Moody National REIT II, Inc. 8-K


 


Exhibit 10.4


HOTEL MANAGEMENT 


AGREEMENT


 


Springhill Suites Seattle – Seattle,
Washington


 


between


 


MOODY NATIONAL YALE-SEATTLE MT, LLC


 


and


 


MOODY NATIONAL HOSPITALITY MANAGEMENT, LLC


 


EFFECTIVE DATE: May 24, 2016








 






    


     


    




 


HOTEL MANAGEMENT AGREEMENT


 


This Hotel Management Agreement
(“Agreement”) is made as of May 24, 2016 by and between MOODY NATIONAL YALE-SEATTLE MT, LLC, a Delaware limited
liability company, whose principal place of business is 6363 Woodway, Suite 110, Houston, Texas 77057 (“Owner”),
and MOODY NATIONAL HOSPITALITY MANAGEMENT, LLC, a Texas limited liability company, whose principal place of business is 6363 Woodway,
Suite 110, Houston, Texas 77057 (“Manager”).


 


RECITALS


 


WHEREAS, Moody National Yale-Seattle Holding,
LLC (“Landlord”) owns that certain tract of land located at 1800 Yale Avenue, Seattle, Washington (“Land”),
upon which has been constructed a hotel known as the Springhill Suites Seattle (“Hotel”);


 


WHEREAS, Owner leases the
Hotel from Landlord pursuant to a Hotel Lease Agreement dated concurrently herewith (as it may have been, or may be, subsequently
amended, modified or supplemented (“Master Lease”));


 


WHEREAS, Manager is engaged
in the business of managing hotels and Manager is experienced in the various components of managing a hotel;


 


WHEREAS, subject to the
terms and provisions of this Agreement, Owner desires to have Manager manage and operate the Hotel; and


 


WHEREAS, Manager desires
to perform such services on behalf, and for the account, of the Owner in accordance with the terms hereof.


 


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


 


ARTICLE
I



DEFINED TERMS


 


Section 1.1        “Accounting
Period” shall mean each of twelve (12) accounting periods of one (1) calendar month occurring each Fiscal Year.


 


Section 1.2         “Affiliates”
(or Affiliate) shall mean any parent, subsidiary, affiliated or related corporation or other entity of Manager or Owner, or any
officer, director, employee or stockholder of Manager or Owner or of any said parent, subsidiary, affiliated or related corporation
or other entity, except a stockholder owning less than fifty percent (50%) of the issued and outstanding stock of Manager or Owner
or of such parent, subsidiary, affiliated or related corporation or other entity directly or indirectly, who controls, is controlled
by or is under common control provided however, for the purposes of to whom this Agreement may be assigned under Section 16.1
hereof, officers, directors and employees shall not be deemed to be Affiliates. For purposes of this definition, the term “control”
(including the terms “controlling,” “controlled by” and “under common control with”) of means
the possession, directly or indirectly, of the power: (i) to vote more than fifty percent (50%) of the voting stock of any such
entity; or (ii) to direct or cause the direction of the management and policies of any such entity, whether through the ownership
of voting stock, by contract or otherwise.


 






    


     


    

 


Section 1.3         “Annual
Business Plan” shall have the meaning set forth in Section 9.1 hereof.


 


Section 1.4         “Base
Management Fee” shall have the meaning set forth in Section 10.1 hereof.


 


Section 1.5         “Capital
Renewals” shall mean a collective term for (a) normal capital replacements of, or additions to, FF&E, and (b) special
projects designed to maintain the Hotel in a first-class condition in accordance with the standards contemplated by this Agreement,
including without limitation, renovation of the guest room areas, public space, food and beverage facilities, or back of the house
areas, which projects will generally comprise replacements of, or additions to, FF&E, but may include revisions and alterations
to the Hotel; most of the expenditures for such special projects will be capitalized, but a portion thereof may be currently expended,
such as the purchase of smaller items of FF&E, or expenditures which are ancillary to the overall project but which are properly
chargeable to “Property Operations and Maintenance” under the Uniform System.


 


Section 1.6         “Capital
Renewals Budget” shall mean a budget covering the estimated Capital Renewals for three (3) years which indicates in reasonable
detail the replacements of, or additions to, FF&E, and the nature of the special projects covered thereby, as approved by the
Owner.


 


Section 1.7         “ERISA”
shall mean the Employees Retirement Income Security Act of 1974, as amended.


 


Section 1.8        “Fiscal
Year” shall mean a Calendar Fiscal Year starting on January 1 and ending on December 31 or portion thereof depending
upon the Management Commencement Date.


 


Section 1.9         “Franchise
Agreement” shall mean that certain Franchise Agreement by and between Franchisor and Owner (as franchisee), as may be
amended from time to time, and any subsequent and/or future franchise agreements entered into by Owner (as franchisee) Franchisee
regarding the Hotel.


 


Section 1.10       “Franchisor”
shall mean Marriott International, Inc.


 


Section 1.11     “Furniture,
Fixtures, and Equipment” (“FF&E”) shall mean all furniture, furnishings, light fixtures, outfittings,
apparatus, equipment and all other items of personal property customarily installed in, held in storage for use in, used in or
required for use in connection with the operation of the Hotel.


 


Section 1.12       “Gross
Operating Revenues” shall mean all receipts, revenues, income and proceeds of sales of every kind received by Manager
directly or indirectly from the operation of the Hotel, and shall include, without limitation: room rentals; rent or other payments
received from sub-tenants, licensees, and occupants of commercial and retail space located in the Hotel; the proceeds of insurance
received by Owner or Manager with respect to use and occupancy or business interruption insurance; deposits forfeited and not refunded;
frequent guest program payments; and any amount recovered in any legal action or proceeding or settlement thereof which amount
represents and was directly related to, the collection of accounts receivables, cancellation fees or other uncollected revenue.
Gross Operating Revenues shall exclude all sales and excise taxes and any similar taxes collected as direct taxes payable to taxing
authorities; gratuities or service charges collected for payment to and paid to employees; credit or refunds to guests; proceeds
of insurance, save and except for proceeds of insurance with respect to use and occupancy or business interruption insurance; proceeds
of sales of property attributable under the accrual method of accounting, pursuant to generally accepted accounting practice or
the Uniform System to a different Fiscal Year; proceeds from condemnation or casualty; interest earned on the Reserve Fund (as
defined herein); and financing proceeds obtained by the Owner.


 






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Section 1.13       “Group
Services” shall have the meaning set forth in Section 5.2 hereof.


 


Section 1.14      “Hazardous
Materials” shall mean any substance or material containing one or more of any of the following: “hazardous material,”
“hazardous waste,” “hazardous substance,” “regulated substance,” “petroleum,” “pollutant,”
“contaminant,” or “asbestos,” as such terms are defined in any applicable environmental law, in such concentration(s)
or amount(s) as may impose cleanup, removal, monitoring or other responsibility under any applicable environmental law, or which
may present a significant risk of harm to guests, invitees or employees of the Hotel.


 


Section 1.15       “Hotel”
shall mean the Springhill Suites referred to in the first recital herein consisting of 234 units.


 


Section 1.16       “House
Profit” shall mean the excess, during each Fiscal Year (and proportionately for any period less than a Fiscal Year),
of Gross Operating Revenues over expenses and deductions incurred in the operation of the Hotel by Manager in fulfilling its duties
hereunder during such period, determined in accordance with the accounting system established by the Uniform System (except as
modified by this Agreement). In arriving at House Profit, the following expenses shall be proper deductions from Gross Operating
Revenues insofar as they relate to the operation of the Hotel: salaries, wages, fringe benefits, payroll taxes, workers’
compensation costs, and other costs related to Manager’s employees in or assigned to the Hotel, including Area Manager and
Regional Director, including, without limitation, any claim for wrongful discharge and/or discrimination which expenses are not
paid by insurance (provided, however, if such claim is determined to have been caused by the negligence or willful misconduct of
any Key Employee, the amount for which Manager is required to indemnify Owner pursuant to this Agreement and has in fact paid to
Owner, shall not be a deduction); department expenses; administrative and general expenses; credit card and collection expenses;
and the cost of Hotel advertising and business promotion and public relations; heat, light and power; routine repairs, maintenance,
landscaping, snow removal, and minor alterations including the cost of maintenance contracts for equipment and any insurance costs
related thereto; costs of sales and the cost of replacing inventories and fixed asset supplies consumed in the operation of the
Hotel such as linen, china, glassware, silver, uniforms and similar items; sales or excise taxes on goods or services provided
to the Hotel; a reasonable reserve for uncollectible accounts receivable as determined by Manager; all costs and fees of independent
accountants or other third parties who perform services required or permitted hereunder on behalf of the Hotel; the cost and expense
of technical consultants and operational experts for specialized services provided to the Hotel; the Base Management Fee; rental
payments on telephone leases, long distance access systems, and other operational leases approved by Manager; all costs or expenses
incurred under any franchise, such as franchise fees if applicable, system charges for such items as reservations, frequent traveler
programs, and airline points, system advertising or promotional costs, but excluding the initial fees paid in consideration of
granting any franchise; and all other out of pocket actual costs and expenses and fees incurred by the Manager in the proper and
efficient operation of the Hotel, including, but not limited to, all licenses, travel costs, and out-of-pocket expenses of employees
of Manager or its Affiliates employed at the Hotel or performing services for the Hotel such as fax, postage, telephone and express
mail.


