Exhibit 10.13


 


HOTEL MANAGEMENT
AGREEMENT


FOR THE


LODGE AND SPA AT
CORDILLERA


BETWEEN


COLORADO HOTEL OPERATOR,
INC.,

a
Delaware corporation


AND


ROCKRESORTS
INTERNATIONAL, LLC,

a
Delaware Limited Liability company


May 1, 2005


 


[THIS AGREEMENT IS NOT TO BE RECORDED IN REAL ESTATE
RECORDS]
















MANAGEMENT
AGREEMENT


This Management
Agreement (“Agreement”) is entered into as of May 1, 2005 by and between ROCKRESORTS INTERNATIONAL, LLC, a Delaware
limited liability company (“Operator”), and COLORADO
HOTEL OPERATOR, INC., a Delaware corporation (“Lessee”). Operator
and Lessee are referred to collectively herein as the “Parties” and
individually as a “Party.”


RECITALS


A.                       Lessee is
the lessee under that certain Master Lease dated as of December, 2003 between
Cordillera Lodge & Spa, LLC, a Delaware Limited Liability Company (“Landlord”)
and Lessee(1), pertaining to the land and improvements (“Real Property”), which
includes the Hotel and related facilities and the real property on which such
facilities are located, in Edwards, Colorado and commonly known as the “Lodge
and Spa at Cordillera” (the “Hotel”). For purposes of this Agreement, “Hotel”
shall also include (1) “The Grouse on the Green” restaurant property, (2) the
approximately 1700 square foot commercial condominium property located adjacent
to the base of the Strawberry Park lift in the Beaver Creek ski area (“Strawberry
Park Facility”), (3) certain guest playing/tee time rights on golf courses
inside the Cordillera residential community, and (4) the property commonly
referred to as the “Carriage House” building; provided that, Operator
acknowledges and agrees that (a) Fee Owner may subdivide the Real Property
during the term of this Agreement and (b) a portion of the currently
undeveloped Real Property may be used for residential or other purposes and
removed from the definition of “Real Property” and excluded from the area
managed by Operator under this Agreement in the sole discretion of Lessee
and/or Landlord and without the consent or approval of Operator. The legal
description of the initial Real Property is attached hereto as Exhibit “A”.
The items set forth in subclauses (2) and (3) above are shared between the
Hotel and additional residential units to be constructed on the site of the
Hotel, and are therefore not exclusive to the Hotel.


B.                         Lessee
desires to engage Operator and Operator desires to be engaged, as manager of
the Hotel, pursuant to the terms and conditions set forth in this Agreement.


AGREEMENTS


NOW, THEREFORE, in
consideration of the mutual promises, covenants, and agreements contained
herein, and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the Parties agree as follows:






(1)                     Referred
to as “Tenant” in the Master Lease.


 













ARTICLE 1


INTERPRETATION, DEFINITIONS, REPRESENTATIONS, AND
WARRANTIES


1.1                    Interpretation.


1.1.1 The
foregoing Recitals and Exhibits attached hereto are hereby incorporated in and
made a part of this Agreement.


1.1.2 Unless the
language specifies or the context implies that a term of this Agreement is a
condition, all of the terms of this Agreement shall be deemed and construed to
be covenants to be performed by the designated Party.


1.1.3 The use of
the terms “including,” “include,” and “includes” followed by one or more
examples is intended to be illustrative and shall not be deemed or construed to
limit the scope of the classification or category to the examples listed.


1.1.4 Unless
expressly stated otherwise in this Agreement, whenever a matter is submitted to
a Party for approval pursuant to the terms of this Agreement, that Party has a
duty to act reasonably and timely in rendering a decision on the matter.


1.2                    Definitions.
As used throughout this Agreement (including the Exhibits hereto), the
following terms shall have the respective meanings set forth below:


Adjusted Gross
Revenue – Gross Revenue in any Operating Year less the
following items (whether paid or unpaid) accruing during such Operating Year to
the extent included in Gross Revenue: (i) any gratuities and/or the portion of
the service charges paid to employees, (ii) cash or credit rebates or refunds
to patrons, guests, lessees, concessionaires or other users of the Hotel, (iii)
the proceeds of any permanent Taking, (iv) revenues received by lessees,
licensees, concessionaires, or other such persons at the Hotel other than the
spa and any actual revenues earned by the Hotel in connection with audiovisual
companies located thereon, and (v) interest earned on the Reserve Fund.


Affiliate
– with respect to Operator or Lessee, as the case may be, any person,
partnership, corporation, limited liability company or other entity, which
directly or indirectly controls, is controlled by, or is under common control
with, Operator or Lessee. For purposes hereof, the term “control” (including “controls,”
“controlled by,” and “under common control with”) shall mean the ability
through ownership, direct or indirect, of voting stock or other equity
interests, to direct or cause the direction of the management and policies of a
person, partnership, corporation, limited liability company or other entity.
Solely for purposes of Section 2.2.8 below and other provisions of this
Agreement pertaining to contracts between Operator and any Operator Affiliate,
an Affiliate of Operator shall be deemed to include any entity in which
Operator owns (directly or indirectly) more than a 10% equity interest or
otherwise participates in more than 10% of the profits or revenues of such
entity.


Annual Financial
Statements – the financial statements to be delivered with
respect to each Operating Year pursuant to Section 2.7.1 below.


Approvals
– licenses, approvals, permits, authorizations, registrations, and the like
required by any governmental organization or unit having jurisdiction over
Lessee or the Hotel.


Arbitration
– means a process of mediation administered by American Arbitration Association
(“AAA”) or any other similar arbitration/mediation service mutually acceptable
to the Parties.



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Base Fee
– in respect of any period, shall mean an amount equal to three percent (3%) of
Adjusted Gross Revenue for such period.


Business
Interruption Insurance – insurance coverage against “Business
Interruption and Extra Expense” (as that phrase is used within the United
States insurance industry for application to transient lodging facilities).


Capital
Improvement – an item of any nature incorporated into the
Hotel which, according to Generally Accepted Accounting Principles and the
Uniform System, cannot be deducted as a current expense on the books of the
Hotel but rather must be capitalized and depreciated over its useful life.


Capital
Expenditure – expenditures for any alterations, additions or
improvements in or to the Hotel (excluding ordinary repair and maintenance
expenditures that constitute Capital Improvements. Capital Expenditures include
expenditures that are customarily treated as such in the hospitality industry.


Cash Flow Before
Incentive Fees – for any period, Gross Operating Profit less
the sum of the following: (a) the Base Fee, (b) all real and personal property
taxes however calculated, (c) insurance premiums, (d) rental payments in
connection with any real or personal property used in connection with the
operation of the Hotel, (e) home owners association fees and club fees, and (f)
any amounts contributed or allocated to the Reserve Fund for such period.


Centralized
Services Charges – costs borne by the Hotel for items
coordinated by the Operator, including the following:


(a)                      Goods and
Services. Operator may cause the Hotel to participate, along with other
hotels owned, managed or franchised by Operator or one of its Affiliates, in
one or more centralized purchasing programs or arrangements for the procurement
of goods or services used in connection with the operation of the Hotel;
provided, however, that the quality of such goods or services shall be
comparable to, and the terms of any such program or arrangement shall be no
less favorable to the Hotel than, those obtainable from unrelated parties on an
arm’s-length basis for the Hotel (and, upon request by Lessee, Operator shall
provide reasonable evidence thereof to Lessee). The goods and/or services that
may be purchased may be grouped in reasonable categories, rather than being
compared item by item. Operator and its Affiliates may not receive and retain
fees, commissions, discounts, rebates or payments from suppliers for their own
accounts. Operator shall credit to Lessee any discounts, commissions, or
rebates obtainable as a result of a purchase, and Operator shall, on a not less
than annual basis, remit to Lessee’s benefit in the Operating Account all
discounts, rebates, profits, or other commissions, received by Operator or by
any Affiliate of Operator, in connection with any purchases described above, in
connection with any contracts or agreements entered into on behalf of Lessee or
in connection with the Hotel. This clause is intended to ensure that neither
Operator nor any Affiliate of Operator shall receive, directly or indirectly,
any remuneration other than that to be paid by Lessee to Operator hereunder.
Lessee shall retain the right



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to review these National
Contracts on an annual basis as part of the Operating Plan and Budget approval
process described in Section 2.2.


(b)                     Reservations
and Accounting. Operator shall provide centralized reservations services to
the Hotel, and may provide centralized accounting services to the Hotel.
Operator and Lessee agree that the cost of such services shall be (i) estimated
in the Operating Plan and Budget, (ii) equitably allocated to the Hotel from
among all participating hotels that Operator manages, and (iii) reimbursed to
Operator based on actual cost. Operator’s methods of allocation of centralized
service charges and centralized reservations are disclosed on Exhibits B and C
attached hereto.


(c)                      Marketing.
Operator shall provide group-wide centralized sales and marketing services to
market the Hotel. Recognizing the difficulty of determining the exact portion
of Operator’s marketing costs and expenses for all of its hotels that should be
properly attributable to Hotel, Lessee acknowledges and agrees that the cost of
the centralized sales and marketing services allocated to the Hotel shall be
one percent (1%) of Gross Revenues and shall be included in the Operating Plan
and Budget for each Operating Year.


(d)                     National
Contracts. If Operator enters into any “national” contract in which
services or goods are provided to substantially all hotels then currently
managed by Operator, Lessee acknowledges and agrees that the Hotel shall
participate in such “national” contract subject to the terms of the Operating
Plan and Budget; provided, however, that if Lessee is able to obtain such goods
or services on more favorable terms than the terms provided in a “national”
contract, Lessee may, at its option, opt out of such “national” contract. If
goods or services are provided by a third-party vendor as part of a “national”
contract, the Hotel’s share of the actual costs of such goods or services shall
be included in the Operating Plan and Budget; provided, however, that if the
Hotel’s portion of the actual costs incurred by all hotels managed by Operator
that are participating in the national contract are not capable of being
determined, based on a per unit basis or other objective formula, Operator
shall allocate to Lessee the Hotel’s pro-rata share of the costs of such
national contract based on Operator’s equitable determination of the same
consistent with Operator’s allocation formula for central reservations services
set forth on Exhibit C attached hereto. Lessee shall retain the right to review
these National Contracts on an annual basis as part of the Operating Plan and
Budget approval process described in Section 2.2.


(e)                      Audit.
Lessee shall have the right to have the Independent Auditor examine and audit
the books, records and accounts of Operator relating to the Hotel in order to
determine the accuracy of the allocation of costs and expenses to the Hotel as
provided fin (a) through (d) above. Such examination and audit shall be at
Lessee’s expense; provided, however, that the cost of such examination
and audit shall be at Operator’s expense to the extent that a discrepancy of
five percent (5%) or more between the amounts actually allocated to the Hotel
and the amounts that should have been allocated to the Hotel is found to exist.



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Additionally, if the
audit should indicate unauthorized fees or rebates, Operator shall pay for the
cost of the audit.


(f)                        Frequent
Guest Programs. Lessee shall participate in any frequent hotel guest
programs established by Operator. Operator hereby agrees that any frequent
hotel guest programs established by Operator shall be administered on a
reasonable and equitable basis and applied to all hotels operated under the
RockResorts brand.


(g)                     Information
Technology. If Operator facilitates project management or performs certain
hourly services related to information technology projects, Lessee and Operator
agree that the costs of such services for the Hotel shall be (i) included in
the Operating Plan and Budget for costs that would not be capitalized under
generally accepted accounting principles, (ii) included in the Capital
Expenditure Budget for costs that would be capitalized under generally accepted
accounting principles, or (iii) for items or projects specifically requested
and approved in advance by Lessee, reimbursed to Operator on a cost
reimbursement basis. Proper accounting for any items billed directly to the
Hotel will be provided to Lessee upon Operator’s request.


Claims
– collectively, all claims, demands, actions (including enforcement proceedings
initiated by any government agency), penalties, suits, administrative
proceedings, and liabilities (including the cost of defense, settlement,
appeal, and reasonable attorneys’ fees and costs).


Competitive Hotels
– as of the date of this Agreement, collectively, (a) Ritz-Carlton Bachelor
Gulch, (b) Park Hyatt Beaver Creek Resort and Spa, (c) Vail Cascade Resort and
Spa, (d) Sonnen-Alp Resort, and (e) The Lodge at Vail. Competitive Hotels shall
also include such additional or substitute hotels as may be mutually agreed
upon by Lessee and Operator from time to time as most comparable to the Hotel
in quality, price and market (with due consideration given to age, quality,
size, amenities, quantity and configuration of meeting space, and business
mix). If any of such hotels, subsequent to the Effective Date, either changes
its chain affiliation or ceases to operate or otherwise ceases to reflect the
general criteria set forth in the preceding sentence, Lessee and Operator agree
to mutually, reasonably and in good faith, discuss appropriate changes.


Complimentary
Rooms and Services – those rooms provided to (i) meeting
planners, travel agents and integrators, group representatives, and other
persons capable of delivering business to the Hotel or enhancing the visibility
and reputation of the Hotel; (ii) Operator’s Corporate Employees (while
conducting business related to the Hotel or the RockResorts brand), and (iii)
charitable designees on a complimentary basis. Such complimentary rooms will be
subject to specific limits contained in the approved Operating Plan and Budget.
Operator shall, from time to time, also provide to Lessee, and its employees,
guests and charitable designees, complimentary or reduced rate or fee rooms and
services at the Hotel. To the extent that such Lessee rooms or services are
provided free of charge or at a discount, and cause revenue to be displaced, an
amount equal to the then average rate or fee charged to third-party guests by
the Hotel for such rooms or services shall be included in Gross Revenue for the



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appropriate period.
Operator shall exercise reasonable best efforts to minimize occasions when
Operator’s Corporate Employees displace revenue from paying guests or
customers, and will not reserve complimentary rooms on any night when the Hotel
is then forecasted to be at an occupancy level that would cause such
complimentary rooms to displace revenue from paying guests or customers.


Constituent Owner
– means (x) the holder of fifty percent (50%) or more (measured by fair market
value or voting power) of the equity ownership interests (whether partnership
interests, corporate stock or otherwise) of Lessee; and (y) an owner of a
Constituent Owner.


Consumables
– all food and beverages; draperies; linens; supplies of all types; stationery
and printing items, housekeeping items, and inventories used in connection with
the maintenance or operation of the Hotel.


Corporate
Personnel – any personnel from the headquarters of Operator
or its Affiliates who perform activities in connection with the services
provided by Operator under this Agreement.


CPI
– Consumer, Price Index-All Urban Consumers (CPI-U)/All Items, Not Seasonably
Adjusted, 1982-84=100, as published by the United States Department of Labor
Statistics, for the applicable comparison period. If the CPI shall cease to use
1982-84 as the base year, the CPI shall be converted in accordance with the
conversion factor, if any, published by the United States Department of Labor,
Bureau of Labor Statistics. If the CPI is discontinued or revised during the
Term, such other governmental index or computation, if any, with which it is
replaced shall be used. If no conversion factor is supplied by the United
States Department of Labor, Bureau of Statistics, either for a new base year or
a new index, the parties shall agree upon a replacement for the CPI to be used.


Distribution
Amount – the amount by which the total amount of
non-restricted, free and clear funds then in the Operating Accounts exceeds the
Working Capital Balance.


Effective Date
– the date Operator commences to operate the Hotel pursuant to this Agreement,
which shall be May 1, 2005.


Event of Default
– any of the events described in Section 4.2 below.


Executive
Personnel – all of the following: general manager, director
of operations, and controller of the Hotel.


Expert
– means an independent internationally recognized hotel consulting firm or
individual appointed in each instance by agreement of the parties or, failing
agreement, by Arbitration.


Expiration Date
– midnight, local time, on the date that is four (4) years from the Effective
Date.



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Fee Statement
– the statement delivered by Operator to Lessee pursuant to Section 3.1.3
below showing the calculation and payment of the Management Fee and any other
fees paid by Lessee in accordance with this Agreement for that Operating Year
(identified individually).


Fee Owner
– Cordillera Lodge & Spa, LLC, a Delaware limited liability company.


FF&E
– items of furniture, fixtures, and equipment used in the ordinary course of
operating the Hotel which, under Generally Accepted Accounting Principles, must
be capitalized on the books of the Hotel.


Force Majeure
– an event or circumstance, or a series of events or circumstances, that (i)
has a material adverse effect on the Hotel, directly or indirectly, and (ii) is
not within the reasonable anticipation or control of the Lessee and Operator,
and (iii) affects the performance of the Hotel hereunder as a direct result of
an event covered by clause (i) above. Provided that the conditions of clauses
(i), (ii) and (iii) above are satisfied, events of Force Majeure include, by
way of example and not limitation, any catastrophic occurrence, acts of God,
fire, tornado, explosion, civil disturbances, acts of State or governmental
action, riots; war, acts of terrorism, strikes, lockouts, shortage of supplies
(including energy supplies), snow shortfall that has a material adverse impact
on the operation of the Beaver Creek Ski Resorts by reducing the number of days
the lifts are operating by 7 or more consecutive days or 14 days over the
course of the season in comparison to the average number of days of lift
operation for the three preceding ski seasons, flood, hurricanes, earthquakes,
lightning, or sabotage.


Full Replacement
Value – the cost of repairing, replacing, or reinstating,
including demolishing, any item of property, with materials of like kind and
quality in compliance with, and without an exclusion pertaining to application
of, any law or building ordinance regulating repair or construction at the time
of loss, and without deduction for physical, accounting, or any other
depreciation, in an amount sufficient to meet the requirements of any
applicable co-insurance clause and to prevent Lessee from being a co-insurer.


Generally Accepted
Accounting Principles – those conventions, rules, procedures,
and practices, consistently applied, affecting all aspects of recording and
reporting financial transactions which are adopted by the American Institute of
Certified Public Accountants and/or the Financial Accounting Standards Board
from time to time, as they are customarily applied in the hospitality industry.
If Lessee and Operator cannot agree on what constitutes Generally Accepted
Accounting Principles, then PriceWaterhouseCoopers or another national firm of
independent certified public accountants selected by Lessee and satisfactory to
Operator shall make the determination on the request of either Party. Any
financial or accounting terms not otherwise defined herein shall be construed
and applied according to Generally Accepted Accounting Principles.


General Manager
– the general manager of the Hotel.


Governmental
Impositions – all taxes, assessments and governmental charges
or levies.



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Gross Operating
Profit – for any period, the amount by which Gross Revenue
exceeds Operating Expenses properly attributable to the period under
consideration.


Gross Revenue
– all revenue and income of any kind derived directly or indirectly from
operations at the Hotel which are properly attributable to the period under
consideration (including rentals or other payments from licensees, lessees, or
concessionaires of retail space in the Hotel and net valet parking income of
the Hotel, but not gross receipts of such licensees, lessees, or
concessionaires), determined on an accrual basis in accordance with Generally
Accepted Accounting Principles and the Uniform System, except that the
following shall not be included in determining Gross Revenue:


(a) applicable federal,
state and municipal excise, sales, and use taxes, or similar government charges
collected directly from patrons or guests, or as a part of the sales price of
any goods, occupancy taxes or similar government taxes, duties, levies, any
services, or displays, such as gross receipts, admission, cabaret, or similar
or equivalent taxes;


(b) any deposits made by
Lessee;


(c) any security deposits
(except as applied or forfeited);


(d) proceeds to Lessee
from the financing, sale of FF&E, capital assets or other disposition of
the Hotel or any part thereof or other assets of Lessee not sold in the
ordinary course of business and income derived from securities and other
property acquired and held for investment;


(e) receipts from awards
or sales in connection with any Taking, from other transfers in lieu of and
under the threat of any Taking, and other receipts in connection with any
Taking;


(f) proceeds of any
insurance, other than Business Interruption Insurance;


(g) rebates, discounts,
or credits of a similar nature not including charge or credit card discounts
(which charge or credit card discounts shall not constitute a deduction from
revenue in determining Gross Revenue but shall constitute an Operating Expense
in determining Gross Operating Profit)


(h) consideration
received at the Hotel for hotel accommodations, goods and services to be
provided at other hotels arranged by, for or on behalf of, Operator;


(i) other income or
proceeds derived from operations outside of the Hotel and resulting other than
from the use or occupancy of the Hotel, or any part thereof, or other than from
the sale of goods, services or other items sold on or provided from the Hotel
in the ordinary course of business;


(j) the value of any
complimentary rooms, goods or services;



 8
 









(k) refunds to Hotel
guests of any sums previously paid or credits to any Hotel customers for lost
or damaged items, the price of any merchandise given in exchange of other
merchandise which does not result in additional income (or, if such exchanges
result in additional income, that part of the price of such merchandise equal
to the price of the returned merchandise), and any other items of the nature of
those items set forth herein);


(l) any vending machine
revenues (from machines not owned by Lessee)


(m) any reversal of any
contingency or tax reserve;


(n) any payments made
directly to Lessee to induce it to enter into any lease agreement or other
transaction in connection with the Hotel;


(o) any proceeds from
settlement or legal proceedings; provided, however, that if any such proceeds
are received for business interruption insurance or other items that would
otherwise have been included in Gross Revenues, such proceeds, after payment of
legal fees, and deduction of any punitive, consequential or other
non-compensatory damage component and any court costs, shall be included in
Gross Revenues;


(p) notwithstanding any
contrary requirements of Generally Accepted Accounting Principles or the
Uniform System, all gratuities and service charges paid or held for payment
(and actually paid) to Hotel Personnel (including, without limitation, amounts collected
by Lessee and subsequently distributed to employees, such as gratuities paid in
connection with the use of banquet facilities);


(q) interest accrued or
paid on amounts in the Reserve Account or Operating Account or income derived
from securities and similar property acquired and held for investment;


(s) any proceeds from the
sale of memberships or other revenue associated with the use of the Strawberry
Park Facility, or any portion thereof, other than annual dues paid by any
members and food and beverage revenue from such facility;


(t) Any annual or other
fee received from the Cordillera Club for use of the Hotel exercise room and
other Hotel facilities; provided that, the amount of food and beverage and
other amounts paid by members of the Cordillera Club for goods and services at
the Hotel shall be included in Gross Revenue to the extent actually received
(i.e. net of any discount provided to such members from time to time); and


(u) the initial operating
funds and Working Capital Balance and any other funds provided by Lessee to
Operator whether for Operating Expenses or otherwise.


