................................................................................................................................................................34
Section 19.02.                         Assignment by
Lessee. ..................................................................................................................................................................................................................................................34
 
ARTICLE 20
SUBORDINATION ............................................................................................................................................................................................................................................................................................34
Section 20.01.                         Subordination To
Mortgage. .........................................................................................................................................................................................................................................34
Section
20.02.                         Foreclosure. ......................................................................................................................................................................................................................................................................35
Section 20.03.                         Estoppel
Certificates. ......................................................................................................................................................................................................................................................35
 
ARTICLE 21
MISCELLANEOUS ...........................................................................................................................................................................................................................................................................................35
Section 21.01.                         Further Documentation and Reporting
Compliance. .................................................................................................................................................................................................35
Section
21.02.                         Captions. ..........................................................................................................................................................................................................................................................................36
Section 21.03.                         Successors and
Assigns. ..............................................................................................................................................................................................................................................36
Section 21.04.                         Assumption of Post Termination
Obligations. ..........................................................................................................................................................................................................36
Section 21.05.                         Competitive Market
Area. .............................................................................................................................................................................................................................................36
Section 21.06.                         Entire
Agreement. ...........................................................................................................................................................................................................................................................37
Section 21.07.                         Governing
Law. ...............................................................................................................................................................................................................................................................37
Section 21.08.                         No Political
Contributions. ............................................................................................................................................................................................................................................37
Section 21.09.                         Eligible Independent Contractor. 
.................................................................................................................................................................................................................................37
Section 21.10.                         Time of the
Essence. ......................................................................................................................................................................................................................................................38
Section 21.11.                         Attorney’s
Fees. .............................................................................................................................................................................................................................................................38
Section 21.12.                         Final
Accounting. ...........................................................................................................................................................................................................................................................38
Section 21.13.                         Franchisor Communications. 
.......................................................................................................................................................................................................................................39
Section 21.14.                         Dispute
Resolution ........................................................................................................................................................................................................................................................39

EXHIBIT A – Franchise Agreement

EXHIBIT B -- Form of SPAR Inspection Form

EXHIBIT C -- Accounting Software and Payroll Processes

EXHIBIT D – Expert Resolution Process

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HOTEL MANAGEMENT AGREEMENT
 
This HOTEL MANAGEMENT AGREEMENT is made and entered into effective as of October
1, 2015, by and among TRS SAN SPRING, LLC “Lessee” and PEACHTREE HOSPITALITY
MANAGEMENT, LLC, a Georgia limited liability company (“Operator”), with
reference to the following facts:
 
A.      Lessee leases from CDOR SAN SPRING, LLC (“Owner”) the Springhill Suites
by Marriott hotel located at 524 S. St. Mary’s Street, San Antonio,
TX  (“Hotel”) pursuant to that certain Master Lease Agreement dated October 1,
2015 (the “Lease”);
 
B.      Lessee desires to engage Operator to operate and manage the Hotel
beginning on the Commencement Date in accordance with the terms of this
Agreement; and
 
C.      Operator desires to supply the services and to operate the Hotel
beginning on the Commencement Date in accordance with the terms of this
Agreement.
 
NOW, THEREFORE, for and in consideration of the mutual covenants, conditions,
stipulations, agreements and obligations hereinafter set forth and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties hereto, Lessee and Operator covenant and agree as
follows:
 
ARTICLE 1
 
DEFINITIONS
 
Section 1.01.  
Definitions.»

 

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

 
“Accounting Fee” shall mean an accounting fee in the amount of $1,000.00 per
month; provided, however, such amount shall be subject to adjustment annually as
may be approved by Lessee and Operator.
 
“Adjusted Operating Expenses” shall mean Operating Expenses excluding Operator’s
Fee, insurance premiums (with the exception of the insurance described in
Section 12.02), discretionary employee bonuses (to the extent not set forth in
an Approved Budget or otherwise approved by Lessee) and Property real estate and
personal property taxes.
 
“Affiliate” shall mean (a) any person that, directly or indirectly, controls or
is controlled by or is under common control with such person, (b) any person
that owns, beneficially, directly or indirectly, ten percent or more of the
outstanding capital stock, shares or equity interests of such person, or (c) any
officer, director, employee, partner or trustee of such person or any person
controlling, controlled by, or under common control with such person.
 
“Agreement” shall mean this Hotel Management Agreement and all amendments,
modifications, supplements, consolidations, extensions and revisions to this
Hotel Management Agreement approved by Lessee and Operator.
 
 
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“Applicable Requirements” means the applicable provisions, restrictions and
requirements of Legal Requirements, all governmental or quasi-governmental
licenses and permits, including but not limited to any certificate of occupancy,
business licenses and liquor licenses, the Franchise Agreement, the Mortgage and
all other contracts, documents, authorizations, leases and consents governing
the operation and ownership of the Hotel.
 
“Approved Budget” shall mean the Hotel Operating Budget prepared in accordance
with Section 6.01 of this Agreement and approved in writing by Lessee.
 
“CPI” shall mean the Consumer Price Index, all items for All Urban Consumers,
published by the Bureau of Labor Statistics of the United States Department of
Labor as reported in The Wall Street Journal.
 
“Capital Improvements” will mean all expenditures for replacements,
substitutions and additions to Hotel and Hotel FF&E which are required to be
capitalized in accordance with generally accepted accounting principles.
 
 “Code” shall have the meaning set forth in Section 21.08(a).
 
“Commencement Date” shall mean October 1, 2015.
 
“Competitive Set” means the hotels listed on Exhibit_A-1 attached hereto, or
such other hotels as may be reasonably agreed upon by Lessee and Operator from
time to time during the Term.  The Lessee and Operator shall discuss at least
once a year, and upon any major change to an existing hotel in the Competitive
Set, the composition of the Competitive Set.  Any changes to a Hotel’s
Competitive Set must be approved by Lessee.
 
 “Expert” shall have the meaning set forth in Exhibit D.
 
“Expert Matters” shall have the meaning set forth in Exhibit D.
 
“Event(s) of Default” shall mean one or more of the events or occurrences listed
in Section 17.01 of this Agreement.
 
“FF&E Reserve” shall have the meaning set forth in Section 8.02(d).
 
“Fiscal Year” shall mean each twelve (12) month calendar year ending December 31
during the Operating Term, except that the first Fiscal Year and the last Fiscal
Year of the Operating Term may not be full calendar years.
 
“Franchisor” shall mean the franchisor under the Franchise Agreement.
 
“Franchisor Agreement” shall mean the franchise license agreement held by Lessee
or Operator with respect to the Hotel as described in Exhibit A as it may be
amended from time to time.
 
“GAAP” shall mean generally accepted accounting principles and procedures in the
United States.
 
 
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“Gross Hotel Income” shall mean all income and proceeds of sales received by
Operator for guest use, occupancy or enjoyment of the Hotel or for the sale of
any goods (excluding the sale and service of alcoholic beverages), services or
other items sold on or provided from the Hotel to guests in the ordinary course
of the Hotel operation, but excluding the following: (i) any excise, sales or
use taxes or similar government charges collected directly from patrons or
guests, or as a part of the sales price of any goods, services or displays, such
as gross receipts, admission, cabaret or similar or equivalent taxes; (ii)
receipts from condemnation awards or sales in lieu of or under threat of
condemnation; (iii) proceeds of insurance (other than proceeds from business
interruption insurance received by Lessee which shall be allocated by Lessee to
any applicable periods); (iv) proceeds of sales of capital assets, furniture and
Hotel Operating Equipment; (v) consideration received at the Hotel for hotel
accommodations, goods and services to be provided at other hotels although
arranged by, for or on behalf of, Operator; (vi) proceeds of any financing;
(vii) working capital provided by Lessee; (viii) any funds provided by Lessee to
Operator whether for Operating Expenses or otherwise; (ix) interest income and
fees, rents and other revenues from telecommunications tower or similar leases
or other leases or sub-leases of any part of the Property and (x) other income
or proceeds resulting other than from guest use or occupancy of the Hotel or the
Property, or any part thereof, or other than from the sale of goods, services or
other items sold on or provided in connection with guest services at the Hotel
in the ordinary course of business.  The parties intend that Gross Hotel Income
shall be computed in a manner consistent with “room rentals and other hotel
services” computation of revenues on the Parent’s audited Consolidated
Statements of Operations.
 
“Group Services” shall mean group benefits, services, and facilities generally
made available by Operator at other properties owned or managed by Operator or
its Affiliates, including, where applicable, convention, business and
sales-promotion services; advertising and public relation services; centralized
reservation services; computerized management information services; educational
and training programs and facilities; central purchasing and procurement
services; employee benefits administration; payroll administration; and risk
management services.  Group Services does not include Operator’s central office
overhead and general office and administrative expenses (as opposed to that of
the Hotel).
 
“Holder” shall mean the holder of any Mortgage and the indebtedness secured
thereby, and such holder’s successors and assigns.
 
“Hotel Capital Budget” shall mean the budget relating to capital expenditures at
a Hotel as described in Section 6.01.
 
“Hotel FF&E” shall mean the furniture, furnishings, wall coverings, fixtures and
hotel equipment for a Hotel and which includes equipment required for operation
of the kitchens, restaurants and laundry, office equipment, material handling
equipment, cleaning and engineering equipment and vehicles.
 
“Hotel Operating Account” shall mean the bank account opened and maintained in
Operator’s name, or in a name designated by Operator, with a banking institution
selected by Lessee, from which disbursements shall be made pursuant to the terms
of this Agreement.
 
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“Hotel Operating Budget” shall mean the budget relating to the operation of a
Hotel as described in Section 6.01.
 
“Hotel Operating Equipment” shall mean linens, chinaware, glassware, silverware,
uniforms, utensils and other non-consumable items of similar nature necessary to
operate the Hotel.
 
“Hotel Operating Supplies” shall mean paper supplies, cleaning materials and
similar consumable and/or disposable items.
 
“Hotel Standards” shall mean the standards established by the respective
Franchisors of the Hotel from time to time.
 
“Hotel” shall have the meaning set forth in the Recitals.
 
“Incentive Fees” shall mean incentive compensation paid by Lessee to Operator
for performance above budgeted expectations, achievable to a maximum payout of
2% of Gross Hotel Income. The following will trigger Incentive Fee payouts:
 
(i)  
Fiscal Year 1: Beginning January 1, 2016, Lessee shall pay to Operator an amount
equal to 1% of Gross Hotel Income for such Fiscal Year if the Hotel achieves an
IR of 8% to 8.499% for such Fiscal Year. Lessee shall pay to Operator an
additional amount equal to 1% of Gross Hotel Income for such Fiscal Year if the
Hotel achieves an IR of 8.5% or higher for such Fiscal Year.

 
(ii)  
Fiscal Year 2: Beginning January 1, 2017, Lessee shall pay to Operator an amount
equal to 1% of Gross Hotel Income for such Fiscal Year if the Hotel achieves an
IR of 8.5% to 8.99% for such Fiscal Year.  Lessee shall pay to Operator an
additional amount equal to 1% of Gross Hotel Income for such Fiscal Year if the
Hotel achieves an IR of 9% or higher for such Fiscal Year.

 
For Year 1 and Year 2, all Incentive Fees will be paid annually based on the
standard Fiscal Year. All Incentive Fees will be paid the first of the month
after the respective Fiscal Year end profit and loss statements (P&L’s) are
finalized.
 