 


Section 1.17      “Independent
Auditor” shall mean a reputable national firm of independent certified public accountants having hotel experience, recommended
by Manager from time to time and approved by Owner.


 


Section 1.18      “Key
Employees” shall mean (to the extent such positions exist): (a) at the Hotel level, any salaried manager including Area
Manager and (b) at the corporate level, positions at or below Vice President Hospitality.


 






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Section 1.19       “Legal
Requirements” shall mean all public laws, statutes, ordinances, orders, rules, regulations, permits, licenses, authorizations,
directions and requirements of all governments and governmental authorities, which, now or hereafter, may be applicable to the
Hotel premises and the operation thereof, including, without limitation, those relating to zoning, building, life/safety, environmental
and health, employee benefits, and providing continued health care coverage under ERISA.


 


Section 1.20       “Management
Commencement Date” shall be May 24, 2016.


 


Section 1.21       “Manager”
shall mean Moody National Hospitality Management, LLC, and its permitted successors and assigns.


 


Section 1.22       “Net
Operating Income” shall mean House Profit less property taxes and insurance expense.


 


Section 1.23       “Operating
Funds” shall have the meaning set forth in Section 7.2 hereof.


 


Section 1.24       “Operating
Supplies” shall mean all chinaware, glassware, linens, silverware, uniforms, utensils and other similar items necessary
to the operation of the Hotel.


 


Section 1.25       “Termination
Fee” shall have the meaning set forth in Section 12.3 hereof.


 


Section 1.26       “Reserve
Fund” shall have the meaning set forth in Section 7.3. 


 


Section 1.27       “Uniform
System” shall mean the Uniform System of Accounts for the Lodging Industry, “Tenth Revised Edition”, 2006,
as revised and adopted by the Hotel Association of New York City, Inc., from time to time and as modified by applicable provisions
of this Agreement.


 


Other terms are defined
in the Recitations and the further provisions of this Agreement, and shall have the respective meanings there ascribed to them.


 


ARTICLE
II



ENGAGEMENT OF MANAGER

AND COMMENCEMENT OF MANAGEMENT OF THE HOTEL


 


Section 2.1       Engagement
of Manager to Manage Hotel. Owner hereby appoints Manager as Owner’s exclusive independent contractor, subject to the
terms of this Agreement, to supervise, direct and control the management and operation of the Hotel, and Manager hereby undertakes
and agrees to perform, as an independent contractor of and for the account of Owner, all of the services and to comply with all
of the provisions of this Agreement.


 


Section 2.2          Management
Commencement Date and Takeover Activities.


 


A.          Manager shall assume
management and operation of the Hotel at 12:00:01 AM on the Management Commencement Date.


 


B.          In connection with
assuming management of the Hotel, Manager must undertake certain activities prior to and following the Management Commencement
Date. These activities (“Takeover Activities”) shall include, without limitation, the following: (i) recruiting,
relocating, training, and employing certain management staff required for the Hotel; (ii) assisting Owner (as requested) in applying
for and procuring (in Manager’s name and/or Owner’s name as required by local authorities) all licenses and permits
required for the operation of the Hotel, including, but not limited to, all licenses for the sale of alcoholic beverages (if applicable);
and (iii) any other activities customarily required in order to assume management responsibilities of a hotel under current operation
or newly constructed hotel (as applicable), including, but not limited to verifying inventories and other closing allocations on
closing statements.


 






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Section 2.3        Representations
of Manager. Manager represents that it is experienced and capable in the planning, decorating, furnishing, equipping, promoting,
management, and operation of hotels, and Manager covenants and agrees to manage and operate the Hotel and to protect and preserve
the assets that comprise the Hotel. Manager covenants and agrees to manage and operate the Hotel in accordance with the standards
and specifications set forth in the Franchise Agreement for the Hotel, so long as Owner provides sufficient capital to enable Manager
to operate the Hotel in good standing under the Franchise Agreement, and in accordance with the Annual Business Plan. Manager represents
and acknowledges that as of the Management Commencement Date Manager will cause the Hotel to be adequately staffed and capable
of operating.


 


ARTICLE
III



OPERATION OF THE HOTEL AFTER

THE MANAGEMENT COMMENCEMENT DATE


 


Section 3.1        Authority
of Manager. On and after the Management Commencement Date, the Manager shall have the exclusive authority and duty to direct,
supervise, manage and operate the Hotel in an efficient and economical manner and to determine the programs and policies to be
followed in connection therewith, all in accordance with the provisions of this Agreement and the Annual Business Plan. Subject
to the provisions of this Agreement and the Annual Business Plan, Manager shall have the discretion and control in all matters
relating to the management and operation of the Hotel. Without limiting the generality of the foregoing, Manager shall have the
authority and duty consistent with the Annual Business Plan to:


 


		A.	Recruit, employ, relocate, pay, train, supervise, and discharge all employees and personnel necessary
for the operation of the Hotel in a manner consistent with Manager’s practices at other comparable hotels managed and operated
by Manager (taking into account locational differences). Included in the foregoing shall be the determination of all personnel
policies, which shall be in writing;
	 	 	 
		B.	Establish all prices, price schedules, rates and rate schedules, rents, lease charges, concession
charges, and, in connection therewith, the supervision, direction and control of the collection, receipt and giving of receipts
for all services or income of any nature from the Hotel’s operations;
	 	 	 
		C.	Supervise and maintain complete books and records, including without limitation, the books of accounts
and accounting procedures of the Hotel which shall at all times be kept at the Hotel or in its Affiliate’s corporate office
or other suitable location pursuant to the operation of centralized accounting services;
	 	 	 
		D.	Administer leases, license and concession agreements for all public space at the Hotel, including
all stores, office space and lobby space. Manager shall not, without first obtaining Owner’s prior written consent, enter
into any space leases. All such leases shall be in Owner’s name and may be executed by Manager on Owner’s behalf;



 






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		E.	Keep the Hotel and the Furniture, Fixtures, and Equipment in good order, repair and condition,
including, without limitation, making necessary replacements, improvements, additions and substitutions to the Hotel, subject to
the approved Annual Business Plan and in conformity with all Legal Requirements and in accordance with the Franchisor’s standards
for the operation of the Hotel;
	 	 	 
		F.	Negotiate and enter into, on behalf of the Owner, service contracts and licenses required in the
ordinary course of business in operating the Hotel, including, without limitation, contracts for life/safety systems maintenance,
electricity, gas, telephone, cleaning, elevator and boiler maintenance, air conditioning maintenance, master television service,
master internet service, laundry and dry cleaning, and other services which Manager deems advisable; provided however, any contract
for a term in excess of one (1) year or an annual payment in excess of Ten Thousand and No/100 Dollars ($10,000.00) shall be approved
by Owner, which approval shall not be unreasonably withheld or delayed;
	 	 	 
		G.	Negotiate and enter into, on behalf of Owner, agreements for banquet facilities and guest rooms
and agreements to provide entertainment for the Hotel, and licenses for copyright music and videos;
	 	 	 
		H.	Supervise and purchase or arrange for the purchase in the most economical manner of all inventories,
provisions, and Operating Supplies, which, in the normal course of business, are necessary and proper to maintain and operate the
Hotel in accordance with the Annual Business Plan;
	 	 	 
		I.	Timely prepare and submit to Owner the Annual Business Plan as hereinafter described;
	 	 	 
		J.	Perform such other tasks as are customary and usual in the operation of a hotel of a class and
standing consistent with the Hotel’s facilities;
	 	 	 
		K.	Operate the Hotel in accordance with the standards and specifications set forth in the Franchise
Agreement for the Hotel so long as Owner provides sufficient capital to enable Manager to operate the Hotel in good standing under
the Franchise Agreement;
	 	 	 
		L.	Provide risk management services in accordance with the terms of this Agreement;
	 	 	 
		M.	Manager will not permit the presence, use, storage, handling or disposal of any Hazardous Materials
on the Hotel premises and in violation of any Legal Requirements and regardless of whether or not a given Hazardous Material is
permitted on the Hotel premises under applicable Legal Requirements, Manager shall only bring on the premises such Hazardous Materials
as are needed in the normal course of business of the Hotel; and
	 	 	 
		N.	Subject to Article XVII, administer and remit all real estate, personal property taxes,
and ad valorem property taxes, assessments and similar charges on or relating to the Hotel during the Term of this Agreement.