Guarantor
– means Colorado Hotel Holding, LLC, owner of 100% of Fee Owner and Lessee, and
any successor in interest to Guarantor as owner of Fee Owner and Lessee.



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Hotel
– has the meaning set forth in Recital A above.


Hotel Personnel
– all individuals employed by Operator or an Affiliate of Operator, who perform
services in the name of the Hotel at the Hotel.


Incentive Fee
– an amount equal a percentage, as shown in the table below, of the amount, if
any, by which actual Cash Flow Before Incentive Fees for such Operating Year
exceeds the amounts, as shown in the table below. The Incentive Fee for the
first and last Operating Year of this Agreement shall be prorated based on the
actual number of days, divided by 365.




	
  Percentage Earned

  	
   

  	
  Cash Flow
  Before Incentive Fees

  
	
  10%

  	
   

  	
  Between
  $1,000,000 and $1,250,000

  
	
  15%

  	
   

  	
  Between
  $1,250,001 and $1,750,000

  
	
  20%

  	
   

  	
  Anything in
  excess of $1,750,001

  






 


For purposes of
calculating the Incentive Fee, the “Cash Flow Before Incentive Fees” shall be
based on the numbers in the above table for the first Operating Year, and
thereafter adjusted in accordance with the annual change in the CPI.


Independent
Auditor – shall mean Price Waterhouse Coopers LLP or such
other accounting firm engaged by Lessee from time to time that is reasonably
acceptable to Operator.


Knowledge of
Lessee – shall mean the actual knowledge of Lessee’s
President.


Knowledge of
Operator – shall mean the actual knowledge of Ed Mace and
James O’Donnell or any individuals succeeding Mr. Mace or Mr. O’Donnell
in their roles as President and Regional Director of Operations, respectively,
of Manager.


Laws and
Regulations – collectively, all present and future statutes,
laws, rules, regulations, requirements, orders, notices, determinations and
ordinances of any federal, state, county or municipal government and
appropriate departments, commissions or boards having jurisdiction over the
Hotel or the workers employed at the Hotel, including, without limiting the
foregoing, the state liquor authority, and the requirements of any insurance
companies covering any of the risks against which the Hotel is insured.


Legal Requirements
– all laws, statutes, ordinances, rules, regulations, permits, licenses,
authorizations, directions, and requirements of all governments and
governmental authorities, that now or hereafter may be applicable to the Hotel
or the ownership or the operation thereof, including those relating to employees,
employee benefits, providing continued health care coverage under the Employees
Retirement Income Security Act of 1974, zoning, building, life/safety,
environmental matters, and health.


Lessee
– means the entity so defined in the first paragraph of this Agreement and any
permitted successors and assignees hereunder.


Lessee Proprietary
Information – means (a) reports of operating results, the
Operating Plan and Budget, and other financial and operational information
pertaining solely to



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the Hotel, (b) Lessee’s
loan documents pertaining to the financing of the Hotel and Real Property, and
(c) any other electronic media or documents that are marked as “Confidential
and Proprietary — Colorado Hotel Operator.”


Lessee Trademarks
– means any trademarks and Service marks used in the operation of the Hotel and
owned by Lessee, Fee Owner and their affiliates or licensed pursuant to a
license agreement dated December 18, 2003 between Kensington Partners, A
Colorado general partnership, and Cordillera Lodge & Spa, LLC (to the
extent and under the conditions set forth therein), all of which are listed on
Exhibit G.


Lien
– a Claim for lien or encumbrance or security interest with respect to the
Hotel.


Line Item
– a line item contained in the Operating Plan and Budget.


Lockout Period
– the first fifteen (15) months of the Term.


Management Fee
– collectively, the Base Fee and the Incentive Fee for the applicable period.


Monthly Reports
– the following reports:


(a)                      An executive
summary containing a brief narrative summary of performance by major
departments, financial results, Capital Expenditures and other pertinent
financial information relating to the Hotel.


(b)                     A monthly
operating statement which shall include the following details:


·                              RevPAR
for the Hotel and a comparison of the current month’s operating results to
those contained in the Operating Plan and Budget and the same month of the
previous year;


·                              year-to-date
and monthly operating results, with a comparison to the results projected for
the year-to-date and monthly in the Operating Plan and Budget and to the same
period for the previous year;


·                              written
variance report for all variances, if any, from the Operating Plan and Budget
in excess of both (i) 10% of the budgeted Line Item, and (ii) $5,000; and


·                              a
per occupied room (POR), per available room (PAR) analysis and a compensatory
room report (CRR), as appropriate.


(c)                      A monthly
Capital Expenditure report, which shall include the following:



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·                              a
statement of the excess of the Reserve Fund over actual Capital Expenditures
incurred for the year to date;


·                              a
reconciliation of approved Line Items set forth in the Operating Plan and
Budget to the actual amount of the expenses incurred to date, together with an
estimate of the cost to complete any ongoing capital items;


·                              a
capital input form provided by Lessee and updated by Operator;


·                              pending
requests for capital expenditures; and a copy of all capital expense invoices
over $5,000 with sign-off of Lessee of items over $10,000; and


·                              a
schedule of accrued Capital Expenditures.


(d)                     A monthly
marketing report, which shall include the following:


·                              major
business booked, with number of room nights and rates (booking pace);


·                              a
market mix segmentation report;


·                              STAR
and TravelCLICK reports for the Competitive Hotels; and


·                              upon
request by Lessee, a description of events affecting the marketplace.


(e)                      A detailed
list and analysis of complimentary rooms and food and beverage, including
dates, customer names, and reason for providing the room on a complimentary
basis.


(f)                        A detailed
general ledger with current month’s activity.


(g)                     A detailed
balance sheet.


(h)                     A trial
balance (which shall be downloaded into an Excel file and delivered to Lessee
on electronic medium) and general ledger for the Hotel.


(i)                         A
schedule of aged accounts receivable (including 60/90/120 days) reconciled to
the general ledger including the General Operator’s or Controller’s comments on
collectibility of all delinquent amounts that are over sixty (60) days past
due.


(j)                         A detail
of the guest ledger at month end reconciled to the general ledger.



 12
 









(k)                      Proof of
payment of insurance, real estate taxes, etc. (to the extent applicable on a
monthly basis), a schedule of prepaid or accrued balances for the above and
copies of any refunds.


(l)                         A check
register.


(m)                   A litigation
summary (including threatened Claims).


(n)                     A bank
reconciliation for each Operating Account with copies of appropriate bank
statements, including, without limitation, canceled checks and other bank
notices.


(o)                     An accounts
payable subsidiary ledger reconciled to the general ledger.


(p)                     A
reconciliation of accrued liability accounts.


(q)                     A schedule of
any security deposits reconciled to the general ledger.


(r)                        A schedule
of advance deposits and gift certificates reconciled to the general ledger.


(s)                      Copies of
any new leases, material contracts and amendments to such leases and contracts.


(t)                        Monthly
cancellation fees reconciled to the general ledger.


(u)                     Details of
each prepaid expense account reconciled to the general ledger.


(v)                     Reconciliations
for material balance sheet accounts.


(w)                   A detailed
schedule of depreciation expense reconciled to the general ledger.


(x)                       Details of
any adjustments to or write-offs of accounts receivable, including copies of
written authorizations for material write-offs.


(y)                     A detailed
calculation of the total Management Fee (Base Fee and, if applicable, Incentive
Fee) payable to Operator with respect to the prior month.


(z)                       A detailed
listing of all Reimbursable Expenses.


(aa)                A cash flow
forecast for the immediately succeeding three (3) months and for the remainder
of the current Operating Year, including without limitation, cash requirements,
and the timing thereof for the same periods.



 13
 









(bb)              A detailed schedule
of amounts received from or remitted to Lessee.


(cc)                A monthly
re-forecast of the projected annual operation of the Hotel for the current
Operating Year.


(dd)              A detailed schedule
of all fees and expenses paid to, and all reimbursements obtained by, Operator
or its Affiliates.


Mortgage
– any mortgage, deed of trust or security agreement encumbering the Hotel or
any part thereof.


Mortgagee
– any holder of a Mortgage including any Affiliate or Constituent Owner of
Lessee, to the extent that any such person or entity has made a loan with
respect to the Hotel.


Operating
Account(s) – the bank account or accounts established for the
Hotel pursuant to Section 2.3.


Operating Expenses
– all those ordinary and necessary expenses, including Reimbursable Expenses,
incurred by Operator or Lessee in the operation of the Hotel in accordance with
the applicable Operating Plan and Budget and the terms of this Agreement,
including salaries, wages and employee benefits of Hotel Personnel, reasonable
expenses incurred by Lessee or Affiliates of Lessee related to the operation of
the Hotel, the cost of maintenance and utilities, administrative expenses, the
costs of advertising, marketing, and business promotion and any amounts payable
to Operator as set forth in this Agreement, all as determined in accordance
with Generally Accepted Accounting Principles; provided that, for purposes of
calculating Gross Operating Profit (and amounts such as Cash Flow Before
Incentive Fees based on Gross Operating Profit) only, the following amounts
shall not constitute Operating Expenses: (a) non-cash items such as
depreciation and amortization, (b) all amounts deducted in determining Cash
Flow Before Incentive Fees (pursuant to the definition thereof), (c) any
interest costs allocated or charged to Lessee other than those associated with
leases treated as an operating expense pursuant to the Uniform System, and (d)
costs and expenses of Lessee or Lessee’s personnel that are not incurred
directly for the operation of the Hotel, such as the fees and expenses of an
asset manager, entertainment expenses, directors’ fees, and the expenses of
directors to attend board meeting.


Operating Plan and
Budget – the annual marketing and operating plan and budget
for the Hotel as revised and approved in writing by Lessee. Such plan and
budget also will include a Capital Expenditure budget for the applicable
Operating Year.


Operating Standard
– the operation and management of the Hotel in a manner reasonably anticipated
to earn at least a “four-star” rating from the Mobil Travel Guide and a “four
diamond” rating from the American Automobile Association, respectively, in a
manner consistent with (i) the physical condition of the Hotel as of the
Effective Date (ii) the general level of service of all hotels within the
RockResorts system, and (iii) then current prudent business and management
practices applicable to the leasing, repair, maintenance and operation of all
other hotels within the RockResorts system that are comparable in size,
character, and



 14
 









location to the Hotel,
including those concerning compliance with applicable Legal Requirements. To
the extent not inconsistent with (i) through (iii), Operator shall manage the
Hotel in a manner reasonably calculated to (i) protect and preserve the assets
that comprise the Hotel; (ii) maximize Cash Flow Before Incentive Fees over the
Term; and (iii) control Operating Expenses of the Hotel. Without limiting the
foregoing, the Operating Standard shall require that Operator use diligent
efforts consistent with prudent practice for sophisticated hotel operators to
ensure that the general hiring policies and the discharge of all Hotel
Personnel shall in all respects comply with all applicable “Equal Employment
Opportunity” Laws and Regulations, and other Laws and Regulations and
ordinances regarding the employment and payment of persons engaged in the
operation of the Hotel, and all other Legal Requirements.


Operating Year
– each calendar year during the Term, except that (i) the first Operating Year
shall begin on the Effective Date and shall end on December 31, 2005, and (ii)
if this Agreement expires or is otherwise terminated effective on a date other
than December 31 in any year, then the partial year from January 1 of the year
in which such expiration or termination occurs to such effective date of
termination shall be treated as an Operating Year (with any fees payable to
Operator prorated as applicable, with the Incentive Fee calculated based upon
actual (not budgeted) Cash Flow Before Incentive Fees (adjusted for
seasonality) to the date of termination).


Operator
– means the entity so defined in the first paragraph of this Agreement and any
permitted successors and assignees hereunder.


Operator
Proprietary Information – means all information in tangible
or electronic media form relating to Operator or any of Operator Affiliates,
the business affairs of Operator or any Operator Affiliates, or any hotel,
resort, spa or condominiums that Operator or any Operator Affiliate owns,
leases, operates or manages, including, without limitation: (i) trade secrets;
(ii) guest information, (iii) operational manuals (including, without
limitation, accounting, financial administration, human resource,
administration, and policies and procedures manuals); (iv) material relating to
the operating and design standards of any hotel, resort or spa owned, leased,
operated or managed by Operator or any Operator Affiliate; and (vi) any other
electronic media or documents that are marked as “Confidential and Proprietary
— RockResorts.” Operator Proprietary Information does not include any information that is (i)
generally known in the hospitality industry or available in the public domain,
(ii) Lessee Proprietary Information, or (iii) specific only to the operations
and financial results of the Hotel, e.g., Operating Plans and Budgets or
Monthly Reports.


Operator
Trademarks – means those trademarks and Servicemarks owned by
Operator and its affiliates, all of which are listed on Exhibit F.


Party
– means either Lessee or Operator, the parties to this Agreement, and their
permitted successors and assigns under the terms of this Agreement.


Qualified
Transferee – any transferee (or entity controlled by such
transferee) that (i) has not been convicted of a felony in any state or federal
court or any foreign jurisdiction, (ii) has the financial resources to perform
its obligations under this Agreement, and (iii) enters into



 15
 









an assumption agreement
reasonably satisfactory to Operator, pursuant to which such transferee assumes
all of Lessee’s obligations hereunder.


Real Property
– as defined in Recital A.


Reimbursable
Expenses – shall mean:


(a)                      all travel,
lodging, entertainment, telephone, telecopy, postage, courier, delivery,
employee training and other expenses incurred by Operator which are directly
related to its performance of this Agreement and as set forth in the Operating
Plan and Budget. The RockResorts corporate travel and entertainment policy is
attached as Exhibit D. Notwithstanding the foregoing, in no event shall
Reimbursable Expenses include any of the following items, which items shall be
paid for by Operator and shall not be charged to or borne by Lessee: All costs,
expenses, salaries, wages or other compensation of any corporate, home office
or regional office level employees of Operator, excepting only employees who
are regularly employed full-time at the Hotel by Operator or persons employed
on a full-time, part-time or temporary basis at the Hotel pursuant to Section
4.1;


(b)                     Any expenses
of Operator’s principal or branch offices;


(c)                      Any expenses
for advertising or promotional materials that feature Operator’s name or
activities but which do not promote the Hotel (except to the extent otherwise
provided for in this Agreement);


(d)                     Any part of
Operator’s capital expenditures;


(e)                      Operator’s
overhead or general expenses, including but not limited to telephone, telex,
duplicating, stationery and postage expenses incurred at Operator’s principal
or branch offices, except as may be expressly agreed to by Owner pursuant to
this Agreement; and


(f)                        Any travel
expenses of Operator’s central office employees in excess of the expenses
permitted to be incurred under the approved Operating Plan and Budget.


Renovations
– collectively, any renovation or refurbishment of the Hotel.


Reserve Account
– a separate interest-bearing account of a type and with an institution
approved by Lessee to cover the cost of the replacement of or additions to
FF&E, or any other Capital Expenditures, used in the operation of the
Hotel.


Reserve Fund
– the fund with an amount to be allocated for capital expenditures in each
Operating Year.



 16
 









RevPAR
– means, with respect to any period, the average room revenue per available
room as determined by Smith Travel Research or any successor or alternate
provider of market information selected by Lessee and reasonably acceptable to
Operator.


Senior Managers
– the Executive Personnel and all of the following: assistant general manager,
director of food and beverage, director of sales, director of marketing,
director of human resources, director of rooms, director of housekeeping, chief
engineer and head chef, provided such positions exist at the Hotel.


Strawberry Park
Facility – means the facility described in Recital A above.


Subordination
Agreement – means an agreement required by any Mortgagee,
which may contain the rights provided under Section 6.2, below, but
otherwise must be commercially reasonable.


Taking
– a taking as a result of condemnation or eminent domain, or a conveyance by
Lessee in lieu thereof, of all or part of the Hotel.


Term
– the term beginning the Effective Date and ending on the Expiration Date.


Termination Fee
– an amount equal to the following:


	
  Time of Termination

  	
   

  	
  Termination Fee

  
	
  During Lockout Period

  	
   

  	
  Greater of (i)
  trailing twelve month Management Fees earned or (ii) $180,000

  
	
  During 1st Year After Lockout Period

  	
   

  	
  Trailing twelve
  months Management Fees earned

  
	
  During 2nd Year After Lockout Period

  	
   

  	
  Trailing six
  months Management Fees earned

  
	
  During Remainder of Term

  	
   

  	
  Zero ($0)

  



 


The trailing
period used to calculate the Termination Fee shall be the trailing months
ending on the last day of the month preceding the date of closing of the sale
of the Hotel to a purchaser.


Uncontrollable
Expenses – the amount of real estate taxes, utilities,
insurance premiums, license and permit fees and any other charges provided for
in contracts and leases (such contracts and leases to include only those that
(x) have been entered into pursuant to the terms of this Agreement, or (y) are
expressly approved by Lessee) that are not within the ability of Operator to
control.


Uniform System
– the latest edition of the Uniform System of Accounts for the Lodging Industry
that is published by the Hotel Association of New York City, Inc. and approved
by the American Hotel & Lodging Association (currently, the 9th Revised
Edition, 1996), as revised from time to time.



 17
 









Working Capital
Balance – An amount sufficient to cover the net operating
cash needs of the Hotel subject to a $150,000 minimum balance.


1.3                    Representations
and Warranties of Operator. Operator represents and warrants to Lessee as
follows:


1.3.1          Operator is a limited
liability company duly organized, validly existing, and in good standing under
the laws of the State of Delaware and is duly qualified in the State of
Colorado. Operator has full power, authority, and legal right to execute,
perform, and comply with the provisions of this Agreement. Operator’s
execution, delivery, and performance of this Agreement have been duly
authorized by all necessary entity action and management approval.


1.3.2          This Agreement constitutes
a valid and binding obligation of Operator and does not and will not constitute
a breach of or default under the charter documents or bylaws of Operator or the
terms, conditions, or provisions of any law, order, rule, regulation, judgment,
decree, agreement, or instrument to which Operator is a party or by which it or
any of its assets is bound or affected.


1.3.3          No approval by any third
party, including Operator’s affiliates, is required for Operator’s execution
and performance of this Agreement that has not been obtained prior to the
execution of this Agreement.


1.3.4          Operator shall, at its
own expense, keep in full force and effect its legal existence, as required for
it to timely observe all of the terms and conditions of this Agreement.


1.3.5          As of the date hereof
and continuing throughout the Term, Operator is not and will not be subject to
a radius restriction or other restrictive covenant preventing, prohibiting,
restricting, or otherwise adversely affecting Operator in its good faith
efforts to operate the Hotel in accordance with the terms of this Agreement.


1.4                    Representations
and Warranties of Lessee. Lessee represents and warrants to Operator as
follows:


1.4.1          Lessee is duly
organized, validly existing, and in good standing under the laws of the state
of its organization, is duly qualified to do business in the state in which the
Hotel is located, and has full power, authority, and legal right to execute,
perform, and timely observe all of the provisions of this Agreement to be
performed or observed by Lessee. Lessee’s execution, delivery and performance
of this Agreement have been duly authorized by all necessary action on the part
of Lessee.


1.4.2          This Agreement
constitutes a valid and binding obligation of Lessee and does not and will not
constitute a breach of or default under any of the organizational or governing
documents of Lessee or the terms, conditions, or provisions of any law, order,
rule, regulation, judgment, decree, agreement, or instrument to which



 18
 









Lessee is a party or by
which it or any substantial portion of its assets (including the Hotel) is
bound or affected.


1.4.3          No approval of any third party (including any
ground lessor or the holder of any Mortgage) is required for Lessee’s execution
and performance of this Agreement that has not been obtained prior to the
execution of this Agreement.


1.4.4          Lessee, at its own
expense, shall maintain in full force and effect throughout the Operating Term
its legal existence.


1.4.5          Lessee holds (or will
hold prior to the commencement of the Operating Term) and shall maintain
throughout the Operating Term all Approvals Lessee is required to hold that are
necessary to permit the lease and operation of the Hotel in accordance with the
Operating Standard and Legal Requirements.


1.4.6          Lessee is the sole
lessee of the Hotel and real property on which the Hotel is located. Lessee has
full power, authority and legal right to lease such real and personal property.


1.4.7          To the Knowledge of
Lessee, there is no litigation, proceeding or governmental investigation
pending or threatened against Lessee that could adversely affect the validity
of this Agreement or the ability of Lessee to comply with its obligations under
this Agreement.


1.4.8          To the Knowledge of
Lessee, other than the previous high radon reading that occurred in the Hotel’s
sales offices, and was later mitigated to satisfactory levels, (i) no hazardous
or toxic materials are present in or on or have been released from the Hotel or
the real property on which the Hotel is located, (ii) there exist no other
soil, water, mineral, chemical or environmental conditions in or at the Hotel
or on or under the land on which the Hotel is sited that presently or with the
passage of time will require notice or reporting to any governmental authority
or employees or patrons of the Hotel, pose any threat to the health and safety
of the employees or patrons of the Hotel or otherwise require, based on Legal
Requirements or standards of prudent ownership, any monitoring or remedial
action, (iii) there exists no identifiable threat of the contamination of such
real property by release of hazardous or toxic materials from existing sources
adjacent to the Hotel and (iv) the real property on which the Hotel is located
contains no underground tanks.