(iii)  
Year 3: Beginning January 1, 2018 and continuing until the termination of this
Agreement, Lessee shall pay to Operator the following amounts, up to a maximum
payout of 2% of Gross Hotel Income:

 
(a)  
0.5% of Gross Hotel Income if the Portfolio achieves budgeted NOI.

 
(b)  
25% of any NOI in excess of budgeted NOI for the Portfolio.

 
(c)  
If the Portfolio has achieved its budgeted NOI, 25% of any Gross Hotel Income
for the Portfolio in excess of budgeted Gross Hotel Income for the portfolio.

 
 
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Beginning Year 3, all Incentive Fees will be paid quarterly based on standard
operating quarters (1st Quarter includes months January through March; 2nd
Quarter includes April through June; 3rd Quarter includes July through September
and 4th Quarter includes October through December).  Additionally, all Incentive
Fees will be paid the first of the month after the respective quarters profit
and loss statements (P&L’s) are finalized (i.e. 1st Quarter P&L’s will be
finalized in April, so the first Incentive Fee payment will be paid May 1). 
 
Furthermore, for purposes of Incentive Fee calculations, a hotel in the
Portfolio which is sold within the quarter will be used for incentive
calculations prior to the month in which it is sold (i.e. if a Hotel is sold
February 5th, its financial performance will only be used in January for that
quarter’s calculations).  In addition, if the Portfolio fails to achieve its
budgeted NOI for any period due to, with respect to any hotel in the portfolio,
(i) an Unavoidable Interruption, (ii) a failure of the owner/lessee thereunder
to provide sufficient funds as required to operate such hotel in compliance with
the franchise agreement applicable thereto, or (iii) a casualty or condemnation
affecting such hotel, then such hotel shall be removed from the Portfolio for
the calculation of the Portfolio’s NOI for such period.
 
“Initial Term” shall have the meaning set forth in Section 2.01.
 
“Independent CPA” shall mean the firm of independent public accountants which is
selected by Lessee from time to time.
 
“IR” shall mean Investment Return, which shall be equal to the product obtained
by dividing NOI, by the total investment of Lessee in the hotel, including
acquisitions price, acquisition costs and any capital expenditures not covered
in any year by any FF&E reserve.
 
“Land” shall mean the real property described in Exhibit A to the Lease.
 
“Lease” shall have the meaning set forth in the recitals.
 
“Legal Requirements” shall mean all laws, ordinances, statutes, regulations,
requirements, orders, notices and determinations of any federal, state,
municipal or other authority having jurisdiction over the Hotel now or hereafter
in effect, including but not limited to, environmental laws.
 
“Lessee” shall have the meaning set forth in the recitals.
 
“Lessee Indemnified Parties” shall have the meaning set forth in Section 5.01.
 
“Lessee Revenue Account” shall mean the bank accounts opened and maintained in
Lessee’s name, or in a name designated by Lessee, with a banking institution
selected by Lessee, into which all income, receipts and proceeds included in the
definition of Gross Hotel Income (without exclusion of any of the items excluded
from the definition of such term) shall be deposited.
 
“Mortgage” shall mean any mortgage or deed of trust hereafter, from time to
time, encumbering all or any portion of the Property, together with all other
instruments evidencing or securing payment of the indebtedness secured by such
mortgage or deed of trust and all amendments, modifications, supplements,
extensions, and revisions of such mortgage, deed of trust and other instruments.
 
 
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“NOI” shall mean Net Operating Income which shall be determined by deducting
Adjusted Operating Expenses from Gross Hotel Income.
 
“Operating Expenses” shall mean all costs and expenses of maintaining,
conducting and supervising the operation of the Property, to the extent set
forth in an Approved Budget and the provisions of Section 6.03, incurred
pursuant to this Agreement or as otherwise specifically provided herein which
are properly attributable to the period under consideration under Lessee’s
system of accounting, including without limitation:
 
(i)  
The cost of all food and beverages (excluding alcoholic beverages) sold or
consumed and of all Hotel Operating Equipment and Hotel Operating Supplies;

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

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

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

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

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

 
(vii)  
Legal fees relating to Hotel operations and real estate tax abatement and appeal
services excluding legal fees with respect to employee claims;

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

 
(ix)  
All expenses for marketing and sales, including all expenses of advertising,
sales promotion and public relations activities at the Hotel, exclusive of
Operator’s marketing manager and similar administrative personnel (which
expenses shall be borne by Operator);

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

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

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

 
(xiii)  
The cost of un-collectible accounts receivable as reasonably determined by
Operator pursuant to its standard policies consistently applied;

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

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

 
(xvi)  
The costs of obtaining and keeping in force all licenses or permits necessary
for the operation of the Hotel and in complying with governmental laws, rules,
regulations, ordinances, orders and requirements;

 
(xvii)  
All reasonable travel expenses of Operator’s supervisory personnel (to the
extent set forth in an Approved Budget, requested by Lessee, or otherwise
approved by Lessee) for visits to the Hotel in the performance of their duties
hereunder, but not including travel between Operator’s main office and
Operator’s regional offices;

 
(xviii)  
The costs to send above property supervisory personnel to brand conferences,
which costs shall be reimbursed in proportion to the number of Lessee’s hotels
associated with the brand conference out of Operator’s total portfolio of hotels
managed associated with the specific brand conference, provided that the
percentage of reimbursable costs shall be pre-approved by Lessee prior to the
date of the conference;

 
 
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(xix)  
Other potential operating expenses which are budgeted for and approved by Lessee
provided they are disclosed in advance to Lessee’s designated representative;

 
(xx)  
Operator’s Fee, the Accounting Fee and the Revenue Management Fee; and

 
(xxi)  
The Hotel’s portion of the cost of Group Services so long as (i) the cost of the
Group Services are without mark-up and are allocated in good faith on a
consistent, fair and equitable basis among the Hotel and other Operator-managed
hotels; and (ii) the cost of the Group Services are either (a) itemized by
Operator in each Approved Budget and identified as an affiliated-party
transaction or (b) otherwise approved in writing by Lessee.

 
Operating Expenses shall not include (a) depreciation and amortization except as
otherwise provided in this Agreement; (b) debt service; (c) capital expenditures
per the Hotel Capital Budget; and (d) lease payments to Owner.
 
The parties intend that Operating Expenses shall be computed in a manner
consistent with “Hotel and property operations expenses” computation of expenses
on the Parent’s Audited Consolidated Statements of Operations.
 
“Operating Loss” shall mean for any period the amount by which Operating
Expenses exceed Gross Hotel Income.
 
“Operating Term” shall mean, with respect to any Hotel, the term of this
Agreement as set forth in Section 2.01.
 
“Operator” shall have the meaning set forth in the recitals.
 
“Operator Indemnified Parties” shall have the meaning set forth in Section 5.03.
 
“Operator’s Fee” shall mean a monthly fee equal to 3% of Gross Hotel Income.
 
“Owner” shall have the meaning set forth in the Recitals.
 
“Parent” shall mean Condor Hospitality Trust, Inc.
 
“Portfolio” shall mean those other hotels at any time and from time to time
owned by Owner and its Affiliates and operated by Operator or its Affiliates.
 
“Property” shall mean the Land, the Hotel, all real and personal property now or
hereafter situated upon the Land and all appurtenant rights and easements
thereto.
 
“Rebates” shall have the meaning set forth in Section 3.06(b).
 
“Regional Manager” shall have the meaning set forth in Section 3.07.
 
“Renewal Term” shall have the meaning set forth in Section 2.01.
 
 
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 “Revenue Management Fee” shall mean a revenue management fee of $1,000.00 per
month; provided, however, such amount shall be subject to adjustment annually as
may be approved by Lessee and Operator.
 
“RevPAR” shall mean Hotel occupancy percentage multiplied by average daily rate.
 
“RevPAR Benchmark” means the Hotel’s RevPAR Index for the trailing 12-months
ending on the Commencement Date.
 
“RevPAR Index” means the RevPAR Index included in the Smith Travel Research
Report (“STR Report”).
 
“SPAR Inspection” shall mean a property inspection as reasonably conducted by
Lessee using the Supertel Property Audit Report form attached as Exhibit B.
 
“STR Report” shall mean Smith Travel Research Report produced for the Hotel by
Smith Travel Research or, if Smith Travel Research no longer is in existence,
the successor of Smith Travel Research or such other industry resource that is
equally as reputable as Smith Travel Research will be substituted, in order to
obtain substantially the same result as would be obtained if Smith Travel
Research has not ceased to be in existence.
 
“Termination Fee” shall mean:
 
(i)  
Fiscal Year 1: From January 1, 2016, through December 31, 2016, the average
monthly Operator’s Fee over the trailing twelve (12) months prior to the
relevant termination (which may include monthly Operator’s fees calculated on
Gross Hotel Income for the Hotel for periods prior to the Commencement Date),
multiplied by six (6).

 
(ii)  
Fiscal Year 2: From January 1, 2017 through December 31, 2017, the average
monthly Operator’s Fee over the trailing twelve (12) months prior to the
relevant termination, multiplied by five (5).

 
(iii)  
Fiscal Year 3: From January 1, 2018 and continuing until the termination of this
Agreement, the average monthly Operator’s Fee over the trailing twelve (12)
months prior to the relevant termination, multiplied by three (3).

 
“Termination Notice” shall have the meaning set forth in Section 16.01.
 
“Unavoidable Interruption” shall mean an interruption in the operation of or
access to the Hotel or any of its essential services on account of an
interruption in utility services, or on account of labor disputes, strikes,
lockouts, fire or other casualty, war, terrorist actions, acts of God and other
similar causes beyond the reasonable control of the party claiming an
unavoidable interruption, but never financial inability. Other than obligations
accruing prior to the occurrence of such event of Unavoidable Interruption or
obligations that, if not performed, would cause a material adverse effect on the
Hotel or its operations (for instance, the requirement to maintain the permits
or insurance obligations hereunder), the obligations of the party hereunder
shall be suspended during the period of an Unavoidable Interruption.
 
 
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“Uncontrollable Expenses” shall have the meaning set forth in Section
7.01(d)(iii).
 
“Unrelated Persons” shall have the meaning set forth in Section 21.08.
 
(b) Terms with initial capital letters which appear within the foregoing
definitions are defined in this Article I or as indicated in this
Agreement.  Dollars are denominated in U.S. Dollars.
 
ARTICLE 2
 
TERM OF AGREEMENT
 
Section 2.01.  
Term.»

 

 
The term of this Agreement shall commence on the Commencement Date and shall
terminate at midnight on September 30, 2018 [three (3) year term from the
Commencement Date] (the “Initial Term”), subject to earlier termination or
extension as set forth herein.  This Agreement shall automatically renew for two
(2) additional terms of one (1) year each (each, a “Renewal Term”) unless either
party gives the other party written notice of termination at least ninety (90)
days prior to the end of the Initial Term or the then-current Renewal Term.
 
ARTICLE 3
 
OPERATION OF THE HOTEL
 
Section 3.01.  
Representations by Operator; Engagement of Operator.»