 


Section 3.2         Employees.
Manager or an Affiliate of Manager shall at all times be the employer of all employees in the Hotel. Owner’s and Manager’s
agents and employees who provide consulting services to Manager in connection with the Hotel, shall be acting as the agent of the
Owner. Manager shall have complete authority over pay scales and all benefit plans as long as the pay scales and benefits plans
are reasonable and competitive in the market and consistent with those at comparable hotels managed by Manager or its Affiliates.


 






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Section 3.3         Independent
Contractors. Manager may hire independent contractors to provide such legal, accounting and other professional services as
Manager deems necessary or appropriate in the ordinary course of business in connection with the operation of the Hotel and at
an expense approved by Owner and itemized in the Annual Business Plan.


 


ARTICLE
IV



OPERATING EXPENSES PAID BY OWNER


 


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


 


Section 4.2         Liabilities
to Third Parties. Except to the extent provided in Article XVIII hereof or elsewhere herein, all liabilities to third parties
arising in the course of business of the Hotel are and shall be the obligations of Owner, and Manager shall not be liable for any
of such obligations by reason of its management, supervision and operation of the Hotel for Owner.


 


Section 4.3         Manager
Not Obligated to Advance Own Funds. Neither Manager nor any of its Affiliates shall be obligated to advance any of its own
funds to or for the account of Owner, nor to incur any liability unless Owner shall have furnished Manager with funds necessary
for the discharge thereof prior to incurring such liability. If Manager shall have advanced any funds in payment of an expense
in the maintenance and operation of the Hotel, Manager shall promptly provide Owner with written notice upon making Owner such
advances and Owner shall reimburse Manager therefor no later than five (5) days after receipt of such notice. Notwithstanding the
foregoing, Manager shall pay from its own funds the expenses hereinafter described in Section 5.1 hereof.


 


ARTICLE
V



SUPPORT SERVICES PAID BY MANAGER’S AFFILIATES


 


Section 5.1         Normal
Consulting Services of Manager’s Affiliates. Except as hereinafter provided in Section 5.2, after the Management
Commencement Date, the normal consulting services of the corporate officers and employees of Manager’s Affiliates, including
its corporate executives for operations, room operations, food and beverage, sales and marketing, finance and administration, real
estate, and accounting (excluding the Accounting Fee and Revenue Management Fee), to be rendered from time to time to Manager in
connection with the operations of the Hotel, shall be provided by Manager’s Affiliates to Manager at Manager’s sole
cost and expense and not charged to Owner.


 


Section 5.2        Exceptions
for Certain Support Services of Manager’s Affiliates. Notwithstanding the foregoing, Owner shall reimburse Manager for:
(i) the appropriate and pro-rata share of salaries, wages or benefits of any officers, directors or employees of Manager or Manager’s
Affiliates who shall be regularly or temporarily employed or assigned on a full-time basis at the Hotel or providing regular services
to the Hotel, including human resources support, accounting support and the Regional Director of Operations, subject to the prior
written approval of Owner, unless included in the Annual Business Plan; (ii) personnel providing legal services to Manager in connection
with matters involving the Hotel, which services shall be charged at rates which approximate Manager’s Affiliates’
costs associated with such personnel and which services, unless included in the Annual Business Plan, shall be subject to the prior
written approval of Owner; (iii) the out-of-pocket expenses directly related to the operation and management of the Hotel; and
(iv) certain other services (“Group Services”) best provided to Owner and Manager’s Affiliates on a group
rather than on an individual basis, including, without limitation, any insurance program Manager may institute. Manager and its
Affiliates may profit from such programs and services through volume rebates, rate reductions, and other incentives from outside
vendors, through markups, internal profits, and other benefits. Manager’s intention is to make available to Owner certain
benefits of group or national purchasing programs on a number of items that can be used by or at the Hotel, although Manager cannot
and does not assure or represent that any item or that the total of items purchased through any Group Services program will be
at a cost lower than may otherwise be available to Owner or the Hotel from other sources. Owner hereby acknowledges the foregoing
disclosure and consents to the retention by Manager or its Affiliates of such rebates, incentives, profits and other benefits which
are paid, accrue to, or are retained by Manager in connection with the Group Services programs Owner elects to participate in.
Owner specifically acknowledges and stipulates that Manager, in its capacity as operator of the Hotel or otherwise, is not acting
as a fiduciary to Owner in connection with any aspect of Group Services. Further, Owner agrees that Manager is not required to
disclose to Owner any profit, rebate, markup, incentive or other similar payment that Manager receives or retains from any markup
or other source, including third party vendors and suppliers and Affiliates of Manager, such disclosure being specifically waived.
Owner hereby waives any claim it might have to any profit, rebate, markup, incentive or similar sum which Manager or an Affiliate
of Manager receives or retains in connection with purchases for the Hotel through any Group Services program, if any.


 






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ARTICLE
VI



COMPLIANCE WITH LAWS


 


Section 6.1        Compliance
by Manager and Owner After Management Commencement Date. Manager shall make all reasonable efforts, at expense of Owner,
to comply with all Legal Requirements, including but not limited to, all laws, rules, regulations, requirements, orders, notices,
determinations and ordinances of any governing authority, including, without limitation, the state and local liquor authorities,
and the requirements of any insurance companies covering any of the risks against which the Hotel is insured (provided, however,
if such noncompliance is determined to have been caused by the gross negligence or willful misconduct of the Manager, the amount
for which Manager is required to indemnify Owner pursuant to Article XVIII hereof shall not be an expense of Owner and Manager
shall reimburse Owner or pay same directly). If the cost of compliance exceeds Two Thousand Dollars ($2,000) in any instance, Manager
shall promptly notify Owner, and Owner shall promptly provide Manager with funds for the payment of such costs.


 


Section 6.2         Owner’s
Right to Contest or Postpone Compliance. With respect to a violation of any such laws or rules, the Owner shall have the right
to contest any of the foregoing and postpone compliance pending the determination of such contest, if so permitted by law and not
detrimental to the operation of the Hotel but in such event, Owner shall indemnify and hold harmless Manager from any loss, cost,
damage or expense, resulting solely from such postponement.


 


Section 6.3         Manager’s
Right to Terminate Agreement. Notwithstanding anything in this Agreement to the contrary and subject to Section 12.4, if within
thirty (30) days of receiving Manager’s written request, Owner fails to approve the changes, repairs, alterations, improvements,
renewals or replacements to the Hotel which Manager determines in its reasonable judgment are necessary to (i) protect the Hotel,
Owner and/or Manager from innkeeper liability exposure; or (ii) ensure material compliance with any applicable code requirements
pertaining to life safety systems requirements; or (iii) ensure material compliance with any and all Legal Requirements including,
but not limited to, all state, local, or federal employment law, including, without limitation, the Americans with Disabilities
Act, then Manager may thirty (30) days after providing Owner an additional notice regarding its termination and, terminate this
Agreement any time after the expiration of such second thirty (30) day notice period upon seven (7) days’ written notice.