1.4.9          No broker or finder was
retained by Lessee to render services in connection with any of the
transactions contemplated hereby, and no fees are due to any third party with
respect hereto.



 19
 









ARTICLE 2


GENERAL MANAGEMENT AND OPERATIONS


2.1                    General
Management Services. Subject to the provisions of this Agreement, Lessee
hereby engages Operator to supervise and direct the management, operation, and
promotion of the Hotel during the term of this Agreement, and Operator hereby
accepts such engagement.


2.2                    Authority
and Duty of Operator. From and after the Effective Date and subject to the
provisions of this Agreement and the availability of sufficient funds, Operator
shall have the exclusive authority and duty to direct, supervise, manage, and
operate the Hotel on a day-to-day basis in an efficient and economical manner
and shall use commercially reasonable efforts to manage the Hotel in accordance
with the terms and conditions of this Agreement, the Operating Standard and in
a manner consistent with the goals of (i) protecting and preserving the assets
that comprise the Hotel; and (ii) maximizing Cash Flow Before Incentive Fees
from the Hotel’s operation. Without limiting the generality of the foregoing,
Operator shall have the authority and duty, consistent with the limitations set
forth in this Agreement, including, but not limited to the limitations set
forth in the Operating Plan and Budget, as Operator deems necessary or
advisable for the proper operation and maintenance of the Hotel in accordance
with the Operating Standard, and Operator agrees that it shall:


2.2.1            determine all
personnel policies relating to the Hotel, including: (i) policies relating to
terms and conditions of employment, selection, training, compensation, bonuses,
employee benefits, discipline, discharge, and replacement; provided, however
that no employee compensation package shall include a provision for food,
lodging or housing in the Hotel without the prior written consent of Lessee
with the exception of relocation packages per established Operator policy
(which is approved by Lessee in advance); and (ii) policies relating to the
exercise by any person or organization of rights under the National Labor
Relations Act or any applicable labor laws in relation to the Hotel, provided
that, Operator shall not enter into any union organization or recognition
agreement or contract regarding any collective bargaining agreement or
multi-employer plan without the prior consent of Lessee.


2.2.2            recruit, employ,
relocate, pay as an Operating Expense, supervise, and discharge all Hotel
Personnel, subject to the terms of Section 2.11.


2.2.3            establish all prices,
price schedules, rates, and rate schedules, and all rents, lease charges, and
concession charges for all areas of the Hotel, and supervise, direct, and
control collection of income of any nature from the Hotel’s operations and the
giving of receipts in connection therewith; provided that, any lease, license
agreement, concession agreement, maintenance contract, service agreement,
supply contract, or other agreement pertaining to the Hotel having a term in
excess of one (1) year, or greater than $25,000 in annual expenditures
commitment, and not cancelable upon thirty (30) days’ notice shall be subject
to Lessee’s prior written approval.



 20















2.2.4            supervise and maintain
complete books and records consistent with Generally Accepted Accounting
Principles and the Uniform System, including the books of accounts and
accounting procedures of the Hotel.


2.2.5            subject to the
limitations of Section 2.2.3 above, negotiate and administer, on behalf
of Lessee, leases, licenses, and concession agreements for all public space at
the Hotel, including all stores, office space, and lobby space (and each such
lease, license or concession agreement shall be in Lessee’s name or in the name
of the Hotel and shall be executed by Operator, as Lessee’s agent, on Lessee’s
behalf, subject to the limitations of the Operating Plan and Budget or Lessee’s
written Approval).


2.2.6            keep the Hotel and the
FF&E in good operating order, repair, and condition, including making
necessary replacements, improvements, additions, and substitutions thereto and,
in connection therewith, be responsible for formulating and implementing
preventative maintenance and other programs designed to efficiently and
effectively maintain the condition of the Hotel, including all “back of the
house” areas, HVAC, fire and life safety, plumbing and other building systems;
in connection therewith, Operator shall arrange to have the Hotel and the
FF&E physically inspected at least once annually (either by a qualified
employee of Operator or an outside consultant, hired by Operator as an
Operating Expense) together with a written report in a form reasonably
acceptable to Lessee, provided, however, that Operator shall not otherwise be
responsible for maintenance of the structural integrity of the Hotel or for
matters relating to defects in design, materials or workmanship in the
construction of the Hotel except as required under the Operating Standard, and provided
further, that, Lessee shall have the right to hire an outside consultant to
independently inspect the Hotel and FF&E, the cost of which shall be an
Operating Expense of the Hotel.


2.2.7            supervise and
coordinate the construction and installation of any Renovations, improvements,
repairs, or replacements to the Hotel that may be implemented from time to time
in accordance with this Agreement funded by the Reserve Account or out of the
Operating Plan and Budget, assist Lessee with any related design review, and
cooperate with and render assistance, as needed, to Lessee and Lessee’s
employees, agents, contractors, and representatives in connection with any such
work; provided that, the scope and design of any such renovation or
installation project and the consultants and contractors who may be retained
for the project shall be subject to Lessee’s review and approval in its
discretion and provided further that, if Lessee requests that Operator perform
any renovation that is not funded by the Reserve Account or out of the
Operating Plan and Budget, or any major Capital Improvement program (i.e., not
funded by the Reserve Account), Operator shall be entitled to compensation and
Lessee and Operator may enter into separate agreements for such services in an
amount and on terms to be mutually agreeable to Lessee and Operator.


2.2.8            negotiate, enter into,
and administer service contracts and licenses for Hotel operations, including
contracts and licenses for prices, price scheduling, rates, rents, lease
charges, concessionaires, life/safety systems maintenance, electricity, gas,
telephone, cleaning, elevator and boiler maintenance, air conditioning
maintenance, laundry and dry cleaning, master television service, rooftop
license agreements, use of copyrighted materials (such as music and videos),
entertainment, and other services Operator deems advisable, executing as agent
for Lessee; provided, however, that (i) Operator shall obtain Lessee’s written
Approval before



 21
 









entering into any such contract or agreement that is
not contemplated by the Operating Plan and Budget, which is with an Affiliate
of Operator, or which exceeds the limits set forth in Section 2.2.3; ((ii) All
contracts providing for an annual payment obligation in excess of Ten Thousand
Dollars ($10,000) (including contracts for Consumables) shall be competitively
bid by a minimum of three (3) different reputable vendors (which may not be an
Affiliate of Operator and may be designated by Lessee, at Lessee’s election,
and provided that Operator shall use commercially reasonable efforts to select
three (3) bidders known to Operator to provide high quality service at
competitive prices); (iii) Operator shall select vendors based upon its
reasonable judgment as to the best combination of cost and quality of goods and
services available to the Hotel; (iv) Operator shall use all reasonable efforts
to take advantage of available rebate programs in connection with the
acquisition of goods and services and shall promptly remit to Lessee any and
all rebates, refunds and other amounts received by Operator or any Affiliate
which arise all or in part from contracts entered into with respect to any
goods or services provided to the Hotel (including an equitable allocation of
any rebates which are derived from contracts covering services provided to a
group of hotels which includes the Hotel), and (v) Operator shall be
responsible for, and shall pay with its own funds (which amount shall not be
reimbursable by Lessee), any penalties or charges incurred as result of late payment
of any obligation of the Hotel unless such penalty or charge results from
insufficient available funds and Operator has notified Lessee in writing that
funds were needed to avoid such penalty or charge at least five (5) business
days in advance (or unless Lessee has not provided Operator with a copy of any
related contract entered into by Lessee), subject to Section 2.5.4 All
contracts and licenses authorized by this Section shall be in Lessee’s name or
in the name of the Hotel and shall be executed by Operator, as Lessee’s agent,
on Lessee’s behalf, subject to the limitations of the Operating Plan and Budget
or Lessee’s written approval.


2.2.9            subject to the limitations of Section
2.2.3, above, negotiate, enter into, and administer, on behalf of Lessee,
contracts for the use of banquet and meeting facilities and guest rooms by
groups and individuals; provided, that, any grant of
complimentary rooms must provide an articulated direct or indirect economic
benefit for the Hotel and/or the RockResorts brand and must (i) be approved by
either the General Manager, the Director of Sales and/or Marketing or the
Controller, (ii) be consistent with the criteria set forth in the definition of
“Complimentary Rooms and Services” , and (iii) be consistent with the applicable
provision of the Operating Plan and Budget. All such contracts shall be in
Lessee’s name or in the name of the Hotel and shall be executed by Operator, as
Lessee’s agent, on Lessee’s behalf, subject to the limitations of the Operating
Plan and Budget or Lessee’s written approval in accordance with the terms and
provisions of this section.


2.2.10 supervise and
purchase, or arrange for purchase of, all inventories, provisions, consumable
supplies, and operating supplies that are necessary and proper to maintain and
operate the Hotel, and to use the same in the management and operation of the
Hotel (subject to the provisions of Section 2.2.8 above with respect to
bidding and rebate programs); provided, however, that all purchase contracts
providing for an annual payment in excess of Ten Thousand Dollars ($10,000),
other than those included in Centralized Services or included in the approved
Operating Plan and Budget, shall be competitively bid by a minimum of three (3)
bidders known to Operator to provide high quality service at competitive
prices. Operator shall act in an economical manner in purchasing such items,
but in selecting items for purchase, Operator shall be entitled to take into
account the environmental consequences of its



 22
 









selections and the desirability of encouraging such
practices as recycling of materials and use of consumables made from recycled
material. Subject to the provisions of this Section and Section 2.2.8,
Operator may cause the Hotel to participate in those programs defined herein
under Centralized Service Charges pursuant to the terms and conditions set
forth therein.


2.2.11 prepare and submit
to Lessee the Operating Plan and Budget as described in Section 2.3;


2.2.12 reasonably
cooperate with Lessee and any actual or prospective purchaser, Lessee,
Mortgagee, or other lender in connection with any proposed sale, lease, or
financing of or relating to the Hotel; provided, however, that
Operator shall not be required to release to any person or entity any Operator
Proprietary Information.


2.2.13 institute, in its
own name or in the name of Lessee, but in any event at Lessee’s expense, any
and all legal actions or proceedings to collect charges, rent, or other income
derived from the Hotel’s operations or to oust or dispossess guests, tenants,
or other persons in possession there from, or to cancel or terminate any lease,
license, or concession agreement for the breach thereof or default thereunder
by the tenant, licensee, or concessionaire. At the direction of Lessee,
Operator shall take, at Lessee’s expense and in the name of Lessee, appropriate
steps to challenge, protest, appeal, and/or litigate to final decision in any
appropriate court or forum, any laws affecting the Hotel or any alleged
violation of any law. Without limiting the foregoing, Operator shall not be
authorized to engage legal counsel or initiate or settle any legal action
involving any Claim in excess of $15,000 (excluding any Claims made to collect
amounts due to Lessee up to $15,000) without the prior written Approval of
Lessee and Lessee shall have the exclusive right to select (subject to Operator’s
reasonable Approval) and retain legal counsel for all matters that constitute
an expense of either Lessee or the Hotel (other than matters that have been
tendered to an insurance carrier and with respect to which such carrier has
selected legal counsel);


2.2.14 be available and
cause the Senior Managers to be available at reasonable times to consult with
and advise Lessee or Lessee’s designee at Lessee’s reasonable request
concerning policies and procedures affecting the conduct of the business of the
Hotel;


2.2.15 do or cause to be
done all such acts and things in or about the Hotel that Operator in good faith
and exercising prudent commercial judgment believes to be necessary to comply
with Legal Requirements and the terms of all insurance policies, and, as
directed by Lessee, to discharge any lien, encumbrance, or charge on or with
respect to the Hotel and the operation thereof.


2.2.16 collect on behalf
of Lessee and account for and remit to governmental authorities all applicable
excise, sales, and use taxes or similar governmental charges collected by the
Hotel directly from patrons or guests, or as part of the sales price of any
goods, services, or displays, such as gross receipts, admission, or similar or
equivalent taxes; review (directly or through a qualified consultant approved
in advance by Lessee) all tax bills and the calculation of the foregoing taxes
and all real and personal property taxes paid in connection with the Hotel no
less frequently than annually; and make recommendations to Lessee with respect
to payment of taxes and assessments (provided that, Lessee acknowledges that
Operator is not a tax advisor and



 23
 









is not acting as such in connection with any review of
tax bills or recommendations made pursuant to this Section 2.2.16).


2.2.17 keep Lessee
informed and advised of all material financial and policy matters concerning
the Hotel and the operation thereof and give due consideration to suggestions
Lessee may offer with respect thereto from time to time.


2.2.18 exercise all
reasonable efforts to collect all charges, rent, and other amounts due from
guests, lessees, and concessionaires of the Hotel and apply those funds, as
well as funds from other sources as may be available to the Hotel, first to pay
all Operating Expenses, and then any other financial obligations of the Hotel
as Lessee may direct.


2.2.19 apply for, obtain
and maintain in the name of Lessee, all licenses and permits required in
connection with the management and operation of the Hotel and the facilities
(including restaurant, bar and lounge facilities) located therein. Lessee shall
execute and deliver any and all applications and other documents and otherwise
cooperate to the fullest extent with Operator in applying for, obtaining and
maintaining such licenses and permits.


2.2.20 subject to the
limitations of the Operating Plan and Budget, use best efforts consistent with
standards of commercial reasonableness, to comply with and cause the Hotel to
comply with and abide by all Laws and Regulations. In the event Operator
receives notice of or becomes aware of a violation or circumstances likely to
result in a violation of any applicable Laws and Regulations, Operator shall
immediately deliver to Lessee written notice of such violation or circumstances
and, subject to Lessee’s consent being given and Lessee providing funding for
same, take all remedial action necessary for compliance with such applicable
Laws and Regulations; provided, however, that Lessee may contest any such
violation and, if Lessee elects to contest such violation, Operator shall, upon
written notice from Lessee of Lessee’s intent to contest, postpone compliance
pending the determination of such contest, if so permitted by Laws and
Regulations, and provided such postponement does not constitute a risk to life
or safety in Operator’s reasonable opinion.


2.2.21 pay out of the
Operating Accounts when due as an Operating Expense all Governmental
Impositions imposed upon the Hotel or upon the operations conducted thereat or
upon any of Lessee’s property at the Hotel, real, personal or mixed, or upon
any part thereof under the Operator’s management and control, including all
interest and penalties thereon. As used herein, Governmental Impositions shall
include, without limitation, all social security taxes, unemployment insurance
taxes, withholding taxes and similar changes imposed on Operator in connection
with any employees or personnel of Operator.


2.2.22 take all necessary
steps to prevent the creation of a Lien against the Hotel, or any part thereof,
or any fund, receivable, or other asset relating to the Hotel, other than a
Lien created or consented to by Lessee. In the event a Lien is asserted against
the Hotel or any part thereof, Operator shall immediately give Lessee notice
thereof and shall, conditioned upon Lessee providing funding for the same,
within twenty (20) days after such notice is given, take all reasonable steps
necessary for bonding or removal thereof, unless Lessee notifies Operator
within such twenty (20) day period that (1) Lessee wishes to contest such Lien
or (2) Lessee has consented to such Lien.



 24
 









2.2.23 review the
appropriateness of all bills for Governmental Impositions applicable to the
Hotel and shall advise Lessee of the amount of any Governmental Impositions
that could be challenged and, if so, suggest a course of action to obtain a
reduction of such Governmental Impositions. Operator will use commercially
reasonable efforts when conducting such reviews, but makes no representations
as to the completeness of such reviews for purposes of identifying any and all
items that could be challenged. If Operator is notified by Lessee that Lessee
intends to contest any Governmental Imposition or Lien upon the Hotel, Operator
shall not pay such Governmental Imposition or Lien, but, upon request of
Lessee, shall set aside the amount necessary to pay such Governmental
Imposition or Lien, plus interest and penalties, in an interest-bearing Reserve
Account (or shall deposit such amount with a third party if so directed by
Lessee); provided, however, that if any such interest or penalty payment is
imposed by 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, such interest or penalty payment shall be
immediately paid to Lessee by Operator. If requested by Lessee, Operator shall
institute appropriate protests or challenges to any Governmental Imposition or
Lien that Lessee desires to contest and all expenses incurred by Operator in
contesting or seeking a reduction thereof, including legal, appraisal and
accounting fees, if required, shall be considered Operating Expenses to be
borne by Lessee to the extent such costs are within the applicable Line Items
in the Operating Plan and Budget last approved by Lessee or are otherwise
approved in writing by Lessee.


2.2.24 make all payments
on or before the due date thereof required under the Mortgage, provided a copy
of any Mortgage has previously been delivered by Lessee to Operator, and
provided further that funds adequate for such payments in their proper priority
are in the Operating Account. Operator shall deliver to Lessee, within five (5)
days of Lessee’s request, evidence of any past Mortgage payment. Operator shall
fully and timely perform and observe all covenants (in connection with which
Operator has been funded by Lessee) required to be performed or observed by
Lessee under any Mortgage, provided that any cost incurred by Operator in
complying with such covenants, other than the costs incurred related to
administrative tasks to prepare covenant compliance reports or to make payments
pursuant to this Agreement, is not deemed an Operating Expense that affects
Cash Flow before Incentive Fees, and is paid by the Fee Owner or Lessee from
its own funds.


2.2.25 promptly notify
Lessee in writing:


 (a) in the event that the condition of the Hotel
or any part thereof fails to comply with the standards of the RockResorts brand
or any applicable Laws and Regulations, or the provisions any other agreement
relating to the Hotel (including this Agreement and the Mortgage);


(b) upon receipt by
Operator of any notice, demand or similar communication with respect to any
obligation of Lessee under applicable Laws and Regulations, any Mortgage,
leases, subleases, licenses, concession agreements or any other agreement
relating to Lessee, the Hotel, or any portion thereof;



 25
 









(c) upon receipt by
Operator of any summons, notice, demand or similar communication regarding any
action or threatened action at law or in equity or before any regulatory body
relating to Lessee, the Hotel, or any portion thereof;


(d) upon receipt by
Operator of a statement of the amount of any Governmental Impositions;


(e) upon receipt by
Operator of any notice or communication from an insurance carrier regarding
insurance coverage or the insurability of the Hotel;


(f) in the event Operator
makes a material emergency expenditure with respect to the Hotel, i.e., over
$25,000;


(g) upon receipt by
Operator of any notice of any threatened or pending condemnation, rezoning or
other governmental order, proceeding or lawsuit involving the Hotel; or


(h) upon receipt by
Operator of any notice or communication of any nature, written or oral, which
may have a material adverse effect on the Lessee or the Hotel


2.2.26 Unless set forth
in the Operating Plan and Budget, not purchase goods, supplies and services
from or through any of its Affiliates, without express authorization from
Lessee after disclosure of all material terms of the Affiliate relationship,
the proposed transaction, and the consideration to be received by the
Affiliate. Unless clearly set forth in the proposed Operating Plan and Budget
and approved as part thereof, Operator shall not pay, or permit or cause to be
paid to any such Affiliates, a fee, rebate, discount or other consideration for
the negotiation of contracts, the purchase from independent suppliers of goods,
supplies and services, or other act pursuant to Operator’s agency hereunder,
without Lessee’s prior written authorization.


2.2.27 perform such other
tasks as are customary and usual in the operation of a RockResorts branded
hotel consistent with the Hotel’s facilities and operations and the Operating
Standard.


2.2.28 cause the
transition of operating supplies, brochures, sales collateral and other items
bearing the name and certain Trademarks of Operator to be in accordance with
the expenditure levels and timetable set forth on Exhibit H hereto.


2.3 Operating and
Capital Budfiets.


2.3.1 On or before sixty
(60) days after the Effective Date, Operator shall prepare and submit to Lessee
for Lessee’s review and Approval, in its sole discretion, a proposed “Operating
Plan and Budget” for the initial Operating Year, and on or before October 1,
2005, and thereafter by October 1st of
each year, Operator shall prepare and submit to Lessee for Lessee’s review and
Approval, in its sole discretion, a proposed Operating Plan and Budget for the
succeeding Operating Year. Each proposed Operating Plan and Budget shall be
prepared in accordance with Operator’s standard internal planning and budgeting
processes and shall contain the following items and otherwise be in a form
approved by Lessee, in its sole discretion:



 26
 









(a) Operator’s reasonable
projections of revenues and expenses and the components thereof for the
forthcoming Operating Year. These projections shall be (i) itemized in
departmental schedules (including undistributed expenses), and (ii) broken down
on a monthly basis and also represented in summary form (i.e., the Operating
Plan and Budget shall include a monthly forecast of revenues and expenses for
each operating department). These projections shall be zero based and detail
each Line Item of revenue and expense. Assumptions forming the basis of such
schedules shall be presented in narrative form and all schedules shall include
current year forecasts, prior year actual results for the comparable time
period, appropriate variances from budgeted performance and an executive
summary of all relevant information. These projections shall incorporate a
narrative description of the Operator’s plans and goals, including, without
limitation: (i) a schedule of expenses that result in compensation, or other
benefits to Operator or its Affiliates, including all Reimbursable Expenses
(separately identifying amounts to be paid to Operator Affiliates or third
parties pursuant to strategic alliances, service or procurement arrangements
consummated by Operator or Operator Affiliates, on Exhibit E), (ii) a list of
all vendors to whom aggregate payments are estimated to exceed Twenty Thousand
Dollars ($20,000).


(b) A separate projection
of the Base Fee, and the Incentive Fee, if any, to be paid for the forthcoming
Operating Year together with the calculation thereof.


(c) A one (1)-year budget
(itemized on a monthly basis) and three (3)-year plan of the amounts to be
allocated or contributed to the Reserve Fund and all anticipated capital
expenses of the Hotel, together with a written narrative summary describing
capital expenditures identified therein, the recommended priority of such
expenditures and the need for such expenditures and a payback analysis (if
requested by Lessee). Such budgets and plan shall identify each project with
appropriate detail, together with such additional information, as Lessee shall
reasonably request relating to any such anticipated capital expenditures.