 

 
Operator hereby represents that Operator (i) is experienced and capable and will
remain experienced and capable in the management and operation of hotel
throughout the United States of America, (ii) has reviewed and understands the
terms and provisions of the Lease and the Franchise Agreements and the Hotel
Standards, and (iii) will, on the effective date of this Agreement, meet the
requirements to be an “eligible independent contractor” under Section 856(d)(9)
of the Internal Revenue Code. In reliance on the foregoing representations,
Lessee hereby engages Operator to manage and operate the Hotel during the
Operating Term and Operator agrees to manage and operate the Hotel during the
Operating Term, in accordance with this Agreement. Operator will provide all
property management, financial accounting, reporting, marketing and other
operational services for each Hotel, including the services of regional
operations and regional sales support as necessary and will use commercially
reasonable efforts to maximize the operating profitability thereof and Group
Services. Lessee and Operator acknowledge that it is the intention of the
parties that the Hotel be operated in a manner for comparable hotels operated by
a national operator within the Hotel’s market segment, all in accordance with
the Hotel Standards. Operator shall diligently pursue all commercially
reasonable measures to enable the Hotel to adhere to the Approved
Budget.  Notwithstanding anything to the contrary in this Agreement, Operator’s
performance of its obligations set forth in this Agreement are conditioned at
all times on Lessee and/or Owner making sufficient funds available to Operator
therefor, and in no event shall Operator be, or be deemed to be, in default of
any provision of this Agreement to the extent that Operator’s failure to perform
thereunder is due to Lessee and/or Owner’s failure to make sufficient funds, as
necessary to be in compliance with Franchisor requirements, available to
Operator therefor.
 
 
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Section 3.02.  
Standards of Operation.»

 

 
Operator agrees to diligently and efficiently operate Hotel and all of its
facilities and activities (i) at all times in accordance with the Hotel
Standards; (ii) consistent with the terms of the Lease and Lessee’s obligations
thereunder; (iii) in the same manner as is customary and usual in the
first-class operation of comparable hotels; (iv) in compliance with this
Agreement, all franchise agreements, all easements, covenants and restrictions
affecting the Property (known or disclosed to Operator) and all applicable
governmental laws, rules, regulations, ordinances, orders and requirements; (v)
in accordance with the terms and conditions of any financing affecting the
Property (known or disclosed to Operator); and (vi) in accordance with the
requirements of any carrier having insurance on the Hotel or any part thereof.
Operator shall also obtain and keep in force any and all licenses or permits
necessary for the operation of the Hotel (provided that, at Lessee’s option,
liquor licenses or other licenses or permits shall be obtained and held in
Lessee’s name). Operator is authorized to enter into such agreements as may be
required to provide alcoholic beverage service at the Hotel, subject to prior
approval from Lessee. Operator also acknowledges and agrees that this Agreement
is subject and subordinate to the Lease and liens, security interest and
Mortgages in accordance with Article 20 hereof.
 
Section 3.03.  
Reservations Services and Revenue Management.»

 

 
Operator shall sell, represent and promote the Hotel through the respective
Franchisors’ sales and reservations systems and will encourage the use of the
Hotel by all recognized sources of hotel business. Operator must employ, at
least one employee responsible for revenue management of the Hotel (the expense
of which shall be part of the Revenue Management Fee), with certification by a
governing body reasonably acceptable to Lessee.
 
Section 3.04.  
Marketing.»

 

 
(a)  
Operator shall maintain a sales staff dedicated to the Hotel to arrange,
contract for and carry out such marketing, advertising, national trade show
attendance, and promotion of the Hotel as Operator shall deem advisable and
consistent with the Approved Budget and in accordance with the Hotel
Standards.  Operator will make every effort to ensure that the Hotel shall
receive an equitable share of the benefit of the cooperative advertising and
promotion reasonably commensurate with its contribution to the costs
thereof.  The costs thereof shall be equitably allocated by Operator between the
Hotel and other participating hotels, subject to Lessee’s prior written
approval.  Upon Lessee’s request, Operator shall provide reasonable
documentation to support such allocations.  Operator shall provide Lessee with
detailed monthly reports of its marketing, advertising and promotional
activities.  The Hotel shall be visited at least once every six (6) months by a
member of Operator’s sales leadership team.

 
(b)  
Operator may, consistent with the Approved Budget, and otherwise, with the
consent of Lessee, cause the Hotel to participate in sales and promotional
campaigns and activities involving complimentary rooms, food and beverages,
consistent with customary practices in the travel industry. Operator shall not
provide rooms or Hotel facilities at no cash charge or at a discounted cash rate
in trade for non-cash consideration or services without the consent of Lessee.

 
 
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Section 3.05.  
Consultations Between Lessee and Operator.»

 

 
When requested by Lessee, Operator shall, from time to time, render advice and
assistance to Lessee and Owner in the negotiation and prosecution of all claims
for the reduction of real estate or other taxes or assessments affecting the
Hotel and for any award for taking by condemnation or eminent domain affecting
the Hotel.
 
Section 3.06.  
Transactions with Affiliates and Other Relationships.»

 

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

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

 
Section 3.07.  
Regional Manager.»

 

 
Operator shall provide the services of one of its experienced management
employees to oversee and manage the operations of the Hotel (the “Regional
Manager”).  Lessee shall have the right to approve the Regional Manager and any
successor provided that such approval shall not be unreasonably withheld.  The
Regional Manager shall visit the Hotel at lease every three (3) months to insure
the Property is being operated in accordance with this Agreement. The Regional
Manager shall meet telephonically with the designated representatives of Lessee
at least monthly to discuss operations at the Hotel and consult with Lessee to
answer any questions Lessee may have, and to address any concerns of
Lessee.  Lessee’s representatives shall have the right to meet with the COO of
Operator or his/her mutually acceptable alternative on a semi-annual basis to
review hotel performance.
 
 
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Section 3.08.  
Certain Expenses.»

 

 
Operator shall not be entitled to charge Lessee for any of its costs and
expenses, except as follows:
 
(a)  
Operator shall not charge tuition for training courses provided by Operator for
employees employed at the Hotel or for course materials but shall be reimbursed
the cost of course materials developed by third party companies, subject to
approval in the Operating Budget.  Reasonable travel and housing expenses of
trainees shall be included in Operating Expenses, subject to approval in the
Operating Budget.

 
(b)  
Travel expenses described in (xvi) of “Operating Expenses” above.

 
Operator shall be solely responsible and shall reimburse Lessee and Owner for
 
re-inspection and/or penalty fees charged by Franchisors following a “failure”
or its equivalent in any quality inspection report or brand required score
standards unless the failure is for a Capital Improvement that has been
previously brought to the attention of the Owner or Lessee and Owner or Lessee
has not corrected at the time of the inspection.
 
ARTICLE 4
 
INDEPENDENT CONTRACTOR
 
Section 4.01.  
Operator Status.»

 

 
In the performance of its duties in the administration, management and operation
of the Hotel, Operator shall act solely as an independent contractor. Nothing
herein shall constitute or be construed to be or create a partnership or joint
venture between Lessee and Operator, or be construed to appoint or constitute
Operator as an agent of Lessee for any purpose, or be construed to create a
lease by Lessee of the Hotel or the Property and Operator shall not constitute a
tenant or subtenant of Lessee or Owner. Operator’s rights under this Agreement
shall be those of an agent only and shall not constitute an interest in real
property. Lessee or Owner shall have the right to lease, develop or sell excess
land or structures not required for operation of the Hotel. It is expressly
covenanted that this Agreement is no more than an agreement for the rendering of
services by Operator on behalf of Lessee in the operation and management of the
Hotel.
 
Section 4.02.  
Employees.»

 

 
Operator agrees that Lessee will have the right to review, interview, approve,
or override, the hiring of Hotel General Manager and if applicable, Director of
Sales. Operator will use all methods at their disposal to find qualified
candidates for the above listed positions. Operator agrees that if termination
of either General Manager or Director of Sales occurs, Operator will put
temporary or task force help in those vacated positions to insure continued
smooth running operations of Hotel.
 
 
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(a)  
Each Hotel employee shall be the employee of Operator, or an affiliate company
of Operator, and not of Lessee, and every person performing services in
connection with this Agreement shall be acting as the employee of Operator, but
their salaries and other related expenses shall be an Operating Expense.

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

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

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

 
Section 4.03.  
Employee Expenses.»

 

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

 
(b)  
Compensation, overhead costs and other expenses of Operator and its Affiliates
not specifically provided for herein shall not be Operating Expenses and shall
not be payable or reimbursable by Lessee; provided, however, Operator may
include in the calculation of Operating Expenses the salary of any of Operator’s
employees located at the Operator’s corporate headquarters which have been
temporarily transferred to a Hotel to serve that Hotel exclusively; provided,
further, that Operator may only include in Operating Expenses that portion of
such corporate employee’s salary which does not exceed the salary level of the
vacant position being filled at the Hotel. Operator may also include in the
calculation of Operating Expenses reasonable travel costs associated with
Operator’s employees located at the Operator’s corporate headquarters which have
been temporarily transferred to a Hotel to serve that Hotel exclusively. Lessee
shall have the right to approve temporary travel schedule.

 
 
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Section 4.04.  
Employee Benefit Plans.»

 
 
 
 
Operator shall make available to employees at the Hotel medical and health, life
insurance and employee benefit plans which are reasonably approved by
Lessee.  Operator’s contributions to such plans, reasonable administrative fees,
at cost, which may be expended in connection therewith, and reasonable expenses
for such plans will be estimated and disclosed to Lessee in advance and provided
for in the Approved Budget and will be an Operating Expense.   Except for
employer matching contributions under any 401(k) plan, Lessee, in its sole
discretion shall determine whether to require employees at the Hotel to pay all
or a portion of the costs of the employees’ participation in such plans. Except
as otherwise provided in Section 6.03, all costs referenced in Section 4.03 and
this Section 4.04 will be the responsibility of Lessee only to the extent the
same are provided for in the Approved Budget.  Upon Lessee’s request, Operator
may establish a 401(k) plan as an employee benefit plan.  All costs incurred by
Operator pursuant to actions taken by Operator at Lessee’s direction will be
Operating Expenses.
 
Section 4.05.  
Execution of Agreements.»

 
 
 
 
(a)  
Except as provided in Section 4.05(b), Operator shall execute as agent of Lessee
leases and other agreements relating to equipment and/or services provided to
each Hotel, all of which, unless otherwise approved in writing in advance by
Lessee, shall either be a term of one year or less or be cancelable upon not
more than thirty (30) days’ written notice by Operator or Lessee without the
payment of a penalty or fee. Notwithstanding the foregoing, unless permitted in
the Approved Budget or otherwise permitted by this Agreement, without the prior
written approval of Lessee, Operator shall not enter into any agreement (i)
which provides for the payment of sums not authorized by Lessee in an Approved
Budget, (ii) which would give rise to a lien upon all or any part of the
Property, (iii) which would result in liability to Lessee for sums other than as
set forth in the applicable Approved Budget, (iv) to lease any part of any
Property, (v) relating to alterations to the exterior, interior or structural
design of the Hotel, unless otherwise required by the Franchisor, (vi) which
requires an unbudgeted payment of more than $5,000, or (vii) which is not
cancelable by Lessee upon 30 days’ notice or less unless the term of said
agreement is one year or less, or (viii) which provides for any automatic
renewal terms greater than thirty (30) days.  Unless permitted in the Approved
Budget or otherwise permitted by this Agreement, without the prior written
approval of Lessee, Operator shall not enter into any contracts for multiple
rooms and / or multiple days that (i) exceed a 1-year term and/or (ii) exceed
30% of the Hotel’s room inventory for a period of 14 days or more, or (iii)
exceed 50 room nights and have a negotiated net rate of $55 or less, including
promoting such rates online, in print ads such as coupons.  If Operator desires
to enter into any agreements requiring the consent of Lessee, Operator shall
first send written notice of intent to enter into such agreement to Lessee, and
Lessee shall either approve or disapprove within five (5) business days of
receipt of such notice.  Lessee’s failure to timely respond to said request
shall be deemed approval.