 






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ARTICLE
VII



Operating ACCOUNT and OPERATING FUNDS


 


Section 7.1        Manager
shall establish and implement Owner’s cash management plan. Manager shall establish, at such bank(s) designated by the Owner,
at least two hotel accounts necessary for the operation of the Hotel (collectively, the “Agency Accounts”).
The Agency Accounts are the property of Owner and Owner may not more frequently than weekly direct Manager to distribute into the
Owner Account, within one (1) business day after receipt of notice from Owner, any funds remaining in the Operating Account after
accrued fees and expenses have been either disbursed.


 


		A.	Owner Account. Manager shall deposit all monies from the operation of the Hotel and due
to Owner into a depository account for the sole benefit of Owner. Manager may endorse any and all checks drawn to the order of
Owner for deposit in the Owner Account, however, Manager shall have no rights to withdrawal any monies from the Owner Account,
or otherwise direct, any such funds into the Operating Account (as defined below).
	 	 	 
		B.	Operating Account. Owner will supply to Manager any working capital for the operation of
the Hotel, which sum shall be deposited into one or more separate operating accounts to assure the timely payment of expenses of
the Hotel in accordance with the Franchise Agreement and Annual Business Plan (the “Operating Account”). If
at any time during the Term, the funds available from the Hotel operations for the payment of any of the costs of the Hotel, including
Manager’s Management Fee and reimbursable expenses, shall be insufficient to pay the same as they become due and payable,
Owner shall within five (5) days of written request from Manager, deposit sufficient funds in the Hotel bank accounts to make such
payments. Business days shall exclude Saturdays, Sundays and all statutory holidays observed under the laws of the state where
the Hotel is located.



 


Section 7.2         Operating
Funds. From time to time if and as required, Owner shall maintain cash in the Operating Account (“Operating Funds”)
sufficient in amount to properly operate the Hotel (including amounts sufficient to pay those expenses described as deductions
from Gross Operating Revenues). If at any time during the Term, the Operating Funds on hand fall below $35,000 (the “Minimum
Balance”), Owner shall, within five (5) days after Manager’s written notice to Owner, deposit in the Operating
Account additional funds in an amount equal to the difference between the Operating Funds then on hand and the Minimum Balance.
The Operating Funds shall at all times be the property of the Owner.


 


Section 7.3         Reserve
Fund Account. There shall be established the Reserve Fund in an interest bearing account in a bank selected by Owner and approved
by Manager which approval shall not be unreasonably withheld. The Reserve Fund shall at all times be the property of the Owner
(or, if so provided in the Master Lease, the Landlord). Any amounts remaining in the Reserve Fund at the end of each Fiscal Year
will be carried forward until fully expended, but shall not be credited against required contributions to the Reserve Fund for
any subsequent Fiscal Year. Owner shall deposit into a reserve fund (“Reserve Fund”) an annual amount of up
to Four Percent (4%) of Gross Operating Revenues (the “FF&E Percentage Contribution”). Manager shall deduct
the FF&E Percentage Contribution on a monthly basis from Gross Operating Revenues and deposit such amount in the Reserve Fund.
The Reserve Fund shall be used only for additions or replacements to FF&E and Capital Renewals as contemplated by the Capital
Renewals Budget. It is understood that the amounts to be reserved for Capital Renewals under this Section 7.3 may not represent
the amounts which may be required in later years to keep the Hotel in the condition contemplated by this Agreement and, accordingly,
the parties recognize that the Capital Renewals Budgets in future years may call for additional expenditures in excess of the amounts
being reserved therefor under this Section 7.3,which additional expenditures, if necessary, shall be paid from
the Operating Funds (such expenditure shall not be considered an expense in calculating House Profit) and the balance, if any,
shall be paid by Owner. Notwithstanding anything herein to the contrary, in the event Owner’s lender (or any other lender
for whose benefit the Hotel has been encumbered by mortgage, deed of trust, or like agreement) requires the same or greater reserve
requirements, and Owner provides Manager reasonable evidence to this effect, the Reserve Fund shall not be required.


 






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ARTICLE
VIII



BOOKS, RECORDS AND FINANCIAL STATEMENTS


 


Section 8.1         Accounting
System. Manager shall keep full and adequate books of account and other records reflecting the results of operation of the
Hotel on an accrual basis, all substantially in accordance with the Uniform System. The Fiscal Year used by Manager will consist
of twelve (12) Accounting Periods of one (1) calendar month each. Except for such books and records as Manager may elect to keep
in its Affiliate’s corporate office or other suitable location pursuant to the operation of centralized accounting services,
the books of account and all other records relating to, or reflecting the operation of, the Hotel shall be kept at the Hotel and
shall be available to Owner and its representatives at all reasonable times for examination, audit, inspection and transcription.
All of such books and records, including, without limitation, books of accounts, guest records and front office records, at all
times shall be the property of Owner and shall not be removed from the Hotel by Manager without notifying Owner. Upon termination
of this Agreement, all the books and records shall be turned over to Owner to ensure the orderly continuation of the operation
of the Hotel, but the books and records shall thereafter be available to the Manager at all reasonable times for inspection, audit,
examination and transcription.


 


Section 8.2        Financial
Statements. Manager shall deliver to Owner within twenty-one (21) days after the end of each Accounting Period a profit and
loss statement showing the results of the operation of the Hotel for such Accounting Period and the Fiscal Year to date and a balance
sheet as of the close of such Accounting Period. Manager shall deliver to Owner within thirty (30) days after the end of each Fiscal
Year a profit and loss statement showing the result of operation of the Hotel during such Fiscal Year, and the House Profit, if
any, and Net Operating Income, for such Fiscal Year and a balance sheet for the Hotel as of the close of such Fiscal Year. Manager
shall, if Owner elects to conduct an audit, cooperate with the Independent Auditor so as to allow the Independent Auditor to deliver
audited financial statements to Owner within ninety (90) days after the end of each Fiscal Year. Any disputes as to the contents
of any such statements or any accounting matter hereunder, shall be determined by the independent auditor mutually agreed upon
by Owner and Manager (the “Independent Auditor”) whose decision shall be final and conclusive on Manager and
Owner, the expense for which shall be an operating expense.


 


Section 8.3         Initial
Accounting Records. Owner shall provide Manager with opening balance sheet entries for Manager’s use within fifteen (15)
days following the Management Commencement Date, and Manager shall not be responsible for any reconstruction of accounting records
prior to the Management Commencement Date. Manager shall not be responsible for the submission of a completed profit and loss statement
prior to thirty (30) days after the receipt of the balance sheet entries. Owner acknowledges that Manager has no knowledge of and
cannot certify the accuracy of any historical financial information provided to Manager by Owner.


 






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ARTICLE
IX



ANNUAL BUSINESS PLAN


 


Section 9.1         Preparation
of Annual Business Plan. Manager shall submit to Owner as soon as reasonably practicable after the Management Commencement
Date a forecast of performance for the balance of the year in which the Management Commencement Date Occurs. Thereafter, at least
thirty (30) days prior to the end of each Fiscal Year, Manager shall submit an annual business plan for the succeeding Fiscal Year
(“Annual Business Plan”). The Annual Business Plan shall include: an operating budget showing estimated Gross
Operating Revenues, department profits, operating expenses, House Profit and Net Operating Income for the forthcoming Fiscal Year
for the Hotel; a marketing plan; a Capital Renewals Budget; all in reasonable detail and, where appropriate, with the basis for
all assumptions expressly set forth. Owner shall review the Annual Business Plan and either approve or notify Manager of any objections
to the Annual Business Plan in writing within twenty (20) days of its receipt thereof. Owner’s approval of the Annual Business
Plan shall not be unreasonably withheld or delayed. The parties will attempt to resolve in good faith any objections by Owner within
thirty (30) days following Manager’s receipt of Owner’s disapproval.


 


Section 9.2         Annual
Business Plan Disputes. If Manager and Owner are unable to agree upon an Annual Business Plan or any details thereof, the final
Annual Business Plan shall be determined by arbitration in accordance with the provisions of Section 19.7 hereof, it being
understood that only those details, line items or portions of the Annual Business Plan which are in dispute shall be the subject
of such arbitration. Pending the conclusion of any such arbitration proceeding, the Annual Business Plan for all purposes under
this Agreement shall be as follows: (a) the undisputed items shall be as set forth in the proposed Annual Business Plan and (b)
the disputed items shall be modified by increasing the actual expenses incurred by the Hotel during the prior year in accordance
with the Consumer Price Index (for purposes hereof, Consumer Price Index shall mean Consumer Price Index-Cities-All Urban Consumers
(1982-84=100), issued by the Bureau of Labor Statistics of the United States Department of Labor). Owner and Manager agree that
arbitration or mediation shall be the sole procedure for resolving any dispute regarding the Annual Business Plan.