(d) A monthly projection
of cash flow, anticipated distributions to, or funds required of Lessee, and
required Working Capital Balance.


(e) The program for
advertising and marketing the Hotel for the forthcoming fiscal year containing
a reasonably detailed budget itemization of the proposed expenditures by
category. Assumptions forming the basis of such budget itemization shall be
presented in narrative form. Such advertising and marketing program may include
advertising in which the Hotel participates with one or more other hotels owned
or operated by Operator and/or its Affiliates, in which case the cost shall be
equitably apportioned in a manner approved by Lessee. Such narrative shall
address, without limitation, but to the extent applicable, items such as
positioning statements, the rate schedule, discounting policies, staffing,
incentive compensation plans, proposed advertising commitments (schedule,
medium, estimated cost), promotions, sales trips/blitz schedule and target
market mix.


(f) A staffing plan by
department, with the title of each position, the number of employees at each
position, the hours worked and amount paid to each



 27
 









employee, the estimated departmental cost thereof, and
a schedule of all employees whose annual total compensation in any one year is
projected to exceed $75,000 (as adjusted in accordance with the annual changes
in the CPI) (with a description of the total compensation package for all
employees paid a base salary in excess of such amount, including the dollar
equivalent value of any car allowance, housing allowance or other benefits, the
salary paid each such employee for the prior year and the current year with a
detailed explanation of any changes in salary from the prior year) and an
explanation of any proposed changes from the previous year’s Operating Plan and
Budget.


(g) A monthly schedule of
the average occupancy and average daily rate for the Hotel during the current
Operating Year and the actual average occupancy and average daily rate for the
Hotel during the immediately preceding Operating Year (provided that, in
respect of the first twelve (12) months following the Effective Date, Lessee
makes available to Operator the pertinent historical data) and a projected
annual average occupancy rate and average daily rate for the Hotel for the succeeding
Operating Year, along with budgeted room-nights and average rate by demand
(market) segment.


(h) A detailed budget of
the maintenance department, including planned purchases, replacements and
repairs of FF&E with breakdowns of labor costs, and key maintenance or
energy reduction projects proposed.


(i) A detailed incentive
compensation plan and calculation of incentive compensation incorporated in the
Operating Plan and Budget.


(j) Planned personnel
changes by department.


(k) Anticipated grants of
Complimentary Rooms and Services and the rationale therefor, together with the
projected impact on revenue.


Prior to Approval by the Lessee of the initial
Operating Plan and Budget, the current operating budget of the Hotel shall
constitute the “Operating Plan and Budget.”


2.3.2 The Parties
acknowledge that the planning and budgeting process is an important factor in
the successful operation of the Hotel. Operator shall submit to Lessee its
proposed Operating Plan and Budget for the following year on or before October
31 of each year during the term of this Agreement. Lessee shall submit to
Operator its comments and proposed revisions to the proposed Operating Plan and
Budget and Plan within forty five (45) days after its receipt thereof. Approval
of any proposed Operating Plan and Budget submitted to Lessee shall be deemed
to have been obtained if Lessee does not provide Operator with objections
within forty five (45) days after receiving the proposed Operating Plan and
Budget and (ii) thirty (30) days after receiving a notice from Operator
(delivered in accordance with the notice provisions of this Agreement) citing
this Section (i.e., that if Lessee does not respond within such period that
such proposed Operating Plan and Budget shall be deemed approved by Lessee and
requesting Approval or disapproval of the proposed Operating Plan and Budget),
which notice may not be delivered earlier than fifteen (15) days after delivery
of the proposed Operating Plan and Budget to Lessee. Lessee and Operator shall
discuss any objections provided by Lessee, and Operator shall then submit
written revisions to the proposed Operating Plan and



 28
 









Budget within fifteen (15) days following such
discussions whereupon the Operating Plan and Budget shall be subject to
Approval by Lessee. Notwithstanding anything to the contrary in the foregoing,
Lessee shall have the right to object to or request changes to any aspect of
any proposed Operating Plan and Budget if (a) the objection or change would not
be reasonably likely to impair Operator’s ability to earn an Incentive Fee, (b)
the objection or change would not be reasonably likely to impair Operator’s
ability to fulfill its obligations under this Agreement (if not waived by
Lessee), and (c) the objection or change would not be reasonably likely to
impair Operator’s ability to operate or maintain the Hotel consistent with the
Operating Standard. To the extent that the Lessee and Operator agree to
revisions, the proposed Operating Plan and Budget (modified to reflect such
revisions) shall become the Operating Plan and Budget for the next Operating
Year. If Lessee and Operator, despite their good faith efforts, are unable to
reach final agreement with respect to those elements of the Operating Plan and
Budget that would prevent (a) (b), or (c) above, for an Operating Year by
January 1 of that Operating Year, until such time as Lessee and Operator are
able to agree upon an Operating Plan and Budget and with respect to all or any
portion of the proposed Operating Plan and Budget which is in dispute, such
portion of the Operating Plan and Budget shall be the previous year’s Operating
Plan and Budget, adjusted by CPI, provided that such portion of the proposed
Operating Plan and Budget which is in dispute is a recurring item. Operator and
Lessee agree to utilize best efforts to develop the initial Operating Plan and
Budget within thirty (30) days after execution of this Agreement. 2.3.3
Operator and Lessee recognize that the budgeting process is a key aspect of
their relationship, and each agrees that the Operating Plan and Budget shall be
prepared and considered with appropriate diligence and after reasonable
consideration of relevant factors. Operator shall use its best efforts to
achieve the results projected in the Operating Plan and Budget and shall
operate the Hotel in a manner, and in accordance with operating policies,
consistent with the Operating Plan and Budget. Lessee acknowledges that the
Operating Plan and Budget is an estimate of the financial results of the Hotel
for the applicable Operating Year based on facts believed by Operator to be
reasonable at the time of preparation of the Operating Plan and Budget, and as
such does not constitute a guarantee of actual results by Operator.


2.3.4 Notwithstanding any
provision of this Agreement to the contrary, but subject to Section 2.3.5,
Operator shall have no right to incur any Capital Expenditures without Lessee’s
prior written approval. Such approval request shall include reasonably detailed
back-up documentation including, without limitation, lien releases, bids and
invoices as appropriate. The intent of Lessee and Operator is that, except as
expressly provided in this Agreement to the contrary, all Capital Expenditures
must be approved in writing (e-mail and facsimile transmissions acceptable) by
Lessee; provided, however Operator may require Lessee to perform such upgrades
(i.e., Lessee shall not have the right to reject the inclusion of the proposed
expenditures therefor in the Operating Plan and Budget or require revisions to
the Operating Plan and Budget to remove the proposed expenditures for such
upgrade items), if such upgrades are required to keep the Hotel in safe
operating condition. Any dispute as to whether or to what extent Lessee is
obligated to perform any upgrades or modifications to the Hotel pursuant to
this Section 2.3.4 shall be resolved by an Expert, with the Expert
applying the tests set forth in this Section 2.3.4 in order to determine
whether Lessee is obligated to perform any such upgrades or modifications to
the Hotel.


2.3.5 Conformity to
Operating Plan and Budget. Operator will, subject to a Force Majeure event,
operate the Hotel in accordance with the Operating Plan and Budget and in a



 29
 









commercially reasonable, business-like manner, as agent of Lessee, with
the objective of optimizing the financial performance of the Hotel. Lessee and
Operator acknowledge, however, that the Operating Plan and Budget is a budget
based upon assumptions believed to be reasonable at the time of its preparation
and, as such, is only an estimate of the results of operation and other
activity with respect to the Hotel. Notwithstanding the foregoing, Lessee
understands and agrees as follows:


(a)                    Certain
expenses provided for in the Operating Plan and Budget for any month in an
Operating Year will vary based on the utilization of the Hotel; and,
accordingly, to the extent that utilization projected for the Hotel in a
particular Operating Plan and Budget category for any month in an Operating
Year exceeds the utilization projected for such category in the approved
Operating Plan and Budget for such month, such category of the approved
Operating Plan and Budget shall be deemed to include corresponding increases in
variable expenses, provided the applicable margin as calculated as a percentage
of revenues, has not decreased from such levels approved in the Operating Plan
and Budget, except as considered reasonable due to a shift in business mix or
changes to RevPAR driven by occupancy increases, coupled with a decrease in
rate, provided the margin in this case does not decrease by more than three
percent (3%) of the applicable margin percentage.


(b)                   Operator
shall have the right to pay all Uncontrollable Expenses without reference to
the amounts provided for in respect thereof in the approved Operating Plan and
Budget and the Capital Expenditures Budget and FF&E Budget for any
Operating Year.


(c)                    If
any expenditures are required on an emergency basis to avoid damage to the
Hotel or injury to persons or property, Operator shall make such expenditures,
as may reasonably be required to avoid or mitigate such damage or injury, even
if the amounts of such expenditures are not provided for or within the amounts
provided for in the approved Operating Plan and Budget, the Capital
Expenditures Budget and the FF&E Budget for the Operating Year in question.
Expenditures covered in this subsection (c) are limited to those less than
$50,000 individually. Expenditures in excess of $50,000 require the Operator to
use commercially reasonable efforts to contact the Lessee for approval of such
expenditure in advance of disbursement. If Lessee cannot be contacted within a
reasonable period of time specific to each circumstance, Operator shall
nevertheless retain the rights stated herein.


(d)                   Subject
to Lessee’s right to direct Operator to contest such Legal Requirements or
violation as set forth in this Agreement, if any expenditures are required to
comply with any Legal Requirements which, if not complied with may, in Operator’s
good faith determination, (i) give rise to criminal liability on the part of
either Operator or Lessee, or (ii) materially threaten the operation of the
Hotel in accordance with the terms of applicable Legal Requirements, or (iii)
give rise to the potential for imminent damage to material components of the
Hotel, Operator may make such reasonable expenditures as may be necessary to
comply



 30
 









with such Legal Requirements even if the amounts of
such expenditures are not provided for or are not within the amounts provided
for in the approved Operating Plan and Budget, the Capital Expenditures Budget
or the FF&E Budget for the Operating Year in question. Expenditures covered
in this subsection (c) are limited to those less than $50,000 individually.
Expenditures in excess of $50,000 require the Operator to use commercially
reasonable efforts to contact the Lessee for approval of such expenditure in
advance of disbursement. If Lessee cannot be contacted within a reasonable
period of time specific to each circumstance, Operator shall nevertheless
retain the rights stated herein.


Notwithstanding anything to the contrary contained herein, in the event
Operator incurs expenses for the Hotel that are in excess of that set forth in
the approved Operating Budget by more than ten percent (10%) during the first
Operating Year, eight percent (8%) during the second Operating Year, and five
percent (5%) during each subsequent Operating Year, in any major accounting
category (as set forth in the Uniform System of Accounts), and five percent
(5%) in the aggregate during the first Operating Year, four percent (4%) during
the second Operating Year or three percent (3%) during each subsequent
Operating Year, Operator shall promptly thereafter notify Lessee of such event
or expenditure and deliver to Lessee a variance report delineating the excess
expenditures; provided, however, Lessee hereby acknowledges that any such
variance shall not, in and of itself, constitute a breach under this Agreement.
Following Lessee’s receipt of such variance report, upon Lessee’s request,
within 15 days of such request Operator shall meet with Lessee to discuss: (i)
the basis for such excess expenditures, and (ii) a remedial plan (“Remedial
Plan”) to avoid such excess expenditures in the future, which shall be
prepared by Operator in draft form and presented to Lessee at the meeting. If
the parties cannot agree upon a mutually acceptable Remedial Plan, either party
may require the parties to meet as soon as reasonably practicable.with a
mutually agreed upon Expert to discuss and develop a mutually acceptable
Remedial Plan. Following the mutual acceptance of a Remedial Plan, Operator
shall use its good faith efforts to comply with such Remedial Plan. In the
event Operator continues to exceed the expenses set forth in the Operating
Budget or fails to comply with the mutually agreed upon Remedial Plan; to the
extent such noncompliance is not the result of (i) an Uncontrollable
Expenditure, (ii) excused by Force Majeure, or (iii) increases in expenses
properly arising out of occupancy and/or utilization of Hotel facilities in
excess of projections contained in the Operating Budget, Operator shall credit
the Lessee with the amount of such excess expenditures on an annual basis. To
the extent the Remedial Plan does not specify, non-compliance will be governed
by this section.


(i)                        Notwithstanding
anything to the contrary in 2.3.5(b), but subject to Lessee’s indemnification
obligations to Operator under the section below, Lessee shall have the right to
contest Operator’s expenditure of any Uncontrollable Expenditure and the
propriety of such Uncontrollable Expenditure (excluding any expenditures for
insurance and/or utilities, which Operator shall be entitled to make in
accordance with 2.3.5(b). Such contest shall be governed by the dispute
resolution provision contained in this Agreement. During the pendency of such
dispute resolution procedure, Operator shall not make any expenditures for such
disputed Uncontrollable Expenditures.



 31
 









(ii)                     Notwithstanding
anything to the contrary in 2.3.5(d), Lessee shall have the right to contest
any expenditures made or contemplated by Operator pursuant to such Section,
provided that during the pendency of such dispute resolution procedure,
Operator may make such expenditures set forth in 2.3.5(d)(i) and (ii).


2.4                     Bank
Accounts.


2.4.1 Lessee shall establish and maintain the
Operating Accounts at a bank or banks designated by Lessee for the disbursement
of monies in connection with the management and operation of the Hotel. The
Operating Accounts shall at all times be in the name of the Hotel or such other
name as Lessee may approve, and shall be used exclusively in connection with
the operation of the Hotel and the performance of the terms of the terms and
conditions of this Agreement; provided that representatives of Operator or Hotel
Personnel designated by Operator from time to time who are bonded or otherwise
insured to Lessee’s reasonable satisfaction, shall be authorized signatories of
such account. Lessee shall be entitled to designate one or more representatives
who are authorized to draw checks on the Operating Accounts, but the signature
of a representative of Lessee shall not be required in order for Operator to
make withdrawals from the Accounts. Operator shall, immediately upon Lessee’s
request, take all steps necessary to effect such authority, including the
execution of appropriate signature cards, advice to banks of the authority of
Operator and Lessee, and the adoption, execution and delivery of appropriate
resolutions and other documentation requested by financial institutions.


2.4.2 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 Accounts), bank balances,
bank statements, advice, paid checks, blank checks and other related records
established in connection with the Ownership or operation of the Hotel, shall
be the sole property of Lessee, subject to Operator’s rights under Section
2.4.1 and Section 2.10 below.


2.4.3 Operator shall reconcile the month-end recorded
balances to the bank statements on a monthly basis and, pursuant to Section
2.6 below, deliver to Lessee a copy of the reconciliation’s and a photocopy
of the original bank statements, including, if requested by Lessee, canceled
checks and other bank notices.


2.5                     Distributions
to Lessee; Requests for Working Capital; Payment of Penalties.


2.5.1 Distribution. No later than the twentieth
(20th) day of each month, Operator shall remit to Lessee out of the Operating
Accounts the Distribution Amount; provided, however, that in any event,
Operator shall not be obligated to disburse the Distribution Amount until such
date as the Operating Accounts contain in the aggregate more than the Working
Capital Balance and each succeeding disbursement to Lessee of the Distribution
Amount shall not occur until such date as the sums contained in the Operating
Accounts again exceed the Working Capital Balance (i.e., at any time the
Operating Accounts contain in excess of the Working Capital Balance, Lessee will
be paid the Distribution Amount in the sum of all amounts in excess of the
Working Capital Balance contained in the Operating Accounts pursuant to this Section
2.5.1). Each distribution shall be paid (by check, wire transfer or such
other method designated by



 32
 









Lessee) to Lessee at Lessee’s address then in effect hereunder for
receipt of notices hereunder by Lessee, or at such other place as Lessee may,
from time to time, designate in writing to Operator. In the event that Operator
distributes more or less than is required under this Section 2.5.1 in
any month, Operator shall correct such over or under payment by adjusting the
Distribution Amount for the following month and shall notify Lessee in writing
of such adjustment.


2.5.2 Requests for Additional Working Capital.
Pursuant to Section 2.6 below, Operator shall furnish Lessee monthly
statements showing the cash balances in the Operating Accounts. Following
submission of any such monthly statement or any interim statement prepared by
Operator showing a cash balance in the Operating Accounts of less than the
Working Capital Balance, accompanied by a written request by Operator for funds
in the amount of the deficit or such lesser amount as, in Operator’s reasonable
judgment, is unlikely to be generated from the projected operations of the
Hotel during the succeeding month, within ten (10) days after Lessee’s receipt
of such request and such evidence as Lessee may reasonably request regarding
Operator’s request and calculation of the funds needed, Lessee shall cause
sufficient funds to be deposited into the Operating Accounts to assure that the
Hotel shall have adequate working capital as contemplated by this Agreement.


2.5.3 Operator Not Obligated to Advance Own Funds.
Except as expressly set forth in this Agreement, neither Operator or any of its
Affiliates shall be required to advance of its or their own funds to or for the
account of Lessee, nor shall Operator or any of its Affiliates be obligated
under this Agreement to incur any liability, unless and until Lessee has
furnished to Operator, or has committed to furnish to Operator in a manner
reasonably acceptable to Operator, sufficient funds to enable such liability to
be discharged. Should it be necessary for the Operator or any of its Affiliates
to advance funds to or for the account of Lessee for the payment of operating
or personnel expenses of the Hotel, such advances will accrue interest at an
interest rate equal to the thirty-day London InterBank Offered Rate (commonly
known as “LIBOR”) plus 500 basis points. Any such advances, plus accrued
interest, would be immediately due and payable by Lessee to Operator.


2.5.4 Late Payment Penalties. Operator shall be
responsible for, and shall pay with its own funds (which amount shall not be
reimbursable by Lessee), any penalties or charges incurred as a result of late
payment of any obligation of the Hotel unless (i) such penalty or charge
results from insufficient available funds and Operator has notified Lessee in
writing that funds were needed to pay such obligation at least ten (10)
business days in advance, or (ii) Lessee has not provided Operator with a copy
of any related contract or other evidence of such obligation and Operator is
not otherwise aware of such contract or obligation. Notwithstanding the foregoing,
Operator may, without responsibility for any resulting penalties or charges,
pay certain obligations past their due date if Operator reasonably believes it
is to Lessee’s benefit to do so under prudent and sound cash management
principles. Utility expenses, real estate taxes and any other obligations to
governmental bodies are expressly not included in the preceding sentence.


2.6 Monthly Reports. Operator will provide the
Monthly Reports to Lessee no later than twenty (20) days after the last day of
the preceding month (and such other reports and financial information as may
reasonably be required by Mortgagee), which reports shall pertain to the
immediately preceding month and shall be certified as being true, and correct
and



 33
 









complete in all material aspects by the general manager or controller
of the Hotel, and shall be in a form reasonably satisfactory to Lessee.


2.7 Quarterly Reports. Operator will provide to
Lessee by the 20th day following each calendar quarter each of the following
reports (and such other reports and financial information as may be required by
any Mortgagee and as Lessee may reasonably request from time to time),
certified by the Hotel’s Controller or one of the Operator’s Executive
Personnel.


2.7.1 If materially different from the then approved
Operating Plan and Budget, three (3) month cash flow forecast for the
immediately succeeding quarter, including without limitation, cash
requirements, and the timing thereof for the same periods;


2.7.2 A quarterly operating statement which shall
include the following details:


·                             quarterly
operating results, with RevPAR for the Hotel and a comparison of the current
quarter’s operating results to those contained in the Operating Plan and Budget
and to the same quarter for the previous year; and


·                             written
variance report for all variances, if any, from the Operating Plan and Budget
in excess of both (i) 10% of the budgeted departmental, undistributed or fixed
expense, and (ii) $5,000.


·                             a
reconciliation of approved Line Items set forth in the Operating Plan and
Budget to the actual amount of the expenses incurred during the current
quarter.


·                             an
executive summary containing a brief narrative summary of performance by major
departments, financial results, capital expenditures and other pertinent
financial information relating to the Hotel;


·                             a
litigation summary;


·                             detail
of cost ratios for each department and explanations for fluctuations and
variances from the approved Operating Plan and Budget;


·                             a
payroll register; and


·                             a
detailed description of all amounts paid to Operator or any Affiliates or
national vendors of Operator.


2.8 Annual Financial
Statements; Audits.


2.8.1 Within thirty (30)
days after the end of each Operating Year, Operator shall prepare and deliver
to Lessee each of the following with respect to such Operating Year: a balance
sheet, a statement of earnings and retained earnings, and a statement of cash
flows.


2.8.2 In addition to the
foregoing, if requested by Lessee, Operator shall cause an audit of the books
and records of the Hotel to be performed by the Independent Auditor, such



 34
 









audit to be completed and a report to be furnished
within ninety (90) days after the end of such Operating Year. The audited
financial statements shall include a balance sheet, income statement and
statement of cash flow and a statement of the Gross Revenue (if not shown on
the income statement) prepared in accordance with Generally Accepted Accounting
Principles accompanied by an opinion with regard thereto, if obtainable, of the
accounting firm performing such audit. The cost of the annual audit shall be an
Operating Expense of the Hotel.


2.8.3 Lessee and Lessee’s
designated agent(s) shall, at any time throughout the term of this Agreement,
have the right to examine and inspect the books and records of the Hotel (and
make any copies thereof), the operations of the Hotel and all other services
and materials provided to the Hotel or allocated to it by Operator or any
Affiliate of Operator upon reasonable prior notice by Lessee to Operator;
provided, however, Lessee shall also be entitled to conduct spot audits or
examinations of the same without prior notice from time to time.


