Exhibit 10.8

Residence Inn

Austin Airport, Texas

HOTEL

MANAGEMENT AGREEMENT

Between

TRS AUS CASEY, LLC

and

PILLAR HOTELS AND RESORTS, LLC

Dated

August 31, 2017

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TABLE OF CONTENTS

 

Page

           ARTICLE 1 DEFINITIONS      1  

Section 1.01.

  Definitions      1   ARTICLE 2 TERM OF AGREEMENT      13  

Section 2.01.

  Operating Term      13   ARTICLE 3 OPERATION OF THE HOTEL      13  

Section 3.01.

  Representations by Lessee and Operator; Engagement of Operator      13  

Section 3.02.

  Standards of Operation      14  

Section 3.03.

  Limitations on Operator’s Authority      18  

Section 3.04.

  Reservations Services and Revenue Management      21  

Section 3.05.

  Marketing      21  

Section 3.06.

  Consultations Between Lessee and Operator      21  

Section 3.07.

  Transactions with Affiliates and Other Relationships      22  

Section 3.08.

  Regional Manager      22  

Section 3.09.

  Certain Expenses      22   ARTICLE 4 INDEPENDENT CONTRACTOR      23  

Section 4.01.

  Operator Status      23  

Section 4.02.

  Employees      23  

Section 4.03.

  Employee Expenses      24  

Section 4.04.

  Employee Benefit Plans      25  

Section 4.05.

  Execution of Agreements      26   ARTICLE 5 INDEMNIFICATION      27  

Section 5.01.

  Indemnification by Operator      27  

Section 5.02.

  Limitations on Indemnification      27  

Section 5.03.

  Indemnification by Lessee      27  

Section 5.04.

  Survival of Indemnity      28   ARTICLE 6 BUDGETS AND POLICY MEETINGS      28
 

Section 6.01.

  Annual Plan      28  

Section 6.02.

  Budget Meetings      31   ARTICLE 7 OPERATING EXPENSES      31  

Section 7.01.

  Payment of Operating Expenses      31  

Section 7.02.

  Operating Expenses Not an Obligation of Operator      31   ARTICLE 8 BANK
ACCOUNTS      32  

Section 8.01.

  Lessee Revenue      32  

Section 8.02.

  Operating Account      32  

Section 8.03.

  Ownership of Accounts      32  

Section 8.04.

  Exculpation of Operator      33  

 

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Section 8.05.

  Reimbursement of Operator      33  

Section 8.06.

  Working Capital Funds      33   ARTICLE 9 BOOKS, RECORDS AND STATEMENTS     
34  

Section 9.01.

  Books and Records      34  

Section 9.02.

  Statements      34   ARTICLE 10 OPERATOR’S FEE AND TRANSFERS TO LESSEE      36
 

Section 10.01.

  Payment of Operator’s Fee      36   ARTICLE 11 REPAIRS AND MAINTENANCE,
CAPITAL IMPROVEMENTS AND RESERVE FOR FF&E      36  

Section 11.01.

  Repair and Maintenance      36  

Section 11.02.

  Capital Improvements      36  

Section 11.03.

  Liens      37  

Section 11.04.

  Reserve for FF&E      37   ARTICLE 12 INSURANCE      37  

Section 12.01.

  General      37  

Section 12.02.

  Workers’ Compensation and Other Employment Insurance      38  

Section 12.03.

  Approval of Companies and Cost by Lessee      38  

Section 12.04.

  Maintenance of Coverages      38  

Section 12.05.

  Waiver of Subrogation      38  

Section 12.06.

  Blanket Coverage      38  

Section 12.07.

  Employment Practice Liability      39  

Section 12.08.

  Cyber/Network/Privacy Liability      39  

Section 12.09.

  Liquor Liability      39  

Section 12.10.

  Automobile Liability      39  

Section 12.11.

  General Liability      39  

Section 12.12.

  Property      40  

Section 12.13.

  Crime      40   ARTICLE 13 PROPERTY TAXES, LOCAL TAXES, LEVIES AND OTHER
ASSESSMENTS      40  

Section 13.01.

  Property Taxes      40  

Section 13.02.

  Lessee’s Right to Contest      40   ARTICLE 14 DAMAGE OR
DESTRUCTION—CONDEMNATION      40  

Section 14.01.

  Damage      40  

Section 14.02.

  Condemnation      41   ARTICLE 15 USE OF NAME      41   ARTICLE 16 TERMINATION
     41  

Section 16.01.

  Optional Termination      41  

Section 16.02.

  Sale of Hotel      42  

Section 16.03.

  Lessee Change of Control      42  

Section 16.04.

  Tax Law Change      43  

 

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Section 16.05.

  Performance Standard      43  

Section 16.06.

  Operator Change of Control      44  

Section 16.07.

  Quality Assurance Reports      44  

Section 16.08.

  Satisfaction Scores      44  

Section 16.09.

  Reporting      45  

Section 16.10.

  Default or Termination of Concession and Lease Agreement      46  

Section 16.11.

  Termination Fees      46  

Section 16.12.

  Bookings Beyond Expiration of Term      46  

ARTICLE 17 DEFAULT AND REMEDIES

     46  

Section 17.01.

  Events of Default – Remedies      46  

Section 17.02.

  Rights Not Exclusive      48  

Section 17.03.

  Operator’s Rights to Perform      49  

ARTICLE 18 NOTICES

     49  

Section 18.01.

  Notices      49  

ARTICLE 19 ASSIGNMENT

     50  

Section 19.01.

  No Assignment by Operator      50  

Section 19.02.

  Assignment by Lessee      50  

ARTICLE 20 SUBORDINATION

     51  

Section 20.01.

  Subordination to Mortgage      51  

Section 20.02.

  Foreclosure      51  

Section 20.03.

  Estoppel Certificates      51  

ARTICLE 21 MISCELLANEOUS

     51  

Section 21.01.

  Further Documentation and Reporting Compliance      51  

Section 21.02.

  Captions      52  

Section 21.03.

  Successors and Assigns      52  

Section 21.04.

  Intentionally Deleted      52  

Section 21.05.

  Assumption of Post Termination Obligations      52  

Section 21.06.

  Entire Agreement      52  

Section 21.07.

  Governing Law      53  

Section 21.08.

  No Political Contributions      53  

Section 21.09.

  Eligible Independent Contractor      53  

Section 21.10.

  Time of the Essence      54  

Section 21.11.

  Offsets      54  

Section 21.12.

  Attorney’s Fees      54  

Section 21.13.

  Final Accounting      54  

Section 21.14.

  Franchisor Communications      55  

Section 21.15.

  Consent and Approval      55  

Section 21.16.

  Partial Invalidity      55  

Section 21.17.

  Disputes      55  

Section 21.18.

  Further Assurances      55  

Section 21.19.

  Waiver      55  

Section 21.20.

  Unavoidable Interruptions      56  

 

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Section 21.21.

  Effect of Approval of Plans and Specifications      56  

Section 21.22.

  Prohibited Persons and Transactions      56  

Section 21.23.

  Confidentiality      56  

Section 21.24.

  No Third Party Rights      57  

Section 21.25.

  No Representations as to Income or Financial Success of Hotel      57  

Section 21.26.

  Dispute Resolution      57  

Section 21.27.

  Termination of the Franchise Agreement      57  

LIST OF EXHIBITS

EXHIBIT A – Hotel and Owner

EXHIBIT A-1 – Competitive Set for Hotel

[EXHIBIT A-2 – Intentionally Deleted]

EXHIBIT A-3 – Major Account Categories

EXHIBIT A-4 – Example of Monthly Transactions Report

EXHIBIT B – Franchise Agreement for Hotel

EXHIBIT C – Form of Approved Budget

EXHIBIT D – Approved Budget (if finalized)

EXHIBIT E – Example Incentive Fee Calculation

 

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HOTEL MANAGEMENT AGREEMENT

This HOTEL MANAGEMENT AGREEMENT (this “Agreement”) is made and entered into
effective as of August 31, 2017 (the “Effective Date”), by and among TRS AUS
Casey, LLC, a Delaware limited liability company (“Lessee”) and Pillar Hotels
and Resorts, LLC, a Delaware limited liability company (“Operator”), with
reference to the following facts:

A. Lessee leases from Owner the hotel property described on Exhibit A pursuant
to the Master Lease Agreement dated August 31, 2017 (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;

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; and

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. As used herein, the following terms shall have the
indicated meanings:

“Account Category” shall mean the major account categories set forth in Exhibit
A-3 attached hereto and made a part hereof, as such categories are defined and
determined in accordance with the Uniform System of Accounts and which are
applicable to the Hotel consistent with the Statement of Income as defined by
the Uniform System of Accounts or otherwise approved by Lessee.

“Accounting Fee” shall mean an accounting fee in the amount of $1,000.00 per
Accounting Period.

“Accounting Period” shall mean each calendar month (whether of 28, 29, 30 or 31
days) during each Fiscal Year.

“Affiliate” shall mean any person that, directly or indirectly, controls or is
controlled by or is under common control with such person. The term “control”
(and correlative terms) shall mean the power, whether by contract, equity
ownership or otherwise, to direct the policies or management of a person or
entity.

“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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“Allocated Services” shall mean certain support services that Operator obtains
from a third party and provides on a central or regional basis to the hotels
that it manages because such support services can be provided on a more
efficient, effective and economical basis to each individual Operator managed
hotel if the expenses of such support services are shared by other Operator
managed hotels. Such support services include services in the areas of sales and
marketing, food and beverage, human resources, insurance, technology, training
and payroll (each such service, an “Allocated Service”; collectively, the
“Allocated Services”).

“Approved Annual Plan” shall have the meaning set forth in Section 6.01 of this
Agreement.

“Approved Capital Budget” shall have the meaning set forth in Section 6.01 of
this Agreement.

“Approved Management Plan” shall have the meaning set forth in Section 6.01 of
this Agreement.

“Approved Marketing Plan” shall have the meaning set forth in Section 6.01 of
this Agreement.

“Approved Operating Budget” shall have the meaning set forth in Section 6.01 of
this Agreement.

“Base Fee” shall mean a monthly fee equal to 2.5% of Gross Hotel Income through
December 31, 2018, and thereafter 3% of Gross Hotel Income.

“Building and Appurtenances” shall mean (i) the hotel building located on the
Land, and (ii) landscaping and other related facilities, together with all
installations located at, or used in connection with the operation of the
building for hotel purposes including, without limitation, any swimming pools,
health club and recreational facilities, walkways, parking facilities, heating,
lighting, sanitation equipment, air conditioning, laundry facilities,
refrigeration, built-in kitchen equipment, and elevators.

“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 (inclusive of Hotel FF&E), which are
required to be capitalized in accordance with generally accepted accounting
principles.

“Concession Agreement” shall refer to the Concession and Lease Agreement, dated
as of the date of the Hotel acquisition, by and between Lessee, Pillar PHILQ SPE
LLC and Operator.

“Commencement Date” shall mean August 31, 2017, which is the date Operator
assumes management and operation of the Hotel.

 

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“Competitive Set” for the Hotel 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 the Hotel or an
existing hotel in the Competitive Set, the composition of the Competitive Set.
Notwithstanding the foregoing to the contrary, the Competitive Set shall at all
times consist of hotels in the market areas that are most comparable to the
Hotel in quality, price, location and market (with due consideration given to
age, quality, size, amenities, amount of meeting space and business mix). Any
changes to the Hotel’s Competitive Set must be approved by Lessee.

“Default Rate” shall mean the lesser of (i) the Prime Rate plus four percent
(4%) per annum or (ii) the highest lawful rate permitted by applicable Legal
Requirements from time to time.

“Effective Date” shall mean the date of this Agreement as set forth on page 1
hereof.

“Event(s) of Default” shall mean one or more of the events or occurrences listed
in Section 17.01 of this Agreement provided that any condition contained therein
for the giving of notice or the lapse of time, or both, has been satisfied.

“Executive Personnel” shall mean the general manager of the Hotel and the
director of sales of the Hotel.

“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.

“Force Majeure” shall mean interruptions in the operation of the Hotel (or in
the case of the hotels within the Competitive Set, to any such hotels) or any of
its essential services on account of an interruption in any one or more of the
utility services servicing the Hotel, or on account of labor disputes, strikes,
lockouts, act of God, earthquake, hurricane, flood, fire or other casualty,
taking by eminent domain, civil commotion, war, terrorist actions, riot, mob
violence, insurrection, malicious mischief, sabotage, rebellion, act of public
enemy, invasion, embargo, or any similar cause beyond Operator’s reasonable
control, but excluding any changes in economic or market conditions. For purpose
of Force Majeure pertaining to one or more hotels within the Competitive Set,
the reference to the “Operator” means the respective operator or Operator under
the Competitive Set hotel that is affected by the interruption.

“Franchise Agreement” shall mean the Franchise Agreement issued to Lessee by the
franchising entity and for the brand set forth on Exhibit B attached hereto and
such brand’s hotel standards Manual; should for any reason the Franchise
Agreement as above defined terminate or cease to exist, then the term “Franchise
Agreement” shall thereafter mean the franchise or license agreement from time to
time entered into by Lessee with respect to the branding and operation of the
Hotel. For the purposes of this definition, “Manual” shall mean the Franchisor’s
operating manual and other manuals for Franchisor described in its standard
license agreement.

 

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“Franchisor” shall mean the franchisor under the Franchise Agreement (should for
any reason the Franchise Agreement as hereinafter defined terminate or cease to
exist, then the term “Franchisor” shall thereafter mean the franchisor or
licensor under the franchise or license agreement from time to time entered into
by Lessee with respect to the branding and operation of the Hotel).

“GAAP” shall mean generally accepted accounting principles and procedures in the
United States.

“GOP Threshold” shall mean an amount equal to eighty-five percent (85%) of the
projected Income Before Non-Operating Income and Expenses set forth in the
applicable approved Annual Operating Budget.

“Gross Hotel Income” shall mean all revenues and receipts of every kind derived
from the Hotel and all departments and parts thereof, as finally determined on
an accrual basis in accordance with the Uniform System of Accounts, including,
but not limited to, revenues and income (both cash and credit transactions)
before commissions and discounts for prompt or cash payments, from the rental of
rooms and lobby space, exhibit or sales space of any kind, including without
limitation, charges for reservations, deposits and cancellation fees not
refunded to guests; income from vending machines, health club membership fees,
wholesale and retail sales of merchandise, service fees and charges, business
interruption insurance claims in respect of the Hotel, condemnation awards for
temporary use of the Hotel, license, lease and concession fees and rentals (but
not including the gross receipts of any licensees, lessees and concessionaires),
food and beverages sales, and other sales of every kind conducted by, through or
under Operator in connection with the Hotel, 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; (iv) proceeds of
sales of capital assets or property described in Section 1231 of the Internal
Revenue Code; (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; (x) tips and service
charges paid to Hotel Employees; (xi) revenues of subtenants, concessionaires,
and licensees, but rent and license fees paid to Lessee would be included; and
(xii) fees, rents and other revenues from telecommunications towers or similar
leases.

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

“Hotel” shall mean (a) the Building and Appurtenances and the Land and (b) all
Hotel FF&E, all Operating Equipment and Supplies, and all Inventories owned by
Owner and/or Lessee located at the address set forth on Exhibit A of this
Agreement.

“Hotel Employees” shall have the meaning set forth in Section 3.02(a) of this
Agreement.

 

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“Hotel FF&E” shall mean all furniture, furnishings, wall coverings, fixtures,
carpeting, rugs, fine arts, paintings, statuary, decorations, and hotel
equipment and systems located at, or used in connection with, the operation of
the Building and Appurtenances, including without limitation, major equipment
and systems required for the operation of kitchens, bars, laundry and dry
cleaning facilities, office equipment, dining room wagons, major material
handling equipment, major cleaning and engineering equipment, telephone systems,
computerized accounting and vehicles together with all replacements therefor and
additions thereto, but in all events excluding Operating Equipment and Supplies.