 


Section 9.3         Deviations
from Annual Business Plan. Manager shall diligently pursue all feasible measures to enable the Hotel to adhere to the Annual
Business Plan, provided, however, Owner acknowledges and agrees that Manager will not be responsible for any variances from the
Annual Business Plan. In the event that Manager determines that circumstances require that there be material changes in the Annual
Business Plan, Manager shall so notify Owner as soon as practically possible after the need for such changes becomes apparent.
Such determination is made when the annual amount in a specified department described below is forecasted to exceed the budgeted
amount set forth in the Annual Business Plan as reflected in the monthly forecast. For purposes of this Section 9.3, (i)
a variation of more than ten percent (10%) below or in excess of the amount set forth in the Annual Business Plan for either the
Sales & Marketing department or the Repairs & Maintenance department; or (ii) a variation of more than ten percent (10%)
in excess of the amount set forth in the Annual Business Plan for any other major deduction category in calculating House Profit
(e.g., a department such as General and Administrative), shall be deemed to be material. Any such material change shall be subject
to Owner’s approval; provided, however, Owner’s approval shall not be required to the extent such material change consists
of: (a) expenses which are deducted from House Profit, (b) expenses which are nondiscretionary by virtue of being determined by
a third party or governmental entity, such as minimum wages under collective bargaining agreements, utility costs, franchise fee
increases, changes in franchise standards and sales taxes, (c) the amount of increased expenses resulting directly from increases
in volume, provided that, departmental profit margins and House Profit margins are not diminished or otherwise negatively affected
or (d) expenditures as may be required if Manager reasonably believes such expenditure to be required by any emergency situation
imminently threatening life, health or safety (provided that Manager shall notify Owner of such emergency and the need for such
expenditure in advance or if not possible in advance then as soon as practicable). Notwithstanding anything herein to the contrary,
Manager is not warranting or guaranteeing in any respect the actual operating results of the Hotel.


 






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ARTICLE
X



MANAGER’S FEES AND REIMBURSEMENTS


 


Section 10.1      Base
Management Fee. During each Fiscal Year after the Management Commencement Date (and for a fraction of any partial Fiscal Year),
in consideration of the services Manager is to render under this Agreement, Manager will be paid a fee (“Base Management
Fee”) at the rate of four percent (4%) of Gross Operating Revenues per Fiscal Year. The Base Management Fee will
be paid in installments by deducting such fee from Gross Operating Revenues immediately following each Accounting Period at the
rate of four percent (4%) of Gross Operating Revenues for that Accounting Period.


 


Section 10.2       Accounting
Fee and Revenue Management Fee. In addition to the Base Management Fee, the Manager shall be paid a fee for centralized accounting
services (the “Accounting Fee”) equal to $2,500 per Accounting Period during the Term of this Agreement and for one
(1) Accounting Period after the termination of this Agreement. The Accounting Fee shall be increased each year in accordance with
increases in the Consumer Price Index-Cities-All Urban Consumers (1982-84 — 100), issued by the Bureau of Labor Statistics
of the United States Department of Labor. In addition, the Manager shall be paid a monthly fee for revenue management services
(the “Revenue Management Fee”) equal to $1,200 per month.


 


Section 10.3       Technical,
Procurement or Other Services. Service fees for technical or procurement services for the Hotel shall be paid to Manager or
its Affiliates if and only if Owner requests such services of Manager, or any other services beyond the scope of services to be
provided pursuant to this Agreement. The amount of fees shall be agreed to by Owner and Manager prior to commencing such services.
Technical services include renovation coordination, design review, construction management and related services. Procurement services
relate to purchase and installation of furniture, fixtures, equipment, and operating equipment of the hotel. Other services may
include such services as IT Support.


 


Section 10.4     Takeover
Expenses. Appropriate expenses incurred in connection with the Takeover Activities (the “Takeover Expenses”)
shall be paid by Owner and advanced to Manager in accordance with an accounting of such expenses and any and all relevant documents
to support such accounting prepared by Manager.


 






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ARTICLE
XI



INSURANCE


 


Section 11.1       Insurance
Coverage. Manager and/or Owner (as identified in Exhibit A) shall procure and maintain from and after the Management
Commencement Date, at Owner’s cost and expense, the insurance policies as provided on Exhibit A in amounts sufficient
to reasonably and adequately protect Owner and Manager against loss or damage arising in connection with the ownership, management
and operation of the Hotel, as well as to satisfy the requirements of Owner’s lender and the Franchise Agreement. The Owner
shall be responsible for obtaining the insurance coverages identified in Part A to Exhibit A. These policies will
be in the name of Owner and will name the Manager as an additional insured. The Manager shall be responsible for obtaining the
insurance coverages identified in Part B to Exhibit A. These policies will be in the name of Manager and name the
Owner of the Hotel as an additional insured. All insurance policies shall be issued by insurance companies having an A.M. Best’s
rating of not less than A – IX. Any insurance required to be provided by Manager in Section 11.1 may be provided under
the blanket insurance policy of Manager, which policy covers other hotel properties managed by Manager. All premiums, costs and
expenses shall be allocated among the properties participating under such program in accordance with generally accepted underwriting
standards. Owner assumes no responsibility for, or interest in, additional premiums or proceeds (other than standard audit adjustments)
generated by the blanket insurance policy of Manager. Owner shall be provided certificates evidencing the insurance coverages required
pursuant to Section 11.1 on or before thirty (30) days after the Management Commencement Date, and upon any and all subsequent
renewals thereof. Owner shall have the right at any time for any reasonable period of time to place property and casualty insurance
coverage, and with the consent of Manager (which shall not be unreasonably withheld or delayed) any other required coverage under
this Section 11.1. If Owner notifies Manager that Owner shall place the insurance coverage, Manager shall cooperate with
Owner and shall terminate, with advance notice to Owner, any overlapping insurance coverage.


 


Section 11.2      Waiver
of Subrogation - Owner Assumes Risk of Adequacy. Neither Manager nor Owner shall assert against the other, and do hereby waive
with respect to each other, or against any other entity or person named as additional insureds on any policies carried under this
Article XI, any claims for any losses, damages, liability or expenses (including attorneys’ fees) incurred or sustained by
either of them on account of injury to persons or damage to property arising out of the operation or maintenance of the Hotel,
to the extent that the same are covered by the insurance required under this Article XI. Each policy of insurance shall contain
a specific waiver of subrogation reflecting the provisions of this Section 11.2, and a provision to the effect that the
existence of the preceding waiver shall not affect the validity of any such policy or the obligation of the insurer to pay the
full amount of any loss sustained. Owner and Manager acknowledge that they have agreed on the adequacy of the amounts of any insurance
coverage provided under this Agreement.


 


ARTICLE
XII



TERM


 


Section 12.1       Term.
This Agreement shall be for a period commencing on the Management Commencement Date and unless sooner terminated as hereinafter
provided, shall continue until the end of the Fiscal Year in which the tenth (10th) annual anniversary of the Management Commencement
Date occurs (the “Term”). Thereafter, and subject to the mutual written consent of the Owner and Manager, this Agreement
shall automatically renew for four (4) consecutive five (5) year renewal terms (“Renewal Terms”) unless
Manager or Owner provides written notice of termination to the other party at least one hundred and eighty (180) days prior to
the end of the then current term. Any reference in this Agreement to “Term” shall be deemed to be a reference to the
Initial Term and any Renewal Term.


 


Section 12.2       Early
Termination. Owner and Manager acknowledge that, but for the Term of this Agreement and the parties’ commitment to the
contemplated relationship for the Term of this Agreement, the Manager would not have made the significant investments of money
and time necessary to commence and conduct services under this Agreement and foregone other opportunities. In the event that this
Agreement is terminated prior to the expiration of the Term (or any Renewal Term), for any reason other than Manager Default and
except as set forth in Section 12.4, then Owner shall pay to Manager the Termination Fee (as calculated below). Owner and Manager
further acknowledge and agree that Manager’s damages in the event of a termination of this Agreement would be difficult or
impossible to determine, including, without limitation, loss of management fees, harm to Manager’s reputation, loss of goodwill,
disruption of operations, loss of contributions to budgeted system expenses and loss of a hotel with strategic significance to
Manager’s system, and the Termination Fee is a fair estimate of those damages which has been agreed to in an effort to cause
the amount of said damages to be certain.