2.8.4 Any examination or
inspection pursuant to this Section 2.8 shall be conducted in such a
fashion as to interfere as little as reasonably practicable with Operator’s
normal business operations and shall be performed at Lessee’s expense. In the
event the audit shows an aggregate Gross Operating Profit variance of five
percent (5%) or less, then Operator shall correct any misstatements as shown by
the audit, and the cost of the audit shall be at Lessee’s expense. Lessee shall
not be responsible for failure to discover any defalcations during any audit or
inspection of the financial records. Operator shall cooperate with Lessee and
the Independent Auditor in connection with any such audit and shall promptly
make available to Lessee and Lessee’s auditor any and all information relating
to the Hotel that they may reasonably request in connection with such audit.


2.9 Capital Improvements.
From and after the Effective Date, the following provisions shall apply as to
the maintenance, repair, and improvement of the Hotel:


2.9.1 The Hotel
(including the Hotel building, adjacent grounds, FF&E, Hotel equipment, and
operating supplies) shall be maintained, repaired, and improved by Operator at
Lessee’s expense, subject to the applicable Lessee-approved Operating Plan and
Budget, to permit operation of the Hotel in accordance with the Operating
Standard. In furtherance of the covenants of this Section 2.9.1,
Operator shall arrange for the completion of all Capital Improvements necessary
for the operation and maintenance of the Hotel in accordance with the Operating
Standard to the extent approved by Lessee pursuant to Section 2.3.4
above. If requested by Lessee, Operator or an Operator Affiliate shall provide
construction management services in connection with Renovations, pursuant to a
separate agreement. The scope of and compensation for such services shall be
mutually agreed to by Lessee and Operator, or the relevant Operator Affiliate.


2.9.2 Once each calendar
month, Operator shall transfer from the Operating Accounts into the Reserve
Fund an amount equal to two percent (2%) during the first Operating Year, three
percent (3%) during the second Operating Year, and four percent (4%) during
each Operating Year thereafter, of the Gross Revenues for each such month
during the Term. The amount to be contributed to the Reserve Fund is an
estimate of amounts required for the purposes set forth in this section, and
does not represent a cap on the amount of funds that may be necessary for the
repairs and replacements contemplated herein in order to meet the Operating



 35
 









Standard. Lessee shall maintain the Reserve Account
and shall be the sole signatory thereto, unless otherwise required by the
Mortgagee. In order for Operator to withdraw funds from the Reserve Account,
Operator shall request such funds from Lessee or Mortgagee, as applicable, and
provide Lessee or Mortgagee with a description of the amounts needed in
accordance with the Operating Plan and Budget. The balance in the Reserve Fund
shall be set forth in each Lessee-approved Operating Plan and Budget. All
interest earned on funds on deposit from time to time in the Reserve Fund shall
remain in and become part of the Reserve Fund. All funds at any time on deposit
in the Reserve Fund shall be the property of Lessee and shall be returned to
the full control of Lessee upon the expiration or earlier termination of this
Agreement. All funds on deposit in the Reserve Fund at the conclusion of each
Operating Year, shall roll over to the following Operating Year and be
considered incremental to the applicable funding requirements for each
Operating Year. To the extent of Capital Expenditures provided for in the
Operating Plan and Budget or when necessary to address an emergency Capital
Expenditure or repair requirement, Lessee may fund Capital Improvements and
repairs out of the Reserve Fund at its discretion.


2.9.3 Operator
acknowledges that based only upon a visible inspection, the public areas of the
Hotel appear to be in good condition and that no renovation, improvement, or
other Capital Improvement (but in any extent excluding routine maintenance)
should be required to operate the Hotel in accordance with the Operating
Standard for the first two (2) Operating Years of the Term. Nevertheless, the
foregoing in no way limits Operator’s right to require renovations,
improvements, or other Capital Improvements reasonably necessary to maintain
the Hotel in accordance with the Operating Standard, subject to the approval of
Lessee if such approval is required pursuant to Section 2.3.


2.9.4 All changes,
repairs, alterations, improvements, renewals or replacements of FF&E and
Capital Expenditures to the Hotel shall be the property of Lessee.


2.10 Books and Records. From and after the date
of this Agreement, in accordance with the standard procedures of Operator and
its Affiliates, Operator shall cause separate books of account and other
records relating to or reflecting the results of the operation of the Hotel to
be kept in accordance with Generally Accepted Accounting Principles and the
Uniform System. Such books of account and records shall be maintained at the
Hotel at all times. Notwithstanding the foregoing, Operator shall not be
authorized to write down or write off any receivables of the Hotel in excess of
One Thousand Dollars ($1,000) each, or which, taken in the aggregate with other
write offs for such year, exceed Ten Thousand Dollars ($10,000), without Lessee’s
prior written approval. All books of account and other financial records shall
be available to Lessee at all reasonable times for examination, audit,
inspection, and copying. All books, records and other information required to
be delivered to Lessee hereunder shall be in a format compatible with Lessee’s
software. All of the financial books and records pertaining to the Hotel,
including books of account, front office records, and guest information, shall
be the property of Lessee and upon termination of this Agreement, shall be
turned over forthwith to Lessee, so as to ensure continuity in the operation of
the Hotel; provided, however, that Lessee shall provide Operator with copies of
such documents and such other information (at Operator’s expense) as may be
reasonably requested by Operator, for use only for preparation of Operator’s
tax and other financial records or other legitimate business



 36
 









purpose, consistent with good faith competition in the ordinary course
of business in the hotel industry.


2.11 Employment of Hotel Personnel and Executive
Personnel.


2.11.1 Operator shall be
responsible for and shall have the sole and exclusive right to screen, test,
cause background checks to be performed, interview, hire, promote, discharge,
supervise, train, transfer and determine the terms of employment of the
Executive Personnel and, through the Executive Personnel, all other Hotel
Personnel. Operator shall take all prudent and commercially reasonable actions
to cause the Hotel to comply with all Legal Requirements regarding the
interviewing, hiring, promotion, discharge, supervision, training and transfer
of all Hotel Personnel. All such Hotel Personnel shall be employees of Operator
or one of Operator’s Affiliates. Subject to Section 3.5, 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; provided that Operator shall use
commercially reasonable efforts to find an employee having qualifications equal
to or greater than the employee that such employee is replacing (if
commercially reasonable under the circumstances provided, further, Operator may
not transfer or reassign any of the Executive Personnel to any other
RockResorts hotel without the bona fide, unsolicited and independent request of
the executive seeking to relocate or the request or consent of Lessee, within
the first three (3) years of such executive’s employment start date at the
Hotel. In addition, Operator will not, in any single Operating Year, reassign
or transfer more than one (1) member of the Executive Personnel without the
bona fide, unsolicited and independent request of the executive or with the
consent of Lessee. The initial and any subsequent General Manager, controller,
director of operations, and director of sales and marketing of the Hotel shall
be subject to the prior approval of Lessee in its sole and absolute discretion,
which approval shall be deemed given with respect to the individuals in such
positions on the Effective Date. Notwithstanding the foregoing, Operator shall
have the right, in its sole and absolute discretion, to appoint an interim
General Manager, director of operations, controller and director of sales and
marketing if, after having proposed at least two individuals for the position
in question, Lessee has withheld such approval for each of such individuals.
Operator shall nonetheless, following the appointment of the interim personnel
for the position in question, continue to use its reasonable diligence in
identifying, recruiting and presenting qualified candidates to the Lessee for
Lessee’s consideration and approval for the position in question. From the time
that the applicable position is vacated until such time as either Lessee has
approved a General Manager, controller, director of operations or director of
sales and marketing, or Operator has appointed an interim General Manager,
director of operations, controller or director of sales and marketing, as
provided above, Operator may appoint an acting General Manager, director of
operations, controller or director of sales and marketing for each respective
position until such time as a permanent or interim individual is appointed
(provided that the costs associated with the employment of such acting General
Manager, controller or director of sales and marketing, other than salary,
shall be limited to reasonable out-of-pocket costs). Notwithstanding the
provisions of this Section 2.11, and subject to the exclusions contained in
Lessee’s indemnification obligations pursuant to Section 10.7 and to Lessee’s
right to approve the Operating Plan and Budget, all costs, expenses and
liabilities relating to Hotel Personnel shall be expenses of operating the
Hotel and shall be set forth in the Operating Plan and Budget (subject to
Section 2.2.1). Further, Operator shall not be liable for any expenses or costs
related to any Hotel Personnel, including long term disability, costs related
to Workers Compensation claims,



 37
 









accrued vacation, and all other benefits and
compensation Claims and obligations arising from employment relationships
preceding such Hotel Personnel’s initial employment date with Operator.
Operator shall exclusively supervise the employees of the Hotel, including,
without limitation, the Executive Personnel. With the exception of Notice
provided in accordance with Section 10.5, Lessee shall exclusively communicate
with Operator through Operator’s Corporate Employees or the General Manager of
the Hotel, concerning the Hotel.


2.11.2 Lessee shall also
have the right to approve all employee compensation packages where the total
compensation in any one year is likely to exceed Seventy-Five Thousand Dollars
($75,000) annually (projecting an incentive compensation award based on
attainment of the budgeted Cash Flow Before Incentive Fee) (as adjusted in
accordance with the change in the CPI from December 2004 to the month of
December preceding the Operating Year for which salaries are being determined),
with such approval not to be unreasonably withheld or delayed. Operator shall
submit to Lessee the employee’s name and the employee’s proposed base salary
and benefits including allocated expenses and projected incentive compensation
award, if any; Lessee shall have five (5) business days thereafter within which
to notify Operator in writing as to whether Lessee approves or disapproves of
such compensation package; if Lessee fails to so notify Operator, Lessee shall
be deemed to have approved such salary and compensation package.


2.11.3 Operator will
negotiate, subject to Lessee’s right to have a representative present at any
time, with any labor union lawfully entitled to represent employees of the
Hotel. Operator shall not enter into any collective bargaining agreements or
labor contracts with respect to employees of the Hotel without the prior
written consent of Lessee, which consent shall not be unreasonably withheld or
delayed.


2.11.4 With respect to
employee benefits for non-union Hotel Personnel, Operator shall be entitled,
either directly or through an Affiliate, to adopt and offer to such Hotel
Personnel the same or comparable group insurance and retirement plans for
non-union employees that are available through Operator to other hotels and
resorts managed by Operator and/or its Affiliates that employ non-union
workers, provided that such cost is set forth in the applicable Operating Plan
and Budget. All costs associated with such group insurance and retirement plans
shall be Operating Expenses of the Hotel.


2.11.5 Notwithstanding
the other provisions of this Section 2.11, all costs and expenses
relating to Hotel Personnel, including, without limitation, salaries, fringe
benefit fund payments and other union-mandated benefits, vacations, holidays,
usual and customary severance payments, WARN Act, health insurance, pension and
retirement plans, any payment required as a result of the collective bargaining
relationship between the Hotel and any labor organization, shall be Operating
Expenses of the Hotel.


2.11.6 Operator shall be
entitled to withdraw from the Operating Accounts sufficient funds to pay all
wages, salaries, fringe benefits and other compensation paid or payable with
respect to Hotel Personnel.


2.11.7 Operator shall
secure bookings for the Hotel through Operator’s sales and reservations offices
and other distribution and sales systems, and shall encourage the use of the



 38
 









Hotel by tourists, special groups, travel agencies,
airlines, and other recognized sources of hotel business. Operator shall
include the Hotel in all sales programs and publications that it uses to market
its other RockResorts hotels and resorts.


2.12 Hotel Marketing
Program.


2.12.1 Operator shall
develop and implement a specific marketing program for the Hotel (with the cost
thereof to be an Operating Expense), following Operator’s policies and
guidelines for its RockResorts brand, which will provide for the planning,
publicity, internal communications, organizing, and budgeting activities to be
undertaken, and which may include the following:


(a)                      production,
distribution, and placement of promotional materials relating to the Hotel,
including materials for the promotion of employee relations.


(b)                     development
and implementation of promotional offers or programs that benefit the Hotel and
are undertaken by Operator;


(c)                      attendance
of Hotel Personnel at conventions, meetings, seminars, conferences and travel
congresses;


(d)                     selection
of and guidance to, as required, advertising agency and public relations
personnel; and


(e)                      preparation
and dissemination of news releases for national and international trade and consumer
publications.


2.12.2 Development and
implementation of the Hotel’s individual marketing program will be accomplished
substantially by Hotel Personnel, with periodic assistance from Corporate
Personnel with marketing and sales expertise. Any such assistance rendered by
Corporate Personnel shall be at no cost to Lessee or the Hotel.


2.12.3 On request from
Lessee, Operator shall communicate periodically with Lessee regarding the Hotel’s
marketing and sales program.


2.13 Automation.
Operator (a) will not install in the Hotel any computer hardware and wiring, or
information systems, including licensed proprietary software systems that must
be removed by Operator upon termination of this Agreement without the prior
written Approval of Lessee, which consent may be withheld by Lessee in its sole
and absolute discretion, (b) will provide Lessee with a written list of all
software utilized in the Hotel by or for Operator, and (c) if requested by
Lessee, will request and use reasonable efforts to obtain extensions of any
software or information system licensing agreement for up to ninety (90) days
following the termination of this Agreement.


2.14 Limitations on
Operator’s Authority. Notwithstanding the general grant of authority given
to Operator under Section 2.2 above or any other provision of this
Agreement and in addition to the various other provisions of this Agreement
that prohibit Operator from taking certain actions, or which allow certain
actions only if Lessee’s consent thereto has been



 39
 









obtained, Operator shall not, without the prior
written Approval of Lessee, which Approval Lessee may withhold in its sole and
absolute discretion (i) take any of the actions listed below unless funds
therefor are set aside in the Operating Plan and Budget, or (ii) except as
specifically provided below, perform any of the following actions in connection
with the Hotel and on behalf of or burdening Lessee:


(a) Institute legal proceedings involving monetary
Claims in excess of Twenty Five Thousand Dollars ($25,000) not covered by
insurance or as to which an insurer denies coverage or “reserves rights;”


(b) Purchase goods, supplies and services from itself
or an Affiliate, unless included in the approved Operating Plan and Budget and
subject to the provisions contained elsewhere in this Agreement, including,
without limitation, Sections 1.2, 2.2 and 2.8;


(c) Acquire any land or interest therein;


(d) Finance, refinance or mortgage any portion of the
Hotel (including any equipment in connection with its operations) or the revenue
due to Lessee therefrom;


(e) Sell (other than dispositions of FF&E, fixed
asset supplies and operating supplies in the ordinary course of business as
provided for in this Agreement), or otherwise transfer, pledge or place any
lien on the Hotel or any portion thereof (other than judgment liens in favor of
Operator with respect to amounts properly owed to Operator under or in
connection with this Agreement);


(f) In the event of a total or partial condemnation,
consent to any award or participate in any condemnation proceeding, except as
expressly provided for in this Agreement;


(g) Enter into any lease, renew or allow any lease to
automatically renew (unless such renewal is not optional on the part of
landlord) or modify or terminate any lease;


(h) Enter into any agreement that would cause Lessee
to incur pension or other employee retirement obligations after the expiration
or termination of this Agreement; or


(i) Enter into any obligation that causes a lien to be
placed on the Hotel or Real Property.



 40















ARTICLE 3


MANAGEMENT FEE AND REIMBURSABLE EXPENSES


3.1       Management
Fee.


3.1.1 For each Operating
Year, Lessee shall pay Operator, for the services to be provided pursuant to
this Agreement, the Management Fee calculated as follows:


(a) the Base Fee, plus


(b) the Incentive Fee.


Notwithstanding any
provision of this Agreement to the contrary, (A) except as expressly provided
in this Section 3.1.1 and Section 3.3 below, the Management Fees
are intended to be the sole fees, consideration or compensation payable to
Operator or its Affiliates in connection with the operation of the Hotel to
compensate Operator for all management oversight costs of the Hotel), (B)
Management Fees shall be computed separately for each Operating Year and shall
not be accumulated from Operating Year to Operating Year.


3.1.2 The Base Fee shall
be calculated and paid monthly in arrears based on the actual monthly Gross
Revenue for the Hotel and shall be payable on the fifteenth (15) day of each
calendar month during the term and at the expiration or sooner termination of
the Term. The Incentive Fee shall be paid annually on the earlier of (a) the
date that is fifteen (15) business days after receipt by Lessee of the Annual
Financial Statements for the applicable Operating Year or (b) ninety (90) days
after the end of such Operating Year.


3.1.3 Within thirty (30)
days after Lessee receives the Annual Financial Statements for each Operating
Year, Operator shall cause to be prepared and delivered to Lessee the Fee
Statement, and appropriate adjustments shall be made for any overpayment or
underpayment of the Management Fee and other amounts paid pursuant to Section
2.11, and any other fees and charges during such Operating Year. The Party
owing money as a result of the overpayment or underpayment during such
Operating Year shall pay such amount to the other Party within thirty (30) days
after the Fee Statement has been delivered by Operator to Lessee. In the event
that an audit discloses any discrepancy with the Fee Statement, the audit shall
control and Operator or Lessee, as applicable, shall make a payment in the
amount determined by the audit to the other party to correct for the error in
the Fee Statement.


3.1.4 The Management Fee
for the entire Lockout Period shall be equal to the greater of (i) the Base Fee
and the Incentive Fee earned for the Lockout Period, or (ii) an average of
$15,000 per month (i.e. $180,000 per annum). If the Base Fee for the last three
months of the Lockout Period exceeds 3% of Adjusted Gross Revenues for such
period, Operator shall credit to Lessee the amount of such excess ($45,000 -
(.03 X Adjusted Gross Revenues)) at the completion of the second twelve month
period in the Term.


3.2       Intentionally
Deleted.


3.3       Reimbursement
of Expenses.


3.3.1 Lessee shall
reimburse Operator for all Reimbursable Expenses incurred by Operator in
connection with the performance of this Agreement. Any costs and expenses
reimbursed pursuant to this Section shall constitute Operating Expenses and
shall be paid out of the Hotel Operating Accounts to Operator.



 41
 









3.3.2 Notwithstanding any
provision hereof to the contrary, in the event of any renovation of the Hotel,
Lessee shall have the right in its discretion to directly control the
disbursement of the payment of renovation expenses including, without
limitation, the right to review and approve invoices and confirm the completion
of work, the delivery of materials and the provision of services prior to
making any payment.


3.4       Place
and Means of Payment.


3.4.1 All amounts payable
to either Party under this Agreement shall be paid in United States Dollars in
immediately available funds.


3.4.2 All payments made
to a Party by the other Party under this Agreement shall be made at the place
for the giving of notice to the receiving Party set forth in Section 10.5,
or to such other place as the receiving Party shall designate in accordance
with the notice provisions of Section 10.5.


3.4.3 Unless otherwise
stated herein, any and all amounts that may become due to a Party from the
other Party hereunder shall bear interest from and after the respective due
dates thereof until the date on which the amount is received in the bank
account designated by the receiving Party, at the annual rate of the lesser of:
(a) ten percent (10%), and (b) the maximum rate allowed by applicable law;
provided that no interest shall be payable on amounts owed by Lessee to
Operator that Operator is authorized to pay directly to itself under the terms
of this Agreement (unless there are insufficient funds in the Hotel Operating Account
and Lessee has failed to provide adequate funds following request by Operator
in accordance with this Agreement).


3.5       No
Right of Setoff. All obligations of any party to make payments under this
Agreement are absolute and unconditional and not subject to any rights of
setoff.


ARTICLE 4


TERM AND TERMINATION


4.1       Term of Agreement.
Operator’s services pursuant to this Agreement shall commence as of the
Effective Date and shall end, unless this Agreement shall be earlier terminated
as provided in this Agreement, on the Expiration Date.