“Hotel Standards” shall mean the operation of the Hotel in a manner consistent
with (i) the requirements under the Franchise Agreement; (ii) the condition of
the Hotel as of the Commencement Date (or, the condition of the Hotel as of the
completion of the Renovation), normal wear and tear excepted; (iii) the
condition and level of the operation of hotels of comparable class and standing
to the Hotel in its market area; (iv) then current market conditions regarding
rental rates and lease terms and conditions with respect to Hotels of comparable
class and standing to the Hotel (including but not limited to the Competitive
Set); and (v) then current business and management practices (including those
related to compliance with Legal Requirements) applicable to the management,
operation, leasing, maintenance and repair of a hotel comparable in size,
character and location to the Hotel.

“Incentive Fees” shall mean incentive compensation paid by Lessee to Operator
for performance above budgeted expectations, achievable to a maximum aggregate
payout of two percent (2%) of Gross Hotel Income. The following will trigger
Incentive Fee payouts:

 

  (i) Fiscal Year 1: Beginning January 1, 2018, Lessee shall pay to Operator an
amount equal to one percent (1%) of Gross Hotel Income for such Fiscal Year if
the Hotel achieves an IR of 9.2% to 9.699% for such Fiscal Year. Lessee shall
pay to Operator an additional amount equal to one percent (1%) of Gross Hotel
Income for such Fiscal Year if the Hotel achieves an IR of 9.7% or higher for
such Fiscal Year.

 

  (ii) Fiscal Year 2: Beginning January 1, 2019, Lessee shall pay to Operator an
amount equal to one percent (1%) of Gross Hotel Income for such Fiscal Year if
the Hotel achieves an IR of 10.2% to 10.69% for such Fiscal Year. Lessee shall
pay to Operator an additional amount equal to one percent (1%) of Gross Hotel
Income for such Fiscal Year if the Hotel achieves an IR of 10.7% or higher for
such Fiscal Year.

For Fiscal Year 1 and Fiscal 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 and approved by Lessee.

 

  (iii) Fiscal Year 3: Beginning January 1, 2020 and continuing until the
termination of this Agreement, Lessee shall pay to Operator the following
amounts, up to a maximum aggregate payout of two percent (2%) of Gross Hotel
Income:

 

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  a. 0.5% of Gross Hotel Income if the Hotel achieves budgeted NOI, provided the
incentive payout does not cause NOI to fall below budget.

 

  b. 25% of any NOI in excess of budgeted NOI for the Hotel.

 

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

Note: Should the addition of the initial Incentive Fees lower the return below
the predetermined amount or percentage, the lower Incentive Fees, or no
Incentive Fee, shall be used as the final payment. See Exhibit E attached hereto
for Example Incentive Fee Calculation for Fiscal Year 1 and 2.

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, if the Hotel is sold
within a quarter, then the operating numbers used for incentive calculations
will be prior to the month in which it is sold (i.e. if the Hotel is sold
February 5th, its financial performance will only be used in January for that
quarter’s calculations).

“Income Before Non-Operating Income and Expenses” for any period shall mean an
amount determined for such period as calculated pursuant to the Uniform System
of Accounts.

“Initial Term” shall have the meaning set forth in Section 2.01 of this
Agreement.

“Initial Working Capital Amount” shall mean Forty-Five Thousand and No/100
Dollars ($45,000.00).

“Independent CPA” shall mean a nationally recognized firm of independent
certified public accountants having hotel accounting experience, designated from
time to time by Lessee.

“Inventories” shall mean inventories of supplies, in accordance with the Uniform
System of Accounts, such as soap, toilet paper, stationery, writing pens, food
and beverage inventories, paper products, menus, expendable office and kitchen
supplies, fuel, supplies and items similar to any of the foregoing.

“IR” shall mean Investment Return, which shall be equal to the percentage
obtained by dividing a numerator equal to Gross Hotel Income less Operating
Expenses, all reserve for Hotel FF&E (as required by Holder, Franchisor, or
other parties, but in no event less than 4% of Gross Hotel Income) and any
capital expenditures not covered in any year by the Reserve, by the total
investment of Lessee and Owner in acquiring the Hotel, including acquisition
price and acquisition costs not to exceed $300,000 in the aggregate. Operating
Expenses as referred to in this definition are inclusive of any Incentive Fees
earned related to the Fiscal Year.

 

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

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

“Legal Proceedings” shall mean all complaints, counterclaims or cross-claims
filed in a court of competent jurisdiction, any notice of any claim of violation
of any Legal Requirement by any governmental agency or authority, or any summons
or other legal process, in each instance by or against the Hotel or by or
against Owner, Lessee or Operator in connection with the Hotel.

“Legal Requirements” shall mean (a) all laws, ordinances, statutes, regulations
and orders relating to the Hotel and the Property now or hereafter in effect,
including but not limited to, environmental laws and (b) all terms, conditions,
requirements and provisions of (i) all Permits; (ii) all leases (not including
the Lease); and (iii) all liens, restrictive covenants and encumbrances
affecting the Hotel or the Property or any part thereof.

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

“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.

“Management Fee” shall mean the Accounting Fee, Revenue Management Fee, Base Fee
and Incentive Fee.

“Mortgage” shall mean any deed to secure debt, mortgage or deed of trust, from
time to time, encumbering all or any portion of the Property, together with all
other instruments evidencing or securing payment of the indebtedness in favor of
Holder secured by such deed to secure debt, mortgage or deed of trust and all
amendments, modifications, supplements, extensions, and revisions of such
mortgage, deed of trust and other instruments.

“NOI” shall mean EBITDA less Reserves, as defined in the Uniform System of
Accounts.

“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.

“Operating Equipment and Supplies” shall mean supply items which constitute
“Operating Equipment and Supplies” under the Uniform System of Accounts, all
miscellaneous serving equipment, linen, towels, uniforms, silver, glassware,
china and similar items.

“Operating Expenses” shall mean the aggregate (without duplication) of
(i) “Total Departmental Expenses” (as such term is defined in the Uniform System
of Accounts), plus (ii) “Total Undistributed Expenses” (as such term is defined
in the Uniform System of Accounts), including without limitation, the following
expenses actually incurred in the operation of the Hotel:

 

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  (i) The cost of all food and beverages and of replacing Operating Equipment
and Supplies and Inventories;

 

  (ii) Cost of sales; salaries, wages, bonuses, payroll taxes; the cost of
social insurance which shall include, but not be limited to, life, medical,
disability insurance, retirement and other benefits incurred by Operator related
to Hotel Employees;

 

  (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 claims, 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 (including legal fees with
respect to Hotel Employee claims not to exceed a $25,000 deductible per claim);

 

  (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;

 

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

 

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  (xi) All normal and recurring fees, assessments and charges due and payable
under the Franchise Agreement;

 

  (xii) Allocated Services;

 

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

 

  (xiv) All parking charges and parking rental fees 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
(including liquor licenses, if any) necessary for the operation of the Hotel and
in complying with Legal Requirements;

 

  (xvii) All reasonable travel expenses of Operator’s corporate supervisory
personnel, to include director of engineering, revenue manager and internal
auditors (to the extent approved or requested 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. Travel shall be limited
to economy fares;

 

  (xviii) Other potential operating expenses which are budgeted for and, to the
extent not included in the Approved Annual Plan, approved by Lessee;

 

  (xix) The Management Fee;

 

  (xx) Real estate and personal property taxes levied or assessed against the
Hotel and other like charges; and

 

  (xxi) All other costs and expenses incurred in connection with the operation
of the Hotel and otherwise included in this Agreement and/or the Approved Annual
Plan, including but not limited to Reimbursable Expenses.

Operating Expenses shall not include (a) depreciation and amortization except as
otherwise provided in this Agreement; (b) debt service; (c) capital expenditures
per the Approved Capital Budget; (d) lease payments to Owner; (e) all costs,
expenses, salaries, wages or other compensation, and any recruitment costs, of
any corporate, regional or other headquarters/corporate level employees of
Operator, except as otherwise provided in this Agreement or the Approved Annual
Plan; (f) expenses of Operator’s principal or branch offices; (g) any part of
Operator’s capital expenses; (h) Operator’s overhead or general expenses,
including but not limited to duplicating, stationery and postage expenses
incurred at Operator’s principal or branch offices, and Operator’s own fidelity,
liability, errors and omissions and

 

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casualty insurance, except as may be expressly assumed by Lessee pursuant to the
terms of this Agreement; (i) any expenses for advertising or promotional
materials that feature Operator’s name or activities but which do not promote
the Hotel, unless and to the extent approved by Lessee as part of the Approved
Marketing Plan; (j) any interest or penalty payment with respect to an
imposition or lien upon the Hotel imposed on Lessee by reason of (1) the failure
of Operator to make a payment required to be made by Operator under this
Agreement when the funds therefor were available, or (2) the funds therefor were
not available and Operator failed to so notify Lessee when Operator had actual
prior knowledge of the date the payment was due; provided, however, that
interest or penalty payments for the first five (5) such failures in a Fiscal
Year and/or interest or penalty payments incurred as a result of a good faith
decision to contest the imposition or lien, which could not be contested without
incurrence thereof, shall be Operating Expenses; (k) any cost for which Operator
is liable under any indemnification or any other provision of this Agreement;
and (l) political or charitable contributions made by Operator on its own behalf
without Lessee’s prior written approval.

All costs and fees of any Independent Public Accountants or other third parties
who perform services approved by Lessee (other than services provided by any
Independent Public Accountants or other third parties in connection with
services and/or reports required to be provided by Lessee pursuant to the
Franchise Agreement) shall be paid by Lessee and shall not constitute Operating
Expenses.

Except to the extent that the travel budget for Operator’s personnel is included
as a line item in the Operating Budget, no part of Operator’s central office
overhead or general or administrative expenses including the cost of travel by
Operator’s corporate or regional officers (other than Allocated Services) or for
travel related to any other hotel operated by Operator or its Affiliates shall
be deemed to be part of Operating Expenses and all such costs and expenses shall
be the sole responsibility of Operator.

Operator shall be solely responsible and shall reimburse Lessee for
re-inspection and/or penalty fees charged by Franchisor following a “failure” or
its equivalent in any quality inspection report or brand required score
standards so long as such failure is not related to the failure of Lessee to
provide needed funds, capital related issues, failure of Lessee to approve the
Proposed Annual Plan, a Renovation or a Force Majeure, but instead such failure
is the result of the fault of Operator. If Operator has exceeded the required
brand guest service scores the penalty fees will be paid by Lessee.

Lessee acknowledges that the foregoing definition of Operating Expenses is
consistent with the calculation of “Hotel and Property Operation Expenses” on
the Parent’s Audited Consolidated Statement of Operations.

“Operating Term” shall mean the term of this Agreement as set forth in
Section 2.01 of this Agreement.

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

“Owner” shall mean the entities described on Exhibit A of this Agreement as it
may be amended from time to time as the owner of the Hotel.

 

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“Parent” shall mean Condor Hospitality Trust, Inc.

“Performance Standard” shall have the meaning set forth in Section 16.05.

“Permits” shall mean all governmental or quasi-governmental licenses and
permits, including but not limited to any certificate of occupancy, business
licenses and liquor licenses.

“Prime Rate” shall mean the rate per annum announced, designated or published
from time to time by JP Morgan Chase Bank N.A. as its “prime”, “reference” or
“base” rate of interest for commercial loans.

“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.

“Proposed Annual Plan” shall mean an annual business plan for the operation of
the Hotel that is prepared by Operator and submitted to Lessee for approval and
shall include the Proposed Operating Budget, the Proposed Capital Budget, the
Proposed Marketing Plan, and the Proposed Management Plan.

“Proposed Capital Budget” shall mean an annual projection prepared by Operator
that includes Operator’s good faith reasonable estimates of expenditures from
the Reserve and for Capital Improvements and Hotel FF&E for each Fiscal Year for
(i) additions to and substitutions, replacements and renewals of Hotel FF&E and
(ii) certain non-routine repairs and maintenance to the Hotel which are normally
capitalized under generally accepted accounting principles.

“Proposed Management Plan” shall mean a plan prepared by Operator for the
(i) estimated contributions and distributions from or to Lessee; (ii) a leasing
plan for the leasing of concessions and other space in the Hotel; (iii) plans
and budgets for the disposition and replacement of Hotel FF&E; and (iv) such
management issues, proposals and projections or modifications as Operator may
recommend for the efficient management of the Hotel including but not limited to
proposals and assessments as to the Hotel’s position in the market, market
opportunities, franchise affiliation and disposition strategies.

“Proposed Marketing Plan” shall mean proposed marketing, advertising, public
relations, sales, and promotional plans prepared by Operator to be used in
connection with marketing the Hotel.

“Proposed Operating Budget” shall mean an annual operating projection prepared
by Operator that includes Operator’s good faith reasonable estimates of all
revenue and expense items for each Fiscal Year for the Hotel.

“Reimbursable Expenses” shall mean all travel, lodging, entertainment,
telephone, facsimile, postage, courier, delivery, employee training and other
expenses incurred by Operator in accordance with the standard policies for
expenses incurred by Operator on its own behalf and which are directly related
to its performance of this Agreement, but in no event will Reimbursable Expenses
include or duplicate expenses for Operator’s overhead or Allocated Services.

 

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“Renewal Term” shall have the meaning set forth in Section 2.01 of this
Agreement.

“Renovation” shall mean a renovation of any portion of the Hotel during the
Term, pursuant to a plan proposed by Operator and approved by Lessee to, among
other things, bring the Hotel to a physical condition that satisfies the
standards under the Franchise Agreement and to operate in a manner consistent
with the assumptions for the Approved Annual Plan. A Renovation shall be carried
out at the expense of Lessee pursuant to plans and specifications and a schedule
prepared by Operator and approved by Lessee and, to the extent required under
the Franchise Agreement, by Franchisor.

“Reserve” shall mean an account maintained by Owner, Lessee, Holder or
Franchisor for replacement of Hotel FF&E and/or Capital Improvements, as
described in Section 11.04 of this Agreement.

“Revenue Data Publication” shall mean Smith’s STR Report, a monthly publication
distributed by Smith Travel Research, Inc., or an alternative source, reasonably
satisfactory to both parties, of data regarding the average daily rate,
occupancy and RevPAR of hotels in the general area of the Hotel, including,
without limitation, the Competitive Set.

“Revenue Management Fee” shall mean a revenue management fee of $1,000.00 per
Accounting Period.

“Revenue Per Available Room” or “RevPAR” shall mean for any Fiscal Year the
number derived by dividing (i) net room revenue (in accordance with the Uniform
System of Accounts), by (ii) the number of available guest rooms in the Hotel.

“RevPAR Threshold” shall mean one hundred nine percent (109%) of the RevPAR of
the Hotel’s Competitive Set, as set forth in the applicable Revenue Data
Publication, or such other amount as may be agreed to by Lessee and Operator as
part of the approved Annual Plan for the applicable Fiscal Year.

“Uniform System of Accounts” shall mean the Uniform System of Accounts for the
Lodging Industry, 11th Revised Edition, 2014, as published by the Hotel
Association of New York City, Inc. or any later edition thereof.

“Unrelated Persons” shall have the meaning set forth in Section 21.09 of this
Agreement.

“Working Capital” shall mean and refer to the funds which are reasonably
necessary for the day-to-day operation of the Hotel’s business, including,
without limitation, amounts sufficient for the maintenance of petty cash funds,
operating bank accounts, receivables, payrolls, prepaid expenses, advance
deposits, funds required to maintain inventories, and amounts due to/or from
Operator and/or Lessee less accounts payable and accrued current liabilities.

(b) Terms with initial capital letters which appear within the foregoing
definitions are defined in this Article 1 or as indicated in this Agreement.
Dollars are denominated in U.S. Dollars.