 






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Section 12.3      Termination
Fee. The Termination Fee shall be the sum of the Base Management Fee estimated to be received for each Fiscal Year remaining
Term of this Agreement (“Termination Fee”). The fees estimated to be received for any given Fiscal Year shall
be determined by increasing the Base Management Fee for the last Fiscal Year prior to the termination of this Agreement (if there
has not been one (1) full Fiscal Year under this Agreement prior to such termination, then the fees that would have been earned
by Manager for the twelve (12) month period under the Annual Business Plan. Owner and Manager specifically acknowledge that the
calculation of the Termination Fee must take into account, and reasonably does take into account, (1) Manager’s loss of Management
Fees and the benefit of this Agreement over the full remaining Term of this Agreement, (2) the material impact of inflation on
Fees over such an extended period, and (3) the inherent difficulty in predicting or quantifying the measure of damages from the
non-fee components of Manager’s damages described above.


 


Section 12.4       Special
Lender Provision. Notwithstanding any other provision of this Agreement, so long as the loan to Landlord from KeyBank National
Association, or its successors or assigns, remains outstanding, this Agreement may be terminated by Owner upon 30 days prior written
notice, with or without cause, and no termination fee shall be payable while the loan is outstanding if such termination fee is
not permitted under the terms of the loan documents.


 


ARTICLE
XIII


 


DEFAULT AND REMEDIES






 


Section 13.1      Manager
Default. This Agreement and the employment of Manager may be terminated by Owner, at its option, upon the happening of any
of the following events: (a) a material breach, default, or noncompliance by Manager with any covenants contained in this Agreement;
(b) operation of the Hotel by Manager in such a manner as to cause the Franchisor to require the removal of Manager as the operator
of the Hotel or to give notice to the Owner of intent to terminate the Franchise Agreement (unless such termination is due to Owner’s
failure to provide the funds necessary for any required capital improvements or renovations); or (c) the making by Manager of a
general assignment for the benefit of creditors; or a petition of application by either party to any tribunal for the appointment
of a trustee, custodian, receiver or liquidator of all or substantially all of its business, estate or assets; or the commencement
by Manager of any proceeding under any bankruptcy, reorganization, arrangement, insolvency, readjustment or debt, dissolution or
liquidation law of any jurisdiction, whether now or hereafter in effect.


 


Section 13.2       Owner
Default. This Agreement may be terminated by Manager, at its option, upon the happening of any of the following events: (a)
failure of Owner to pay or reimburse Manager as stipulated in this Agreement, said termination to become effective within five
(5) days after Manager having served Owner notice of the failure and Owner’s continued failure to remedy; (b) material breach,
default or noncompliance by Owner with any other covenants contained in this Agreement; (c) the making by Owner of a general assignment
for the benefit of creditors; or a petition of application by either party to any tribunal for the appointment of a trustee, custodian,
receiver or liquidator of all or substantially all of its business, estate or assets; or the commencement by Owner of any proceeding
under any bankruptcy, reorganization, arrangement, insolvency, readjustment or debt, dissolution or liquidation law of any jurisdiction,
whether now or hereafter in effect.


 






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Section 13.3       Right
to Cure. Except with respect to a default under Section 13.2(a) above, the defaulting party shall have a period of thirty
(30) days after receipt of written notice from the non-defaulting party to cure the matter giving rise to the default, and if the
nature of the default is such that it is not reasonably susceptible to cure within a thirty (30) day period, the defaulting party
shall have up to one hundred twenty (120) days after receipt of written notice to cure such default, provided the defaulting party
promptly commences and diligently pursues the curing of such default.


 


Section 13.4       Remedies.
Upon the breach of any term or condition of this Agreement by Manager and the expiration of any applicable cure period, the sole
remedy of Owner shall be to terminate this Agreement without the payment of any Termination Fee to Manager; except that Owner shall
be able to seek actual damages and/or equitable relief in the event that: (a) Manager solely causes a default under the Franchise
Agreement, (b) Manager voluntarily ceases operations of the Hotel for more than twenty-four (24) hours; or (c) Manager commits
a crime or intentional tort, as the case may be. Upon the breach of any term or condition of this Agreement by Owner and expiration
of any applicable cure period, Manager can elect to terminate this Agreement and shall be entitled to the Termination Fee.


 


ARTICLE
XIV


 


DAMAGE
TO AND DESTRUCTION OF THE HOTEL


 


Section 14.1       Casualty.
In the event that the Hotel shall be substantially destroyed during the term of the Agreement, by fire or other casualty, and the
Owner shall elect, for any reason, not to rebuild the Hotel and other improvements, the terms of this Agreement shall cease and
terminate as of the date of such destruction and no Termination Fee shall be applicable. If this Agreement is terminated pursuant
to the provisions of this Section 14.1 and within a period of two (2) years from the date of termination, Owner commences
the construction of a new hotel on the Land, then Manager shall be given a right of first refusal to operate the Hotel on the basis
set forth in this Agreement, subject to those changes required by the changes in circumstances and for a term which remained under
the Agreement prior to such termination. In the event that the Hotel shall be partially destroyed during the term of the Agreement,
by fire or other casualty, and the Owner shall elect to temporarily close all or a portion the Hotel for repair and restoration,
Manager shall continue to manage the Hotel and shall be entitled to all Fees described in Article X, including a monthly
management fee during the period or reconstruction. The proceeds of any business interruption insurance shall be included in Gross
Operating Revenues for the period for which such proceeds are payable. In addition, in the event that Owner engages the Manager
to complete the renovations, Manager shall be entitled to a renovation and construction fee of five percent (5%) of the entire
cost of reconstruction for the additional time and expense associated with the work as approved by Owner in writing. Upon completion
of the reconstruction, Manager shall be entitled to its normal management fee as set forth in Article
X.


 


Section 14.2       Condemnation.
If the whole or a substantial portion of the Hotel shall be taken or condemned in any eminent domain, condemnation, compulsory
acquisition or like proceeding by any competent authority for any public or quasi-public use of purpose, or if such a portion thereof
shall be taken or condemned as to make it imprudent or unreasonable, in either party’s reasonable opinion, to use the remaining
portion as a Hotel of the type and class immediately preceding such taking or condemnation, then, in either of such events, the
terms of this Agreement shall cease and terminate as of the date of such taking or condemnation and no Termination Fee shall be
applicable. If this Agreement is terminated pursuant to the provisions of this Section 14.2 and within a period of two (2)
years from the date of termination, Owner commences the construction of a hotel on the Land, then Manager shall be given a right
of first refusal to operate the Hotel on the basis set forth in this Agreement subject to those changes required by the changes
in circumstances and for a term which remained under the Agreement prior to such termination. Any condemnation award or similar
compensation shall be the property of Owner, provided that Manager shall have the right to bring a separate proceeding against
the condemning authority for any damages and expenses specifically incurred by Manager as a result of such condemnation.


 






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ARTICLE
XV


 


EARLY TERMINATION


 


Section 15.1       If a termination
event occurs pursuant to this Agreement for any reason other than under Section 13.2(a), the party electing to terminate shall
give the other party written notice of such election. On the date which is thirty (30) days after the date of such notice, Manager
shall cease all activities at the Hotel and shall have no further obligations under this Agreement.


 


Section 15.2      If a termination
occurs pursuant to Section 13.2(a), Manager shall give to Owner notice of such election. Any time thereafter, Manager may,
on ten (10) days’ written notice, cease all activities at the Hotel and thereafter have no further obligations under this
Agreement.


 


Section 15.3       Manager
shall continue to operate the Hotel in good faith in accordance with the terms of this Agreement until the effective date of such
termination. Manager shall peacefully vacate and surrender the Hotel to Owner on the effective date of such termination.


 


Section 15.4       After the
notice is given, and prior to the date Manager ceases activities at the Hotel, Manager shall be paid any and all fees or expenses
due it pursuant to this Agreement, and Manager shall cooperate with Owner in the orderly transfer of management to Owner or Owner’s
designated agent.