4.2       Events of Default.
Subject to the other provisions of this Agreement dealing with termination, if
at any time during the term of this Agreement any of the events set forth in
this Section 4.2 (“Event of Default”) occurs and continues beyond the
applicable grace period, if any, the non-defaulting Party may, at its option,
terminate this Agreement by giving notice to the other Party specifying a date,
not earlier than thirty (30) days after the giving of such notice, when the
Agreement shall terminate. In addition to its right of termination, the
non-defaulting Party shall be entitled to pursue all other remedies available
to it under applicable law as a result of such Event of Default. Events of
Default by Lessee, Operator, or either Party, are as follows:



 42
 









4.2.1 a failure by a
Party to pay any fees, expenses, or any other amounts due the other Party
pursuant to this Agreement and such failure is not cured within ten (10) days
following written notice thereof from the non-defaulting Party;


4.2.2 a material breach
of any representation, warranty, or covenant in this Agreement, or a default in
the performance of any obligation hereunder, which is not cured within thirty
(30) days following written notice thereof from the non-defaulting Party;
provided that, an Event of Default shall not exist, if curing the breach or
default is not possible within the thirty (30) day period and the defaulting
party commences to cure the breach or default within the thirty (30) day period
and thereafter proceeds diligently and in good faith to complete the cure, and
completes such cure within ninety (90) days after receipt of the original
notice;


4.2.3 the taking of any
action by a Party toward dissolution of its operations; the filing by either Party
of a general assignment for the benefit of creditors; the entry of a judgment
of insolvency against a Party; the filing by either Party of a voluntary
petition for relief under applicable bankruptcy, insolvency, or similar debtor
relief laws or regulations; the appointment (or petition or application for
appointment) of a receiver, custodian, trustee, conservator, or liquidator to
oversee all or any substantial part of a Party’s assets or the conduct of its
business; an order for relief against a Party under applicable bankruptcy,
insolvency, or similar debtor relief laws or regulations; or the. giving of
notice by either Party to any governmental body of insolvency or pending
insolvency or suspension of operations;


4.2.4 failure of either
Party to perform, keep or fulfill any of the other covenants, undertakings or
obligations (other than a failure to pay money described in Section 4.2.1
above) set forth in this Agreement, if (i) such failure has or could have a
material adverse affect on the operation of the Hotel or the rights and duties
of either Party hereto, and (ii) such failure is not cured within thirty (30)
days after written notice specifying such failure is received by the defaulting
party from the non-defaulting Party; provided that, an Event of Default shall
not exist, however, if curing the breach or default is not possible within the
thirty (30) day period and the defaulting party commences to cure the breach or
default within the thirty (30) day period and thereafter proceeds diligently and
in good faith to complete the cure and completes such cure within ninety (90)
days after receipt of the original notice;


4.2.5 any act or omission
by Operator or its Affiliate that causes or otherwise materially contributes to
the denial and/or loss of any liquor license held by Operator or Lessee for the
operation of the Hotel or any component thereof;


4.2.6 willful misconduct, fraud, theft or breach of
fiduciary duty by Operator;


4.2.7 willful misconduct, fraud or theft by the
Corporate Personnel


4.3 Lessee shall have the right to terminate this
Agreement upon the occurrence of either:


(i) Beginning in the twelve months ending April 30,
2006 and continuing through the end of the Term, if in any two (2) twelve month
periods ending April 30 (each, a “Performance Test Period”), actual Cash
Flow Before Incentive Fees for the Hotel is less than the following: (i)
$290,000 for the twelve months ending April 30, 2006; (ii) $1.2 million for the



 43
 









twelve months ending April 30, 2007; (iii) $1.5 million for the twelve
months ending April 30, 2008; and (iv) $1.5 million, adjusted annually by seven
percent (7%) for any twelve month period ending April 30 thereafter (each
dollar threshold a “Performance Test Base”). Each Performance Test Base is
subject to adjustment as a result of (i) Force Majeure events, or (ii)
renovations and other capital programs which take portion of the Hotel out of
service and have a material adverse impact on the operating results of the
Hotel, excluding, however, the proposed development of additional residential
units on the current Real Property as described in Recital A above, provided
such development does not cause hotel rooms to be out of service, a reduction
in spa capacity, or a reduction in operating hours of food & beverage outlets,
that have a material adverse impact on the operating results of the Hotel.
Notwithstanding the foregoing, Operator shall have a right to cure any failure
to attain the Performance Test Base. In order to effectuate a cure (if Operator
elects to do so), within thirty (30) days following its receipt of a
termination notice, Operator shall pay to Lessee a cure amount equal to the
difference between the actual Cash Flow Before Incentive Fees and the
Performance Test Base for the applicable Performance Test Period. If such cure
amount is greater than $50,000, then Lessee shall have the right to reject the
offer of payment of the cure amount and terminate this Agreement; or


(ii)       Operator
is not managing at least five (5) luxury hotels or resorts under the RockResorts
name.


If Lessee desires to terminate this Agreement pursuant to this Section
4.3, Lessee shall give notice to Operator. This Agreement shall terminate
thirty days after the delivery of such termination notice if Operator fails to
effectuate such cure within the thirty-day period provided for above.
Notwithstanding any provision in this Agreement to the contrary, the
Termination Fee shall not be payable by Lessee to Operator in the event that
Lessee terminates this Agreement pursuant to this Section 4.3.


Lessee and its Affiliates shall also have the right, without Operator’s
consent, to transfer the Hotel in a bona fide, arm’s-length sale to an
independent third-party transferee unencumbered by this Agreement. Lessee shall
give Operator written notice of the proposed termination as soon as reasonably
practicable, but in no event less than thirty (30) days prior to any such
transfer. If Lessee does not so exercise such termination right in connection
with such a transfer, then Lessee shall promptly provide to Operator such
information regarding the proposed purchaser as Operator may reasonably
request. Any notice of termination given pursuant to this Section 4.3 shall be
deemed ineffective if the related transfer to the purchaser thereafter is not
consummated. With respect to any termination of this Agreement effected
pursuant to this Section 4.3, Lessee shall pay to Operator the Termination Fee.


Lessee and its Affiliates may also sell, transfer or
otherwise convey (including any ground lease) the Hotel or Lessee’s interest
therein, without the express prior written consent of Operator, to a Qualified
Transferee. Lessee’s liability hereunder shall terminate upon such assignment.
Provided that this Agreement is not being terminated in accordance with the
terms hereof in connection with such transfer, any transferee of the Hotel
shall assume and agree to perform all of Lessee’s duties, obligations and
liabilities herein contained pursuant to an assignment and assumption agreement
in form and substance reasonably satisfactory to Operator.



 44
 









4.4 Operator’s and
Lessee’s Responsibilities Upon Termination.


Upon termination of this Agreement for any reason, the
following shall be applicable:


(i)                        Any
and all reasonable and necessary expenses arising as a result of such termination
or as a result of the cessation of Hotel operations by Operator (including
expenses arising under this Section 4.4) shall be for the sole account of
Lessee, and Lessee shall reimburse Operator immediately on receipt of any
invoice or invoices from Operator for any expenses, including those arising
from or in connection with the involuntary termination of the employment of
Hotel Personnel (with severance benefits as approved by Lessee on a case by
case basis) incurred by Operator in the course of effecting the termination of
this Agreement or the cessation of Hotel operations by Operator.


(ii)                     Lessee
shall pay Operator all Management Fees, Centralized Services Charges,
Reimbursable Expenses and other amounts due Operator under the terms of this
Agreement through the termination date. This obligation is unconditional and
shall survive the termination of this Agreement (including all amounts owed to
Operator that are not fully ascertainable as of the termination date), and
Lessee shall not have or exercise any rights of setoff, except to the.extent of
any outstanding and undisputed payments owed to Lessee by Operator under this
Agreement. In the alternative, subject to verification by Lessee, Operator
shall have the right to pay itself the foregoing fees and charges, expenses and
other amounts then due to it out of any available funds in the Bank Accounts.
Any dispute over payments claimed due and owing to Operator shall be subject to
the dispute resolution provisions of Section l0.7.


(iii)                  Operator shall peacefully vacate and
surrender the Hotel to Lessee on the effective date of such termination, and
the Parties shall execute and deliver any termination or other necessary
agreements either Party shall request for the purpose of evidencing the
termination of this Agreement.


(iv)                 Operator
shall assign and transfer to Lessee all contracts, leases and other similar
commitments respecting the Hotel, and the books and records of the Hotel in
accordance with Section 4.4(vi) below, excluding in either case those that
constitute Operator’s Proprietary Information; provided, however, Lessee
acknowledges that Operator may not have the ability to transfer to Lessee the
continuing benefits of any national contracts upon termination of this
Agreement and agrees that such contracts, leases, and agreements will not be
assigned, transferred or continued after such date.


(v)                    Lessee
shall honor, and shall cause any successor operator to honor, all business
confirmed for the Hotel, and for which consideration has been received, with
reservations (including, without limitation, reservations made in good faith by
Operator for employee complimentary rooms, Frequency Program, or pursuant to
Operator’s other promotional programs) dated after the effective date of the
termination in accordance with the terms of such



 45
 









bookings as accepted by Operator. Reservations for
complimentary rooms and services that were not entered for the benefit of the
Hotel, whether or not consistent with the Operating Plan and Budget, including
reservations entered for employee complimentary rooms, marketing of the
RockResorts brand, or as rewards under Operator’s frequent stay program, shall
be reimbursed by Operator at the applicable average room rate. Upon termination
of this Agreement for any reason, Operator shall provide Lessee with a copy of
the Hotel Guest Information. Lessee will assume and fully indemnify Operator
with respect to any advance deposits received by Operator, on behalf of the
Hotel. In addition, upon the expiration or termination of this Agreement, all
of the books of account and financial records that are the property of Lessee
shall be turned over forthwith to Lessee so as to ensure the continuity of
Hotel operations, but all of such information shall be retained by Lessee and
made available to Operator at the Hotel, at all reasonable times, for
inspection, audit, examination and copying (at Operator’s expense) for at least
four (4) years subsequent to the date of such expiration or termination.


(vi)                 Operator
shall assign to Lessee its interest (if any) in, and Lessee shall have the
continuing responsibility for all obligations and liabilities relating to, any
and all contracts (including, without limitation, collective bargaining
agreements leases, licenses or concession agreements and maintenance and
service contracts) in effect with respect to the Hotel as of the date of
termination of this Agreement, and Lessee shall confirm its obligations in
writing if requested by Operator. Operator shall not be obligated to assign
employee benefit, employee insurance and 401(k) plans that are maintained and
administered at the corporate level for employees of multiple facilities.


(vii)              Neither Lessee nor Operator, nor any
person acting on behalf of Lessee or Operator, shall directly or indirectly hold
itself or the Hotel out to the public as being or remaining (or otherwise
associated with) RockResorts, or any other hotel or resort owned or
managed by Operator or its Affiliates. Lessee shall immediately take all steps
reasonably requested by Operator to disassociate the Hotel and Lessee from the
Operator Trademarks, and shall in any event delete all Operator Trademarks from
the Hotel name and cease to use all FF&E and operating supplies bearing any
of the Operator Trademarks on the effective date of termination. If Lessee
fails to remove Operator Trademark-bearing Hotel signage on or prior to the
effective date of the termination, Operator shall have the right, at Lessee’s
expense, to remove and retain all such interior and exterior signage, provided
however, that Operator shall reimburse Lessee for any damage resulting from
such removal. Lessee shall cease using and Operator shall have the right to
remove from the Hotel, on or before the effective date of the termination, all
operations manuals, policy statements and the like, and any other Operator
Proprietary Information.


(viii)           Operator shall have the right to remove and
use at other properties that it or its Affiliates own or manage, any and all
signs, brochures, supplies, and other



 46
 









items bearing Operator Trademarks, but not the Lessee
Trademarks. To the extent that Lessee paid for such items, and such items are
new and reusable at one or more RockResorts properties, Operator shall
reimburse Lessee for such items at cost. Lessee may retain items purchased for
the account of Lessee and paid for by Lessee that bear only the Lessee
Trademarks. Operator shall destroy items bearing both the Lessee Trademarks and
the Operator Trademarks, without financial obligation on the part of Operator.
To the extent that the quantities of such items on hand are consistent with the
Operating Plan and Budget, adjusted for usage, Operator shall have no
obligation to reimburse Lessee for such items. Items on order, stored in
warehouse facilities, or on consignment with suppliers as of the Expiration
Date or other date of termination of this Agreement, shall be handled in like
manner.


(ix)                   As
of the effective date of the termination, Operator shall remove all computer
and electronic files containing Operator Proprietary Information from the Hotel
and shall disconnect the Hotel from the Operator’s reservations systems and
related software applications, provided that Lessee is assured immediate and
uninterrupted access to guest data, reservations, financial and other
information, non proprietary to Operator, and pertaining specifically to the
Hotel, in form usable by Lessee’s system. Operator shall promptly complete the
orderly transfer and conversion of any of Lessee’s records and data stored in a
format incompatible with Lessee’s system, and shall provide reasonable
assistance to Lessee in facilitating the transfer of any of Lessee’s records
and data to other formats not then in use by Lessee. To the extent Operator has
leased any computer equipment or telephone equipment for use at the Hotel in
accordance with the provisions of this Agreement pursuant to chain-wide
programs for the acquisition or leasing thereof, Lessee shall have the right,
at its option, either to request that any such lease be transferred to Lessee
(to the extent the same are transferable without the consent of third parties)
or that Operator seek to buy out the equipment covered by any such lease, at
Lessee’s sole cost. Any such lease transfer or buy-out shall be subject to the
consent or approval of the third party Lessor of such equipment. If not
assignable or if the same cannot be bought out, Operator shall remove all such
equipment from the Hotel at any time on or after the effective date of
termination of this Agreement, but in no event later than fourteen (14) days
thereafter.


(x)                      Notwithstanding
anything contained in this Agreement to the contrary, all time periods
specified herein with respect to the termination of this Agreement shall be
extended whenever necessary to avoid the imposition of a requirement that Hotel
Personnel be provided with pay in lieu of the minimum Sixty (60) days notice
specified by the Worker Adjustment Retraining and Notification Act (“WARN Act”).
If Lessee elects not to extend the Termination Date, it shall indemnify
Operator for any pay in lieu of notice and other damages that Operator is
required to pay under the WARN Act.



 47
















State of Colorado, with due regard being or to be
given to the then existing circumstances and to the type, construction, design,
use, and occupancy of the Hotel.


In the event that Operator cannot place the foregoing
insurance at premiums and otherwise on terms and conditions (including amounts
of coverage and deductibles) at least as advantageous to Lessee as the premiums
and other terms and conditions available to Lessee under blanket insurance
policies available to Lessee from time to time, then Lessee may arrange for
such insurance at Lessee’s cost and expense. If Lessee desires to place its own
insurance, Lessee shall provide Operator with at least sixty (60) days prior
written notice to such effect.


Notwithstanding anything to the contrary in the
Agreement, Operator shall not place any insurance with respect to the Hotel
under this Agreement unless and until such insurance has been reviewed and
approved by Lessee.


5.2       Special Conditions or
Hazards. Operator shall disclose to the Lessee the presence of any
condition or hazard within the Knowledge of Operator, and Lessee shall likewise
disclose to Operator, the existence of any condition or hazard within the
Knowledge of Lessee, to the extent that such condition or hazard may create or
contribute to any Claims, damages, losses, or expenses not typically insured
against by the coverages specified in Section 5.1 (a). If any such
condition or hazard requires removal, abatement, or any other special
procedures, such special procedures shall be performed at Lessee’s expense in
compliance with all Legal Requirements. Conditions or hazards to which this Section
5.2 refers include: latent risks to health such as asbestos, silicosis,
toxic or hazardous chemicals, and waste products; hazards to the environment
such as underground storage tanks; and latent or patent toxic, nontoxic,
abrasive, or irritant pollutants. At Lessee’s expense, Operator shall endeavor
to obtain appropriate insurance coverage against such conditions and hazards to
protect the interests of both Operator and Lessee.


5.3       Casualty Insurance.


5.3.1 Subject to Section
5.4 below, Lessee shall, at all times during the term of this Agreement,
and at Lessee’s cost and expense, keep the Hotel buildings, and their contents,
insured (through Operator’s insurance programs or Lessee’s own insurers) for
the benefit of Lessee and Operator, as their interests may appear:


(a) against “all risks” of physical loss or damage for
the Full Replacement Value thereof, in form no less comprehensive than ISO Form
CP 10 30 (ED 10/91), as amended from time to time, and without exclusion for
loss or damage by fire, lightning, windstorm, hail, explosion, riot, civil
commotion, aircraft, vehicles, smoke, vandalism, malicious mischief, sprinkler
leakage, volcanic action, breakage of glass, falling objects, weight of ice and
snow or sleet, water damage, weather conditions, or collapse;


(b) against such other “all risk” perils, including
earthquake and flood, commonly insured against by a Difference in Conditions
insurance policy in such amounts as



 49
 









are obtainable from time to time, but in no event in
amounts less than those required under the terms of the Mortgage(s);


(c) on equipment for the supply or control of heat,
light, power, hot water, cold water, gas, refrigeration, or air conditioning
against direct or consequential loss or damage, as customarily covered under a
Boiler and Machinery policy with a comprehensive definition of insured
equipment, in the amount of at least Five Million Dollars ($5,000,000) or
amounts as Lessee may from time to time reasonably require;


(d) for such other risks (including loss to fine arts,
accounts receivable, valuable papers and records, electronic media and records,
and shipments in transit) that, at the time, are commonly insured against by
Lessees of hotel premises in the State of Colorado, with due regard being or to
be given to the then existing circumstances and to the type, construction, design,
use, and occupancy of the Hotel; and


(e) against “Business Interruption and Extra Expense”
(as that phrase is used within the United States insurance industry for
application to transient lodging facilities) in form no less comprehensive than
ISO Form CP 00 30 (10/91), as amended from time to time, resulting from loss or
damage from the hazards specified above, to owned or non-owned property, which
prevents normal operations from continuing; such coverage shall: be on an “Actual
Loss Sustained” basis in an amount equal to at least one (1) year’s expected
net income before income tax (calculated according to Generally Accepted
Accounting Principles and t|ie Uniform System), plus continuing normal
Operating Expenses, including Operator’s Management Fee, Reimbursable Expenses
and other amounts payable to Operator under this Agreement, that necessarily
continue, notwithstanding the business interruption; the insurance shall also
provide “extended period of indemnity” or “extended business income” provisions
for payment of loss until normal operations resume, but in any event for a
period of not less than one hundred eighty (180) days after business operations
have resumed; the insurance shall also include an “ordinary payroll”
endorsement for a minimum of ninety (90) days.


Notwithstanding anything to the contrary in the
Agreement, Operator shall not place any insurance with respect to the Hotel
under this Agreement unless and until such insurance has been reviewed and
approved by Lessee.


5.4       Parties
Insured and Amounts of Coverage.


5.4.1 The carriers of all
insurance policies provided by Lessee or Operator under this Agreement shall be
rated no less than A-, in the most recent “Best” insurance guide and shall be
licensed in the State of Colorado and shall be subject to the Approval of
Lessee and Operator. All insurance policies provided for in this Article 5
shall include:



 50
 









(a) Operator and Lessee as parties insured thereunder,
as their interests may appear;


(b) where appropriate and/or as required by any
Mortgage, endorsement(s) in favor of Mortgagee(s), as its interest may appear;


(c) where appropriate (including the insurance
provided for in Section 5.1(a)), the insurer’s waiver of subrogation
rights against Operator and Lessee; and


(d) a requirement that the insurer provide at least
thirty (30) days’ written notice of cancellation or material change in the
terms and provisions of the applicable policy and ten (10) days’ written notice
of cancellation for non-payment of premiums.


5.4.2 All insurance
carriers and programs shall be subject to the reasonable Approval of Lessee,
Operator and any Mortgagee. If the insurance referred to in Section 5.3.1
could be obtained at lower premiums and otherwise on terms and conditions
including amounts of coverage and deductibles more advantageous to Lessee under
blanket insurance policies available to Operator from time to time, then Lessee
or Operator may request that such insurance be placed by Operator at Lessee’s
cost and expense, subject to the provisions of this Section 5.4.


5.4.3 In the event that
either Party desires to make a change in the carrier, type or amount of any of
the insurance policies to be maintained under this Agreement, it shall notify
the other Party of the desired change at least sixty (60) days in advance of
the expiration of the current policy proposed to be changed. The parties shall
promptly thereafter meet to discuss and resolve any questions or disagreements
with respect to the proposed change, and each Party agrees not to withhold or
delay its consent unreasonably to any such proposed change requested by the
other Party so long as such requested change is consistent with the standards
described in this Article 5. In any event, the parties agree to work
diligently and in good faith to resolve any disagreements with respect to the
proposed change as quickly as possible so that a determination of the coverage
to be maintained for any period of time can be made at least sixty (60) days in
advance of the expiration date of the policy or policies proposed to be
changed.


5.5       Evidence
of Insurance.


5.5.1 As soon as
practicable, the Party responsible for providing the insurance coverages under
this Article 5 shall provide the other Party with certificates of
insurance evidencing that the applicable insurance requirements of this
Agreement have been satisfied. As soon as practicable prior to the expiration
date of each such policy, the Party obtaining such insurance shall provide the
other Party with updated certificates s evidencing renewal of existing or acquisition
of new coverages. Upon the request of either Party, the other party shall
provide a certified copy of any renewed or new policy


5.5.2 On request, each
Party shall furnish the other with a schedule of insurance obtained under this Article
5, listing the policy numbers of the insurance obtained, the names of the
companies issuing such policies, the names of the parties insured, the amounts
of coverage, the expiration date or dates of such policies, and the risks
covered thereby.



 51
 









5.6       Reports
by Operator. Operator shall promptly:


5.6.1 cause to be
investigated all accidents and Claims for damage relating to the operation and
maintenance of the Hotel, as they become known to Operator, and shall report to
Lessee any such incident in which the claimant is seeking more than $5,000 or
with respect to which, Operator projects the exposure to be greater than
$5,000;


5.6.2 cause to be
investigated all damage to or destruction of the Hotel, as it becomes known to
Operator, and shall report to Lessee any such incident that appears to require
repair expenditures of greater than $5,000, together with the estimated cost of
repair thereof;


5.6.3 prepare any and all
reports required by any insurance company as the result of an incident
mentioned in this Section 5.6, acting as the sole agent for all other
named insureds, additional insureds, mortgagees, and loss payees; and


5.6.4 retain on behalf of
Lessee all consultants and experts, including architects, engineers,
contractors, accountants, and attorneys, as needed, and at Lessee’s expense, to
assist in analyzing any loss or damage, determining the nature and cost of
repair, and preparing and presenting any Proofs of Loss or Claims to any
insurers (with Lessee’s prior written consent in the event that the total cost
exceeds $15,000).


5.7       Review of Insurance.
All insurance policy limits provided pursuant to this Article 5 shall be
reviewed by the Parties every year following the Effective Date, or sooner if
reasonably requested by Operator, to determine the suitability of such
insurance limits in view of exposures reasonably anticipated over the ensuing
three (3) years. Lessee and Operator hereby acknowledge that changing practices
in the insurance industry and changes in the local law and custom may
necessitate changes or additions to types or amounts of coverage during the
term of this Agreement. Lessee agrees to comply with any other insurance
requirements Operator reasonably requests in order to protect the Hotel and the
respective interests of Lessee and Operator.