 

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(c) All personal pronouns used in this Agreement, whether used in the masculine,
feminine or neuter gender, shall include all genders; the singular shall include
the plural, and the plural shall include the singular. The titles of Articles,
Sections and Subsections in this Agreement are for convenience only, and neither
limit nor amplify the provisions of this Agreement, and all references in this
Agreement to Articles, Sections, Subsections, paragraphs, clauses, sub-clauses
or exhibits shall refer to the corresponding Article, Section, Subsection,
paragraph, clause or sub-clause of, or exhibit attached to, this Agreement,
unless specific reference is made to the articles, sections or other
subdivisions of, or exhibits to, another document or instrument.

(d) All exhibits and other attachments attached hereto are by this reference
made a part of this Agreement.

ARTICLE 2

TERM OF AGREEMENT

Section 2.01. Operating Term.

The term of this Agreement shall commence on the Commencement Date and shall
terminate at midnight on the date that is three (3) years after 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 Lessee and Operator; Engagement of Operator.

Lessee hereby represents and warrants that any authorization or acts, which it
does or grants, are specifically authorized by the Owner under the Lease. Lessee
further warrants that it has the requisite power and authority to perform its
obligations under this Agreement and Lessee shall notify Operator immediately if
the Lease terminates or is no longer in effect. If the Lease terminates during
the Operating Term, such termination shall be deemed a voluntary termination of
this Agreement whereupon the provisions of Section 16.01 shall apply.

Operator hereby represents that Operator: (i) is a limited liability company
duly organized and existing under the laws of the State of Delaware, and is duly
qualified to do business in the State of Texas, (ii) has the full power and
authority to enter into this Agreement and to carry out the transactions herein
contemplated; and the undersigned officers of Operator have all necessary
authority to execute and deliver this Agreement on behalf of Operator,
(iii) will deliver to Lessee, upon the execution hereof a certificate from the
State of Texas showing that Operator is qualified to do business in such State,
(iv) will take all legally required action to maintain such qualification under
the laws of the State of Texas to remain in good standing as needed to conduct
the business herein contemplated, (v) is experienced and capable and will

 

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remain experienced and capable in the management and operation of the hotel in
the regions it manages hotels, (vi) has reviewed and understands the terms and
provisions of the Franchise Agreement and the Hotel Standards, and (vii) will,
on the Commencement 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,
subject to and in accordance with this Agreement.

Subject to the terms of this Agreement, Hotel operations shall be under the
exclusive supervision and control of Operator, which, except as otherwise
specifically provided in this Agreement, shall be responsible for the proper and
efficient operation, maintenance and repair of the Hotel in accordance with the
terms of this Agreement. Except as specifically set forth in this Agreement,
Operator shall have discretion and control respecting matters relating to
management and operation of the Hotel, including, without limitation, charges
for rooms and commercial space, credit policies, food and beverage services,
other Hotel services, employment policies, granting of concessions or leasing of
shops and agencies within the Hotel as specifically requested by Lessee,
receipt, holding and disbursement of funds, maintenance of the Operating
Account, procurement of inventories, supplies and services, promotion and
publicity and, in general, all activities necessary for operation of the Hotel.

Operator shall devote its knowledge, experience and efforts to operate and
manage the Hotel pursuant to this Agreement in a businesslike manner in
accordance with the Hotel Standards. Operator shall make available to Lessee the
full benefit of the judgment, experience and advice of the members of Operator’s
organization and staff with respect to the policies pursued by Lessee in
operating, maintaining, and servicing the Hotel. Operator shall endeavor in good
faith and consistent with prudent hotel management to maximize the profitability
and value of the Hotel consistent with the Hotel Standards; provided, however,
that Operator has not made and shall not be deemed to have made any guaranty or
warranty with respect to the financial performance or profitability of the
Hotel, or the present or long-term value of the Hotel.

Section 3.02. Standards of Operation.

Without limiting the generality of the foregoing, Operator’s engagement under
this Agreement shall include the responsibility and authority (subject to the
limitations on Operator’s authority set forth in this Agreement), and in all
cases, subject to the other terms and conditions of this Agreement, including,
without limitation, Lessee’s obligation to provide sufficient funds, to do the
following, at all times in material compliance with the Approved Annual Plan,
the Franchise Agreement, the Mortgage, if any, Legal Requirements and the Hotel
Standards:

(a) Select, employ, promote, transfer, compensate, terminate where appropriate,
supervise, direct, train, and assign the duties of the Executive Personnel and,
through the Executive Personnel, a sufficient number of personnel whom Operator
reasonably determines to be necessary or appropriate for the proper, adequate
and safe operation and management of the Hotel (collectively, the “Hotel
Employees”). All such employees of the Hotel shall be employees of Operator or
Operator’s Affiliate. In addition, Operator may, from time to time, assign one
or more of its employees to the staff of the Hotel on a full-time, part-time or
temporary basis to the extent permitted by this Agreement or otherwise approved
by Lessee;

 

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(b) Determine the terms for guest admittance to the Hotel and establish all
prices, price schedules, rates and rate schedules for rooms, and other amenities
and services provided at or in connection with the Hotel;

(c) Develop, revise, and implement all prudent policies and practices relating
to all aspects of the Hotel, which shall be set forth in one or more policy
manuals or other writings, and train and supervise all Hotel Employees for
compliance with all such policies and practices, including policies and
practices relating to: (i) terms and conditions of employment, applicant
screening, background checks, selection, hiring, training, supervision,
compensation, employee benefits, discipline, dismissal, transfer and
replacement; (ii) compliance with laws, including but not limited to
anti-discrimination, sexual harassment and environmental laws; and (iii) safety
procedures, including those relating to the handling of hazardous and other
dangerous materials;

(d) Select, purchase and install all Inventories and Operating Equipment and
Supplies for the Hotel, and to the extent set forth in the Approved Capital
Budget, but subject to the requirement to obtain Lessee’s specific authorization
for expenditures for Hotel FF&E exceeding $5,000, Hotel FF&E in the Approved
Capital Budget. Without limiting the generality of the foregoing, Operator
agrees to maintain the levels of Inventories and Operating Equipment and
Supplies at standards consistent with past practice and the requirements of the
Hotel Standards through the date of termination of this Agreement, including the
period after a notice of termination of this Agreement has been given by Lessee
or Operator. Other than with respect to Allocated Services, all contracts for
Capital Improvements and Hotel FF&E exceeding $10,000 in any Fiscal Year shall
be awarded on the basis of competitive bidding (provided, however, that Operator
will not be required to obtain competitive bids for any service for which a
single provider exists), solicited in the following manner:

 

  (i) A minimum of two (2) written bids shall be obtained for each purchase or
contract that exceeds $10,000 in any Fiscal Year, up to $15,000 in any Fiscal
Year. Purchases over $15,000 in any Fiscal Year will require a minimum of three
(3) bids.

 

  (ii) Each bid will be solicited in a uniform format.

 

  (iii) Operator may accept a low bid without prior approval from Lessee if the
expenditure is for an approved item in the Approved Annual Plan and will not
result in an excess of the annual budgeted Account Category of the applicable
Approved Capital Budget or Approved Operating Budget, as applicable, and is not
otherwise directly paid by Lessee.

 

  (iv) If Operator desires to accept a bid other than the lowest bid, then
Operator shall so advise Lessee in writing and recommend that such bid be
accepted, with support for such recommendation.

 

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  (v) Lessee shall have the right to accept or reject any and all bids for
Capital Improvements and/or Hotel FF&E that are not the lowest bid; such
acceptance shall not be unreasonably withheld or delayed.

 

  (vi) Operator may request Lessee to waive in writing competitive bidding rules
for a specific item or service.

In its operation of the Hotel under this Agreement, Operator may purchase goods,
supplies and services from itself, Lessee or Lessee’s representatives, or any
Affiliates of any of the foregoing so long as the prices and terms thereof are
at arm’s length and otherwise competitive with, and are not less favorable than
prices and terms which could be obtained from independent parties and, if
required by this section, are in compliance with competitive bidding rules,
provided that Operator will obtain Lessee’s consent (not to be unreasonably
withheld) regarding any such arrangement;

(e) Negotiate and enter into service contracts on Lessee’s behalf which are
necessary or desirable in the ordinary course of business in operating the
Hotel, including, without limitation, contracts for provision of electricity,
gas, water, telephone and other utility services, cleaning services, security
services, vermin extermination, trash removal, elevator and boiler maintenance,
air conditioning maintenance, master television service, laundry and dry
cleaning, entertainment satellite systems and other services necessary for
operation of the Hotel in accordance with this Agreement. Other than Allocated
Services agreements, which may, at Operator’s option, be in Operator’s name, all
such service contracts shall be entered into in the Lessee’s or Affiliate of
Lessee’s or the Hotel name. Lessee’s consent shall not be required for any
service contracts which have liabilities to the Hotel of $25,000 or less per
Fiscal Year, do not exceed one (1) year and/or are not terminable on thirty
(30) days’ notice without penalty. As part of the budgeting process, Operator
shall provide to Lessee, with each Proposed Operating Budget, a complete list of
all service and other contracts anticipated for the Fiscal Year which is the
subject of the Proposed Operating Budget for such Fiscal Year and the payments
or expenditures connected or anticipated therewith. So long as any service or
other contracts fall within the following guidelines, Lessee’s approval thereof
shall not be required, but Operator shall nevertheless promptly report to Lessee
the execution of (and provide Lessee with a true and complete copy of) each such
contract:

 

  (i) The term of such contract shall be no longer than one (1) year; and

 

  (ii) Each contract must be terminable by Owner or Operator without payment or
penalty upon not more than thirty (30) days’ notice;

(f) Establish all credit and direct bill policies and ensure compliance with
such, in connection with the Hotel;

(g) Apply for, and use commercially reasonable efforts to obtain and maintain,
in the name of Lessee or Operator, as required by Legal Requirements and this
Agreement, all Permits required of Lessee or Operator in connection with the
management and operation of the Hotel;

 

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(h) Legal Proceedings of a “non-extraordinary nature” (hereafter defined), may
be instituted by Operator, in accordance with guidelines and policies determined
from time to time by Operator and Lessee, in the name of Operator or the Hotel
or Lessee and by counsel designated by Operator pursuant to such guidelines and
policies. Legal Proceedings of an “extraordinary nature” (hereafter defined)
shall require Lessee’s prior approval of the proceedings and counsel approved by
Lessee. Operator shall furnish Lessee with quarterly status reports with respect
to all Legal Proceedings of an extraordinary nature. In addition, Operator shall
have the right to defend, through counsel designated by Operator, Legal
Proceedings of a non-extraordinary nature against Lessee or Operator resulting
from the operation of the Hotel. The defense of Legal Proceedings against the
Hotel of an extraordinary nature (including, without limitation, any aspect of
any claims against Operator or Lessee arising out of the operation of the Hotel
as to which the insurance company denies coverage) shall be coordinated with
Lessee, designated counsel shall be subject to Lessee’s reasonable approval and
Operator shall furnish Lessee with quarterly status reports with respect to such
actions. All claims against Lessee and/or Operator arising out of the management
or operation of the Hotel which (i) are not covered by insurance shall be
promptly communicated to Lessee and (ii) are covered in whole or in part by
insurance shall be promptly forwarded by Operator to the appropriate insurer
(with a copy thereof to Lessee in the case of claims against Lessee). Legal
Proceedings of a “non-extraordinary nature” shall be proceedings in which the
monetary exposure is less than $25,000 that are (i) initiated by Operator or
Lessee relating to the operation of the Hotel for matters such as collections,
maintenance of licenses and permits, enforcement of contracts and proceedings
against Hotel tenants; and/or (ii) defense of actions against the Lessee or
Operator resulting from the operation of the Hotel for matters such as guest
claims for loss of property or injury to persons and claims relating to
employment or the application for employment at the Hotel. Legal Proceedings of
an “extraordinary nature” shall mean all other Legal Proceedings;

(i) Establish, supervise and implement a sales and marketing program for the
Hotel (which Proposed Marketing Plan shall be submitted in conjunction with the
Proposed Operating Budget and approved by Lessee in accordance with the terms of
this Agreement) and in conjunction therewith, plan, prepare, arrange and
contract for all advertising, publicity and promotional activities for the
Hotel, including advertising and promotional activities in conjunction with
other hotels owned or operated by Operator and its Affiliates, and all discount
and complimentary policies with respect to bona fide travel agents, tourist
officials, airline representatives, and employees of Lessee, Owner, Operator and
their Affiliates in accordance with the customary practices of the travel
industry;

(j) Perform (or cause to be performed and supervised) such maintenance and
repairs to the Hotel as shall be required to maintain the Hotel in all material
respects in accordance with the Hotel Standards. Without limiting the generality
of the foregoing, Operator agrees to perform (or cause to be performed and
supervised) all necessary or scheduled repair and maintenance through the date
of termination of this Agreement, including the period after a notice of
termination of this Agreement has been given by Lessee or Operator;

(k) Perform any obligations of Lessee under any Mortgage which are applicable to
the operation and management of the Hotel, provided such documents have been
provided to Operator;

 

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(l) Pay all Operating Expenses;

(m) Pay all gross receipts, transient occupancy and similar taxes;

(n) Comply with all Legal Requirements and the requirements of insurance
companies which are applicable to the operation and management of the Hotel;

(o) At any given time, the standards of equipping, maintaining, and operating
the Hotel at a level equal to the higher of: (i) the operating standards as
established by the Franchisor; or (ii) the Competitive Set, as may be modified
and/or clarified by the terms and provisions hereof. A determination of which
standard of operations described in (i) and (ii) above will be controlling,
shall be made, if needed, on an annual basis for each Fiscal Year as part of the
approved budget process. Notwithstanding anything to the contrary, the Hotel
shall at all times comply with the Franchise Agreement and Manual;

(p) Operate and/or lease to third parties approved and/or selected by Lessee
gift and sundry shops, concessions, food and beverage, banquet and room service
facilities of the Hotel, provided, that Lessee shall seek Operator’s approval of
any such lease, including the form of lease, which approval which may be
withheld only if Operator can demonstrate that the third party operator is
unable to manage the space or facility in a manner consistent with the Hotel
Standards;

(q) Do any and all other acts and things as Operator may deem necessary and
appropriate to carry out its responsibilities under this Agreement;

(r) Comply with the provisions of any covenants, conditions and restrictions
recorded against the Hotel, to the extent same have been provided to Operator;

(s) Negotiate with any union lawfully entitled to represent such employees and
execute collective bargaining agreements or labor contracts resulting therefrom
that have been approved by Lessee; and

(t) Provide Allocated Services to the Hotel. The Hotel’s portion of the cost
thereof shall constitute an Operating Expense so long as (i) the costs of the
Allocated Services are allocated in good faith on a uniform, fair, equitable and
proportionate basis among the Hotel and the other Operator managed hotels
benefiting therefrom; (ii) the Allocated Services shall not include services
that do not benefit the Hotel; and (iii) the cost of the Allocated Services are
either (a) included by Operator in each Approved Annual Plan or (b) otherwise
approved in writing by Lessee. The cost of the Allocated Services and the
allocation of that cost to the Hotel and other Operator managed hotels shall be
subject to audit by Lessee pursuant to the terms of this Agreement. Operator
further agrees that the benefit of any discounts or rebates received by Operator
with respect to any of the Allocated Services shall be passed on to the Hotel on
a proportionate basis as compared to other hotels managed by Operator or its
Affiliates.

Section 3.03. Limitations on Operator’s Authority.