 


Section 15.5       Manager
shall assign and transfer to Owner:


 


1.         any interest which
Manager may have or claim in and to all of Owner’s books and records, plans and specifications, architectural or engineering
drawings, contracts, leases and other documents respecting the Hotel that are not Manager’s proprietary information and are
in the custody and control of Manager; and


 


2.          all of Manager’s
right, title and interest in and to all liquor, restaurant and any other licenses and permits, if any, held by Manager in connection
with the operation of the Hotel; but only to the extent such assignment or transfer is permitted under the law of the state in
which the Hotel is located; provided, however, that if Manager has expended any of its own funds in the acquisition of licenses
or permits, Owner shall reimburse Manager therefore;


 


3.          and any interest which
Manager may have or claim in and to the Operating Account(s) (excluding any funds deposited in the payroll account for final payrolls)
or the Reserve Fund.


 


Section 15.6       Non-Solicitation
of Employees. During the period ending six (6) months from the termination or expiration of this Agreement, Owner shall not,
directly or indirectly, hire or solicit for hire (whether as an employee, consultant or otherwise) any Key Employees of Manager,
without the prior written consent of Manager. For the purposes of this Section 15.6 “solicit for hire” shall
not include a general advertisement for employment not directed at employees of Manager.


 






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ARTICLE
XVI



ASSIGNMENT


 


Section 16.1       Assignment.
Neither party shall assign or transfer or permit the assignment or transfer of this Agreement without the prior written consent
of the other; provided, however, that Manager shall have the right, without such consent, to irrevocably and totally assign its
interest in this Agreement to (i) any of its Affiliates, (ii) any successor by merger or consolidation with Manager, or (iii) any
party succeeding to substantially all of the assets of the Manager.


 


ARTICLE
XVII



TAXES


 


Section 17.1       Real
Estate and Property Taxes. Upon (i) the written request of Owner and (ii) the provision of sufficient funds and the necessary
documentation, and unless otherwise required by Owner’s lender, all real estate and ad valorem property taxes, assessments
and similar charges on or relating to the Hotel during the Term of this Agreement shall be paid by Manager before any fine, penalty
or interest is added thereto or lien placed upon the Hotel or this Agreement, unless payment thereof is, in good faith, being contested
and enforcement thereof is stayed. Manager shall, within the earlier of thirty (30) days of payment or ten (10) days following
written demand by Owner, furnish Owner with copies of official tax bills, assessments and evidence of payment or contest thereof.
Owner, or Manager at direction of Owner, at Owner’s expense, may contract with a tax consultant firm to review assessments
and tax bills, file personal property tax returns as necessary, make recommendations regarding appeals, and to manage the appeals
process.


 


ARTICLE
XVIII



INDEMNIFICATION AND LIMITATION OF LIABILITY


 


Section 18.1       Indemnification
by Owner. Owner shall hold harmless, indemnify and defend Manager and its Affiliates and their respective agents, employees,
officers, directors and shareholders (collectively, “Manager Indemnities”), from and against any action, cause
of action, suit, debt, cost, expense (including, without limitation, reasonable attorneys’ fees for pre-trial, trial and
appellate proceedings), claim or demand whatsoever brought or asserted by any third person whomsoever, at law or in equity, incurred
by Manager Indemnities arising out of, as a result of, or in connection with the operation of the Hotel including, without limitation:
(a) the performance by Manager 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 Manager or Owner in connection with the management or operation
of the Hotel in accordance with this Agreement; (b) any act or omission (whether or not willful, tortuous, or negligent) of Owner
or any third party; or (c) any other occurrence related to the Hotel or Manager’s duties under this Agreement (except for
liabilities for which Manager indemnifies Owner). Owner may apply the proceeds of any available insurance to the payment of any
claim under the indemnity set for the in this Section 18.1. The provisions of this Section 18.1 shall survive the
expiration or termination of this Agreement and shall be binding upon Owner’s successors and assigns.


 


Section 18.2       Indemnification
by Manager. Manager shall hold harmless, indemnify and defend Owner and its Affiliates and their respective agents, employees,
officers, directors and shareholders (collectively, “Owner Indemnities”), from and against any action, cause
of action, suit, debt, cost, expense (including, without limitation, reasonable attorneys’ fees for pre-trial, trial and
appellate proceedings), claim or demand whatsoever brought or asserted by any third person whomsoever, at law or in equity, incurred
by Owner Indemnities, arising by reason of: (a) the gross negligence or willful misconduct of any Key Employees, which results
in a claim for bodily injury, death or property damage occurring on, in or in conjunction with the business of the Hotel, to the
extent not covered by insurance (including the deductible, if any); (b) Manager’s gross negligence or willful misconduct
in the selection, hiring, training discharge or supervision of any Hotel employees; or (c) any action taken by Manager, its employee
or agent, which is beyond the scope of Manager’s authority under this Agreement. Manager may apply the proceeds of any available
insurance to the payment of any claim under the indemnity set for the in this Section 18.2. The provisions of this Section
18.2 shall survive the expiration or termination of this Agreement and shall be binding upon Manager’s successors and
assigns.


 






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Section 18.3       Indemnification
Procedure. Upon the occurrence of a claim of an event giving rise to indemnification, the party seeking indemnification shall
notify the other party hereto and provide the other party hereto with copies of any documents reflecting the claim, damage, loss
or expense. The party seeking indemnification is entitled to engage such attorneys and other persons to defend against the claim,
damage, loss or expense, as it may choose. The party providing indemnification shall pay the reasonable charges and expenses of
such attorneys and other persons on a current basis within twenty (20) days of submission of invoices or bills. In the event Owner
neglects or refuses to pay such charges, Manager may pay such charges out of the Operating Account and deduct such charges from
any amounts due Owner or add such charges to any amounts due Manager from Owner.


 


ARTICLE
XIX



MISCELLANEOUS


 


Section 19.1       Severability.
In the event that any portion of this Agreement shall be declared invalid by order, decree or judgment of a court, this Agreement
shall be construed as if such portion had not been inserted herein except when such construction would operate as an undue hardship
to Manager or Owner or constitute a substantial deviation from the general intent and purpose of said parties as reflected in this
Agreement.


 


Section 19.2       Performance.
The failure of either party to insist upon a strict performance of any of the terms or provisions of this Agreement or to exercise
any option, right or remedy herein contained, shall not be construed as a waiver or as a relinquishment for the future of such
term, provision, option, right or remedy, but the same shall continue and remain in full force and effect. No waiver by either
party of any term or provision hereof shall be deemed to have been made unless expressed in writing and signed by such party.


 


Section 19.3      Relationship.
The relationship of Owner and Manager shall be that of independent contractor. Nothing contained in this Agreement shall be construed
to create an agency, partnership or joint venture between them or their successors in interest. Neither party shall borrow money
in the name of, or pledge the credit of, the other.


 


Section 19.4       Meetings.
Owner shall meet with representatives of the Manager, from time to time, so that the Manager and Owner may discuss the status of
operations and future plans, recommendations and projections. The meetings will be held at mutually convenient dates and locations.


 


Section 19.5      Consents.
Except as herein otherwise provided, whenever in this Agreement the consent or approval of Owner or Manager is required, such consent
or approval shall not be unreasonably withheld or delayed. Such consent or approval shall be in writing only and shall be duly
executed by an authorized officer or agent of the party granting such consent or approval.


 






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Section 19.6       Applicable
Law. This Agreement shall be construed under, and governed in accordance with, the laws of the State of Texas.