ARTICLE 6


MORTGAGES


6.1       Right
To Mortgage Hotel.


6.1.1 Lessee shall have
the absolute and unrestricted right from time to time in its sole and absolute
discretion to encumber its interest in all of the assets that comprise the
Hotel, any part thereof, or any interest therein, including the leasehold
interest in real estate on which the Hotel is constructed, the Hotel building
and all improvements thereto, and all FF&E and hotel equipment and
operating supplies placed in or used in connection with the operation of the
Hotel and all accounts, receivables and other personal property relating to the
Hotel, as contemplated in any Mortgage that is entered into by Lessee. In
connection with any financing for the Hotel, Lessee shall have the right,
subject to Section 6.2 below, to assign to any Mortgagee as collateral
security for any loan secured by the Mortgage, all of Lessee’s right, title,
and interest in and to this Agreement. Lessee shall provide Operator with the
name and address of any Mortgagee of Lessee. Any Mortgagee’s interest in the
Hotel, Real Property and other



 52
 









assets of Lessee or Lessee that comprise the Hotel
shall be senior to the rights and interests of Operator or any Affiliate
thereof.


6.1.2 Operator agrees
that no notice of a default to Lessee shall be of any force or effect unless
Operator shall simultaneously give notice thereof to the Mortgagee by
registered or certified mail at the address that it has provided to Operator in
writing. Any Mortgagee shall have forty-five (45) days from the date it receives
notice from Operator of a default to cure any non-monetary default of Lessee
and twenty (20) days from the date it receives notice from Operator to cure any
monetary default of Lessee; provided that, (a) a Mortgagee shall have no
obligation to cure or attempt to cure any default, (b) if a Mortgagee cures a
default within the applicable cure period, this Agreement shall not be
terminated by Operator, and (c) if a Mortgagee (or its successor, assignee or
nominee) acquires title to the Hotel through foreclosure, deed in lieu of
foreclosure or other similar manner and this Agreement has not previously been
terminated, Operator shall not have the right to terminate this Agreement in
connection with any default of Lessee arising prior to the transfer of title,
but Operator shall retain all of its rights and remedies under this Agreement
with respect to any post-transfer default by Mortgagee or any
successor-in-interest of Mortgagee.


6.1.3 On reasonable
advance notice from a Mortgagee, Operator shall accord to such person or entity
and its agents the right to enter on any part of the Hotel at any reasonable
time for the purposes of examining, inspecting, or making extracts from the
books of account and financial records of the Hotel; provided, however, that any
expenses of such activities shall be Operating Expenses of the Hotel; and
provided, further, that Operator shall have the right to schedule such
activities at times when a Senior Manager is at the Hotel and available to
coordinate the activities of such Mortgagee or its agents.


6.2       Assignment of Management
Agreement; Subordination Agreement. Lessee may freely assign this Agreement
to any Mortgagee and on request at any time and from time to time during the
term of this Agreement, Operator shall execute, acknowledge, and deliver to
Lessee or any Mortgagee a Subordination Agreement confirming that this
Agreement is subordinate to the Mortgage held by such Mortgagee (and may result
in a termination of this Agreement upon foreclosure depending upon the express terms
and conditions of such Subordination Agreement). Operator expressly
acknowledges and agrees that it shall not be entitled to object to, and
Operator will execute, any proposed Subordination Agreement that except, and to
the extent this Agreement is terminated under the terms and conditions of the
Subordination Agreement or otherwise by Mortgagee, (i) does not prevent
Operator from receiving Management Fees under the terms of this Agreement or
(ii) does not result in a material and adverse change to the amount of
Management Fees or to the terms and conditions for the payment of the
Management Fees; (iii) does not materially and adversely increase Operator’s
potential liability hereunder and (iv) does not increase the time period prior
to which Operator is entitled to terminate this Agreement on Lessee default.


6.3       Estoppel Certificate.
On request at any time and from time to time during the term of this Agreement,
Operator shall execute, acknowledge, and deliver to Lessee or any Mortgagee
within ten (10) days following Lessee’s request therefor, a certificate: (a)
certifying that this Agreement has not been modified and is in full force and
effect (or, if there have been modifications, that the same is in full force
and effect as modified and specifying the



 53
 









modifications); (b) stating whether, to the best
knowledge of the signatory of such certificate, any default exists, including
any Event of Default, and if so, specifying each default of which the signatory
may have knowledge; and (c) providing any additional information reasonably
requested by Lessee or Mortgagee; provided, however, that in no event shall
Operator be required to agree to any modifications or waivers with respect to
this Agreement or other agreements in effect between the Parties.


ARTICLE 7


DESTRUCTION; TAKING


7.1       Casualty/Condemnation.
If the whole or any part of the real or personal property used in the operation
of the Hotel is damaged or destroyed by a peril, or upon a Taking of either the
fee interest in or a perpetual easement on the Hotel, then Lessee shall either
(i) repair, restore, replace, or rebuild the Hotel as nearly as is reasonably
possible to the value, condition, and character of the Hotel immediately prior
to the occurrence of the damage, destruction, or Taking, or terminate this
Agreement without the payment of any termination fee.


ARTICLE 8


[Intentionally Omitted]


ARTICLE 9


ASSIGNMENT


9.1       Restrictions
on Assignment.


9.1.1 Except as expressly
provided otherwise in Section 4.3, Section 6.1 or Section 9.2,
Lessee shall not assign, pledge, encumber, or otherwise transfer in any manner
its interest in this Agreement without the prior consent of Operator. Any
transfer by Lessee in violation of the terms of this Section 9.1.1 shall
be void and of no force as to Operator and shall be considered an event of
default.


9.1.2 Except as otherwise
provided in this Agreement, Operator shall not assign, pledge, encumber, or
otherwise transfer its interest in this Agreement without the prior consent of
Lessee. Any transfer by Operator in violation of the terms of this Section
9.1.2 shall be void and of no force as to Lessee.


9.1.3 Subject to Section
9.2 below, for purposes of this Article 9, the terms “assign” and “assignment”
include a reference to:


(a) all direct and indirect transfers of the rights or
obligations of the Parties under this Agreement and all direct and indirect
transfers of any beneficial interest in such rights or obligations;


(b) any transfer of an aggregate of more than fifty
percent (50%) (measured by fair market value or voting power) of the equity
ownership interests (whether



 54
 









partnership interests, corporate stock or otherwise),
including any transfer of any beneficial Ownership of such interests, by an
investor or investors of either Party during any consecutive twelve-month
period;


(c) any transfer of an aggregate of more than fifty
percent (50%) (measured by fair market value or voting power) of the equity
ownership interests (whether partnership interests, corporate stock or
otherwise), including any transfer of any beneficial Ownership of such
interests, by an investor or investors of any constituent owner of either Party
during any consecutive twelve-month period;


(d) any change in the actual or effective voting
control of either Party or a constituent owner of either Party; and


(e) a sale or transfer of all or a substantial part of
the assets or other business interests of Operator.


9.2       Notwithstanding
the terms and conditions of Section 9.1:


9.2.1 Operator expressly
understands and agrees that notwithstanding anything to the contrary in this
Agreement and without the same being deemed an assignment, pledge, encumbrance,
or other transfer:


(a) Any direct or indirect owner of a membership,
partnership or other interest in Value Enhancement Fund V, L.P., VEF V Holdings,
LLC, or VEF Group Management, LLC (collectively, “VEF”) may freely sell, assign
or otherwise transfer any direct or indirect interest in VEF without the
consent of Operator;


(b) Any direct or indirect owner of a membership,
partnership or other interest in Pharos Cordillera, LLC or Pharos Group, LLC
(collectively, “Pharos”) may freely sell, assign or otherwise transfer any
direct or indirect interest in Pharos without the consent of Operator;


(c) Lessee may restructure ownership of the Hotel by
conveying the same to entities controlled by Constituent owners of Lessee as
tenants-in-common and transferring Lessee’s interest in this Agreement to an
operating entity (controlled by such Constituent owners) without fee interest
in the Hotel, provided that with respect to Lessee’s obligations and
indemnifications hereunder, at Lessee’s option: (1) such tenants in common
remain jointly and severally liable for such obligations and indemnifications
(in which case, Lessee will deliver to Operator a fully-executed counterpart
original of the document reflecting same), or (2) an entity or entities having
aggregate net worth equal to the then current value of 100% of the equity
ownership interests in the Hotel from time to time shall jointly and severally
guarantee such obligations and indemnifications up to an amount equal to the
value of such interests from time to time (in which case, Lessee will deliver
to Operator a fully-executed original guaranty in form and substance reasonably
acceptable to Operator), or (3) Lessee provides such other assurance of the
payment of liabilities resulting from such obligations and indemnifications as
is acceptable to Operator;



 55
 









(d) A Constituent owner, partner or member of Lessee
may transfer interests in Lessee to another Constituent owner, partner or
member of Lessee;


(e) A Constituent owner,
partner or member of Lessee may transfer its non- controlling interest in
Lessee to any individual or entity, in each case without the prior consent of
Operator;


(f) Lessee may assign this
Agreement to the Fee Owner or any party that controls Fee Owner; and


(g) Lessee may sell or
transfer its interest in the Hotel to any entity that is an Affiliate of Lessee
and has assumed and agreed in writing to be bound by all of the terms of this
Agreement (such writing referred to herein as the “Assignment and Assumption
Agreement”) and has delivered a fully-executed counterpart original of the
Assignment and Assumption Agreement to Operator.


In the event that Lessee or Fee Owner transfers a
leasehold or ownership interest to an entity that is a competitor of Operator
in the management of luxury resort properties, creating a circumstance where,
in Operator’s sole judgment, Operator Proprietary Information could not be
effectively protected from misappropriation or disclosure, Operator shall have
the right to terminate this Agreement, effective prior to the completion of the
transfer of the leasehold or ownership interest to the competitor.


9.2.2 (a) Notwithstanding
anything to the contrary in this Agreement, in no event shall Lessee’s consent
be required for any assignment, pledge, encumbrance or other transfer of (i)
Operator’s interests in this Agreement or any interests in Operator to an
Affiliate of Operator, or (ii) any interests in properties owned or managed by
Operator or an Affiliate of Operator or in any entity owning a direct or
indirect interest in Vail Properties; it being expressly understood and agreed
by Lessee and Operator that such assignments, pledges, encumbrances and other
transfers shall be freely permitted without the consent of Lessee. It shall be
a condition to any assignment or other transfer of Operator’s interests in this
Agreement (but not to any assignment or transfer of direct or indirect
interests in Operator or any other entity) that the assignee or transferee of
this Agreement has assumed and agreed in writing to be bound by all of the
terms of this Agreement (such writing referred to herein as the “Operator
Assignment and Assumption Agreement”) and has delivered a fully-executed
counterpart original of the Operator Assignment and Assumption Agreement to
Lessee.


(b) Operator agrees to
give Lessee not less than thirty (30) days prior written notice (the “Transfer
Notice”) of any proposed assignment or transfer of Operator’s interests in this
Agreement. Upon receipt of any Transfer Notice, Lessee shall have the right, by
giving written notice (the “Termination Notice”) to Operator not earlier than
twenty (20) days and not later than thirty (30) days after the giving of the
Transfer Notice by Operator, to terminate this Agreement if Operator has not
demonstrated to Lessee’s reasonable satisfaction prior to the giving of such
Termination Notice that, immediately after the assignment or transfer described
in the Transfer Notice, Operator (or its assignee or transferee of this
Agreement, if applicable) will have access to the hotel management expertise of
RockResorts and its subsidiaries to substantially the same degree as Operator
(or its assignor or transferor of this



 56
 









Agreement, if applicable) had immediately prior to
such assignment or transfer. Upon any such termination pursuant to this Section
9.2.2 (b), the provisions of Section 4.4 hereof shall apply, and the
Termination Fee shall not be payable by Lessee.


9.3       Effect of Permitted Assignments.
Consent to any particular assignment shall not be deemed to be consent to any
other assignment or waiver of the requirement that consent be obtained in the
case of any other assignment. Notwithstanding anything to the contrary in this
Agreement, upon any such assignment or other transfer of Lessee’s or Operator’s
interests in this Agreement, as the case may be, that complies with the terms
and conditions of Section 9.1.1, 9.1.2, 9.2.1 or 9.2.2,
(1) the assignor or transferor (and its Affiliates and their respective
officers, directors, shareholders, partners, members, agents, employees) shall
be released and relieved from all liabilities and obligations under this
Agreement arising or accruing on or after the effective date of the assignment
or transfer, and (2) if and to the extent assumed by the assignee or
transferee, the assignor or transferor (and its Affiliates and their respective
officers, directors, shareholders, partners, members, agents, employees) shall
be released and relieved from all such liabilities and obligations arising or
accruing prior to the effective date of the assignment or transfer, and Lessee
or Operator, as the case may be, shall look only to and have the right to
enforce this Agreement directly and only against the assignee/transferee and
its successors and assigns for the satisfaction of any such obligations. In the
case of an assignment by Lessee, Operator shall be entitled to continue
operating the Hotel under the terms and conditions hereunder for the remainder
of the Term and shall earn its fees hereunder; provided, however, and
notwithstanding Section 9.2 to the contrary, Lessee shall be entitled to
assign or transfer Lessee’s interest in the Hotel or this Agreement to any
assignee/transferee that does not meet the criteria of Section 9.1.1 or Section
9.2 without Operator’s consent but in such case, Lessee shall send Operator
written notice and, whether or not Lessee sends such notice, Operator shall
have the right to terminate this Agreement and, if such termination takes place
during the Lockout Period, Operator shall be entitled to the Lockout
Termination Fee.


9.4       Sale of the Hotel.
Nothing in this Article 9 shall in any way restrict the right of Lessee to sell
the Hotel and terminate this Agreement in accordance with the provisions of
Section 4.3 hereof.


ARTICLE 10


MISCELLANEOUS


10.1     Compliance With Legal
Requirements. Lessee and Operator shall, as an Operating Expense of the
Hotel, endeavor to ensure that such aspects of the business being conducted at
the Hotel over which they have direct control are in full compliance with all
Legal Requirements. Lessee shall act in a manner consistent with prudent
business judgment with respect to providing adequate funds to comply with
applicable Legal Requirements.


10.2     Governing Law. This
Agreement and all disputes relating to the performance or interpretation of any
term of this Agreement shall be construed in accordance with and governed by
the laws of the State of Colorado applicable to contracts to be performed
entirely within that jurisdiction.



 57
 









10.3     Waivers, Modifications,
Remedies. No failure or delay by a Party to insist on the strict
performance of any term of this Agreement, or to exercise any right or remedy
consequent on a breach thereof, shall constitute a waiver of any breach or any
subsequent breach of such term. Neither this Agreement nor any of its terms may
be changed, waived, discharged, or terminated except by an instrument in
writing signed by the Party against whom the enforcement of the change, waiver,
discharge, or termination is sought. No waiver of any breach shall affect or
alter this Agreement, but each and every term of this Agreement shall continue
in full force and effect with respect to any other then existing or subsequent
breach thereof. The remedies provided in this Agreement are cumulative and not
exclusive of the remedies provided by law or in equity.


10.4     Severability of Provisions.
If a court of competent jurisdiction or an arbitrator determines that any term
of this Agreement is invalid or unenforceable to any extent under applicable
law, the remainder of this Agreement (and the application of this Agreement to
other circumstances) shall not be affected thereby, and each remaining term
shall be valid and enforceable to the fullest extent permitted by law.


10.5     Notices. All notices,
consents, determinations, requests, Approvals, demands, reports, objections,
directions, and other communications required or permitted to be given under
this Agreement shall be in writing and shall be deemed to have been duly given
and to be effective on the date upon which such communications are delivered by
facsimile, or by DHL, Federal Express, or other similar courier service or by
the United States Postal Service or its successor after being deposited in the
United States Mail as Express Mail or as registered or certified matter,
postage prepaid, return receipt requested, addressed as follows:


	
  If to Operator:

  	
  RockResorts International, LLC

  2401 East Second Ave., Suite 600

  Denver, Colorado 80206

  Attention: Ed Mace

  Phone: (720) 945-2488

  Fax: (720) 945-2499

  
	
   

  	
   

  
	
   

  	
  RockResorts International, LLC

  137 Benchmark Road

  Avon, Colorado 81620

  Attention: Martha D. Rehm

  Phone: (970) 845-2927

  Fax: (970) 845-2928

  
	
   

  	
   

  
	
  With a copy to:

  	
  Squire Sanders & Dempsey L.L.P.

  Two Renaissance Square

  40 North Central Ave., Suite 2700

  Phoenix, Arizona 85004

  Attention: Richard F. Ross, Esq.

  Phone: (602) 528-4018

  Fax: (602) 253-8129

  



 



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  If to Lessee:

  	
  Colorado Hotel Operator,
  Inc.

  Pharos Group, LLC 

  175 E. 400 South, Suite 607 

  Salt Lake City, UT 84111-2351

  Phone: (801) 961-7600 

  Fax: (801) 961-7601 

  Attn: Harry Rosenthal

  
	
   

  	
   

  
	
  With
  a copy to:

  	
  VEF Advisors, LLC

  3340 Peachtree Road, NE 

  Tower Point 100, Suite 1660

  Atlanta, GA 30326 

  Phone: (678) 538-1915 

  Fax: (678) 538-1916 

  Attention: Stan Breon

  
	
   

  	
   

  
	
  With a copy to:

  	
  Hotel Asset Value Enhancement, LLC

  651 Main Road 

  Tiverton, RI 02878 

  Phone: (401) 816-0222 

  Fax: (401) 816-0195 

  Attention: Michelle Russo

  
	
   

  	
   

  
	
  With a copy to:

  	
  Paul Hastings, Janofsky & Walker

  515 South Flower Street, 25th Floor 

  Los Angeles, CA 90071 

  Attention: Alan Weakland 

  Phone: (213) 683-6241 

  Fax: (213) 996-3241

  



 


or at such other address as the Party to whom the
notice is sent has designated in accordance with the provisions of this Section
10.5.


10.6     Successors and Assigns.
Subject to the provisions of Articles 6 and 9, this Agreement
shall inure to the benefit of and shall be binding on the successors and
assigns of the Parties.


10.7     Indemnification.


10.7.1 Operator shall
indemnify and hold harmless Lessee and its Affiliates and their respective
partners, members, shareholders, directors, officers, employees and agents (“Lessee’s
Parties”) from and against any and all liability, loss, damages, costs and
expenses (including, without limitation, reasonable attorneys’ fees) (Liabilities)
incurred by reason of the management and operation of the Hotel by Operator
during the Term only insofar as such



 59
 









Liabilities are caused by the gross negligence,
willful misconduct or fraud of Operator’s Corporate Employees. Notwithstanding
anything contained in the immediately preceding sentence, nothing contained
herein shall be deemed to limit or modify Operator’s indemnity obligations to
Lessee with respect to any Liabilities to the extent that such Liabilities are
the result of (i) the gross negligence or willful misconduct of Operator’s
Corporate Employees which causes or directly results in a violation of Legal
Requirements, (ii) the gross negligence or willful misconduct of Operator’s
Corporate Employees pertaining to the adoption or implementation of employment
policies or practices or in connection with the supervision of the Senior
Managers, or (iii) fraud on the part of Operator’s Corporate Employees.


10.7.2 Except to the
extent of Operator’s obligation to indemnify Lessee pursuant to Section 10.7.1
above, Lessee shall indemnify and hold harmless Operator and its shareholders
and Affiliates and their respective partners, members, shareholders, directors,
officers, employees and agents from and against any and all Liabilities
accruing from and after the Effective Date (including those caused by the
simple negligence of the indemnitee and those as to which the indemnitee may be
strictly liable), (i) arising out of or incurred in connection with the ownership,
construction, renovation, management or operation of the Hotel, (ii) which may
be asserted or arise as a direct or indirect result of the presence on or
under, or escape, seepage, leakage, spillage, discharge, emission or release
from the Hotel of any hazardous materials or arise out of or result from the
environmental condition of the Hotel or the applicability of any Legal
Requirements relating to Hazardous Materials, (iii) the holding of the liquor
license for the Hotel, or (iv) asserted, arising out of, or incurred as a
direct or indirect result of the termination of any Hotel Personnel in
connection with the termination of this Agreement.


10.7.3 In case an action
covered by this Section 10.7 is brought against any indemnified Party, the
indemnifying Party, subject to the rights of the insurer in the case of an
insured claim, will be entitled to assume the defense thereof, subject to the
provisions herein stated, with counsel reasonably satisfactory to such
indemnified Party, and after notice from the indemnifying Party to such
indemnified Party of its election to so assume the defense thereof, the
indemnifying Party will not be liable to such indemnified Party for any legal
or other expenses subsequently incurred by such indemnified Party in connection
with the defense thereof. No indemnifying Party shall consent to the entry of
any judgment or enter into any settlement without the consent of the
indemnified Party that does not include as an unconditional term thereof the
giving by each claimant or plaintiff to the indemnified Party of a release from
all liability in respect of such action. The indemnified Party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall not be at the
expense of the indemnifying Party if the indemnifying Party has assumed the
defense of the action; provided that the fees and expenses of the
indemnified Party’s counsel shall be at the expense of the indemnifying Party if
(i) the indemnifying Party fails to responsibly or timely assume and maintain
the defense of such action, (ii) the employment of such counsel has been
specifically authorized in writing by the indemnifying Party or (iii) such
indemnified Party shall have been advised by counsel in writing that there is a
conflict of interest or issue conflict involved in the representation by
counsel employed by the indemnifying Party in the defense of such action on
behalf of the indemnified Party or that there may be one or more legal defenses
available to such indemnified Party which are not available to the indemnifying
Party (in which case, as to this clause (iii), the indemnifying Party shall not
have the right to assume the defense of such action on behalf of such indemnified
Party, it being understood,



 60















however, that the indemnifying Party shall not, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys for the indemnified Party, which firm
shall be designated in writing by the indemnified Party). If the indemnifying
Party fails to responsibly assume and maintain the defense of such action as
above provided, the indemnified Party, without prejudice to any other remedy it
may have, may assume the defense of such action at the expense of the
indemnifying Party; provided, however, that the indemnified Party
shall make no settlement, compromise, admission, or acknowledgment that would
give rise to liability on the part of any indemnifying Party without the prior
written consent of such indemnifying Party.