Operator shall have no authority to do any of the following without Lessee’s
prior written approval in each instance, which may be withheld in Lessee’s sole
and absolute discretion:

 

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(a) Borrow money, guaranty the debts of any third person, or mortgage, pledge,
grant a security interest in or otherwise encumber all or any part of the Hotel;

(b) Enter into any lease for the use of any item of Hotel FF&E, vehicles and
capital leases;

(c) Enter into any agreement, lease, license or concession agreement for office,
retail, lobby or other commercial space at the Hotel;

(d) Incur any liabilities or obligations to third parties which are unrelated to
the operation, maintenance and security of the Hotel or to the performance of
Operator’s responsibilities under this Agreement;

(e) Enter into any collective bargaining agreement concerning any employees of
the Hotel without the prior written approval of Lessee, which may be granted or
withheld in its sole discretion. Upon Lessee’s approval of any such agreement,
Operator shall be responsible to perform such agreements. To the extent
applicable, Operator: (a) represents that it is an equal opportunity employer as
described in Section 202 of Executive Order 11246 dated September 24, 1965, as
amended, and as such agrees to comply with the provisions of Paragraphs 1
through 7 of Section 202 of said Executive Order during the performance of this
Agreement, (b) agrees to comply with the affirmative action requirements of Part
60.741 of Title 41, Code of Federal Regulations, with respect to handicapped
workers during the performance of this Agreement, (c) agrees to comply with the
affirmative action requirements of Part 60.250 of Title 41, Code of Federal
Regulations, with respect to Disabled Veterans and Veterans of the Vietnam Era
during the performance of this Agreement, and (d) shall submit to Lessee in the
form approved by the Director of the Office of Federal Contract Compliance, U.S.
Department of Labor, a certification that Operator does not and will not
maintain any facilities that provide for their employees in a segregated manner,
or permit their employees to perform their services at any location under its
control, where segregated facilities are maintained, and that Operator will
obtain a similar certification from its contractors;

(f) Enter into any contract or other arrangement (or series of related contracts
or arrangements) in violation of Sections 3.02(d) and (e), as applicable;

(g) Settle any casualty insurance claims which involve, or which are reasonably
estimated to involve, amounts in excess of $10,000, and any condemnation awards
regardless of amount;

(h) Institute or defend any Legal Proceedings with respect to the Hotel, other
than as required or permitted by Section 3.02(h);

(i) Employ any professional firm in any Fiscal Year for more than $25,000 in the
aggregate except as set forth in the Approved Annual Plan;

(j) Prosecute or settle any tax claims or appeals;

 

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(k) Other than as required and/or permitted by Section 3.02(d), (e) and/or (t),
purchase goods, supplies and services from itself or any Affiliate of Operator,
or enter into any other transaction with an Affiliate of Operator, unless
(i) such purchase from or other transaction with Operator or any Affiliate of
Operator is disclosed in the Approved Annual Plan or (ii) prior to the
consummation of such transaction all of the prices and other terms thereof and
the identity of the vendor and its relationship to Operator shall have been
disclosed to and approved by Lessee, which may be withheld in Lessee’s
reasonable discretion. Except to the extent disclosed to Lessee in advance and
approved by Lessee in its sole and absolute discretion, neither Operator nor any
Affiliate of Operator shall charge or receive any mark-up, profit or purchasing
fee on the purchase by or for the Hotel of any goods, supplies or services.
Operator shall use commercially reasonable efforts to ensure that the prices and
terms of goods and services purchased under such contracts are competitive with
the prices and terms of goods and services of equal quality available from
others. Operator shall use its commercially reasonable efforts to obtain the
maximum available discounts and rebates on purchases and the most favorable
terms available. Any allowances, credits, rebates, discounts and the like
received with respect to any such purchases shall be for the account of Lessee,
and if received by Operator or any of its Affiliates, shall be turned over to
Lessee;

(l) Provide complimentary rooms or services to any guests, employees or other
persons except in accordance with Operator’s policies provided to Lessee or for
which the business purpose for the benefit of the Hotel is properly documented;

(m) Acquire on behalf of Lessee any land or any interest therein;

(n) Consent to any condemnation or participate in any condemnation proceeding
relating to the Hotel, the Land or any portion thereof;

(o) Sell, transfer or otherwise dispose of all or any portion of the Land,
Building and Appurtenances or any capital assets of the Hotel or other interest
therein, except for dispositions of Hotel FF&E to the extent expressly provided
for in the Approved Annual Plan or otherwise approved by Lessee;

(p) Perform any alterations to the Hotel or any portion thereof except to the
extent Operator’s performance of any such alteration shall be expressly provided
for in the Approved Budget or otherwise permitted by the terms of this
Agreement;

(q) Take any other action which, under the terms of this Agreement, is
prohibited or requires the approval of Lessee;

(r) Lease or rent any one or more of the Hotel’s ballroom, bar or restaurant for
periods in excess of two (2) consecutive weeks to the same guest or entity; and

(s) Do or take any other action that shall be contrary to any written directions
of Lessee or limitations on Operator’s authority imposed by Lessee pursuant to
any other provision of this Agreement.

 

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Section 3.04. Reservations Services and Revenue Management.

Operator agrees, if requested at any time by Lessee, and at the sole and
absolute discretion of Lessee, to hire either: a revenue manager on a corporate
or regional basis, or a revenue management firm to be selected by Lessee and
Operator (the “Revenue Manager”), to oversee the implementation of the Hotel’s
ongoing revenue management plans, including (i) interfacing with the
Franchisor’s reservation and revenue management systems, and such Franchisor’s
“cluster” or other revenue manager(s) responsible for the Hotel;
(ii) interfacing on an ongoing basis with the Hotel’s general manager and front
office manager (and/or other Hotel personnel responsible for revenue management)
to endeavor to maximize the Hotel’s REVPAR; and (iii) analyzing the Revenue Data
Publication, Hoteligence Reports, and other data. In connection therewith,
Lessee agrees to pay its equitable share of any individual hired as a Revenue
Manager for the Hotel, either to be shared between the Hotel and one or more
other hotels managed by the Operator, or to be hired on a part-time basis by the
Hotel, either of which salary and benefit expenses shall be paid for by the
Hotel as an Operating Expense. Alternatively, any revenue management firm so
hired to serve as Revenue Manager strictly for the Hotel shall be paid for by
the Hotel as an Operating Expense.

Section 3.05. Marketing.

(a) Subject to the terms and conditions of this Agreement, including, without
limitation, Lessee’s obligation to provide sufficient funds, 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
Annual Plan and in accordance with the Hotel Standards. Operator will use
commercially reasonable efforts 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. 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 through standard monthly reporting. The Hotel shall be visited at
least once every three (3) months by a member of Operator’s corporate sales
leadership team, if set forth in the Approved Operating Budget, and Operator
shall make a member of Operator’s corporate sales leadership team available to
Lessee telephonically at least monthly to discuss the marketing aspects of the
Hotel.

(b) Operator may, consistent with the Approved Marketing Plan, 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. Except as
set forth in the Approved Annual Plan and subject to Section 3.07(c) of this
Agreement, 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.

Section 3.06. Consultations Between Lessee and Operator.

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

 

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Section 3.07. Transactions with Affiliates and Other Relationships.

(a) Except as otherwise permitted by Section 3.02(d) and (e) and subject to
Section 3.03(k), Operator shall obtain the prior written consent of Lessee
(which Lessee may withhold in Lessee’s reasonable 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 with respect
to the Hotel 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 associated with the Hotel will
accrue to the benefit of Lessee and, in cases of cash or credit, will be applied
against Operating Expenses.

(c) Notwithstanding anything in this Agreement to the contrary, to the extent
Operator provides discounted rates to Operator’s employees at other hotels
managed by Operator or its Affiliates, pursuant to discount rate programs
applicable to other hotels, Operator agrees to include this Hotel in such
discounted rate programs (subject to availability and black-out periods
determined by Lessee and Operator during the Annual Plan process, or as
otherwise approved by Operator or Lessee as part of the revenue management of
this Hotel) and to provide the same discounted rates to the Hotel Employees, to
the extent allowed under the management and franchise agreements affecting such
other hotels.

Section 3.08. Regional Manager.

Operator shall provide the services of one of its experienced management
employees to oversee and manage the operations of the 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 least once every three (3) months to
insure the Hotel 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 an
appropriate senior level corporate officer of Operator or his/her mutually
acceptable alternative on a semi-annual basis to review hotel performance. The
travel costs of such Regional Manager as provided in this Section shall be an
Operating Expense.

Section 3.09. Certain Expenses.

Operator shall not be entitled to charge Lessee for any of its central office
overhead, except as follows:

 

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(a) Operator shall not charge tuition for training courses provided by Operator
for Hotel Employees or for course materials but shall be reimbursed the cost of
course materials developed by third party companies, subject to the Approved
Operating Budget. Reasonable travel and housing expenses of trainees shall be
included in Operating Expenses, subject to the Approved Operating Budget.

(b) Travel expenses described in (xvii) and (xviii) of “Operating Expenses” and
Section 3.08.

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 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 create a lease by Operator of
the Hotel or the Property and Operator shall not constitute a tenant or
subtenant of Lessee. 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 the Executive Personnel. Operator will use all
commercially reasonable methods, consistent with other nationally recognized
hotel operators, at their disposal, to find qualified candidates for the above
listed positions. Operator agrees that if termination of any of the Executive
Personnel occurs, Operator will put temporary or task force help in those
vacated positions to insure continued smooth running operations of Hotel until
the vacated position has been filled. Within the first two (2) years of the
Term, Operator will not relocate either the Hotel General Manager or the
Director of Sales to another hotel operated by Operator, without Lessee’s
consent in its reasonable discretion. Operator acknowledges that Lessee is
vitally interested in the qualifications of the individuals designated as the
general manager and the director of sales of the Hotel. Operator shall, from
time to time, consult with Lessee and obtain Lessee’s approval as to the
appointment of individuals to such positions; provided, however, and subject to
the prior sentence, Lessee and Operator acknowledge that nothing in this Article
is intended to limit or negate the authority of Operator elsewhere provided in
this Agreement to remove, in its sole discretion, the general manager and/or
director of sales of the Hotel.

(a) Each Hotel Employee shall be the employee of Operator, or an Affiliate of
Operator, and not of Lessee, and every person performing services in connection
with this Agreement shall be acting as the employee of Operator (except for any
independent contractors engaged by Operator, in accordance with this Agreement),
but their salaries and other related expenses and employment arrangements shall
be an Operating Expense and shall be accrued in accordance with generally
accepted accounting principles. The costs provided for in the

 

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immediately preceding sentence shall include, by way of example and not
limitation, all reasonable costs and expenses (including, without limitation,
all employment related expenses incurred by Operator with respect to the Hotel
Employees), such as severance pay, unemployment compensation and health
insurance and related costs (i.e., in order to comply with COBRA-type
regulations) as a result of the termination of employees and which shall have
been paid or accrued in accordance with generally accepted accounting
principles.

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

(c) The hiring policies and the discharge of Hotel Employees at the Hotel shall
in all respects comply with all Legal Requirements regarding the employment and
payment of persons engaged in the operation of the Hotel.

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

(e) Operator shall not discriminate against any employee or applicant for
employment because of race, color, religion, national origin, ancestry, age, sex
or sexual orientation, and all employment advertising shall indicate that
Operator and Lessee are each an Equal Opportunity Employer as that term is
defined under Legal Requirements.

Section 4.03. Employee Expenses.

(a) All costs of every nature and reasonably available pertaining to all Hotel
Employees at the Hotel, including, without limitation, salaries, benefits, EPLI
coverage, the terms of any bonus plan or arrangement, costs incurred in
connection with Legal Requirements and insurance rules, shall be set forth in
the Approved Operating Budget as an Operating Expense. Notwithstanding the
provisions of this Agreement, all costs, expenses and liabilities relating to
Hotel Employees shall be expenses of operating the Hotel and the responsibility
of Operator for acts or omissions of Hotel Employees shall not extend beyond
responsibility for the gross negligence or willful misconduct of, or the willful
violation of Legal Requirements by the Executive Personnel.

(b) Compensation, overhead costs and other expenses of Operator and its
Affiliates not specifically provided for herein which are corporate expenses of
Operator 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 corporate
employees which have been temporarily transferred to the Hotel to serve the
Hotel exclusively; provided, however, Operator may only include in Operating
Expenses that portion of the salary of taskforce Executive Personnel which does
not exceed twenty percent (20%) of

 

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the salary of the applicable Executive Personnel being replaced. Operator may
also include in the calculation of Operating Expenses reasonable travel costs
associated with Operator’s corporate employees located at Operator’s corporate
headquarters which have been temporarily transferred to the Hotel to serve the
Hotel exclusively. Lessee shall have the right to approve temporary travel
schedule.

Section 4.04. Employee Benefit Plans.

Notwithstanding anything to the contrary contained in this Agreement, the
following subparagraphs (a) and (b) shall apply to any liability that may, from
time to time, arise out of the Employee Retirement Income Security Act of 1974
(“ERISA”) and the Multi-employer Pension Plan Amendments Acts of 1980 (“MEPPA”),
respectively, as from time to time amended.

(a) Employee Benefits: Any Hotel Employees who are not then represented by a
collective bargaining representative shall be entitled to participate in the
incentive programs, profit sharing and/or other employee retirement, disability,
health, welfare or other benefit plan or plans then made available by Operator
to similarly situated employees of other hotels managed by Operator, in
accordance with their respective terms. Operator will have the right to charge
the Hotel with its allocable share of the cost of any such plan or plans and any
contributions to be made thereunder provided that such charges and contributions
shall be determined by Operator in good faith on a uniform basis with respect to
charges and contributions imposed for the same or similar plans at other hotels
then managed by Operator, subject to Legal Requirements. Operator’s rights under
this Subsection (a) shall be subject to the condition that Operator shall not
put into effect any amendment to any existing plan, or adopt any additional
plan, which is not imposed upon all other similarly situated hotels managed by
Operator.

Upon the expiration or termination of this Agreement, the sale of the Hotel or
other similar event, Operator shall cooperate with the Lessee with respect to
disposition of such plan or plans (or plan assets) in a mutually satisfactory
manner, all in compliance with then applicable Legal Requirements.

(b) Collective Bargaining or Other Multi-employer Plans: Operator and Lessee
agree that with respect to any withdrawal liability arising under any collective
bargaining agreement or other “multi-employer plan” (as defined in Section 3(37)
of ERISA) in which the Hotel Employees become participants, the obligations of
the parties shall be determined as follows, which obligations shall survive a
termination of this Agreement:

 

  (i)

Withdrawal liability arising with respect to Hotel Employees shall be the
responsibility of Lessee, and Lessee shall either pay the amount of such
withdrawal liability directly to such plan or reimburse Operator for withdrawal
liability payments made to such plan by Operator with respect to Hotel Employees
(including withdrawal liability arising after the sale or other termination of
this Agreement, provided that such liability arises as a result of such sale,
disposition, termination or other similar event). To the extent permitted under
then applicable laws, regulations and agreements, Operator shall cooperate with
Lessee in structuring transactions and

 

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  transferring actual or contingent withdrawal liability to a successor in
ownership or purchaser of the Hotel in accordance with “relief” provisions of
ERISA, such as ERISA Section 4204 or then applicable statutory or regulatory
provisions of a similar nature.

 

  (ii) For purpose of this subparagraph (b), the term “withdrawal liability”
shall mean the actual amount assessed by and payable to a multi-employer pension
fund upon a complete or partial withdrawal of the Hotel or Hotel Employees from
such fund. Operator shall cooperate with Lessee in challenging a plan’s
assessment of such liability, provided that all costs of litigation, arbitration
or other procedures shall be paid by Lessee (including any bonds that must be
posted). If Operator or its Affiliates have employees at other locations who
participate in the same multi-employer plan as Hotel Employees, Lessee shall be
charged with and be responsible only for multi-employer plan withdrawal
liability arising solely with respect to the participation of Hotel Employees in
such plan.

Section 4.05. Execution of Agreements.

(a) Except as provided in Section 4.05(b) of this Agreement, Operator shall
execute as agent of Lessee leases and other agreements relating to equipment
and/or services provided to the Hotel, all of which, unless otherwise approved
in writing in advance by Lessee, shall either be a term of one year or less or
be cancelable upon not more than thirty (30) days’ written notice by Operator or
Lessee without the payment of a penalty or fee. Notwithstanding the foregoing,
without the prior written approval of Lessee, Operator shall not enter into any
agreement (i) which provides for the payment of sums not authorized by Lessee in
an Approved Annual Plan, (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 Annual Plan, (iv) to lease
any part of any Property to tenants for occupancy, (v) relating to alterations
to the exterior, interior or structural design of the Hotel except as
contemplated by the Approved Annual Plan, (vi) which is not cancelable by Lessee
upon 30 days’ notice or less unless the term of said agreement is one year or
less, (vii) which provides for any automatic renewal terms greater than one
(1) year, or (viii) contracts for multiple rooms and/or multiple days that
(a) exceed a 1-year term and/or (b) exceed 40% of the hotel’s room inventory for
a period of 14 days or more, or (c) exceed 50 room nights and have a negotiated
net rate of $49 or less for economy properties, and $69 or less for midscale and
above, this includes Operator promoting such rates online and 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) days of receipt of such notice. If Lessee fails to respond
within such five (5) day period, Operator shall send a second request, which
request shall state that Lessee’s failure to respond shall be deemed approval.
If Lessee fails to respond to the second request, such consent shall be deemed
approved.