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

 
ARTICLE 5
 
INDEMNIFICATION
 
Section 5.01.  
Indemnification by Operator.»

 

 
In addition to all other obligations of Operator to Lessee hereunder, Operator
shall indemnify and hold Lessee and its Affiliates, and their respective
directors, officers, owners, employees and successors (collectively, “Lessee
Indemnified Parties”) harmless against all claims, demands, actions,
liabilities, losses, damages, lawsuits and other proceedings at law or in
equity, judgments, awards, commissions, fees, costs and expenses (including,
without limitation, attorneys’ fees and expenses) (collectively referred to as
“Claims”), of every kind and nature whatsoever to or of any party connected
with, or arising out of, or by reason of (a) an Event of Default by Operator;
(b) the gross negligence, willful, or intentional misconduct on the part of
Operator, any Affiliate of Operator, or any officer, employee, agent,
contractor, subcontractor, or other person or entity working for Operator or any
Affiliate of Operator; and (c) any Claims by Hotel employees based on a
violation of employment laws by Operator’s employees including, but not limited
to Claims arising from workers’ compensation, wage-and-hour laws, unemployment
compensation, unfair labor practices, federal and state discrimination laws,
Occupational Safety and Health Administration laws, requirements under the WARN
Act (except with respect to those matters for which Lessee is to indemnify
Operator as set forth in Section 16.05), and Family and Medical Leave Act laws,
all of which include any administrative action therein; provided, however, that
Operator shall not have liability under this Section 5.01 to the extent any
Claims arise out of, or result from, acts or omissions covered by the indemnity
by Lessee set forth in Section 5.03, it being agreed that if both Lessee and
Operator have indemnification obligations under this Agreement relating to an
act or omission, then the liability shall be apportioned between such parties
based on their comparative fault or responsibility for such act or
omission.  The indemnification provisions of this Section 5.01 are subject to
the limitations set forth in Section 5.02.
 
Section 5.02.  
Limitations on Indemnification.»

 

 
None of the indemnifications set forth in Section 5.01 shall be applicable to
(1) liability resulting from the design or construction of the Hotel, or (2)
that portion of a liability which is covered and paid for by insurance
maintained for the Hotel. The standard of performance of which Operator is to be
responsible under this Agreement shall be that, reasonably and diligently
exercised, of a professional hotel operator. Settlement of a third party claim
shall not be prima facie evidence that a party has triggered an indemnification
obligation hereunder.  Notwithstanding the provisions of Section 5.01 above,
neither Lessee nor Operator will assert against the other and each does hereby
waive with respect to the other any claims for any losses, damages, liabilities
and expenses (including attorneys’ fees and disbursements) incurred or sustained
by that party as a result or damage or injury to persons or property arising out
of the ownership, operation or management of the Hotel, to the extent that the
damage and injury are covered by insurance and the proceeds are actually
recovered from the insurer.
 
 
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Section 5.03.  
Indemnification by Lessee.»

 

 
Lessee shall indemnify and hold Operator and its Affiliates, and their
respective directors, officers, owners, employees and successors (collectively,
“Operator Indemnified Parties”) harmless against all Claims of every kind and
nature whatsoever to or of any party connected with or arising out of, or by
reason of : (i) an Event of Default by Lessee; (ii) the performance by Operator
or its Affiliates of its services hereunder, including, without limitation, any
and all obligations incurred relating to any agreements with third parties
entered into by Operator or Lessee in connection with the management or
operation of the Hotel, (iii) the breach or alleged breach of, or alleged
non-compliance with, any Applicable Requirements, by Operator, Lessee, Owner or
the Hotel, (iv) any interim management agreement relating to alcoholic
beverages, liquor facilities lease agreement, food and beverage lease agreement,
concession agreement or similar document or any transfer or other licensing
application and any other documents required in connection therewith, and (v)
any other matter that is expressly made subject to indemnification by Lessee
under the terms of this Agreement; provided, however, that Lessee shall not have
liability under this Section 5.03 to the extent any Claims arise out of, or
result from, acts or omissions covered by the indemnity by Operator set forth in
Section 5.01, it being agreed that if both Lessee and Operator have
indemnification obligations under this Agreement relating to an act or omission,
then the liability shall be apportioned between such parties based on their
comparative fault or responsibility for such act or omission. The
indemnification provisions of this Section 5.03 are subject to the limitations
set forth in Section 5.02.
 
Section 5.04.  
Survival of Indemnity.»

 

 
The provisions of this Article V shall survive the expiration or sooner
termination of this Agreement with respect to matters arising out of facts or
circumstances occurring during the period prior to such expiration or
termination.
 
ARTICLE 6
 
BUDGETS AND POLICY MEETINGS
 
Section 6.01.  
Budgets.»

 

 
(a)  
No later than November 1 of each year, Operator will prepare and submit
(following discussions with Lessee) to Lessee an annual capital budget for each
Fiscal Year for each Hotel (the “Hotel Capital Budget”).  Notwithstanding the
foregoing, for the Fiscal Year in which this Agreement is executed Operator
shall manage the Hotel in accordance with the then existing Hotel Capital
Budget.  The Hotel Capital Budget will set forth all projected Capital
Improvements for such Fiscal Year, which budget shall also be month-to-month as
well as annual. The Hotel Capital Budget will be subject to the approval of
Lessee and Owner, in their sole and absolute discretion.  No later than
November 15 of each year, Operator shall prepare and submit (following
discussions with Lessee) to Lessee an annual operating budget for the operation
of each Hotel for the forthcoming Fiscal Year containing detailed projections of
Gross Hotel Income and budgets of Operating Expenses (the “Hotel Operating
Budget”).  Notwithstanding the foregoing, for the Fiscal Year in which this
Agreement is executed Operator shall manage the Hotel in accordance with the
then existing Hotel Operating Budget.  The Hotel Operating Budget shall be
month-to-month as well as annual and shall be in the form designated by Lessee,
and approved by Operator, which approval of the form shall not be unreasonably
withheld.  The Hotel Operating Budget and the Hotel Capital Budget shall provide
for operating, equipping and maintaining the Hotel in accordance with the Hotel
Standards. Contemporaneously with the submission of the Hotel Capital Budget,
Operator shall submit to Lessee monthly budgeted occupancy, average daily rate
and RevPAR statistics for each hotel. The Hotel Operating Budget and the monthly
budgeted hotel operating statistics shall contain Operator’s reasonable good
faith estimates of the amounts set forth therein. Operator shall provide Lessee,
upon request, all details, information and assumptions used in preparing the
Hotel Capital Budget and the Hotel Operating Budget.  Lessee and Owner shall be
responsible for implementing the Hotel Capital Budget and may, in their sole
discretion, increase, decrease, delete or modify in any respect any capital
expenditure in any Hotel Capital Budget, subject to the requirements of any
Holder and Frachisor.

 
 
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(b)  
Operator shall review the Hotel Capital Budget and the Hotel Operating Budget
with Lessee, and upon Lessee’s written approval of the Budget, it shall
constitute the Approved Budget for the succeeding Fiscal Year and shall be
implemented by Operator.  The Approved Budget for the Hotel shall be prepared in
both dollar amounts and percentages.  In the event Lessee does not provide
Operator with written objections to the Hotel Capital Budget and Hotel Operating
Budget within 30 days following Lessee’s receipt of the same, they shall be
deemed approved.  If Lessee objects to any portion of the Hotel Capital Budget
or the Hotel Operating Budget within 30 days after receipt of the same, or to
any portion of the revisions within 20 days after submission of the revisions by
Operator to Lessee, the parties hereto will call a special budget meeting to
resolve the points of disagreement.  In the event that Lessee and Operator are
unable to agree on the Hotel Operating Budget for a Hotel prior to the
commencement of the applicable Fiscal Year, an interim operating budget shall be
implemented which will reflect CPI increases for expenses and RevPAR increases
based on the appropriate previous 12-month RevPAR growth percentage for the
sector in which the Hotel is included, as published by Smith Travel Research,
for revenue growth over the prior year’s actual amounts.

 
 
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Section 6.02.  
Budget Meetings.»

 

 
Budget meetings between Lessee and Operator will be held at times as reasonably
scheduled by Lessee.  At each budget meeting and at any additional meetings
during a Fiscal Year called by Lessee, Operator shall consult with Lessee on
matters of policy concerning management, sales, room rates, wage scales,
personnel, general overall operating procedures, economics and operation and any
other matters affecting the operation of the Hotel as requested by Lessee.
 
ARTICLE 7
 
OPERATING EXPENSES
 
Section 7.01.  
Payment of Operating Expenses.»

 

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

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

 
(c)  
Lessee acknowledges that the Approved Budget is a reasonable estimate only and
that any projections set forth in the Approved Budget are subject to and may be
affected by changes in financial, economic and other conditions and
circumstances beyond Operator’s reasonable control, and that such projections
are not to be construed as a guaranty by Operator of the actual results of
operations to be obtained.  Accordingly, in no event shall failure to meet or
exceed the Approved Budget constitute an Event of Default by Operator as long as
Operator uses commercially reasonable efforts to meet the revenue and expense
projections set forth in the Approved Budget.

 
(d)  
Except as otherwise expressly provided in this Agreement, Operator shall not
vary from the Approved Budget, or make any expenditure or incur any expense not
provided for therein or in excess of the line item in the Approved Budget
therefor, without Lessee’s prior approval, which may be given or withheld in
Lessee’s sole and absolute discretion; provided, however, Operator and Lessee
agree that the following variations are acceptable and approved by Lessee:

 
(i)  
Lessee acknowledges that certain expenses provided for in an Approved Budget
will vary based on the occupancy of the Hotel; and, accordingly, to the extent
that occupancy of the Hotel exceeds the occupancy or use, as applicable,
projected in an Approved Budget, such Approved Budget shall be deemed to include
corresponding increases in such variable expenses and in revenues from the
Hotel, and to the extent that occupancy of the Hotel is less than the occupancy
or use, as applicable, projected in an Approved Budget, such Approved Budget
shall be deemed to include corresponding decreases in such variable expenses and
in revenues from the Hotel, and Operator shall use commercially reasonable
efforts to implement reasonable changes in operations to compensate for
variations in occupancy in an effort to achieve the projected operating results
shown in the applicable Approved Budget and in accordance with the Hotel
Standards;

 
 
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(ii)  
Operator may, without securing Lessee’s prior written consent, incur costs or
expenses in excess of the corresponding amounts in the Approved Budget by ten
percent (10%) or less for any one line item and by five percent (5%) or less in
the aggregate to the extent Operator reasonably determines that it is necessary
to do so to comply with the Hotel Standards or the Applicable Requirements, and
Operator shall promptly notify Lessee in writing if any such expenses exceed or
are reasonably anticipated to exceed the corresponding amount in the Approved
Budget;

 
(iii)  
The amount of certain expenses (“Uncontrollable Expenses”) including real estate
taxes, utilities, license and permit fees, and accrued and/or earned vacation,
may not be within the ability of Operator to control. Operator shall have the
right to pay all Uncontrollable Expenses without reference to the amounts
provided for in respect thereof in an Approved Budget; provided, however,
Operator shall use commercially reasonable efforts to compensate for increases
in Uncontrollable Expenses in an effort to achieve the projected operating
results shown in the applicable Approved Budget and in accordance with the Hotel
Standards;

 
(iv)  
If any expenditures are required to comply with Applicable Requirements, or to
cure or prevent any violation thereof, subject to Lessee’s right to direct
Operator to contest such Applicable Requirements (which direction Operator shall
follow, and if the same results in a dispute, then Operator shall follow
Lessee’s directions pending the resolution of the dispute in accordance with
this Agreement), Operator may make such expenditures, as may be necessary to
comply with such Applicable Requirements or to remove or prevent the violation
thereof even if the amounts of such expenditures are not provided for or within
the amounts provided for in the Approved Budget for the Fiscal Year in question;
and

 
(v)  
If any expenditures are required due to a fire, any other casualty, or any other
events, circumstances or conditions (including, without limitation, those
involving hazardous materials) as to which Operator in its reasonable judgment
must take immediate action to prevent the physical injury or death of any of the
Hotel’s guests or Hotel’s employees, or to prevent material property damage or
material loss to the Hotel or to prevent a material violation of any Legal
Requirements, to the extent such action, by its nature, in Operator’s reasonable
judgment, must be taken prior to contacting Lessee for approval or direction or
which action is taken after Operator is unable to contact Lessee for approval or
direction, whether by telephone, email, facsimile or otherwise, after making
reasonable efforts under the circumstances to contact Lessee, provided that
Operator shall notify Lessee of any such expenditure within seventy-two (72)
hours thereof.