 


Section 19.7       Mediation
and Arbitration. Any controversy, dispute or claim arising out of or relating to this Agreement or the performance, enforcement,
breach, termination or validity thereof, including the determination of the scope of this Agreement to arbitrate, shall first be
submitted to non-binding mediation and shall thereafter be determined by final binding arbitration, and not litigation, the agreed
venue for mediation and arbitration being in Houston, Texas. The mediation process shall be administered by a mutually acceptable
mediator selected in accordance with the Commercial Mediation Rules of the American Arbitration Association (“AAA”).
If any dispute remains unresolved between the parties after the mediation process has been completed, either party may then submit
any such unresolved dispute to final and binding arbitration pursuant to the Commercial Arbitration rules of AAA, with all matters
related to the enforceability of this arbitration agreement and any award rendered pursuant to this agreement to be governed by
the Federal Arbitration Act, 9 U.S.C. Section 1-16. The Arbitration Tribunal shall be formed of three (3) arbitrators each of which
shall have at least five (5) years’ experience in hotel operation, management, ownership or leasing, one (1) to be appointed
by each party and the third (3rd) to be appointed by the American Arbitration Association. The arbitration panel may require and
facilitate such discovery as it shall determine is appropriate in the circumstances, taking into account the needs of the parties
and the desirability of making discovery expeditious and cost-effective. The arbitration panel shall be empowered to subpoena non-party
and party witnesses for deposition and hearing to the full extent provided under the AAA Rules and the Federal Arbitration Act
(or the applicable state arbitration statute if the arbitration panel is appointed pursuant to a petition filed in state court).
The arbitration panel may also direct the production of documents and other information and the advance identification of witnesses
to be called and documents to be admitted. The arbitration panel may issue orders to protect the confidentiality of proprietary
information, trade secrets and other sensitive information before it is required to be disclosed in discovery. In addition to monetary
damages, or in lieu thereof, the arbitration panel shall have the power to grant all equitable relief (both by way of interim relief
and as a part of its final award) as may be granted by any court in the state where the Hotel is located. Monetary damage liability
shall be limited to actual damages; the parties hereby waive the right to claim and/or receive punitive damages or exemplary relief.
The arbitration panel shall determine whether and to what extent any party is a prevailing party and shall award attorneys’
fees and expenses associated with the arbitration proceeding to the “prevailing party, if any. All proceedings shall be reported
by a certified shorthand court reporter and written transcripts of the proceedings shall be prepared and made available to the
parties. The fees of the arbitration panel, together with all costs and expenses incurred in conducting the arbitration (but excluding
the parties’ respective attorney, witness and related costs and expenses) shall be borne by the party against whom the arbitral
award is made and shall be a (the) component of the arbitral award. The arbitration shall take place in Orlando, Florida, and shall
be conducted in the English language. The arbitration award shall be final and binding upon the parties hereto and subject to no
appeal. Arbitration expenses shall not be an expense in determining House Profit. Judgment upon the award rendered maybe entered
into any court having jurisdiction, or applications may be made to such court for an order of enforcement.


 


Section 19.8       Successors
Bound. This Agreement shall be binding upon and inure to the benefit of Owner, its successors and assigns, and shall be binding
and inure to the benefit of Manager and its permitted assigns.


 


Section 19.9      Headings.
Headings of Articles and Sections are inserted only for convenience and are in no way to be construed as a limitation on the scope
of the particular Articles or Sections to which they refer.


 






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Section 19.10     Incorporation
of Recitals. The recitals set forth in the preamble of this Agreement are hereby incorporated into this Agreement as if fully
set forth herein.


 


Section 19.11     Force
Majeure. If any one or more of the following events or circumstances that, alone or in combination, adversely affects the operation
of the Hotel: fire, earthquake, storm or other casualty; strikes, lockouts, or other labor interruptions; war, acts of terrorism,
rebellion, riots or other civil unrest; or any other event beyond Manager’s or Owner’s, as the case maybe, reasonable
control, a party shall be excused from performance of any provision hereof to the extent that such party’s ability to comply
with such provision is materially impacted by such event.


 


Section 19.12     Notices.
Notices, statements and other communications to be given under the terms of this Agreement shall be in writing and delivered by
hand against receipt or sent by certified or registered mail, return receipt requested, or by Federal Express or other similar
overnight mail service:


 


To
Owner:  







Moody National Yale-Seattle MT, LLC  


6363 Woodway, Suite 110  


Houston, Texas 77057  


Attn:
Vice President - Corporate Asset


Management  


Phone: 713-977-7500  


Fax: 713-977-7505    


 


 


To
Manager: 


 


Moody National Hospitality


Management, LLC  


6363 Woodway, Suite 110  


Houston, Texas 77057  


Attn: President - Hospitality  


Phone: 714-977-7500  


Fax: 713-977-7505    


 


or at such other address as from time to time
designated by the party receiving the notice.


 


Section 19.13     Entire
Agreement. This Agreement, together with other writings signed by the parties expressly stated to be supplementing hereto and
together with any instruments to be executed and delivered pursuant to this Agreement, constitutes the entire agreement between
the parties and supersedes all prior understandings and writings, and may be changed only by a writing signed by the parties hereto.


 


Section 19.14    Manager’s
Authority Limited. Manager’s authority shall be derived wholly from this Agreement, and Manager has no authority to act
for or represent Owner except as herein specified.


 


Section 19.15     Exclusive
Compensation. The payments to be made to Manager hereunder shall be in lieu of all other or further compensation or commissions
of any nature whatsoever for the services described herein and this Agreement shall be considered as a special agreement between
the parties hereto covering the appointment and compensation of Manager to the exclusion of any other method of compensation unless
otherwise agreed to in writing.


 






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Section 19.16      Time.
Time is of the essence with respect to this Agreement.


 


Section 19.17     Attorneys’
Fees. In the event of any litigation arising out of this Agreement, the prevailing party shall be entitled to reasonable costs
and expenses, including without limitation, attorneys’ fees.


 


Section 19.18 Complimentary/Discount
Policies. Manager will be permitted to provide customary gratuitous accommodations, services and amenities to such employees
and representatives of Manager visiting the Hotel in connection with the Hotel’s management.


 


[Signatures appear on following page]


 






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IN WITNESS WHEREOF, the parties hereto
have caused this Agreement to be executed by their duly authorized officers.


 





	 	OWNER:
	 	 
	 	MOODY NATIONAL YALE-SEATTLE MT, 

LLC, a Delaware limited liability
        company



 


	 	By:	/s/ Brett C. Moody
	 	Name:	 Brett C. Moody
	 	Title:	 President



 


	 	MANAGER:
	 	 
	 	MOODY NATIONAL HOSPITALITY

MANAGEMENT, LLC., a Texas limited liability company



 


	 	By:	 /s/ David Gould
	 	Name:	David Gould
	 	Title:	 President



 






    


     


    

 








Exhibit A


 


Insurance


 


Insurance Requirements for Owner and Manager


 


PART A –
OWNER REQUIREMENTS


 


		1.	Commercial General Liability policy (with respect to the Property) with limits not less than $1,000,000
per occurrence with a $2,000,000 annual aggregate.
	 	 	 
		2.	Commercial Umbrella policy (with respect to the Property) with limits not less than $10,000,000.
	 	 	 
		3.	Business Automobile Insurance with limits not less than a $1,000,000 Combined Single Limit.
	 	 	 
		4.	Commercial Property policy insuring the building, business personal property, business income and
signs at a replacement cost with agreed upon deductibles. The policy shall be written on a special causes of loss form including
coverage for flood, wind and earthquake where applicable.
	 	 	 
		5.	Terrorism.
	 	 	 
		6.	Business Interruption.
	 	 	 
		7.	Boiler & Machinery.
	 	 	 
		8.	Garage Keepers Liability.
	 	 	 
		9.	Liquor Liability Insurance policy with limits not less than $1,000,000 per occurrence (Only when
applicable)
	 	 	 
		10.	Insurance against the theft or damage to guests’ property in an amount not less than $25,000
per guest.
	 	 	 
		11.	Insurance against such other operating risks against which it is customary or advisable to insure
in the operations of hotels of this nature.



 


PART B –
MANAGER REQUIREMENTS


 


		1.	Commercial General Liability policy (with respect to Management Company) with limits not less than
$1,000,000 per occurrence with a $2,000,000 annual aggregate.
	 	 	 
		2.	Commercial Umbrella policy (with respect to Management Company) with limits not less than $10,000.000.
	 	 	 
		3.	Workers Compensation Insurance on all Hotel Employees in compliance with applicable statutory requirements
with a $1,000,000 limit under the employer’s liability section.



 






    


     


    




	 	 	 
		4.	A blanket Fidelity bond with a limit not less than $500,000 and a deductible of no more than $25,000,
or as may be reasonably requested by the Owner.
	 	 	 
		5.	Employment Practices Liability insurance policy covering all employees with a limit of not less
than $1,000,000 per occurrence.
	 	 	 
		6.	Management Errors and Omissions policy with limits of at least $1,000,000 per occurrence.
	 	 	 
		7.	Insurance covering such other hazards an in such amounts as may be customary for comparable properties
in the areas of the Hotel as may be reasonably requested by the Owner.



 


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