(b) Subject to Lessee’s prior approval of the same and upon Lessee’s request,
Operator shall execute, as agent for Lessee, (i) all leases, as sub-lessor, of
any space at any Property, and (ii) equipment rental and/or lease agreements.
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.

 

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ARTICLE 5

INDEMNIFICATION

Section 5.01. Indemnification by Operator.

Operator shall indemnify and hold Lessee and its Affiliates, and their
respective directors, officers, owners, employees, subsidiaries, members,
shareholders 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, fraud,
recklessness, willful, or intentional misconduct on the part of Operator, any
Affiliate of Operator, or the Executive Personnel; 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. The cost of indemnification relating to any
Claims attributable to Operator and not listed in (a) or (b) shall be paid as an
Operating Expense of the Hotel. The indemnification provisions of this
Section 5.01 are subject to the limitations set forth in Section 5.02.

Section 5.02. Limitations on Indemnification.

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

Section 5.03. Indemnification by Lessee.

Lessee shall indemnify and hold Operator 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

 

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Lessee in connection with the management or operation of the Hotel, (iii) the
breach or alleged breach of contract, 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 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 5 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. Annual Plan.

(a) Operator shall operate the Hotel for the calendar year 2017 in accordance
with the existing plan in place. A Proposed Annual Plan once approved by Lessee
shall be the “Approved Annual Plan” for such Fiscal Year. On or before
November 1st of each year following the Commencement Date, Operator shall submit
to Lessee a Proposed Annual Plan for the next Fiscal Year. On or before
December 1st of each year following the Commencement Date, Lessee either shall
approve the Proposed Annual Plan submitted to Lessee by Operator or shall submit
to Operator a list of Lessee’s objections or questions to the Proposed Annual
Plan (“Lessee’s Annual Plan Objections”). Within seven (7) business days after
Operator’s receipt of Lessee’s Annual Plan Objections, Lessee and Operator shall
discuss Lessee’s Annual Plan Objections with the goal of agreeing upon an
Approved Annual Plan for the subject Fiscal Year. Lessee, as part of Lessee’s
Annual Plan Objections, shall have the right to object to the entire Proposed
Annual Plan or to any specific item or items contained in the Proposed Annual
Plan. In the event Lessee objects to the Proposed Annual Plan or any specific
item or items of expense in the Proposed Annual Plan and Lessee and Operator are
unable to reach agreement thereon as provided above prior to commencement of the
Fiscal Year in question, pending such agreement, the Proposed Annual Plan or the
specific item or items of expense (not revenue) in question shall be suspended
and replaced, for such period until Operator receives Lessee’s approval, by an
amount equal to the lesser of (i) that proposed by Operator for such Fiscal
Year, or (ii) if an objection to the entire Proposed Annual Plan, the Actual
Gross Operating Expenses for the immediately preceding Fiscal Year subject to an
adjustment equal to the percentage increase in the CPI over the last twelve
(12) month period immediately preceding the start of the Fiscal Year in question
and RevPar increases based on the appropriate previous 12-month RevPar growth
percentage for the sector in which the Hotel is included, as set forth in the
Revenue Data Publication for revenue growth over the prior year’s actual
amounts, or (iii) if an objection to a

 

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specific item or items of expense in the Annual Plan, such item or items of
expense for the immediately preceding Fiscal Year subject to an adjustment for
each item equal to the percentage increase in the CPI over the twelve (12) month
period immediately preceding the start of the Fiscal Year in question.

(b) As part of the Proposed Annual Plan, Operator shall provide to Lessee for
Lessee’s review, a written schedule for the Hotel listing all executive and
management employees to be employed “on-site” in the direct management of the
Hotel including, but not limited to the positions of General Manager, Director
of Sales, and Chief Engineer. These schedules shall include such employee’s
title, job description, and the salary range including additional compensation
or prerequisites such as lodging, meals, maintenance, moving expenses,
bonus/incentive compensation and the like. In the event that any employee’s
services are shared with (or subsidized through a sharing arrangement with)
another hotel, the employee shall be identified together with a description of
his/her responsibilities and the amount and source of any subsidy, together with
a breakdown of the relative time expended with respect to the Hotel and each
other hotel. If Lessee notifies Operator that Lessee does not believe that some
or all the scheduled wages and salaries are reasonable and customary as required
above, then Operator shall promptly provide to Lessee a wage and salary survey
that supports the scheduled wages and salaries. No proposed amendment including
changes in salary or other compensation shall be effective unless the salary or
other compensation as changed is reasonable and customary.

(c) No later than October 1 of each year, Operator will prepare and submit
(following discussions with Lessee) to Lessee an annual capital budget for each
Fiscal Year for the Hotel (the “Proposed 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, which is subject to Force Majeure. The Proposed 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 Proposed Capital Budget will
be subject to the approval of Lessee, in its sole and absolute discretion. The
Proposed Capital Budget shall be prepared in accordance with the Uniform System
of Accounts. When approved by Lessee, the Proposed Capital Budget, or such items
as may be specifically approved by Lessee, shall become the “Approved Capital
Budget”. Any revisions, substitutions or additions to the Approved Capital
Budget must be approved by Lessee in writing. Lessee acknowledges that the
Proposed Capital Budget is an estimate and cannot be finalized until the
Operating Budget is finalized.

(d) No later than November 1 of each year, Operator shall prepare and submit
(following discussions with Lessee) to Lessee an annual operating budget and
business plan for the operation of the Hotel for the forthcoming Fiscal Year
containing detailed projections of Gross Hotel Income and budgets of Operating
Expenses (the “Proposed 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 operating budget. The Proposed and
Approved Operating Budget shall be month-to-month as well as annual. The
Proposed Operating Budget shall be prepared in accordance with the Uniform
System of Accounts. When approved by Lessee, the Proposed Operating Budget shall
become the “Approved Operating Budget”. Any revisions, substitutions or
additions to the Approved Operating Budget must be approved by the Lessee in
writing.

 

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(e) The Proposed Operating Budget and the Proposed Capital Budget shall provide
for operating, equipping and maintaining the Hotel in accordance with the Hotel
Standards. Contemporaneously with the submission of the Proposed Capital Budget,
Operator shall submit to Lessee monthly budgeted occupancy, average daily rate
and RevPAR statistics for the Hotel. The Proposed 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 Proposed Capital Budget and the Proposed Operating Budget. Lessee shall be
responsible for implementing the Approved Capital Budget and may, in Lessee’s
sole discretion, increase, decrease, delete or modify in any respect any capital
expenditure in the Approved Capital Budget.

(f) The Proposed Marketing Plan shall contain advertising, sales and promotional
plans prepared by Operator to be used in connection with the marketing of the
Hotel. When approved by Lessee, the Proposed Marketing Plan shall be the
Approved Marketing Plan. Any revision, substitution or additions to the Approved
Marketing Plan must be approved by Lessee in writing. The Proposed Marketing
Plan shall be written with the goal of achieving Gross Hotel Income as submitted
in the Proposed Operating Budget for the Fiscal Year or, if less than a full
Fiscal Year, the period between the Commencement Date and the December 31 next
following the Commencement Date. Operator shall not use Lessee’s name in any
advertising or promotional material without Lessee’s expressed prior written
approval.

(g) The Proposed Management Plan shall contain (i) estimated contributions and
distributions from or to Lessee; (ii) a leasing plan for the leasing of
concessions and other space in the Hotel; (iii) plans and budgets for the
disposition and replacement of Hotel FF&E; and (iv) such management issues,
proposals and projections or modifications as Operator may recommend for the
efficient management of the Hotel including but not limited to proposals and
assessments as to the Hotel’s position in the market, market opportunities,
franchise affiliation and disposition strategies. When approved by Lessee, the
Proposed Management Plan shall be the Approved Management Plan.

(h) Upon approval by Lessee of a Proposed Annual Plan, Operator shall use its
good faith efforts to manage, operate and maintain the Hotel for the subsequent
Fiscal Year in accordance with the Approved Annual Plan; provided, however, that
Operator will not be deemed to be in default of its obligations under this
Agreement to operate the Hotel (including without limitation, incurring
expenses) in compliance with the Approved Annual Plan or Approved Operating
Budget, in the event that Operator incurs and pays expenses (1) in a Major
Account Category which do not cause the aggregate expenditures for such Major
Account Category to exceed the budgeted amount by more than 10% for a given
Fiscal Year, or together with all other expenses do not cause the aggregate
expenditures for all items to exceed the Approved Operating Budget by more than
5% for a given Fiscal Year; (2) that are necessary for the continued operation
of the Hotel and are not within the reasonable control of Operator (including,
but not limited to, those for insurance, taxes, utility charges, fees and
reimbursements due under the franchise agreement, and compliance with applicable
laws and regulations), (3) that are immediately necessary on an emergency basis
to protect the physical integrity or lawful operation of the Hotel or the health
or safety of its occupants, and/or (4) that are commercially desirable to be
incurred in order to obtain unbudgeted Hotel revenue in the ordinary course of

 

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operating the Hotel in accordance with the then current Approved Annual Plan,
provided that such unbudgeted revenue is sufficient in Operator’s good faith and
professional judgment to offset such expenses. Regardless of the foregoing
provisions relating to certain expenditures beyond the Approved Annual Plan,
Operator shall provide prompt notice to Lessee of such excess expenditures and
Operator will provide explanations for all significant variances and programs
put in place to correct or improve budget deviations. Wherever phrases in this
Agreement such as “in accordance with the Approved Annual Plan or the Approved
Operating Budget”, “in the Approved Operating Budget”, “in the then-current
Approved Annual Plan”, or similar phrases are used or referred to in this
Agreement, the variance provisions set forth in this Section 6.01(h) shall be
applied and deemed to be included in such use or reference and Operator will not
be in default of its obligations set forth in this Agreement with respect to
Operator incurring and paying expenses that are included in such variances.

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 and subject to Lessee
providing sufficient funds, 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 5, all 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 Annual Plan or otherwise pursuant to
the terms of this Agreement.

Section 7.02. Operating Expenses Not an Obligation of Operator.

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 Approved Annual
Plan 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.

 

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ARTICLE 8

BANK ACCOUNTS

Section 8.01. Lessee Revenue.

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

Section 8.02. Operating Account.

Operator shall establish and maintain one or more separate segregated operating
accounts (collectively, the “Operating Account”) at a FDIC insured bank
designated by Operator (except to the extent any Lender requires that the
Operating Account be held with Lender) for the collection and disbursement of
monies in connection with the management and operation of the Hotel. All funds
(exclusive of funds in house banks at the Hotel) received by Operator in the
operation of or otherwise relating to the Hotel, and funds for Working Capital
provided by Lessee, shall be deposited in the Operating Account. Lessee shall
cause sufficient funds to be on hand in the Operating Account to assure the
timely payment of all current liabilities of the Hotel, including but not
limited to Operating Expenses, all other costs and expenses incurred in
connection with the Hotel pursuant to this Agreement, the performance by
Operator of its obligations under this Agreement and all fees, charges and
reimbursements payable to Operator hereunder. In no event shall Lessee permit
the balance in the Operating Account to be less than the Initial Working Capital
Amount. Operator shall submit to Lessee on a weekly basis its check register for
the Operating Expenses to be paid that week and Lessee shall provide Working
Capital to Operator within two (2) business days of receipt of the check
register so that Operator may pay all such Operating Expenses. From the
Operating Account, Operator shall pay all Operating Expenses, and other costs
and expenses relating to the operation of the Hotel as permitted or required to
be paid by Operator in accordance with this Agreement before any penalty or
interest accrues thereon. The Operating Account shall be a segregated account
and at all times shall be in Lessee’s name; provided that Hotel Employees
designated by Operator from time to time which shall be bonded or otherwise
insured shall be authorized signatories of such account, as shall be
representatives of Lessee. All interest earned or accrued on amounts invested
from the Operating Account shall be added to the Operating Account.

Section 8.03. Ownership of Accounts.

Lessee shall furnish information necessary for the printing of all Operating
Account checks, which will bear the name of the Hotel. All bank accounts
(including the Operating Account), bank balances, bank statements, advice, paid
checks, blank checks and other related records established in connection with
operation of the Hotel or the ownership of the Property shall be the sole
property of Lessee and/or any designee of Lessee.

 

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Section 8.04. Exculpation of Operator.

All expenses incurred by Operator in performing its obligations under this
Agreement shall be borne by Lessee and, to the extent funds are available, paid
out of the Operating Account by Operator. All debts and liabilities to third
parties which Operator incurs as Operator under this Agreement, whether incurred
in the name of Lessee, Operator or the name of the Hotel or any variation of
such name used as a trade name, are and shall be the obligations of Lessee, and
Operator shall not be liable for any such obligations by reason of its
management, supervision and operation of the Hotel. In the event that funds are
not available in the Operating Account to pay any such expenses, debts or
liabilities, Lessee shall promptly upon request from Operator, deposit funds in
the Operating Account sufficient to pay such expense, debts or liabilities.

Section 8.05. Reimbursement of Operator.

Operator shall be reimbursed for all Reimbursable Expenses incurred in rendering
services to the Hotel or Lessee to the extent such Reimbursable Expenses are
provided for in the Approved Annual Budget, required or permitted by this
Agreement or otherwise approved by Lessee, which approval shall not be
unreasonably withheld, conditioned or delayed. Nothing in this Agreement,
however, shall require Operator to advance or otherwise expend any of its own
funds in connection with the operation of the Hotel or ownership of the
Property. If Operator pays any amount for which Lessee is responsible under this
Agreement, Operator shall be entitled to reimbursement thereof by
Lessee. Operator may pay to itself the Reimbursable Expenses or other
reimbursements from the Operating Account. The Reimbursable Expenses shall be
payable to Operator monthly, in arrears. Operator shall also be reimbursed for
all reasonable costs and expenses incurred in taking over management of the
Hotel in accordance with the pre-opening budget, such reimbursement to be paid
within fifteen (15) days after Operator delivers and invoice therefore.

Section 8.06. Working Capital Funds.

Lessee agrees to provide to Operator the Initial Working Capital Amount on or
before the Effective Date and shall thereafter provide Working Capital in
accordance with Section 8.01 which amount shall be used by Operator solely in
connection with operation of the Hotel and performance of the responsibilities
of Operator under this Agreement. Upon the expiration or termination of this
Agreement, after payment of all Operating Expenses for which bills were received
to such date, Operator’s Management Fee, Reimbursable Expenses, any termination
fee (if applicable) and any other amounts then due and payable to Operator, all
remaining amounts in the Operating Account shall be transferred forthwith to
Lessee by Operator. Lessee shall pay Operator any remaining Management Fee, any
termination fee (if applicable), Reimbursable Expenses and any other amounts
then due and payable and Lessee shall pay, or cause to be paid, and shall hold
Operator harmless from and against all Operating Expenses accrued in accordance
with generally accepted accounting principles and invoices related to Operating
Expenses received after Operator has so transferred all funds.

 

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ARTICLE 9

BOOKS, RECORDS AND STATEMENTS

Section 9.01. Books and Records.

(a) Operator shall keep full and adequate books of account and other records
reflecting the results of operation of the Hotel on an accrual basis and in
accordance with the Uniform System of Accounts and GAAP, applied on a consistent
basis, subject to year end adjustments and disclosures.