10.7.4 Notwithstanding
anything to the contrary contained in this Agreement, if Operator’s right to
indemnification arises from an Event of Default on the part of Operator, such
event shall not obviate Lessee’s obligation to indemnify Operator under the
terms of Section 8.5(b) of this Agreement; however, if Lessee is required to
pay amounts to third parties in connection with the event giving rise to the
indemnification, Lessee may include such amounts (solely to the extent not
covered by or in excess of the insurance required to be maintained by Lessee
under this Agreement) in its calculation of damages in any action brought by
Lessee against Operator for the Event of Default. Lessee’s recovery of damages
under the preceding sentence shall be subject to Lessee’s obligation to
maintain the insurance coverage set forth in this Agreement, and shall not
include any deductibles or any self-insurance retainage amounts paid by Lessee.
The indemnities provided for in this Section 10.7 are not intended to, and do
not apply to any dispute or litigation between Lessee and Operator regarding
the terms and provisions of, the interpretation of, or the failure of
performance by one of such parties under, this Agreement.


10.7.5 Notwithstanding anything to the contrary set
forth in this Section 10.7 or elsewhere in this Agreement, for purposes of
determining the scope of Lessee’s indemnification and other obligations under
this Agreement, Operator shall have recourse solely against the Guarantor, and
any successor in interest to Guarantor as owner of Fee Owner, and such recourse
shall be limited to the interest of Fee Owner (and any successor) in the Hotel
(including net proceeds of sale or insurance) and, without limiting the
foregoing, Operator shall not have any right to satisfy any judgment that it
may have against Lessee or Fee Owner, or any successor to either, from any (a)
other assets of Fee Owner, Lessee, or any successor, or (b) from any partner,
shareholder, member, officer, director, or other employee of Lessee or Fee
Owner or any of their successors.


10.7.6 The provisions of this Section 10.7 shall
survive any termination or expiration of this Agreement, whether by lapse of
time or otherwise, for a period equal to twenty-four (24) months and shall be
binding upon the parties hereto and their respective successors and assigns for
such period, but the end of the survival period shall not affect any claim
hereunder that was asserted in writing before the end of the survival period.


10.8     Limitation on Pledging
Lessee’s Credit. Except as is necessary or advisable for the purchase of
goods and services in connection with the operation and management of the Hotel
within the scope of this Agreement, Operator shall not borrow any money or
execute any credit obligation in the name of and on behalf of Lessee or pledge
the credit of Lessee without



 61
 









Lessee’s prior consent. Operator shall indemnify
Lessee against any Claims, suits, liabilities, costs, and expenses, including
attorneys’ fees and costs, which may be asserted against or incurred by Lessee
because of any such unauthorized actions by Operator.


10.9     Entire Agreement. This
Agreement and the Exhibits hereto constitute the entire contract between the
Parties and supersede all prior contracts and understandings, written or oral,
with respect to the subject matter hereof. In the event of any inconsistency
between the provisions of this Agreement and the provisions of any Exhibit, the
terms of this Agreement shall control.


10.10   Counterparts. This
Agreement may be executed in two or more counterparts, each of which shall be
an original, but all of which shall constitute one and the same instrument.


10.11   Captions. The Table of
Contents and captions to the Articles and Sections of this Agreement are for
convenience of reference only and in no way define, limit, describe, or affect
the scope or intent of any part of this Agreement.


10.12   Relationship of the Parties.


10.12.1 Operator and Lessee acknowledge and agree that
this Agreement creates an agency relationship; provided that, (a)
Operator’s authority is subject to the terms and conditions of this Agreement,
and (b) nothing contained in this Agreement shall create an agency coupled with
an interest. Nothing contained in this Agreement shall constitute, or be
construed to be or to create, a partnership, joint venture or lease between
Lessee and Operator with respect to the Hotel or the operation thereof. To the
extent there is any inconsistency between the common law fiduciary duties and
responsibilities of principals and agents and the provisions of this Agreement,
the provisions of this Agreement shall prevail, it being the intent of the
parties that (a) neither of Lessee or Operator intend to be a fiduciary in
respect of the other and by executing this Agreement, neither Lessee nor
Operator intend to impose fiduciary duties or the status of a fiduciary upon
each other, notwithstanding the existence of a relationship of principal and
agent between Lessee and Operator, and (b) this Agreement be interpreted in
accordance with general principles of contract interpretation without regard to
fiduciary duties or status imposed by operation of law under the common law of
agency (except to the extent expressly incorporated in the provisions of this
Agreement), and (c) liability between the parties shall be based solely on
principles of contract law and the express provisions of this Agreement. In no
event shall Operator be deemed to be in breach under this Agreement unless an
act or omission by Operator (including Operator’s Corporate Employees)
constitutes a failure to perform in accordance with any provision of this
Agreement, a breach of any covenant set forth in this Agreement or an Event of
Default under this Agreement; it being the intention and agreement of the
parties that Operator’s sole obligation hereunder shall be to act in conformity
with the standard of skill, care and diligence referred to elsewhere in this
Agreement, in conformity with the Operating Standards, and otherwise in
conformity with the express terms of this Agreement.


10.12.2 This Agreement shall not be deemed at any time
to be an interest in real estate or a lien or security interest of any nature
against the Hotel, the Real Property or any other land used in connection with
the Hotel, or any equipment, fixtures, inventory, motor vehicles, contracts,
documents, accounts, notes, drafts, acceptances, instruments, chattel paper,
general



 62
 









intangibles or other personal property now existing or that may
hereafter be acquired or entered into with respect to the Hotel or the
operation thereof. To the fullest extent permitted by law, Operator hereby
waives all rights and remedies under any statutes that might provide Operator
with any lien on the Hotel or any other real or personal property of Lessee in
connection with Operator’s management of the Hotel pursuant to this Agreement.


10.12.3 As between Lessee and Operator neither shall
have any liability to each other for exemplary or punitive damages.


10.13 Operator and Lessee acknowledge and agree that
this Agreement creates an agency relationship; provided that, (a)
Operator’s authority is subject to the terms and conditions of this Agreement,
and (b) nothing contained in this Agreement shall create an agency coupled with
an interest. Nothing contained in this Agreement shall constitute, or be
construed to be or to create, a partnership, joint venture or lease between Lessee
and Operator with respect to the Hotel or the operation thereof. This Agreement
shall not be deemed at any time to be an interest in real estate or a lien or
security interest of any nature against the Hotel, the Real Property or any
other land used in connection with the Hotel, or any equipment, fixtures,
inventory, motor vehicles, contracts, documents, accounts, notes, drafts,
acceptances, instruments, chattel paper, general intangibles or other personal
property now existing or that may hereafter be acquired or entered into with
respect to the Hotel or the operation thereof. To the fullest extent permitted
by law, Operator hereby waives all rights and remedies under any statutes that
might provide Operator with any lien on the Hotel or any other real or personal
property of Lessee in connection with Operator’s management of the Hotel
pursuant to this Agreement.


10.14   Attorneys’ Fees. In the
event of any legal proceedings, including any Arbitration proceeding, dispute
resolution, or litigation of any nature, relating to this Agreement, the
prevailing Party shall be entitled to reimbursement of its costs and reasonable
attorneys’ fees from the other Party not prevailing. If any Party secures a
judgment in any proceeding brought to enforce or interpret this Agreement, then
any costs or expenses (including reasonable attorneys’ fees) incurred in
enforcing, or in appealing from, such judgment shall be payable by the Party
against whom such judgment has been rendered and shall be recoverable
separately from and in addition to any other amount included in such judgment.
This Section is intended to be severable from the other provisions of this
Agreement and to survive and not be merged into any such judgment.


10.15   Waiver of Jury Trial.
Each Party hereby irrevocably waives, to the extent permitted by applicable
law, any right to trial by jury in the event of any action or proceeding to
regain possession of the Hotel.


10.16   Confidentiality. The
Parties agree to keep all material terms and conditions of this Agreement
confidential. Lessee agrees to maintain the confidentiality of and to refrain
from using Operator Proprietary Information for any purpose other than as
necessary to develop Operating Plans and Budgets, evaluate the incremental
effect of affiliation with the RockResorts brand and entering into this
Agreement. Likewise, Operator agrees to maintain the confidentiality of and to
refrain from using Lessee Proprietary Information for any purpose other than as
necessary to perform its obligations under this Agreement. Notwithstanding the
above, Operator may disclose financial performance information specific to the
Hotel to Smith Travel



 63
 









Research (STAR Report). Except as disclosure may be
required to partners, shareholders, directors, officers and employees or to
obtain the advice of professionals or consultants, or financing for the Hotel
from a Mortgagee, other lender or potential lender, or to investors or
potential investors in the Hotel, Operator, any Affiliate of Operator or any
Lessee Affiliate, or in furtherance of a permitted assignment of this
Agreement, or as may be required by law or by the order of any government,
governmental unit, or tribunal, each Party shall exercise all reasonable
efforts to ensure that Owner Proprietary Information and Lessee Proprietary
Information is not disclosed to the press or to any other third party or entity
without the prior consent of the other Party. The obligations set forth in this
Section 10.16 shall survive any termination of this Agreement for a
period of Five (5) years following such termination. The Parties shall
coordinate with one another on all public statements, whether written or oral
and no matter how disseminated, regarding their contractual relationship as set
forth in this Agreement, or the performance by either of them of their
respective obligations hereunder. Neither Party shall have liability if it has
exercised at least the same degree of care to protect the proprietary
information of the other Party that it exercises in the protection of its own proprietary
information.


10.17   Limitation on Operator’s
Recourse. Except as provided in Section 10.7.5 with respect to Guarantor’s
obligation to back up Lessee’s obligation to indemnify Operator, Operator’s
sole recourse against Lessee, and any successor to the interest of Lessee in
the Hotel, shall be to the interest of Lessee (and any successor) in the Hotel
(including net proceeds of sale or insurance). Without limiting the foregoing,
Operator will not have any right to satisfy any judgment that it may have
against Lessee, or any successor, from any (a) other assets of Lessee, or any
successor, or (b) from any partner, shareholder, member, officer, director, or
other affiliate Lessee or any successor of Lessee.


10.18   Operating Covenants.
During the Operating Term, Operator shall not do, or permit or authorize others
to do, any of the following:


10.18.1 Operate the Hotel
in any manner or for any purposes other than as herein set forth;


10.18.2 Knowingly or
intentionally engage in any act that would, to an ordinarily prudent person in
the position of Operator, be reasonably foreseeable to cause substantial or
irreparable damage to the Hotel;


10.18.3 Abandon the
Hotel;


10.18.4 Knowingly use or
occupy, or knowingly permit the Hotel or any part thereof to be used or
occupied, for any unlawful, or ultra-hazardous use (including the prohibited or
unauthorized use, storage or disposal of hazardous or toxic substances), or
operate or conduct the business of the Hotel in any manner known to constitute
or give rise to a nuisance of any kind;


10.18.5 Make, authorize
or permit any material modifications or alterations to the Hotel except as
expressly authorized by this Agreement;


10.18.6 In any way
(including, without limitation, with respect to guest room reservations, meeting
room reservations, Hotel Employee hiring decisions, and centralized



 64
 









purchasing and rebate programs), favor over the Hotel
(and/or otherwise provide preferential treatment to) one or more other hotel(s)
owned by Operator or its Affiliate(s); and/or


10.18.7 Waive its right
to any liquidated damages or other reimbursement or compensation on any group
reservation or contract that is cancelled or terminated by such group without
the prior written consent of Lessor.


10.19   Survival of Covenants.
Any covenant, term or provision of this Agreement that, in order to be
effective, must survive the termination of this Agreement, shall survive any
such termination.


10.20   Lessee Office Space.
Operator shall make available to Lessee (at no charge) furnished office space
at the Hotel for the use of Lessee and Lessee’s designees (if any), when such
persons are at the Hotel. Such space may be used by Operator, Corporate
Personnel and others, when not being utilized by Lessee and Lessee’s designees.
In the event that Lessee commences site preparation and construction of
condominiums on the Real Property, Operator agrees to make available sufficient
unused office space in the Carriage House building to accommodate Lessee’s
construction management and administration requirements.


10.21   Damages. In the event
this Agreement is terminated as a result of an Event of Default by Lessee or
for any other reason during the Lockout Period, Operator’s exclusive remedy in
connection therewith shall be the Lockout Termination Fee. In the event this
Agreement is terminated as a result of an Event of Default by Lessee or for any
other reason during the Term after the Lockout Period, Operator shall not be
entitled to any Termination Fee or other damages for lost profits hereunder
other than the Management Fee earned prior to the termination date.


10.22   No Recordation. Neither
this Agreement, nor any memorandum hereof shall be recorded. Any recordation or
attempted recordation of this Agreement or any memorandum of this Agreement by
Operator shall constitute an Event of Default by Operator, and in addition to
any other remedies therefore, Lessee is hereby granted a power of attorney
(which power is coupled with an interest and shall be irrevocable) to execute
and record on behalf of Operator a notice or memorandum removing this Agreement
or such memorandum of this Agreement from the public records or evidencing the
termination hereof (as the case may be). ALL RECORDING OFFICERS ARE HEREBY
DIRECTED NOT TO RECORD THIS AGREEMENT OR ANY MEMORANDUM HEREOF.


10.23   Dispute Resolution. 


10.23.1 If any claim,
dispute or difference of any kind whatsoever (a “Dispute”) shall arise
out of or in connection with or in relation to this Agreement whether in
contract, tort, statutory, or otherwise, and including any questions regarding
the existence, scope, validity, breach or termination of this Agreement, the
parties shall first attempt to settle such Dispute by participating in at least
five (5) hours of mediation, which mediation shall take place at the principal
place of business of the Operator and shall be administered by JAMS (or if JAMS
no longer exists, another mutually acceptable alternative dispute resolution
provider, provided such provider retains an IHSC designation) (the “ADR
Provider”). The complaining party must notify the other party that a
Dispute exists and then contact the ADR Provider to schedule the mediation
conference, which conference shall take place no later



 65
 









than fourteen (14) days after the complaining party
notifies the other party that a Dispute exists. A designated individual
mediator who is a member in good standing of the ADR Provider will then be
mutually selected by the parties to conduct the mediation; provided that such
mediator must have at least 10 years’ experience as a mediator and must not
have any conflict of interest (the “Mediator”). If the parties are
unable to agree upon the identity of the Mediator within five (5) days after
the complaining party has notified the other party that a Dispute exists, then,
subject to the requirements of this Section, the ADR Provider shall select a
qualified mediator of its choosing who shall act as the Mediator of the
Dispute. The mediation will be a nonbinding conference between the parties
conducted in accordance with the applicable rules and procedures of the ADR
Provider. Neither Party may initiate litigation or arbitration proceedings with
respect to any dispute until the mediation of such dispute has been completed.
Any mediation will be considered complete: (i) if the parties enter into an
agreement to resolve the dispute; or (ii) if the dispute is not resolved after
completion of five (5) hours of such mediation. The parties shall share equally
in the cost of the mediation.


10.23.2 If any dispute
remains between the parties after the mediation has been completed, then the
dispute shall be submitted to final and binding arbitration pursuant to the
procedures set forth in this Section 10.22. The parties agree that the
Arbitrator (as defined herein) shall have the power to order equitable
remedies, including specific performance and injunctive relief.


10.23.3 An arbitral
tribunal of one arbitrator (the “Arbitrator”) shall be established in
conformity with the Comprehensive Arbitration Rules and Procedures of JAMS or
such other rules of a successor ADR provider mutually agreed upon by the
parties (the “Rules”) in effect at the time such arbitration is
commenced. Each party shall appoint a person to appoint the Arbitrator within
fifteen (15) days of the date of a request to initiate arbitration, and the two
appointed persons will then jointly appoint the Arbitrator (provided that the
Arbitrator shall not be the same person as the Mediator) within fifteen (15)
days of the date of the appointment of the second person, to act as the
Arbitrator. Appointed persons or the Arbitrator not appointed within the time
limits set forth in the preceding sentence shall be appointed by the ADR
Provider. In rendering a decision hereunder, the Arbitrator shall take into
account the Operating Standards of the Hotel and other applicable provisions of
this Agreement.


10.23.4 Any arbitration
must be commenced within sixty (60) days after the completion of the mediation.
The arbitration, regardless of the amount in dispute, shall be conducted in
accordance with the Rules. The parties agree that Rule 31 of the Rules shall
apply to each Dispute subject to arbitration. Any arbitration shall take place
in Denver, Colorado. The arbitrators shall apply the substantive law of
Colorado (exclusive of choice of law principles) in resolving the Dispute. The
Federal Arbitration Act shall govern issues relating to the conduct of the
arbitration and enforcement of any award, 9 U.S.C. Sections 1-16. No party to
any Dispute shall be required to join any other Person as a party to the Dispute
pursuant to the arbitration provisions set forth in this Section 10.22.


10.23.4 Except as
expressly required by applicable law, the Arbitrator’s monetary awards may
include a requirement that the losing party bear attorneys’ fees and costs of
the arbitration proceeding, but, shall not award punitive or exemplary damages
of any kind.



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Unless the Arbitrator determines otherwise, each party
to an arbitration proceeding shall be responsible for all fees and expenses of
such party’s attorneys, witnesses, and other representatives, and one-half of
the other fees and expenses of the Arbitrator and the other costs of the
arbitration shall be allocated to and paid by (i) the party or parties
initiating the respective arbitration proceeding and (ii) the party or parties
against whom the respective arbitration proceeding is brought. Any monetary
award shall be in U.S. dollars. The award rendered in any arbitration commenced
hereunder shall be final and binding upon the parties, and each party hereby
waives any claim or appeal whatsoever against it or any defense against its
enforcement.


10.23.5 The obligation to
arbitrate under this Section 10.23 is binding on the parties, their successors
and assigns. For purposes of appointing persons to appoint the arbitrator, any
party, its successors and assigns shall jointly appoint such party’s appointer.


10.23.6 Until such time
as a final determination of any Dispute is obtained pursuant to this Section
10.23 and, notwithstanding any termination of or default under, or alleged
termination of or default under, this Agreement, all parties to this Agreement
involved in such Dispute shall remain liable for, and shall be required to
continue to satisfy, their respective obligations under this Agreement. For
purposes of resolving any dispute relating to the Operating Plan and Budget,
the Arbitrator shall be obligated to render a final decision within one hundred
twenty (120) days following the date that the Arbitrator has been appointed.


10.24   Use of Trademarks.


10.24.1 Lessee represents
that it has the right to use the Lessee Trademarks associated with the name of
the Hotel (other than the brand name “RockResorts”), and hereby grants to
Operator during the Term hereof, the right and license to use the Lessee
Trademarks in its exercise of its rights and performance of its obligations and
duties under this Agreement. Operator has received a copy of an executed
agreement between Kensington Partners, as registered owner of the trademarks
associated with the name of the Hotel, and Fee Owner (“License Agreement”),
which grants Fee Owner a limited license to use such trademarks in connection
with the operation of the Hotel, including catering and delivery of services
and products within a twenty-five (25) mile radius, and all related commercial
uses. To the Knowledge of Lessee, the License Agreement is currently in full
force and effect; neither party has asserted a claim for breach against the
other, and Fee Owner and Lessee have used the trademarks licensed under the
License Agreement in full compliance with its terms, conditions and
restrictions. Lessee covenants that Fee Owner will obtain consent per the terms
of the License Agreement for Operator to use the Lessee Trademarks licensed
under the License Agreement in a manner consistent with the grant set forth in
paragraph 1(a) thereof, for the Term and any renewal thereof. Operator agrees
to exercise best efforts to use such trademarks consistent with the terms and
restrictions of the License Agreement.


10.24.2 Operator
represents that it has the right to use the Operator Trademarks in connection
with the operation of the Hotel and performance of its duties and obligations
under this Agreement. During the Term, the Hotel shall at all times be known
and designated as “The Lodge and Spa at Cordillera, a RockResort”, or by such
other name as from time to time may be designated by Operator and approved by
Lessee consistent with Operator’s naming protocol. Operator shall make or cause
to be made any fictitious name filings or disclosures required by



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Legal Requirements with respect to the use of such name for or in
connection with the Hotel. Operator and its affiliates shall at all times
retain absolute ownership of and control over the use of the Operator
Trademarks in the operation and promotion of the Hotel and in all other
respects. Upon any termination or expiration of this Agreement, neither Lessee,
Fee Owner, nor their affiliates, successors and assigns shall thereafter use
such name or any other name containing the RockResorts brand name, or otherwise
incorporating or making use of the Operator Trademarks, and all rights with
respect thereto shall remain the sole property of Operator.


IN WITNESS WHEREOF, the Parties have executed this
Agreement on the day and year first above written.


“OPERATOR”


ROCKRESORTS
INTERNATIONAL, LLC

a Delaware Limited
Liability Company


	
  By:

  	
  /s/ Edward E. Mace

  	
   

  
	
  Name:

  	
  Edward E. Mace

  	
   

  
	
  Title:

  	
  President

  	
   

  
					



 


“LESSEE”


COLORADO HOTEL OPERATOR INC.,

a Delaware corporation


	
  By:

  	
  /s/ Harry Rosenthal

  	
   

  
	
   

  	
  Harry Rosenthal, President

  	
   

  



 


“GUARANTOR” (only as to specific
matters guaranteed in Agreement)


COLORADO HOTEL HOLDING, LLC

A Delaware limited liability
company


	
  

  	
  By:

  	
  Pharos Cordillera, LLC

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  a Delaware limited liability company,

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  its Managing Member

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  Pharos Group, LLC

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  a Delaware limited liability company,

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  its Manager

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  /s/ Harry Rosenthal

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Harry Rosenthal, President

  	
   

  	
   

  	
   

  
								



 



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