 
 
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Section 7.02.  
Operating Expenses Not an Obligation of Operator.»

 

 
Except as may be otherwise specifically provided in this Agreement, Operator
shall in no event be required to advance any of its own funds for Operating
Expenses of the Hotel, nor to incur any liability in connection therewith unless
Lessee shall have furnished Operator with funds as required of Lessee under the
terms of this Agreement. However, if Lessee has provided funds required of
Lessee hereunder, Operator shall advance such funds necessary to pay expenses
incurred by Operator in performing its duties and obligations hereunder. Unless
agreed to by Lessee in this Agreement, in the Hotel Operating Budget or
otherwise in writing in advance, compensation, overhead costs, and other
expenses of Operator and its Affiliates shall not be reimbursable to Operator by
Lessee.
 
ARTICLE 8
 
BANK ACCOUNTS
 
Section 8.01.  
Lessee Revenue Account.»

 

 
  All income, receipts, and proceeds included in the definition of Gross Hotel
Income shall be deposited into Lessee Revenue Account.
 
Section 8.02.  
Bank Accounts.»

 

 
(a)  
Operator shall have the responsibility for payment of all Operating Expenses
(which may include Operator’s Fee and the monthly accruals of the Hotel along
with bank fees and analysis charges such as fees for checks cashed, positive pay
(with reconciliation), and incoming federal wire transfer charges) with funds
provided by Lessee upon submission of Operator’s request therefor with such
backup documentation reasonably requested by Lessee. Lessee funds shall not be
commingled with Operator’s funds and Operator shall provide to Lessee monthly a
detailed accounting of all Hotel Operating Account receipts and disbursements.
Operator shall comply with Lessee’s or Owner’s or their lenders’ requirements
with respect to lock-box accounts provided that Lessee shall be responsible for
any incremental out-of-pocket costs of Operator resulting from any such lock-box
arrangement (which shall not be an Operating Expense).

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

 
 
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Section 8.03.  
Authorized Signatures.»

 

 
The Hotel Operating Account shall be under the day-to-day control of Operator,
subject to Operator’s obligation to account to Lessee as and when provided for
herein. Lessee shall have signatory authority with respect to the Hotel
Operating account, provided, however, Lessee shall not remove any funds from the
Hotel Operating Account without first providing at least one week notice to
Operator. All receipts and income, including, without limitation, Gross Hotel
Income shall be promptly deposited in the Lessee Revenue Account. Checks or
other documents of withdrawal shall be signed only by the individual
representatives of Operator approved in writing by Lessee and duly recognized
for such purpose by the bank or banks in which the referenced accounts are
maintained.  Upon Lessee’s request, Operator shall supply Lessee with fidelity
bonds or other insurance insuring the fidelity of authorized signatories to such
accounts, unless said bonds or other insurance shall have been placed by Lessee
and delivered directly by the bonding or insurance company to Lessee. The cost
of such fidelity bonds or other insurance shall be an Operating Expense and
subject to Lessee’s approval. Neither Lessee nor Operator shall be responsible
for any losses occasioned by the failure or insolvency of the bank or banks in
which the referenced accounts are maintained. Upon expiration or termination of
this Agreement and the payment to Operator of all amounts due Operator hereunder
upon such expiration or termination, as provided in this Agreement, all
remaining amounts in the referenced accounts shall be transferred forthwith to
Lessee, or made freely available to Lessee.
 
ARTICLE 9
 
BOOKS, RECORDS AND STATEMENTS
 
Section 9.01.  
Books and Records.»

 

 
(a)  
Operator shall keep reasonably 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 GAAP.

 
(b)  
Except for the books and records which may be kept in Operator’s home office or
other location approved by Lessee the books of account and all other records
relating to or reflecting the operation of the Hotel shall be kept at the Hotel.
All such books and records pertaining to the Hotel, including, without
limitation, books of account, guest records and front office records, at all
times shall be the property of Lessee and, except for books of account, accounts
payable invoices, night audit packages, deposit records and similar documents
which may be sent to Operator’s accounting department shall not be removed from
the Hotel by Operator without Lessee’s written approval and consent. All books
and records pertaining to the Hotel and of Operator (including all budgetary
records of Operator), wherever kept, shall be available to Lessee and its
representatives at all reasonable times upon not less than forty-eight (48)
hours’ prior notice, for examination, audit, inspection, transcription and
copying. Operator shall not remove, destroy or delete any books and records of
the Hotel without the prior written consent of Lessee. Upon any termination of
this Agreement, all of such physical books and records as maintained by Operator
pertaining to the Hotel shall be promptly delivered to Lessee upon request.
Additionally, electronic records previously maintained by Operator shall be
available to Lessee for a period of five (5) years at all reasonable times for
inspection, audit, examination, and transcription of particulars relating to the
period in which Operator managed the Hotel.

 
 
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Section 9.02.  
Statements.»

 

 
(a)  
Operator shall deliver to Lessee by the eighth (8th) business day following the
last day of each month, for each Hotel, a monthly report of the state of the
business and affairs of the operation of the Hotel for the immediately preceding
month and for the Fiscal Year to date and within eight (8) days after the end of
each quarter, a quarterly report with respect to the preceding quarter. Such
reports shall include at least (i) a balance sheet account reconciliation
including all intercompany accounts, (ii) a profit and loss statement, comparing
current month and Fiscal Year-to-date profit, loss, and operating expenses to
the Approved Budget and the prior year and comparing current month, quarter and
Fiscal Year-to-date average daily rate, occupancy and RevPAR to the Approved
Budget and the prior year, (iii) a statement which details the computation of
all fees payable to Operator for the month and quarter, (iv) the balance of all
bank accounts, and (v) an adjusting statement showing the actual cash position
of the Hotel for the month, quarter and Fiscal Year-to-date. Additionally,
Operator shall deliver to Lessee fifteen (15) business days following the end of
each month and fifteen (15) business days following the end of each quarter a
written narrative discussing any of the aforementioned reports and year-to-date
variances from the Approved Budget, without thereby implying Lessee’s approval
of such variance.

 
(b)  
Such reports and statements (i) shall be in form and in detail satisfactory to
Lessee as reasonably requested by Lessee and consistent with standard hotel
reporting procedures, (ii) shall be taken from the books and records maintained
by Operator in the manner hereinabove specified, and (iii) if requested by
Lessee, shall be in electronic form. Any disputes as to the contents of any
financial statement or any accounting matter hereunder shall be determined by an
Expert pursuant to Exhibit D.

 
(c)  
Within sixty (60) days after the end of each Fiscal Year, Operator shall deliver
to Lessee reviewed financial statements for Operator, and, if requested by
Lessee, within thirty (30) days after the end of each quarter of each Fiscal
Year, Operator shall deliver to Lessee unaudited financial statements for
Operator.

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

 
(e)  
Operator shall ensure that any accounting software and payroll processor used by
Operator is compatible with, and will provide information useable by (which
compatibility and usability will be determined by Lessee in their sole and
absolute discretion), the accounting software and payroll processor specified in
Exhibit C. Additionally, Operator shall reasonably cooperate and assist Lessee
as may be necessary, for a period up to five (5) years following the expiration
or termination, to allow Lessee or successor operator access to Operator’s
accounting systems as they relate to the Hotel for accounting or audit purposes.

 
ARTICLE 10
 
FEES AND TRANSFERS TO LESSEE
 
Within three (3) business days after the delivery to Lessee of the monthly
report required by Section 9.02, Operator shall be paid the Operator’s Fee by
Lessee for the immediately prior month, based upon Gross Hotel Income for the
immediately prior month, as determined from the books and records referred to in
Article IX, together with the Accounting Fee, the Revenue Management Fee and any
other amounts to be reimbursed to Operator as set forth in this Agreement. Any
disputes relating to the amount or calculation of any fees, costs and
reimbursements payable under this Agreement shall be resolved by an Expert
pursuant to Exhibit D.
 
ARTICLE 11
 
REPAIRS AND MAINTENANCE
 
Subject to the provisions of the Approved Budget, and Lessee making funds
available therefor, Operator shall from time to time make such expenditures for
repairs and maintenance as are necessary to keep the Hotel in good operating
condition in accordance with the Hotel Standards. If any repairs or maintenance
shall be made necessary by any condition against the occurrence of which
Operator, Lessee or Owner has received the guaranty or warranty of any
contractor for the building of the Hotel or of any supplier of labor or
materials for the construction of the Hotel, then Operator shall, on Lessee’s
request, cooperate with Lessee and Owner in invoking such guarantees or
warranties.  Notwithstanding the Approved Budget, Lessee may from time to time
at its expense make such alterations, additions, or improvements (including
structural changes or repairs) in or to the Hotel as they deem desirable, in
their sole discretion and responsibility, for the efficient operation of the
Hotel, provided that Lessee shall make such alterations, additions or
improvements as may be required from time to time by any Holder and
Franchisor.  Lessee and Operator agree that if Lessee requests that any
non-routine renovation or remodeling programs or improvements be supervised by
Operator, those services are beyond the scope of this Agreement, and, if such
services are requested by Lessee, Operator shall by entitled to charge Lessee a
construction management fee to be mutually agreed to by the parties for the
costs to plan, execute and supervise such non-routine renovation or remodeling
programs or improvements at the Hotel, provided that such supervision requires
personnel from Operator other than Hotel personnel or regional operations.
 
 
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ARTICLE 12
 
INSURANCE
 
Section 12.01.  
General.»

 

 
Owner and Lessee shall maintain insurance policies with respect to the Hotel as
set forth below.  Operator agrees to cooperate with Lessee and Owner in
obtaining any such insurance. Operator further agrees to provide Lessee with
detailed summaries of their Worker’s Compensation, Auto Liability, Cyber and
Employment Practices Liability insurance policies and endorsements prior to
renewal.
 
Section 12.02.  
Workers’ Compensation and Other Employment Insurance.»