(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 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 books and records pertaining to
the Hotel forthwith shall be turned over to Lessee so as to ensure the orderly
continuance of the operation of the Hotel, but such books and records 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. This provision shall survive a
termination of this Agreement.

Section 9.02. Statements.

(a) Operator shall deliver to Lessee by the ninth (9th) day following the last
day of each Accounting Period, 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 nine (9) business 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 Operating Budget and the prior Fiscal Year and comparing current
month, quarter and Fiscal Year-to-date average daily rate, occupancy and RevPAR
to the Approved Operating Budget and the prior Fiscal 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 nine (9) business
days following the end of each Accounting Period and nine (9) business days
following the end of each calendar quarter a written narrative discussing any of
the aforementioned reports and year-to-date variances from the Approved
Operating Budget, without thereby implying Lessee’s approval of such variance.
Further, Operator shall provide to Lessee within nine (9) business days
following the close of each Accounting Period a report prepared in accordance
with the example set forth in Exhibit A-4 attached hereto and made a part
hereof.

 

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

(c) Within 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. Further, within sixty (60) days after (i) the end of each Fiscal Year
and (ii) the end of the Term of this Agreement, Operator shall deliver to Lessee
an annual accounting, showing the results of operation of the Hotel during the
Fiscal Year and a computation of Gross Hotel Income, Operating Expenses, and
EBITDA, if any, and any other information necessary to make the computations
reasonably required by Lessee, all for such Fiscal Year. The annual accounting
for any Fiscal Year shall be controlling over the interim accountings for such
Fiscal Year. Lessee shall have the right to conduct an audit of the books.

(d) In addition, Operator shall timely deliver to Lessee a copy of (i) to the
extent available, a monthly STAR report from Smith Travel Research for the
Hotel, where available (which Operator hereby agrees to order with respect to
the 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) By June, 2018, Operator agrees to annually have accounting and operations
practices reviewed by a certified person or entity in order to provide Lessee
with verification of a Type 2, SOC 1 Report, Report on Controls at a Service
Organization Relevant to User Entities’ Internal Control over Financial
Reporting. This report is to be prepared under Statement on Standards for Attest
Engagements 18 (SSAE 18) as promulgated by the AICPA. If the standards of the
AICPA change, the operator agrees to comply with revisions of these standards.

(f) As of the date hereof, Operator uses J.D. Edwards and Ultimate Software for
its accounting software and payroll processor.

(g) Lessee shall have the right to audit, conducted either by Lessee’s internal
personnel or by a third-party auditor retained by Lessee at its expense, all
items of expense and revenue under this Agreement including, but not limited to,
Gross Hotel Income, Operating Expenses, depreciation and the Management Fee.
Operator shall cooperate and assist with such audit. In the event that an audit
reflects an underpayment or overpayment to either Operator or Lessee, a
corrective payment shall be made to Lessee or Operator, as appropriate, within
ten (10) business days following the audit results. Either party shall have a
right to challenge the audit results in accordance with the provisions of this
Agreement. If an audit determines any weaknesses or need for reasonable changes
in the internal control systems pertaining to the safeguarding of Lessee’s
assets, Operator will promptly make all necessary changes.

 

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ARTICLE 10

OPERATOR’S FEE AND TRANSFERS TO LESSEE

Section 10.01. Payment of Operator’s Fee.

Within five (5) business days after the end of each Accounting Period, Lessee
shall pay to Operator the Base Fee for the immediately prior Accounting Period,
based upon Gross Hotel Income for the immediately prior Accounting Period,
together with the Accounting Fee, the Revenue Management Fee and any other
amount to be reimbursed to Operator as set forth in this Agreement. Any
overpayments and underpayments of the Base Fee shall be reconciled on a monthly
basis.

ARTICLE 11

REPAIRS AND MAINTENANCE, CAPITAL IMPROVEMENTS

AND RESERVE FOR FF&E

Section 11.01. Repair and Maintenance.

Subject to the provisions of the Approved Operating Budget and subject to
receipt of sufficient funds by Lessee, 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. It is
Lessee’s intent that the sums allocated for repairs and maintenance (other than
with respect to Capital Improvements) in accordance with the then current
Approved Annual Plan are to be fully expended during that Fiscal Year
exclusively for the purposes identified in such Approved Annual Plan. Except in
the event of an emergency due to casualty, act of God or otherwise under
circumstances in which it would be unreasonable to seek to obtain prior approval
(and provided that Operator shall notify Lessee of any such expenditure within
five (5) business days), all expenditures for the foregoing shall be as provided
in the Approved Operating Budget and the Approved Capital Budget. If any repairs
or maintenance shall be made necessary by any condition against the occurrence
of which Operator, Lessee 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 in invoking such guarantees or warranties.
Notwithstanding the Approved Operating 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.

Section 11.02. Capital Improvements.

Lessee may, from time to time, at its sole expense, make such Capital
Improvements in or to the Hotel as Lessee shall determine are necessary to
comply with the Hotel Standards. If Capital Improvements included in the
definition of Building and Appurtenances shall be required at any time during
the Term by the terms of any Mortgage, the Franchise Agreement, to maintain

 

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the Hotel in good operating condition or by reason of any Legal Requirements, or
because Operator and Lessee jointly agree upon the desirability thereof, then in
such event all such Capital Improvements shall be made with reasonably minimal
hindrance to the operation of the Hotel. Notwithstanding the foregoing, as long
as the Hotel can continue to operate without interruption, Lessee shall have the
right to contest the need for any such Capital Improvements required by any
Legal Requirements and may postpone compliance therewith, if so permitted by law
and if such postponement will not expose Operator to any civil or criminal
liability. All recommendations by Operator of Capital Improvements shall be
submitted in conjunction with the Proposed Capital Budget for the Fiscal Year.

Section 11.03. Liens.

Lessee and Operator shall cooperate and use all commercially reasonable efforts
to prevent any liens from being filed against the Hotel that arise from any
maintenance, changes, repairs, alterations, improvements, renewals or
replacements in or to the Hotel. If any such liens are filed, Operator shall,
subject to the availability of funds therefor in the Operating Account or as
otherwise supplied by Lessee, obtain the release thereof prior to the
institution of legal proceedings in connection therewith. The cost of obtaining
such release shall be included in Operating Expenses, unless the imposition of
the lien results from a default by Lessee or Operator, in which event the cost
of obtaining such release shall be borne by such defaulting party.

Section 11.04. Reserve for FF&E.

(a) The Reserve shall be funded pursuant to Section 11.04(b), and Lessee shall
use amounts in the Reserve to cover the cost of FF&E expenditures and Capital
Improvements, in conjunction with the Approved Capital Budget. All FF&E, Capital
Improvements and the Reserve shall be the property of Lessee.

(b) Commencing on the Commencement Date and continuing thereafter during the
remainder of the Term, Lessee shall deposit monthly into the Reserve for FF&E an
amount equal to the amounts required by Lender and/or by Franchisor.

ARTICLE 12

INSURANCE

Section 12.01. General.

Lessee and/or Owner shall maintain insurance policies with respect to the Hotel
as set forth below. Operator agrees to cooperate with Lessee and/or 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 upon renewal.

 

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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 Lessee and/or Owner, and shall provide for a Waiver
of Subrogation in favor of Lessee.

Section 12.03. Approval of Companies and Cost by Lessee.

All insurance provided by Lessee and/or Owner shall be with such insurance
company or companies as may be selected by Lessee. Lessee will obtain all
insurance but, upon the request of Lessee and/or Owner not less than one hundred
twenty (120) days prior to the coverage date, Operator will obtain such
insurance, subject to Lessee’s reasonable 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
Lessee and/or Owner, 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 and/or Owner.
Operator shall provide proper evidence of insurance required by Operator to
Lessee and/or Owner annually. Such policies shall require a minimum of 30 days’
notice to Lessee in the case of cancellation, for any reason, if allowed by
insurance carrier.

Section 12.04. Maintenance of Coverages.

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

Section 12.05. Waiver of Subrogation.

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

Section 12.06. Blanket Coverage.

Lessee and/or Owner reserves the right to provide any insurance referenced in
this Article 12 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 Lessee or Owner or of any of
their affiliates. Lessee and/or Owner may elect to obtain any of the insurance
coverages set forth in this Article 12 with a “deductible loss” clause providing
for per occurrence deductibles.

 

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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 $2,000,000, and shall name Lessee and/or Owner as
additional insured.

Section 12.08. Cyber/Network/Privacy Liability.

Lessee and/or Owner shall obtain Cyber/Network/Privacy insurance against
potential claims against Operator and Lessee and/or Owner 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. Operator shall be named as an insured
under the Cyber/Network/Privacy policy.

Section 12.09. Liquor Liability.

Operator shall obtain Liquor Legal Liability insurance against potential claims
by third parties arising out of the serving of liquor, if applicable to any
Hotel. Coverages shall be in amount of minimum limits of $1,000,000 per
occurrence, and shall include Lessee and/or Owner as additional insured.

Section 12.10. Automobile Liability.

(a) Lessee and/or Owner shall obtain Automobile Liability insuring against third
party liability claims arising from the use of 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.

(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 Lessee and/or Owner.

Section 12.11. General Liability.

Lessee and/or Owner 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. Lessee and/or Owner also agree to maintain
Umbrella Liability Policy with a minimum limit of $10,000,000.00.

 

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Section 12.12. Property.

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

Section 12.13. Crime.

Lessee and/or Owner shall obtain Crime coverage insuring against the dishonest
acts & theft of Lessee’s and/or Owner’s and 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 and to the extent there are sufficient funds, Operator shall
pay from the 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 may contest the validity or the amount of
any real or personal tax or assessment. Operator agrees to cooperate with Lessee
and execute any documents or pleadings required for such purpose.

ARTICLE 14

DAMAGE OR DESTRUCTION - CONDEMNATION

Section 14.01. Damage.

If at any time during the Operating Term the Hotel or any portion thereof should
be damaged or destroyed, Lessee shall have the respective rights and obligations
provided in the Lease with respect to damage or destruction. In the event the
Hotel is not repaired, rebuilt or replaced, Lessee may terminate this Agreement
by written notice to Operator, effective as of the date sent and the parties
shall treat such termination as if it were in connection with the sale of the
Hotel in accordance with Section 16.02. Notwithstanding anything herein to the
contrary, Operator shall be entitled to receive the Management Fee earned to and
including the effective date of termination resulting from a casualty as
provided in this Section 14.01, but no other compensation, consideration,
penalty, or damages. 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

 

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may, at its option, elect to terminate this Agreement, by written notice to
Lessee, effective ninety (90) days thereafter, and upon such termination, Lessee
shall have no obligation to pay to Operator any termination fee. Notwithstanding
anything herein to the contrary, Operator shall be entitled to receive the
Management Fee earned to and including the effective date of termination
resulting from a casualty as provided in this Section 14.01, but no other
compensation, consideration, penalty, or damages. Additionally, if Operator
provides termination notice, Lessee will then have thirty (30) days from when
the termination notice is received to begin the repair or restoration work, in
which event the Operator’s termination notice will be considered null and void.

Section 14.02. Condemnation.

If at any time during the Operating Term the whole or any material part of the
Property shall be taken or condemned in any eminent domain, condemnation,
compulsory acquisition or like proceeding or sale in lieu thereof by any
competent authority, or if such a portion thereof shall be taken or condemned as
to make it imprudent or unreasonable to use the remaining portion as a hotel of
the type and class immediately preceding such taking or condemnation, then
Lessee and/or Operator shall have the right to terminate this Agreement and the
parties shall treat such termination as if it were in connection with the sale
of Hotel in accordance with Section 16.02. Operator shall have no right to the
award from the taking or condemning authority in any such proceeding.
Notwithstanding anything herein to the contrary, Operator shall be entitled to
receive the Management Fee earned to and including the effective date of
termination resulting from a condemnation as provided in this Section 14.02, but
no other compensation, consideration, penalty, or damages.

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.

ARTICLE 16

TERMINATION

Section 16.01. Optional Termination.

This Agreement may be terminated by Lessee at any time without a reason upon no
less than sixty (60) days prior written notice to Operator, and Lessee shall pay
Operator a termination fee with respect to the Hotel at the effective date of
termination equal to the lesser of: 1) 50% of the Base Fee paid with respect to
the Hotel during the trailing twelve (12) months prior to the relevant
termination (which may include Base Fees for the Hotel for periods prior to the
Commencement Date) or, 2) 50% of the average monthly Base Fee over the trailing
twelve (12) months prior to the relevant termination multiplied by the number of
months remaining in the then Initial Term or Renewal Term, as applicable.

 

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Notwithstanding the foregoing, in the event there is less than eighteen
(18) months remaining in the Operating Term, and Lessee choses to terminate this
Agreement without a reason, Lessee will still be required to provide Operator no
less than sixty (60) days prior written notice, however, Lessee shall pay
Operator a termination fee at the effective date of termination with respect to
the Hotel equal to the lesser of 1) 25% of the Base Fee paid with respect to the
Hotel during the trailing twelve (12) months prior to the relevant termination
(which may include Base Fees for the Hotel for periods prior to the Commencement
Date) or, 2) 25% of the average monthly Base Fee over the trailing twelve
(12) months prior to the relevant termination multiplied by the number of months
remaining in the then Initial Term or Renewal Term, as applicable.

Section 16.02. Sale of Hotel.

During the Operating Term, Lessee may sell or otherwise dispose of the Hotel to
any other person, partnership, firm or corporation at any time. In such event,
and provided the sale is to a bona fide third party purchaser, not affiliated
with Lessee, Lessee may notify Operator in writing no less than thirty (30) days
prior to any such sale of the Hotel and this Agreement shall terminate with
respect to the Hotel upon the closing of the sale. Upon the sale of the hotel by
the Lessee and provided the sale is to a bona fide third party purchaser, not
affiliated with Lessee, and provided Operator is not hired by the new Owner of
the Hotel or Operator elects to terminate the Agreement, Operator will be
entitled to a termination fee payable at the closing of the sale equivalent to
the monthly average of the preceding twelve (12) months Base Fee multiplied by
two (2).

Section 16.03. Lessee Change of Control.

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

 

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

 

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

 

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

 

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

In the event Lessee terminates this Agreement solely in accordance with this
Section 16.03, Lessee shall pay Operator a termination fee at the effective date
of termination equal to 50% of the monthly average Base Fee paid to Operator
during the three (3) months prior to the notice of termination multiplied by the
lesser of twelve (12) months or the number of months otherwise remaining in the
then Initial Term or Renewal Term, as applicable.

Section 16.04. Tax Law Change.

Lessee may terminate this Agreement upon sixty (60) days’ written notice to
Operator if Lessee ceases to be qualified as a real estate investment trust or
if the United States tax laws change to allow a hotel REIT to self-manage its
properties. In such event, Lessee shall pay Operator a termination fee at the
effective date of termination equal to 50% of the monthly average Base Fee paid
to Operator during the three (3) months prior to the notice of termination
multiplied by the lesser of twelve (12) months or the number of months otherwise
remaining in the then Initial Term or Renewal Term, as applicable.

Section 16.05. Performance Standard.

(a) Notwithstanding anything to the contrary in this Agreement but subject to
the provisions of Section 16.05(b), Lessee shall have the right to terminate
this Agreement in accordance with this Section 16.05(a) if, for any reason other
than Unavoidable Interruptions, in any Fiscal Year (i) the Hotel fails to
achieve the GOP Threshold for such Fiscal Year and (ii) for such Fiscal Year,
the Hotel fails to achieve a RevPAR equal to at least the RevPAR Threshold
(Subsections 16.05(a)(i) and 16.05(a)(ii) may hereafter collectively be referred
to as the “Performance Standard”).

 

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(b) If the Performance Standard is not satisfied and Lessee elects to exercise
its right to terminate this Agreement pursuant to this Section, Lessee shall
give written notice to Operator of such election within sixty (60) days after
the receipt by Lessee of the annual accounting (as set forth in Section 9.02)
for such Fiscal Year; and (ii) the notice shall specify a termination date no
sooner than ninety (90) days after the giving of such notice. Operator may,
within sixty (60) days following its receipt of Lessee’s notice of termination,
pay to Lessee an amount which, when added to the actual aggregate amount of the
Income Before Fixed Expenses for the Fiscal Year in question, equals the
aggregate GOP Threshold for such Fiscal Year. Upon such payment, the Performance
Standard shall be deemed to have been satisfied for such Fiscal Year, Lessee
shall not have a right to terminate this Agreement based upon such Fiscal Year
and Lessee’s election to do so shall be of no further force and effect.

Section 16.06. Operator Change of Control.

This Agreement may be terminated by Lessee upon a change of control of Operator
(as defined below) during the Operating Term. Said termination will be exercised
by delivery of written notice to Operator, such notice to be provided within
sixty (60) days following Lessee being made aware of the event giving rise to
the change of control and not less than thirty (30) days prior to the effective
date of termination which notice shall set forth the effective date of
termination; provided that, in the event such written notice to Operator is not
provided in accordance within the terms of this sentence, the shall be deemed to
have waived any rights to terminate this Agreement with respect to the
particular change of control giving rise to the required notice. For purposes
hereof, a “change of control of Operator” shall mean a change of fifty percent
or more of the voting control of Operator.

Section 16.07. Quality Assurance Reports.

This Agreement may be terminated by Lessee if Operator fails two (2) Franchisor
quality assurance inspections (“Inspection”) in the Initial Term, and such
failures are not related to the failure of Lessee to provide needed funds,
capital related issues, failure of Lessee to approve the Proposed Annual Plan, a
Renovation or a Force Majeure, but instead such failures result from the fault
of Operator. Notice of such termination must be provided by Lessee to Operator
within thirty (30) days of the second Inspection or else such failures shall be
waived.

Section 16.08. Satisfaction Scores.

The Agreement may be terminated by Lessee if the Hotel’s Overall Satisfaction or
Overall Experience score, as measured by Franchisor’s guest scoring system
either (i) falls eight percent (8%) or greater below current brand average over
a six (6) month period or (ii) causes the Hotel to be placed in default with
Franchisor and in each case such failures are not related to the failure of
Lessee to provide needed funds, capital related issues, failure of Lessee to
approve the Proposed Annual Plan, a Renovation or a Force Majeure, but instead
such failures result from the fault of Operator.

 

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Section 16.09. Reporting.

This Agreement may be terminated by Lessee if Operator fails to deliver
operating statements to Lessee by the ninth (9th) business day following the
last day of each month more than twice within a twelve (12) month time period.

In addition to the rights and remedies otherwise available to the Parties at law
or in equity, the following provisions will apply following termination of this
Agreement pursuant to Article 14 or any other provision of this Agreement:

(a) At no cost, expense or liability to Operator, Operator shall quit, vacate,
surrender, and deliver to Lessee peacefully and promptly the Hotel and all
Permits and all books, records, accounts, contracts, keys, Working Capital, and
all other pertinent and necessary documents and records pertaining to the Hotel
and the operation thereof. If any Permits, including but not limited to any
liquor license, is issued to Operator or any of its Affiliates, Operator shall,
at no cost, expense or liability to Operator, to the extent permitted by Legal
Requirements, assign or cause its Affiliate holding any such Permits to assign
to Lessee or its designee all of the interest of Operator or its Affiliates in
such Permits and the Hotel liquor inventory without charge (other than any out
of pocket expenses of the assignment, which shall be Operating Expenses), or (if
such assignment is not permitted by applicable law) to use reasonable efforts to
provide Lessee or Lessee’s designee with the use and benefits of such Permits
and Hotel liquor inventory until such time (not to exceed 180 days) as Lessee
and/or its designee are able to obtain new Permits; provided that Operator is
indemnified from claims and liabilities arising from the post-termination use of
such Permits, with an indemnity acceptable to Operator and from an entity
acceptable to Operator;

(b) Operator shall deliver to Lessee any and all of Lessee’s properties and
assets within the possession of Operator, including keys, locks and safe
combinations, files, correspondence, information regarding group bookings,
reservation lists, ledgers, bank statements for the Operating Account,
accounting books and records, all electronic data maintained by Operator
relating to the Hotel (which data shall be delivered on computer disc in a
format that is accessible and readable by Lessee’s then current computer
systems), insurance policies, bonds and other documents, agreements, leases,
licenses, records and plans (including, without limitation, the as-built or
record set plans) relating to the operation of the Hotel, provided that Operator
may retain possession of copies of any of the foregoing; Operator shall keep
confidential all information concerning the Hotel obtained by Operator or in
Operator’s possession, and not use any of it for its own account, for the
account of others or in any other manner that would directly or indirectly
compete with the Hotel;

(c) Operator shall remit to Lessee the balance (if any) of the Operating
Account, after computation and disbursement to Operator of all accrued and
unpaid Management Fees and Operating Expenses reimbursable to Operator and any
termination fees due Operator;

(d) At no cost, expense or liability to Operator, Operator shall do all acts and
execute and deliver all documents reasonably requested by Lessee in connection
with the transfer, all without consideration therefor, and otherwise reasonably
cooperate with Lessee and any successor operator to insure or facilitate orderly
continuation of the business of the Hotel;

 

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(e) The rights and liabilities of the Parties having accrued prior to
termination of this Agreement shall continue;

(f) Operator will turn over possession of the Hotel in a clean, safe and secure
manner;

(g) Prior to termination, Operator agrees to maintain operating inventories at
standards consistent with past practice and the Hotel pursuant to the Approved
Operating Budget and existing repair and maintenance schedules; and

(h) Lessee, at its option, may install a shadow management team in the Hotel
during the ten (10) day period immediately preceding the termination date to
have daily access to the Hotel and its books and records; provided that such
team shall not (a) unreasonably interfere with the management and operations of
the Hotel, and (b) consist of more than ten (10) members.

Section 16.10. Default or Termination of Concession and Lease Agreement.

If Operator or its Pillar PHILQ SPE LLC, chooses to exercise its respective
option to terminate the Concession Agreement, or if Lessee terminates the
Concession Agreement based upon default of Operator or Pillar PHILQ SPE LLC
under the Concession Agreement beyond any applicable notice and cure period
provided therein, Lessee may terminate this Agreement and such termination shall
be by delivery of written notice by Lessee to Operator not less than ninety
(90) days prior to the effective date of the termination.

Section 16.11. Termination Fees.

Except as provided in this Agreement, Operator shall not be entitled to a
termination fee or compensation in the event this agreement is terminated by
Lessee.

Section 16.12. Bookings Beyond Expiration of Term.

Subject to the Approved Annual Plan and receipt of sufficient funds, Operator
shall diligently discharge all its obligations under this Agreement during the
whole of the Term, and in particular shall continue to advertise and promote the
Hotel and actively seek and accept bookings notwithstanding that they are to
occur after the expiration of the Term. Lessee shall be responsible on its own
account for all costs, charges and commissions payable for bookings made by
Operator in the ordinary course of business of the Hotel, which are for dates
after the expiration of the Term.

ARTICLE 17

DEFAULT AND REMEDIES

Section 17.01. Events of Default – Remedies.

(a) The following shall constitute Events of Default:

 

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(1) If Operator shall fail to keep, observe or perform any material covenant,
agreement, term or provision of this Agreement to be kept, observed or performed
by Operator, and such failure shall not be due to a refusal on the part of
Lessee to approve the Proposed Annual Plan or Lessee’s failure to timely provide
funds requested pursuant to the terms of this Agreement, and such failure shall
continue for a period of thirty (30) days after written notice specifying such
failure given by Lessee to Operator, or if Operator due to any act or omission
on the part of Operator and without the fault of Lessee, shall fail to maintain
the Permits and such failure shall continue for a period of thirty (30) days
after written notice specifying such failure given by Lessee to Operator;
provided that if such failure is incapable of cure within such thirty (30) day
period, then the cure period shall be extended for a period of ninety (90) days
provided that Operator commenced the cure during such initial thirty (30) day
period and thereafter diligently and continuously pursues the cure thereof to
completion;

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

(3) The failure of Lessee to pay any amount to Operator provided for herein for
a period of five (5) days after written notice by Operator of failure to pay
such sum when payable. If any sum of money is not paid within five (5) days
following the date same becomes due and payable under this Agreement, and
Operator has advanced such sum on behalf of Lessee, such sum shall bear interest
at the Default Rate from the date Operator advanced such sum on behalf of Lessee
until the date Lessee actually pays such sum. If the failure to pay relates to
the Management Fee, such sum shall bear interest at the Default Rate from the
date due until the date actually paid;

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

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

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

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

 

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(8) If because of any act or omission on the part of Operator, and without the
fault of Lessee, either (i) the Franchise Agreement or (ii) any required license
for the sale of alcoholic beverages at the Hotel, is at any time suspended,
terminated or revoked for a period of more than thirty (30) consecutive days,
provided, however, if, at the end of such thirty (30) day period the cure has
not been effectuated notwithstanding Operator’s diligent and continuous attempts
to cure, then the cure period shall be extended for an additional period of
sixty (60) days;

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

(10) If because of a default under the Mortgage not caused by the default of
Operator under this Agreement, the Mortgage shall be foreclosed, or the Hotel
sold in lieu of foreclosure.

(11) If Operator commits an act of fraud, criminal conduct, misappropriation of
funds, dishonesty or willful misconduct in connection with the management and
operation of the Hotel.

(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 ten (10) days from such date of notice and,
upon the expiration of such period, this Agreement shall terminate and expire.
In the event such default is not cured, the non-defaulting party may terminate
the Agreement without payment of any penalty or termination fees.

Section 17.02. Rights Not Exclusive.

(a) The rights granted under this Article 17 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. In addition to and cumulative of the foregoing, upon the
occurrence of any Event of Default on the part of Lessee, all Management Fees,
Reimbursable Expenses, termination fees and all other sums payable to Operator
under this Agreement shall be immediately due and payable without notice. In no
event shall (i) the provisions of this Agreement with respect to the payment of
a termination fee upon the termination of this Agreement under certain
circumstances be construed as defining or limiting the amount recoverable by
Operator from Lessee by reason of any Event of Default on the part of Lessee; or
(ii) entitle Operator to receive a termination fee in the event of a termination
by reason of any Event of Default on the part of Operator.

(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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Section 17.03. Operator’s Rights to Perform.

If Lessee shall fail to make any payment or to perform any act required of
Lessee pursuant to this Agreement, Operator may (but shall not be obligated to),
without further notice to, or demand upon, Lessee and without waiving or
releasing Lessee from any obligations under this Agreement, make such payment
(either with its own funds or with funds withdrawn for such purpose from the
Operating Accounts) or perform such act. All sums so paid by Operator from its
own funds and all necessary incidental costs and expenses incurred by Operator
in connection with the performance of any such act, together with interest
thereon at the Default Rate from the date of making such expenditure by
Operator, shall be payable to Operator on demand.

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:

Pillar Hotels and Resorts, LLC

5851 Legacy Circle

Plano, TX 75024

Attention: Gregory Moundas

Facsimile: (972) 792-7883

With a copy to:

Gardere Wynne Sewell LLP

2021 McKinney Avenue, Suite 1600

Dallas, TX 75201

Attention: Cynthia B. Nelson

Facsimile: (214) 999-3884

 

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(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 or by facsimile. However, the time period in which a
response to any such notice, statement, demand or request must be given shall
commence to run from date of receipt by the addressee thereof as shown on the
return receipt of the notice, statement, demand or request, but in all events
not later than the tenth (10th) day after it shall have been mailed as required
herein.

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

 

ARTICLE 19

ASSIGNMENT

Section 19.01. No Assignment by Operator.

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. Notwithstanding the
foregoing, Operator shall be entitled to assign this Agreement to an Affiliate
of Operator as part of a modification to Operator’s company structure in which
all or substantially all of Operator’s assets are transferred to an Affiliate of
Operator; and Operator shall have the right to assign its rights to receive
payments under this Agreement as security for indebtedness or other obligations.

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 of Lessee, Operator shall have the
right to terminate this Agreement within fifteen (15) days after receipt of
written notice of such assignment, which termination will be effective within
thirty (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 the Hotel.

 

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ARTICLE 20

SUBORDINATION

Section 20.01. Subordination to Mortgage.

Operator hereby agrees that this Agreement shall in all respects be and is
hereby expressly made subordinate and inferior to a Mortgage. Operator shall
execute any and all subordination agreements, estoppel certificates and other
documents reasonably requested by Lessee or Owner and/or the Holder to further
evidence the subordination of this Agreement and Operator’s rights hereunder;
provided, however, Lessee shall use its commercially reasonable efforts to
obtain from the holder of any Mortgage a nondisturbance agreement, in form
reasonably acceptable to Operator, providing that this Agreement shall remain in
full force and effect notwithstanding the fact that the Mortgage has been
foreclosed.

Section 20.02. Foreclosure.

Prior to termination of this Agreement by foreclosure under the Mortgage or by
acquisition of the property to be covered by the Mortgage by deed in lieu of
foreclosure, Operator shall have the right to enjoy all rights and privileges
conferred upon it pursuant to this Agreement, including, without limitation the
rights to the Management Fees, and Operator shall incur no liability to the
Holder for acting pursuant to the terms of this Agreement. Operator may pursue
against Lessee, as an unsecured creditor, a claim for all amounts due and owing
to Operator under this Management Agreement.

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
in full and force and effect as modified and stating the modifications), and
stating whether or not to the actual 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 19, shall be
binding upon and inure to the benefit of Operator, its permitted successors and
assigns.

Section 21.04. Intentionally Deleted.

Section 21.05. Assumption of Post Termination Obligations.

In the event of termination of this Agreement, Lessee shall be responsible for
assuming obligations under contracts entered into by Operator in accordance with
the terms of this Agreement 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. 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 in accordance with the terms of this Agreement on or prior
to the date of such expiration or termination. Notwithstanding anything in this
Agreement to the contrary, in the event that this Agreement terminates due to
any reason other than a default by Operator under this Agreement, either (i) a
sufficient number of Hotel Employees will be hired by Lessee or its successor,
assign or designee, and retained for at least 90 days thereafter, 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 (the “WARN Act”) or (ii) the
effective date of termination shall be extended for a sufficient time to allow
notices to be provided in accordance with the WARN Act. 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 21.06. 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.

 

52

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This Agreement may not be modified, amended, surrendered or changed, except by a
written document signed by the Lessee and Operator agreeing to be bound thereby.

Section 21.07. Governing Law.

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

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 for, 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 Condor Hospitality Trust, Inc.;

 

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

 

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

 

53

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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 the Hotel or enter into any similar arrangement on
any basis such that the rental or other amounts to be paid by the sublessee
thereunder would be based, in whole or in part, on either (a) the net income or
profits derived by the business activities of the sublessee, or (b) any other
formula such that any portion of the rent would fail to qualify as “rents from
real property” within the meaning of Section 856(d) of the Internal Revenue
Code, or any similar or successor provision thereto.

Section 21.10. Time of the Essence.

Time is of the essence of this Agreement.

Section 21.11. Offsets.

Each party may offset amounts owed to another party hereunder against any
amounts owed to such party, so long as both parties agree that such amounts are
owed.

Section 21.12. Attorney’s Fees.

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

Section 21.13. 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.
In the event that Lessee requests additional reports or assistance from Operator
following the termination or expiration of this Agreement, Lessee shall pay to
Operator the Accounting Fee through the date on which such additional services
or assistance are to be provided.

 

54

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

(c) Upon the expiration or termination of this Agreement, at no cost, expense,
or liability to Operator, Operator shall reasonably cooperate with and assist
Lessee as may be necessary for the transfer of the operations and management of
the Hotel to the successor operator and, to the extent permitted by Legal
Requirements, the transfer of any and all Hotel licenses and Permits to Lessee
or Lessee’s designee.

Section 21.14. Franchisor Communications.

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

Section 21.15. Consent and Approval.

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

Section 21.16. Partial Invalidity.