 

 
Operator shall obtain, and the Hotel Operating Budget shall include, as an
Operating Expense, Workers’ Compensation, in compliance with state law in the
state of operation of each Hotel, including Employers’ Liability with minimum
limits of $1,000,000 each accident. Such policy shall include an Alternate
Employer Endorsement naming Owner and Lessee, and shall provide for a Waiver of
Subrogation in favor of Owner and Lessee.
 
Section 12.03.  
Approval of Companies and Cost by Owner and Lessee.»

 

 
All insurance shall be with such insurance company or companies as may be
approved by Owner or Lessee. Lessee will obtain all property and casualty
insurance but, upon the request of Lessee not less than one hundred twenty (120)
days prior to the coverage date, Operator will obtain such insurance, subject to
Lessee’s approval of the insurance companies and coverages.  Comprehensive
general liability insurance and such other liability insurance as may be
obtained or afforded shall be in the name of Owner and Lessee, and shall name
Operator as an additional named insured as respects liability arising from the
operation, maintenance and use of the Hotel and operations incidental thereto.
All property insurance policies shall be endorsed specifically to the effect
that the proceeds of any building, contents or business interruption insurance
shall be made payable to Lessee. Operator shall provide proper evidence of
insurance required by Operator to Owner/Lessee annually. Such policies shall
require a minimum of 30 days’ notice to Owner/Lessee in the case of
cancellation, for any reason, if allowed by insurance carrier.
 
Section 12.04.  
Maintenance of Coverages.»

 

 
Lessee shall hold all insurance policies obtained hereunder, and certificates of
such policies, if any, shall be delivered to each of Lessee and Operator.
 
 
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Section 12.05.  
Waiver of Subrogation.»

 

 
To the extent obtainable from carriers and to the extent that endorsement forms
are approved by the Insurance Commissioner (or comparable office or department)
of the state in which the Hotel is located, all policies of property insurance
shall provide that the insurance companies will have no rights to subrogation
against Lessee or Operator or the agents or employees thereof.
 
Section 12.06.  
Blanket Coverage.»

 

 
Owner and Lessee reserve the right to provide any insurance referenced in this
Article XII by one or more so-called “blanket” or “umbrella” policies of
insurance. Operator further acknowledges that the insurance coverage of the
Hotel may be part of the general insurance plan of Owner or Lessee or of any of
their affiliates. Owner or Lessee may elect to obtain any of the insurance
coverages set forth in this Article XII with a “deductible loss” clause
providing for per occurrence deductibles.
 
Section 12.07.  
Employment Practice Liability.

 
Operator shall obtain EPL coverage insuring against potential claims against
Operator by Operator’s employees, for employment related claims. Such coverage
shall have a minimum limit of $1,000,000, and shall name Owner/Lessee as
additional insured. Upon the next renewal opportunity for the EPL coverage,
Operator shall be required to obtain coverage with a minimum limit of
$2,000,000.00. Additionally, Operator agrees to at all times be in compliance
with Franchisor EPL requirements.
 
Section 12.08.  
Cyber/Network/Privacy Liability.

 
Within ninety (90) days after the Commencement Date, Operator shall obtain
Cyber/Network/Privacy insurance against potential claims against Operator and
Owner/Lessee by third parties or a governmental authority arising from
unauthorized access, unauthorized use, theft of data, virus transmission, denial
of service, internet liability and failure to protect privacy and intellectual
property in connection with and arising out of the design, development and use
of any systems utilized to operate and maintain the services, premises and
operations of the Hotel, with minimum limits of $1,000,000 per
occurrence/aggregate.  Such insurance shall name Owner/Lessee as additional
insured.
 
Section 12.09.  
Liquor Liability.

 
Where a liquor license is held, Operator shall obtain Liquor Legal Liability
insurance against potential claims by third parties arising out of the serving
of such.  Coverages shall be in amount of minimum limits of $1,000,000 per
occurrence, and shall include Owner/Lessee and the holder of Liquor Permits and
the holder of the Liquor Permits as additional insured.
 
Section 12.10.  
Automobile Liability.

 
(a)  
Owner/Lessee shall obtain Automobile Liability insuring against third party
liability claims arising from the use of Owner/Lessee owned automobiles, with
minimum limits of $1,000,000 each accident.  Such coverage shall include the
Operator as Additional Insured as respects liability arising from the use of
such automobiles in connection with the Hotel and operations incidental
thereto.  Coverage shall include a Waiver of Subrogation in favor of Operator.

 
 
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(b)  
Operator shall obtain Operator-Owned, Non-Owned and Hired Automobile Liability
and Physical Damage insuring against third party liability and damage of such
vehicles, when such vehicles are used, hired or rented by employees of Operator,
with minimum limits of liability $1,000,000 each accident. Coverage shall
include a Waiver of Subrogation in favor of Owner and Lessee.

 
Section 1.01.  
 

 
Section 12.11.  
General Liability.

 
Owner/Lessee shall obtain General Liability insuring against third party
liability claims with minimum limits of $1,000,000 each occurrence/$2,000,000
aggregate. Such coverage shall include the Operator as Additional Insured as
respects liability arising from the operation, maintenance, and use of the Hotel
and operations incidental thereto. Owner/Lessee also agree to maintain Umbrella
Liability Policy with a minimum limit of $10,000,000.00.
 
Section 12.12.  
Property.

 
Owner/Lessee shall obtain Property insurance and Business Interruption insurance
insuring the Hotel properties, as determined appropriate by Owner/Lessee.
Coverage shall include a Waiver of Subrogation in favor of Operator.
 
Section 12.13.  
Crime.

 
Owner/Lessee shall obtain Crime coverage insuring against the dishonest acts &
theft of Owner’s, Lessee’s and Owner’s/Lessee’s customers personal property by
Operator’s employees.
 

 
ARTICLE 13
 
PROPERTY TAXES, LOCAL TAXES, LEVIES AND OTHER ASSESSMENTS
 
Section 13.01.  
Property Taxes.»

 

 
At Lessee’s request, Operator shall pay from the Hotel Operating Account prior
to the dates the same become delinquent, with the right upon Lessee’s request to
pay the same in installments to the extent permitted by law, all real and
personal property taxes levied against the Property or any of its component
parts.
 
Section 13.02.  
Lessee’s Right to Contest.»

 

 
Notwithstanding the foregoing, Lessee or Owner may contest the validity or the
amount of any real or personal tax or assessment. Operator agrees to cooperate
with Lessee and Owner and execute any documents or pleadings required for such
purpose.
 
 
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ARTICLE 14    
 
DAMAGE OR DESTRUCTION - CONDEMNATION
 
Section 14.01.  
Damage.»

 

 
(a)  
If at any time during the Operating Term the Hotel or any portion thereof should
be damaged or destroyed, Owner and Lessee shall have the respective rights and
obligations set forth in the Lease with respect to damage or destruction.  In
the event that, pursuant thereto, the Hotel will not be repaired, rebuilt or
replaced, Owner shall promptly notify Operator thereof, and thereafter Lessee
may terminate this Agreement by written notice to Operator, effective as of the
date sent, and upon such termination, Lessee shall have no obligation to pay to
Operator any Termination Fee.

 
(b)  
In the event that Owner and/or Lessee is required or elects to repair or restore
the Hotel, and thereafter fails to timely (subject to delays caused by Operator,
including delays in adjusting the insurance claim with the carriers which
participate in Operator’s blanket insurance program) commence and thereafter
pursue the completion of the repair and restoration of the Hotel in accordance
with any Mortgage, Operator may, at its option, elect to terminate this
Agreement, by written notice to Lessee, effective as of the date sent, and upon
such termination, Lessee shall have no obligation to pay to Operator any
Termination Fee.

 
Section 14.02.  
Condemnation.»

 

 
If at any time during the Operating Term the whole of the Property shall be
taken or condemned in any eminent domain, condemnation, compulsory acquisition
or like proceeding or sale in lieu thereof by any competent authority, or any
part thereof so as to make it imprudent or unreasonable to use the remaining
portion as a hotel of the type and class immediately preceding such taking or
condemnation, this Agreement shall terminate, and Lessee shall have no
obligation to pay to Operator any Termination Fee.  Operator shall have no right
to the award from the taking or condemning authority in any such proceeding;
provided, however, that this shall not prevent Operator from making a separate
claim against the condemning authority for loss of its business or profits.
 
ARTICLE 15
 
USE OF NAME
 
During the term of this Agreement, the Hotel shall at all times be known by such
name as from time to time may be selected by Lessee or Owner.
 
 
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ARTICLE 16

TERMINATION
 
Section 16.01.  
Lessee’s Right to Terminate.»

 

 
Lessee shall have the unconditional right, for any reason or no reason at all,
to terminate this Agreement as to the Hotel at any time, upon no less than sixty
(60) days prior notice to Operator (a “Termination Notice”); provided, that if
any such termination by Lessee is as a result of any reason other than an
exercise of Lessee’s right to terminate under Section 17.01(b), Lessee shall pay
Operator the Termination Fee upon, and as a condition precedent to, such
termination. After such termination, except with respect to those items
surviving termination as specifically provided for in this Agreement, neither
party shall have any further liability to any other party hereunder.
 
Section 16.02.  
Sale of Hotel.

 
Lessee may sell or otherwise dispose of the Hotel to any other person,
partnership, firm or corporation at any time. Upon the sale of the Hotel by the
Lessee, then in addition to those Operator’s Fees, Incentive Fees, Accounting
Fees, Revenue Management Fees and other amounts to which Operator is entitled to
under this Agreement through the date of closing of the sale, Lessee shall pay
to Operator an amount equivalent to the monthly average of the preceding twelve
(12) months’ Operator’s Fee for a thirty (30) day period after the sale.
 
Section 16.03.  
Performance Failure.

 
Upon the occurrence of one or more of the following, Lessee may terminate this
Agreement upon sixty (60) days’ written notice to Operator, without payment of a
Termination Fee.  Notwithstanding anything to the contrary in this Agreement,
Owner’s termination of this Agreement pursuant to this Section 16.03 shall not
constitute a termination for an Event of Default, or in any manner entitle
Lessee to any damages or other amounts.
 
(a)  
If (i) the Hotel fails to achieve on a trailing twelve (12) month basis (1)
actual NOI of at least 90% of the budgeted NOI for the Hotel and (2) 100% of the
Hotel’s running twelve (12) month RevPAR index (as measured by STR) and (ii) the
Hotel has a RevPAR index change which is less than its Competitive Set on a
trailing twelve (12) month basis (as measured by STR).

 
(b)  
If the Hotel, after the Operator has managed the Hotel for a consecutive twelve
(12) month period, at any point, has a negative RevPAR change versus its
Competitive Set, as measured by the monthly STR Report of greater than three (3)
points for a running twelve (12) month period.

 
(c)  
If Operator fails, in accordance with Section 9.02, to deliver operating
statements to Lessee by the eighth (8th) business day following the last day of
each month more than twice within a twelve (12) month time period.

 
 
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(d)  
If the Hotel receives a failure on its Franchisor Quality Assurance inspection
for deficiencies which are within Operator’s control.

 
(e)  
If, due to circumstances which are within Operator’s control, the Hotel’s
Overall Satisfaction or Overall Experience score, as measured by Franchisor’s
guest scoring system either (i) falls 5% or greater below current brand average
over a six (6) month period or (ii) causes the Hotel to be placed in default
with Franchisor.