In the event that any one or more of the phrases, sentences, clauses or
paragraphs contained in this Agreement shall be declared invalid by the final
and unappealable order, decree or judgment of any court, this Agreement shall be
construed as if such phrases, sentences, clauses or paragraphs had not been
inserted, unless such construction would substantially destroy the benefit of
the bargain of this Agreement to either of the parties hereto.

Section 21.17. Disputes.

Whenever any issue or dispute arises under this Agreement relating to the
Operating Budget, the Capital Budget and/or the Management Fee, such issue or
dispute shall be resolved utilizing the Uniform System of Accounts and by
application of generally accepted accounting principles consistently applied.

Section 21.18. Further Assurances.

Lessee and Operator shall execute and deliver all other appropriate supplemental
agreements and other instruments, and take any other action necessary to make
this Agreement fully and legally effective, binding and enforceable as between
them and as against third parties.

Section 21.19. Waiver.

The waiver of any of the terms and conditions of this Agreement on any occasion
or occasions shall not be deemed a waiver of such terms and conditions on any
future occasion.

 

55

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Section 21.20. Unavoidable Interruptions.

Subject to the express limitations set forth in this Agreement and excluding
those obligations that accrue prior to the occurrence of an event of Force
Majeure 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), if either party’s failure to
comply with, perform or satisfy any representation, warranty, covenant,
undertaking, obligation or condition set forth in this Agreement is caused by or
due to, in whole or in part, any Force Majeure, such representation, warranty,
covenant, undertaking, obligation or condition (except regarding insurance
coverages and monetary payments) shall be adjusted to the extent and for so long
as such party’s failure is caused by or due to, in whole or in part, such Force
Majeure.

Section 21.21. Effect of Approval of Plans and Specifications.

Lessee and Operator agree that in each instance in this Agreement or elsewhere
wherein Operator is required to give its approval of plans, specifications,
budgets and/or financing, no such approval shall imply or be deemed to
constitute an opinion by Operator, nor impose upon Operator any responsibility
for the design or construction of additions to or improvements of the Hotel,
including but not limited to structural integrity or life/safety requirements or
adequacy of budgets and/or financing. The scope of Operator’s review and
approval of plans and specifications is limited solely to the adequacy and
relationship of spaces and aesthetics of the Hotel in order to comply with the
Hotel Standards.

Section 21.22. Prohibited Persons and Transactions.

(a) Operator is not, and shall not become, a person or entity with whom U. S.
persons or entities are restricted from doing business under regulations of the
Office of Foreign Asset Control (“OFAC”) of the Department of the Treasury
(including those named in OFAC’s Specially Designated and Blocked Person’s List)
or under any statute, executive order (including the September 24, 2001,
Executive Order Blocking Property and Prohibiting Transactions With Persons Who
Commit, or Support Terrorism), or other governmental action (such persons and
entities being “Prohibited Persons”).

(b) Lessee is not and shall not become a Prohibited Person.

Section 21.23. Confidentiality.

Lessee and Operator agree to keep the terms and conditions of all leases and
other occupancy agreements in effect at the Hotel (if any) and all other
accruements relating to the Hotel, together with all information and data
obtained, possessed, or generated by Operator in connection with the Hotel
(collectively, “Privileged Information”), strictly confidential and not to make
any public announcements or any disclosures to any third parties, either orally
or in writing, with respect to any Privileged Information without the express
written consent of the other party hereunder; provided, however, the
restrictions imposed hereby shall not apply to any Privileged Information
(1) which is required to be disclosed in order to comply with any law,
ordinance, governmental decree or any rule, regulation or decree of any
interested governmental body or (2) which must otherwise be disclosed to
relevant third parties, including accountants,

 

56

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attorneys and lenders, in the course of reasonable and diligent management and
operation of the Hotel or the business of Lessee, or any subsidiary or Affiliate
of Lessee or Operator. If Operator makes such disclosure, it shall notify such
third party of this provision and of the requirement of Lessee for
confidentiality. The provisions of this Section 21.23 shall survive the
expiration or termination of this Agreement.

Section 21.24. No Third Party Rights.

This Agreement shall inure solely to the parties hereto. Notwithstanding any
other provision of this Agreement, no third party shall have any rights pursuant
to the terms of this Agreement.

Section 21.25. No Representations as to Income or Financial Success of Hotel.

In entering into this Agreement, Operator and Lessee acknowledge that neither
Lessee nor Operator has made any representation to the other regarding projected
earnings, the possibility of future success or any other similar matter
respecting the Hotel, and that Operator and Lessee understand that no guarantee
is made to the other as to any specific amount of income to be received by
Operator or Lessee or as to the future financial success of the Hotel.

Section 21.26. Dispute Resolution.

Except as specifically provided in this Agreement, 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 21.26 shall survive the expiration or earlier termination of this
Agreement.

Section 21.27. Termination of the Franchise Agreement.

Lessee reserves and shall have the absolute right in its sole and unfettered
discretion, at any time and without the consent or approval of (but with notice
to) Operator, to terminate the Franchise Agreement, provided, however, that
(i) Lessee shall have no such right in order to establish its own independent
operations, such as an operation without a franchise or license or in

 

57

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its own hotel name; (ii) in the event of such a termination by Lessee, Operator
shall have the right of approval (which right shall be reasonably exercised) of
any new franchise or license for the Hotel; and (iii) if Lessee’s decision to
terminate the License Agreement is made without the consent of Operator, then
the provisions of Section 16.05(a) and (b) of this Agreement shall no longer
apply.

 

58

--------------------------------------------------------------------------------

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

 

LESSEE: TRS AUS CASEY, LLC, a Delaware limited liability company By:  

/s/ Jeff Dougan

Title:   Vice President OPERATOR: PILLAR HOTELS AND RESORTS, LLC, a Delaware
limited liability company By:  

/s/ Judy Hendrick

Title:   Vice President

[Signature Page]

--------------------------------------------------------------------------------

JOINDER

The undersigned, CDOR AUS Casey, LLC, a Delaware limited liability company
(“Owner”), for good and valuable consideration, the receipt of which is hereby
acknowledged, hereby joins in the execution of this Agreement for the purposes
of (i) consenting hereto and (ii) absolutely, irrevocably and unconditionally
guaranteeing the full and timely payment and performance of the obligations of
Lessee hereunder. Owner (a) waives diligence, presentment, demand, protest or
notice of any kind whatsoever, any defense based on suretyship principles, any
defense based on any statute of limitations and any requirement that Operator
exhaust any right or take any action against Lessee or any other person; and
(b) consents to any supplement, amendment or other modification made to this
Agreement in accordance with its terms without its consent or approval.

 

CDOR AUS CASEY, LLC, a Delaware limited liability company By:  

/s/ Jeff Dougan

Name:   Jeff Dougan Title:   Vice President

[Joinder]

--------------------------------------------------------------------------------

EXHIBIT A

HOTEL AND OWNER

 

Hotel

  

Owner

  

Location

  

# of Rooms

Residence Inn

Austin Airport

   CDOR AUS Casey, LLC   

3201 Caseybridge Ct.

Austin, TX 78744

   120

[Exhibit A]

--------------------------------------------------------------------------------

EXHIBIT A-1

COMPETITIVE SET FOR HOTEL

 

Hotel

  

City, State

  

Zip

  

Rooms

Homewood Suites Austin South Airport    Austin, TX    78744    96 Hilton Austin
Airport    Austin, TX    78719    262 Hampton Inn Suites Austin Airport   
Austin, TX    78744    102 Holiday Inn Express & Suites Austin Airport   
Austin, TX    78741    80 Courtyard Austin Airport    Austin, TX    78744    150
Staybridge Suites Austin Airport    Austin, TX    78741    161 Holiday Inn
Austin Airport    Austin, TX    78741    138

[Exhibit A-1]

--------------------------------------------------------------------------------

EXHIBIT A-2

INTENTIONALLY DELETED

[Exhibit A-2]

--------------------------------------------------------------------------------

EXHIBIT A-3

MAJOR ACCOUNT CATEGORIES

Rooms Revenues

Food and Beverage Revenue

Other Operated Departments Revenue

Miscellaneous Income

Rooms Expense

Food and Beverage Expense

Other Operated Departments Expense

Administrative and General

Information and Telecommunications Systems

Sales and Marketing

Property Operation and Maintenance

Utilities

Non-Operating Income

Rent

Property and Other Taxes

Insurance

Other Non-Operating Expenses

[Exhibit A-3]

--------------------------------------------------------------------------------

EXHIBIT A-4

EXAMPLES OF MONTHLY TRANSACTIONS REPORT

[Attached]

[Exhibit A-4]

--------------------------------------------------------------------------------

EXHIBIT B

HOTEL FRANCHISE AGREEMENT

 

Hotel

  

Location

  

Franchisor

Residence Inn    3201 Caseybridge Ct.    Marriott Austin Airport    Austin, TX
78744    International, Inc.

[Exhibit B]

--------------------------------------------------------------------------------

EXHIBIT C

FORM OF APPROVED BUDGET

TRS Leasing, Inc.

Hotel:

20XX Budget

For the Twelve Months Ending December 31, 20XX

 

         January
20XX     February
20XX     March
20XX     April
20XX     May
20XX     June
20XX     July
20XX     August
20XX     September
20XX     October
20XX     November
20XX     December
20XX     Total     T-12     Variance      STATISTICS                            
  9079    AVAILABLE ROOMS     0.       0.       0.       0.       0.       0.  
    0.       0.       0.       0.       0.       0.       0.       0.       0.00
  9080    ROOMS SOLD - TRANSIENT     0.       0.       0.       0.       0.    
  0.       0.       0.       0.       0.       0.       0.       0.       0.    
  0.00   9081    ROOMS SOLD - CORPORATE     0.       0.       0.       0.      
0.       0.       0.       0.       0.       0.       0.       0.       0.      
0.       0.00   9082    ROOMS SOLD - GOVT/MILITARY     0.       0.       0.    
  0.       0.       0.       0.       0.       0.       0.       0.       0.    
  0.       0.       0.00   9083    ROOMS SOLD - GROUPS     0.       0.       0.
      0.       0.       0.       0.       0.       0.       0.       0.       0.
      0.       0.       0.00      OCCUPANCY %     0 %      0 %      0 %      0
%      0 %      0 %      0 %      0 %      0 %      0 %      0 %      0 %      0
%      0 %      0 %     AVERAGE DAILY RATE     0.00       0.00       0.00      
0.00       0.00       0.00       0.00       0.00       0.00       0.00      
0.00       0.00       0.00       0.00       0.00      REVPAR     0.00       0.00
      0.00       0.00       0.00       0.00       0.00       0.00       0.00    
  0.00       0.00       0.00       0.00       0.00       0.00      REVENUE      
                           ROOMS REVENUE     0.00       0.00       0.00      
0.00       0.00       0.00       0.00       0.00       0.00       0.00      
0.00       0.00       0.00       0.00       0.00      FOOD & BEVERAGE REVENUE  
  0.00       0.00       0.00       0.00       0.00       0.00       0.00      
0.00       0.00       0.00       0.00       0.00       0.00       0.00      
0.00      OTHER OPERATED DEPARTMENTS     0.00       0.00       0.00       0.00  
    0.00       0.00       0.00       0.00       0.00       0.00       0.00      
0.00       0.00       0.00       0.00      MISCELLANEOUS REVENUE     0.00      
0.00       0.00       0.00       0.00       0.00       0.00       0.00      
0.00       0.00       0.00       0.00       0.00       0.00       0.00       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     TOTAL NET REVENUE     0.00       0.00       0.00       0.00       0.00    
  0.00       0.00       0.00       0.00       0.00       0.00       0.00      
0.00       0.00       0.00      DEPARTMENTAL EXPENSES                          
       ROOMS EXPENSES     0.00       0.00       0.00       0.00       0.00      
0.00       0.00       0.00       0.00       0.00       0.00       0.00      
0.00       0.00       0.00      FOOD & BEVERAGE EXPENSES     0.00       0.00    
  0.00       0.00       0.00       0.00       0.00       0.00       0.00      
0.00       0.00       0.00       0.00       0.00       0.00      OTHER OPERATED
DEPTS EXPENSES     0.00       0.00       0.00       0.00       0.00       0.00  
    0.00       0.00       0.00       0.00       0.00       0.00       0.00      
0.00       0.00       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     TOTAL DEPARTMENTAL EXPENSES     0.00       0.00       0.00       0.00      
0.00       0.00       0.00       0.00       0.00       0.00       0.00      
0.00       0.00       0.00       0.00       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     TOTAL DEPARTMENTAL INCOME     0.00       0.00       0.00       0.00      
0.00       0.00       0.00       0.00       0.00       0.00       0.00      
0.00       0.00       0.00       0.00      UNDISTRIBUTED OPERATING EXPENSES    
                             ADMIN & GENERAL     0.00       0.00       0.00    
  0.00       0.00       0.00       0.00       0.00       0.00       0.00      
0.00       0.00       0.00       0.00       0.00      INFORMATION & TELECOMM
SYSTEMS     0.00       0.00       0.00       0.00       0.00       0.00      
0.00       0.00       0.00       0.00       0.00       0.00       0.00      
0.00       0.00      SALES & MARKETING     0.00       0.00       0.00       0.00
      0.00       0.00       0.00       0.00       0.00       0.00       0.00    
  0.00       0.00       0.00       0.00      PROPERTY OPERATIONS & MAINTENANCE  
  0.00       0.00       0.00       0.00       0.00       0.00       0.00      
0.00       0.00       0.00       0.00       0.00       0.00       0.00      
0.00      UTILITIES     0.00       0.00       0.00       0.00       0.00      
0.00       0.00       0.00       0.00       0.00       0.00       0.00      
0.00       0.00       0.00       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     TOTAL UNDISTRIBUTED EXPENSES     0.00       0.00       0.00       0.00    
  0.00       0.00       0.00       0.00       0.00       0.00       0.00      
0.00       0.00       0.00       0.00       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     GROSS OPERATING PROFIT     0.00       0.00       0.00       0.00       0.00
      0.00       0.00       0.00       0.00       0.00       0.00       0.00    
  0.00       0.00       0.00      MANAGEMENT FEES     0.00       0.00       0.00
      0.00       0.00       0.00       0.00       0.00       0.00       0.00    
  0.00       0.00       0.00       0.00       0.00       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     INCOME BEFORE NON-OPERATING EXPENSES     0.00       0.00       0.00      
0.00       0.00       0.00       0.00       0.00       0.00       0.00      
0.00       0.00       0.00       0.00       0.00      NON-OPERATING EXPENSES    
0.00       0.00       0.00       0.00       0.00       0.00       0.00      
0.00       0.00       0.00       0.00       0.00       0.00       0.00      
0.00       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     NET INCOME (LOSS)     0.00       0.00       0.00       0.00       0.00    
  0.00       0.00       0.00       0.00       0.00       0.00       0.00      
0.00       0.00       0.00       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

[Exhibit C]

--------------------------------------------------------------------------------

EXHIBIT D

APPROVED BUDGET (if finalized)

[Not Applicable]

[Exhibit D]

--------------------------------------------------------------------------------

EXHIBIT E

EXAMPLE INCENTIVE FEE CALCULATION

 

Hotel Income for Incentive Fee Calculation

    

Gross Hotel Income

     4,296,601    

Less: Operating Expenses before Incentive Fees

     (3,112,854 )   

Less: 4% Hotel FF&E Reserve

     (171,864 )    4% of Gross Hotel Income used for illustrative purposes

Less: Calculated Incentive Fees

     (42,966 )      

 

 

   

Total Hotel Income for Incentive Fee Calculation

     968,917    

Investment in Hotel

    

Acquisition Price

     11,000,000    

Acquisition Costs

     185,418    

Capital Expenditure not covered by FF&E Reserve

     —         

 

 

   

Total Investment in Hotel

     11,185,418    

Investment Return per Incentive Fee terms

     8.66 %   

Investment Return per Incentive Fee terms

     42,966     1% of Gross Hotel Income used for illustrative purposes

[Exhibit E]