 
(f)  
If the Hotel fails to deliver Hotel Capital Budgets or Hotel Operating Budgets
to Lessee on agreed upon budget submission dates as required by Section 6.01 of
this Agreement.

 
With respect to Sections 16.03(a) and (b) above, Owner’s right of termination
would not be exercisable if the applicable level of NOI or the applicable RevPar
index test is not achieved as a result of (i) an Unavoidable Interruption, (ii)
a failure of Owner to provide sufficient funds as required under this Agreement,
(iii) the impact of significant capital improvement programs at the Hotel, or
(iv) a material casualty or condemnation at the Hotel.
 
Section 16.04.  
Termination Fees.»

 

 
Except as provided in Sections16.01and 16.02, Operator shall not be entitled to
a termination fee or compensation in the event this agreement is terminated for
the Hotel by Lessee.
 
Section 16.05.  
WARN Act.

 
In the event that this Agreement terminates due to any reason other than a
default by Operator under this Agreement. Lessee agrees to reasonably attempt to
cause the succeeding employer to hire a sufficient number of employees at the
Hotel, on substantially the same terms that existed prior to such termination,
so as not to cause a “mass layoff” or “plant closing”, as defined in the Workers
Adjustment and Retraining Act, 29 USC, sec 2101 et seq.; alternatively, Lessee
hereby acknowledges and agrees that compliance with the provisions of the Worker
Adjustment and Retraining Notification Act and/or any similar state or local
laws upon any termination of this Agreement or upon the occurrence of any other
event giving rise to the application of the WARN Act are the responsibility and
obligation of Lessee, and Lessee hereby agrees to indemnify, defend and hold
Operator harmless from and against any cost, expense, obligation, claim or other
liability which Operator may incur arising out of or in connection with any
breach or claimed breach of the WARN Act in connection with any such
disposition, termination or other occurrence; provided, however, in the event
that Operator receives notice of termination of this Agreement with sufficient
time to comply with the WARN Act but fails to satisfy the applicable WARN Act
requirements, then Operator shall indemnify, defend and hold harmless Lessee
from and against any cost, expense, obligation, claim or other liability which
Lessee may incur arising out of such failure by Operator.
 
 
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ARTICLE 17

DEFAULT AND REMEDIES
 
Section 17.01.  
Events of Default- Remedies.»

 

 
(a)  
The following shall constitute “Events of Default”:

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

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

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

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

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

 
(vi)  
The failure of either Lessee or Operator to perform, keep or fulfill any of the
other covenants, undertakings, obligations or conditions set forth in this
Agreement, including, without limitation, those set forth in Section 7.01(a),
and the continuance of any such default for a period of thirty (30) days after
written notice of such failure;

 
(vii)  
Default or termination of the franchise license for the Hotel as a result of any
action, or failure to act, on the part of Operator; and

 
(viii)  
The Hotel receives a “failure” or its equivalent in any quality inspection
report from any of the Franchisors, if such deficiencies are within Operator’s
reasonable control.

 
(b)  
Upon the occurrence of any Event of Default, the non-defaulting party shall give
to the defaulting party notice of its intention to terminate this Agreement
after the expiration of a period of thirty (30) days from such date of notice
and, upon the expiration of such period, this Agreement shall terminate and
expire without penalty. If, however, with respect to the Events of Default
referred to in items (iii), (iv), (v), (vi), and (viii) of subsection (a) above,
unless a specific right of termination is specified elsewhere in this Agreement
for the event in question, upon receipt of such notice, the defaulting party
shall promptly and with all due diligence cure the default or take and continue
action to cure such default within such ten (10) day period.  If such default
shall not be capable of being cured within such ten (10) day period, then
provided the defaulting party diligently pursues the cure of such default, such
party shall have an additional period, not to exceed ten (10) days, to cure any
such default unless otherwise extended by the non-defaulting party. The
procedure set forth in the preceding sentences shall not be available for the
curing of any default under items (i), (ii) or (vii) of subsection (a) above. In
the event such default is not cured by the expiration of such period, the
non-defaulting period may terminate this Agreement effective upon expiration of
such period without penalty or payment of any fee.

 
 
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Section 17.02.  
Rights Not Exclusive.»

 

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

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

 
 
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ARTICLE 18
 
NOTICES
 
Section 18.01.  
Notices.»

 

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

 
(1)           Notices to Lessee shall be addressed:

Condor Hospitality Trust, Inc.
1800 West Pasewalk Avenue, Suite 200
Norfolk, NE 68702-1448
Attention:  J. William Blackham, CEO
Facsimile: (402) 371-4229

(2)           Notices to Operator shall be addressed:

Peachtree Hospitality Management, LLC
c/o Peachtree Hotel Group, LLC
Two Premier Plaza
5607 Glenridge Drive
Atlanta, Georgia 30342
Attention:  Mitul K. Patel
Facsimile:  (404) 497-4114

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

 
(c)  
By giving to the other party at least thirty (30) days written notice thereof,
either party shall have the right from time to time and at any time during the
Operating Term to change their respective addresses for notices, statements,
demands and requests, provided such new address shall be within the United
States of America.

 
 
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ARTICLE 19
 
ASSIGNMENT
 
Section 19.01.  
No Assignment by Operator.»

 

 
Notwithstanding anything to the contrary set forth in this Agreement, without
the prior written consent of Lessee (which consent may be withheld in Lessee’s
sole and absolute discretion), Operator shall have no right to sell, transfer or
assign (or permit the sale, transfer or assignment of) any of its rights, duties
or obligations under this Agreement in any manner, either directly or
indirectly, voluntarily, or by operation of law; provided, that Operator shall
be entitled to assign this Agreement, except that Operator may assign this
Agreement without Lessee’s consent to (i) any Affiliate of Operator or (ii) any
successor or assign that may result from the merger, consolidation or
reorganization of Operator or its Affiliate or the sale of all or substantially
all of the equity and/or assets of Operator as long as any such assignee shall
assume and agree to be bound by all of the terms and be subject to all of the
conditions set forth in this Agreement.  Upon any assignment by Operator in
accordance with item (ii) of the preceding sentence, Lessee shall have the right
to terminate this Agreement upon not less than thirty (30) days’ prior written
notice to Operator delivered within thirty (30) days following the closing of
such merger, consolidation, reorganization or sale, without the payment of a
Termination Fee.
 
Section 19.02.  
Assignment by Lessee.»

 

 
Lessee may transfer or assign its rights and obligations under this Agreement
without the consent of Operator but shall deliver to Operator written notice of
such transfer or assignment not less than ten (10) days prior to the effective
date thereof; provided, however, in the event of the assignment of this
Agreement to a party that is not an Affiliate, Operator shall have the right to
terminate this Agreement within 15 days after receipt of written notice of such
assignment, which termination will be effective within 30 days of Lessee’s
receipt of such termination notice.  Any transfer or assignment of this
Agreement by Lessee shall include an express assumption by the transferee or
assignee of Lessee’s obligations hereunder.  Nothing herein shall be deemed to
require Lessee to assign or attempt to assign this Agreement to any third party,
including any buyer of a Hotel.
 
ARTICLE 20     
 
SUBORDINATION
 
Section 20.01.  
Subordination To Mortgage.»

 

 
Operator hereby agrees that this Agreement, including, but not limited to
Operator’s Fee, shall in all respects be and is hereby expressly made
subordinate and inferior to the liens, security interest and/or any Mortgage and
to any promissory note and other indebtedness secured or to be secured thereby
and to all other instruments evidencing or securing or to evidence or secure
indebtedness, and all amendments, modifications, supplements, consolidations,
extensions and revisions of such note and other instruments and any other
indebtedness of Lessee or Owner, secured or unsecured. Operator shall execute
any and all commercially reasonable subordination agreements, estoppel
certificates and other documents requested by Lessee or Owner and/or the Holder
to further evidence the subordination of this Agreement and Operator’s rights
hereunder including without limitation providing any purchaser of a Hotel at a
foreclosure sale or deed-in-lieu of foreclosure (including the lender) with the
right to terminate this Agreement; provided, however, (i) Lessee shall use its
commercially reasonable efforts to obtain from the holder of any Mortgage a
nondisturbance agreement, in form reasonably acceptable to Operator providing
that this Agreement shall remain in full force and effect notwithstanding the
fact that the Mortgage has been foreclosed and (ii) any such subordination
agreement shall provide that, for so long as Operator is operating the Hotel,
Operator shall be entitled to receive the fees therefor set forth in this
Agreement.
 
 
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Section 20.02.  
Foreclosure.»

 

 
Prior to termination of this Agreement by foreclosure under the Mortgage or by
acquisition of the property to be covered by the Mortgage by deed in lieu of
foreclosure, Operator shall have the right to enjoy all rights and privileges
conferred upon it pursuant to this Agreement, including, without limitation the
rights to the Operator’s Fee, and Operator shall incur no liability to the
Holder for acting pursuant to the terms of this Agreement.  In the event of such
foreclosure, Operator shall have the right to terminate this Agreement on thirty
(30) days’ written notice to Lessee.  Notwithstanding the foregoing, Operator
may pursue, as an unsecured creditor, a claim for all amounts due and owing to
Operator under this Management Agreement in accordance with the terms of this
Section 20.02.
 
Section 20.03.  
Estoppel Certificates.»

 

 
Lessee and Operator agree, at any time and from time to time, upon not less than
10 days prior written notice from the other party or any purchaser or lender, to
provide a statement in writing certifying that this Agreement is unmodified and
in full force and effect (or, if there have been modifications, that the same is
full and force and effect as modified and stating the modifications), and
stating whether or not to the best knowledge of the signer of such certificate,
there exists any default in the performance of any obligation contained in this
Agreement, and if so, specifying each such default of which a signer may have
knowledge.  Any statement delivered pursuant to this Section may be relied upon
by the other party and by the prospective lender or purchaser.
 
                                                               ARTICLE
21                                                                   
 
MISCELLANEOUS
 
Section 21.01.  
Further Documentation and Reporting Compliance.»

 

 
Lessee and Operator shall execute and deliver all appropriate supplemental
agreements and other instruments, and take any other action necessary to make
this Agreement fully and legally effective, binding, and enforceable in
accordance with the terms hereof as between them and as against third
parties.  Operator acknowledges that Parent is a reporting company under the
Securities Exchange Act of 1934, as amended, (the “Exchange Act”) and other
federal laws, including the Sarbanes-Oxley Act of 2002, and Operator shall
reasonably cooperate in providing Lessee information as necessary for Parent to
prepare and submit its reports under such laws in a timely fashion.
 
 
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Section 21.02.  
Captions.»

 

 
The titles to the several articles of this Agreement are inserted for
convenience only and are not intended to affect the meaning of any of the
provisions hereof.
 
Section 21.03.  
Successors and Assigns.»

 

 
This Agreement shall be binding upon and inure to the benefit of Lessee, its
successors and/or assigns, and subject to the provisions of Article XIX, shall
be binding upon and inure to the benefit of Operator, its permitted successors
and assigns.
 
Section 21.04.  
Assumption of Post Termination Obligations.

 
In the event of termination of this Agreement, Lessee shall be responsible for
assuming obligations under contracts entered into by Operator on behalf of
Lessee only to the extent that any such contract, to the extent solely
applicable to the Hotel (as opposed to “national” contracts), shall have been
entered into in accordance with Section 4.05(a) and Lessee shall be responsible
for the payment of obligations incurred by Operator in the operation of the
Hotel only to the extent that such obligations shall have been incurred in
accordance with the terms of this Agreement, and Operator hereby agrees to
indemnify and to hold Lessee harmless from and against any liability in
connection with any such contracts, agreements or obligations not so entered
into or incurred.  Lessee will indemnify and hold Operator harmless from all
costs, expenses, claims, damages and liabilities, including without limitation,
lawyers’ fees and disbursements, arising or resulting from Lessee’s failure
following the expiration or earlier termination (for whatever cause) of this
Agreement to provide all of the services contracted for in connection with the
business booked for the Hotels in accordance with this Agreement on or prior to
the date of such expiration or termination.  The provisions of this Section will
survive any expiration or termination of this Agreement and will be binding upon
Lessee and its successors and assigns, including any successor or assign that
becomes the beneficial or legal owner of the Hotel after the effective date of
any such expiration or termination.
 
Section 21.05.  
Competitive Market Area.»

 

 
If Operator (or its Affiliates) build or develop, and open for service to the
public, directly or indirectly, any hotel within a one (1) mile radius of any
Hotel during the Operating Term, then unless Lessee has expressly consented
thereto in writing in advance, which consent may be withheld in Lessee’s sole
and absolute discretion, Lessee shall have the right to terminate this Agreement
upon thirty (30) days’ prior written notice to Operator, without payment of a
termination fee or penalty.  The foregoing provision shall not be deemed to
apply to debt financing provided to any hotel project by Operator or its
Affiliates (which shall include,  without limitation, Stonehill Strategic
Capital, LLC), nor to the acquisition, through foreclosure proceedings or
otherwise, by Operator or its Affiliates, of any hotel project to which Operator
or its Affiliates has provided, or in the future provides, debt financing.
 
 
36 

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Section 21.06.  
Entire Agreement.»

 

 
This Agreement, together with the Exhibits hereto, constitutes the entire
Agreement between the parties relating to the subject matter hereof, superseding
all prior agreements or undertakings, oral or written.  This Agreement and the
Exhibits hereto shall be construed and interpreted without reference to any
canon or rule of law requiring interpretation against the party drafting or
causing the drafting of this Agreement or the portions in question, it being
agreed and understood that all parties have participated in the preparation of
this Agreement.
 
Section 21.07.  
Governing Law.»

 

 
This Agreement shall be construed and enforced in accordance with the laws of
the State of Nebraska.
 
Section 21.08.  
No Political Contributions.»

 

 
Any provision hereof to the contrary notwithstanding, no money or property of
the Hotel shall be paid or used or offered, nor shall Lessee or Operator
directly or indirectly pay or use or offer, consent or agree to pay or use or
offer any money or property of the Hotel, for or in aid of any political party,
committee or organization, or for or in aid of, any corporation, joint stock or
other association organized or maintained for political purposes, or for, or in
aid of, any candidate for political office or for nomination for such office, or
in connection with any election including referendum for constitutional
amendment, or for any political purpose whatever, or for lobbying in connection
with legislation or regulation thereunder, or for the reimbursement for
indemnification of any person for money or property so used.
 
Section 21.09.  
Eligible Independent Contractor.»

 

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

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

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

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

 
(iv)  
At the effective time, Operator shall be actively engaged in the trade or
business of operating “qualified lodging facilities” (defined below) for a
person who is not a “related person” within the meaning of Section 856(d)(9)(F)
of the Code with respect to the Parent or Lessee (“Unrelated Persons”). In order
to meet this requirement, Operator agrees that it (i) shall derive at least 10%
of both its revenue and profit from operating “qualified lodging facilities” for
Unrelated Persons and (ii) shall comply with any regulations or other
administrative guidance under Section 856(d)(9) of the Code with respect to the
amount of hotel management business with Unrelated Persons that is necessary to
qualify as an “eligible independent contractor” with the meaning of such Code
Section.

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

 
(c)  
Operator shall not sublet Hotel or enter into any similar arrangement on any
basis such that the rental or other amounts to be paid by the sublessee
thereunder would be based, in whole or in part, on either (a) the net income or
profits derived by the business activities of the sublessee, or (b) any other
formula such that any portion of the rent would fail to qualify as “rents from
real property” within the meaning of Section 856(d) of the Internal Revenue
Code, or any similar or successor provision thereto.

 
Section 21.10.  
Time of the Essence.»

 

 
Time is of the essence of this Agreement.
 
Section 21.11.  
Attorney’s Fees.»

 

 
If any party brings an action against another party to enforce any provision of
this Agreement, the prevailing party in such action shall be entitled to recover
its court costs, attorney’s fees and expenses in the judgment rendered through
such action.
 
Section 21.12.  
Final Accounting.»

 

 
(a)  
In addition to the reports required by Section 9.02, within sixty (60) days
following the effective date of expiration or termination of this Agreement,
Operator shall prepare and submit to Lessee a final accounting of Hotel
operations through the effective date of such expiration or termination, which
accounting shall be in the form of the financial statements required hereunder.

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

 
 
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(c)  
Upon the expiration or termination of this Agreement, Operator shall reasonably
cooperate with and assist Lessee as may be necessary for the transfer of the
operations and management of the Hotel, including the hiring of Operator’s
employees should they elect and consent to the same, to the successor operator
and the transfer any and all Hotel licenses and permits to Lessee or Lessee’s
designee. Operator further agrees and covenants they will never let the liquor
license expire or retire without the express written consent of Lessee.

 
Section 21.13.  
Franchisor Communications.»

 

 
During the Operating Term, Operator shall promptly deliver to Lessee copies of
any deficiency notices or similar notices received from a Franchisor and any
response thereto.
 
Section 21.14.  
Dispute Resolution

 
Except for the Expert Matters to be determined in accordance with Exhibit D,
Lessee and Operator agree that any dispute between the parties related to or
arising out of this Agreement that cannot be amicably settled by the parties
hereunder, shall first be submitted for non-binding mediation before resorting
to any litigation, equitable proceeding or other enforcement action.  Such
mediation shall be held within a twenty-five mile radius of the Hotel (or such
other location mutually agreed by the parties) and the parties shall cooperate
in good faith to agree on a mediator who shall be a retired or semi-retired
judge having at least ten (10) years of experience on the bench hearing complex
commercial transactions.  If the parties hereto have failed to designate, by a
joint written statement, a mediator within thirty (30) days following the date
of a written request therefor by either Operator or Lessee to the other, then
either Lessee or Operator may notify the local office of the American
Arbitration Association (“AAA”) or JAMS and request such entity to select a
person to act as the mediator to assist in the resolution of the dispute.  The
mediation will be a non-binding conference between the parties conducted in
accordance with the applicable rules and procedures of AAA or JAMS (as
determined by the mediator).  The compensation of the mediator and all related
expenses shall be borne equally by the parties, each of whom shall bear their
own costs, irrespective of the outcome of the mediation.  If any dispute remains
unresolved between the parties after the mediation is complete, then either
party shall be entitled to pursue its rights and remedies at law or in
equity.  The provisions of this Section 21.13 shall survive the expiration or
earlier termination of this Agreement.
 

 
[Signature page(s) follow]
 

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

TRS SAN SPRING, LLC, a Delaware limited liability company

By:     /s/ Corrine L.
Scarpello                                                        
Title:  VP                                        

OPERATOR:

PEACHTREE HOSPITALITY MANAGEMENT, LLC, a Georgia limited liability company

By:         /s/ Mitul Patel                                                
Title:      Manager                                       

 
 

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EXHIBIT A

Franchise Agreement

 
 

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EXHIBIT A-1

Competitive Set

35223
Springhill Suites San Antonio Downtown Riverwalk Area
28882
Hyatt Place San Antonio Riverwalk
37340
Hotel Indigo San Antonio Riverwalk
53091
Holiday Inn Express San Antonio North Riverwalk Area
57045
Comfort Suites Alamo Riverwalk San Antonio
60437
Fairfield Inn & Suites San Antonio Downtown Alamo Plaza
60841
Springhill Suites San Antonio Downtown Alamo Plaza

 
 

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EXHIBIT B

SPAR Inspection Form
Property Audit Report

 
 

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EXHIBIT C

Accounting Software and Payroll Processes

Accounting Software: Microsoft Dynamic GP 2015

Reporting Software: Microsoft Dynamics Management Reporter 2012

 
 

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EXHIBIT D

Expert Resolution

1.         Arbitration of Financial and Budgetary Disputes; Determination of
Operating Standards.  All disputes relating to any of the following matters
shall be resolved by arbitration pursuant to this Paragraph 1 (the “Expert
Matters”):

(a)           computation of the Operator’s Fee, Incentive Fee, Termination Fee
or any other fee due to Operator;

(b)           reimbursements due to Operator;
 
(c)           the determination of whether or not a payment, funding,
contribution or any other action or inaction is required under the Hotel
Standard;
 
(d)           any dispute concerning the approval of any Hotel Operating Budget;
 
(e)           any dispute regarding the accuracy of any financial report
prepared by Operator, if and to the extent the same is not resolved through an
audit pursuant to the provisions of this Agreement; and
 
(f)           any dispute concerning amounts (excluding damages) due to Operator
on termination of this Agreement.
 
1.1         Selection of Expert.  The party initiating the arbitration shall
give written notice to the other party setting forth the items to be
arbitrated.  Within five (5) business days, the parties shall confer in person
or by telephone to agree upon a mutually-acceptable neutral third party to
resolve the dispute (“Expert”).  If the parties are unable to agree upon an
Expert, the initiating party shall submit the matter to the Chairman of the
International Society of Hospitality Consultants, who shall designate as Expert
a person who (i) has at least ten (10) years’ experience in the hospitality
industry, (ii) is in good standing with the International Society of Hospitality
Consultants, (iii) has not had any direct relationship with either party in the
preceding five (5) year period, (iv) has demonstrated knowledge of the hotel
market where the Hotel is located, and (v) has demonstrated knowledge of the
operation and marketing of upscale full service hotels.
 
1.2         Procedure.  Expert shall establish in his or her sole discretion the
procedure for resolving the dispute, including what evidence to consider,
whether to allow written submissions, and whether to hold a hearing, subject to
the following:
 
(a)           Expert shall have the power to demand from either party whatever
information in that party’s possession that Expert deems necessary to resolve
the dispute;
 

(b)           Except as specifically requested by Expert, no party may present
any evidence that was not shared with the other party in a good faith attempt to
resolve the dispute before the arbitration was initiated;
 
(c)           No discovery may be conducted between the parties;
 
(d)           No attorneys may appear on behalf of either party unless the
parties mutually agree otherwise (although either party may use attorneys for
their own consultation or advice); and
 
(e)           Expert shall schedule and conduct all proceedings with the
objective of resolving the dispute as quickly and efficiently as reasonably
possible.
 
1.3         Fees and Expenses.  During the pendency of the arbitration pursuant
hereto, the parties shall share equally the fees and expenses of the Expert.  In
rendering its decision, the Expert shall designate the party whose position is
substantially upheld, which prevailing party shall recover from the other party
its share of the fees and expenses paid to the Expert by such prevailing
party.  Expert may determine that neither party’s position was substantially
upheld and therefore that there was no prevailing party, in which case, there
will be no award for the reimbursement of fees and expenses paid to the Expert
by either party, or Expert may allocate the reimbursement of fees and expenses
of the Expert in accordance with the relative extent to which either party’s
position was upheld.  The parties shall otherwise bear their own costs and
expenses in connection with the arbitration pursuant to this Exhibit.