Document:

Exhibit

Exhibit 10.26

EXECUTION VERSION

	
	
	LIMITED LIABILITY COMPANY AGREEMENT 
OF KBS SOR II Q&C PROPERTY JV, LLC

by and between

EH Q&C, LLC, a 
Delaware limited liability company

and 

KBS SOR II Q&C JV, LLC, a 
Delaware limited liability company 

Dated: October 12, 2015

	
	
	LIMITED LIABILITY COMPANY AGREEMENT 
OF KBS SOR II Q&C PROPERTY JV, LLC

This LIMITED LIABILITY COMPANY AGREEMENT OF KBS SOR II Q&C PROPERTY JV, LLC (this "Agreement"), is entered into effective as of October 12, 2015, by and between EH Q&C, LLC, a Delaware limited liability company (“JV Member”), and KBS SOR II Q&C JV, LLC, a Delaware limited liability company (“KBS”).  JV Member and KBS are hereinafter referred to collectively as the "Members" and each individually as a "Member."  JV Member has been appointed as the initial “Managing Member” of the Company pursuant to Section 2.01(a) below.
RECITALS:
WHEREAS, the Members formed KBS SOR II Q&C Property JV, LLC, a Delaware limited liability company (the "Company"), for the purpose of purchasing the Queen & Crescent Hotel located in New Orleans, Louisiana (the “Hotel”), from AGRE NV Q&C Property Owner LLC, a Delaware limited liability company (“Seller”) pursuant to that certain Contract of Sale, dated as of October 12, 2015 (the “Purchase Agreement”), between Seller and KBS SOR II Q&C Property, LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company (“Property Owner LLC”).  As used in this Agreement, the term “Hotel” shall include the Hotel located on the Property and, to the extent provided in the Purchase Agreement, (1) all restaurants, lounges, ballrooms, meeting rooms, recreation facilities and other related amenities and all related improvements and equipment, (2) all furniture, fixtures and equipment, inventories and operating equipment now or hereafter placed or installed thereon, and (3) all arrangements whereby the Hotel benefits from the ability to park cars of Hotel guests and employees offsite.
WHEREAS, at the closing of the acquisition of the Hotel pursuant to the Purchase Agreement (the “Property Closing”), the Company shall cause Property Owner LLC to enter a master lease (the “Master Lease”), in form and substance as provided for in Section 2.11(a) below, with KBS SOR II Q&C Operations, LLC, a Delaware limited liability company (“Master Tenant”), pursuant to which Property Owner LLC will lease the Hotel to Master Tenant.  The Master Lease requires that the Hotel be operated by an independent hotel operator (the “Hotel Manager”).  The initial Hotel Manager will be Encore Hospitality, LLC.
WHEREAS, the Members presently anticipate that, at the Property Closing, the Company will obtain a mortgage loan from a lender acceptable to the Members (“Lender”).
WHEREAS, the Members are entering into this Agreement to establish their respective rights and obligations with respect to the Company.

ARTICLE I

1.01.    Formation; Capitalized Terms.  The Company was formed under the provisions of 6 Delaware Code §§18 101, et. seq., Delaware Limited Liability Code, as hereafter amended from time to time (the “Act”) pursuant to this Agreement and the filing of that certain Certificate of Formation dated October 9, 2015.  
1.02.    Name of Company; Registered Agent; Members.  The name of the Company is KBS SOR II Q&C PROPERTY JV, LLC.  The principal office of the Company in the State of Delaware, and the name and address of the registered agent of the Company in the State of Delaware, shall be Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808, until changed by Managing Member with written notice to all of the Members.  The names and addresses of the Members are set forth on Exhibit A attached hereto.  The organizational structure of the Company and any subsidiaries directly or indirectly owned by the Company, including Property Owner LLC (each, a “Subsidiary” and collectively, the “Subsidiaries”), as of the date hereof, is as set forth on Exhibit B attached hereto.  The ownership interests of the Members in the Company shall not be certificated interests, unless otherwise determined by Managing Member. 
1.03.    Nature of Business.  The express, limited and only purposes of the Company shall be (i) to directly or indirectly acquire, own, lease, hold for long-term investment, sell, exchange, dispose of and otherwise realize the economic benefit from the Hotel and the Property on which the Hotel is located (the “Property”), including the improvements currently and as from time to time may be located on the Property (collectively, the “Improvements”) (the Property and the Improvements shall sometimes be collectively referred to as the “Project”), and (ii) to conduct such other activities with respect to the Project as are appropriate to carrying out the foregoing purposes and to do all things incidental to or in furtherance of the above-enumerated purposes. The Company shall not engage in any other business or activity, unless such other business or activity has been approved as a Major Decision.  For purposes of this Agreement, the terms “Project” and “Hotel” are used interchangeably.
1.04.    Term of Company.  The term of the Company commenced on the date the Certificate of Formation for the Company was filed with the Office of the Delaware Division of Corporations Secretary of State and shall continue until dissolved pursuant to Article VIII.  The existence of the Company as a separate legal entity shall continue until the cancellation of the Company’s Certificate of Formation. 
1.05.     Purchase Agreement.  JV Member acknowledges that KBS has informed JV Member that KBS will not authorize Property Owner LLC to exit due diligence under the Purchase Agreement unless and until KBS has completed a so-called “Section 3-05 Audit” under Rule 3-05 of Regulation S-X promulgated by the Securities and Exchange Commission.  The Purchase Agreement provides for certain conditions to Property Owner LLC’s obligation to close, including the absence of certain specified defaults by Seller (“Buyer Closing Conditions”).  The decision as to whether each of such conditions have been satisfied as of the closing date under the Purchase Agreement shall be made by the Members, in accordance with and subject to the following:

2

(a)    Both Members Desire to Terminate.  If both Members determine that any of the Buyer Closing Conditions have not been satisfied (after expiration of any notice and cure periods) and neither Member desires to close over any unsatisfied Buyer Closing Conditions, Managing Member shall deliver to Seller a termination notice under the Purchase Agreement and seek a return of the Deposit (as such term is defined under the Purchase Agreement) and thereafter cause the Company to be dissolved pursuant to Article VIII. 
(b)    KBS Desires to Continue. If KBS has notified JV Member in writing that it desires to close over any unsatisfied Buyer Closing Conditions and JV Member has notified KBS in writing of its desire to terminate the Purchase Agreement, then KBS shall have the right, in its sole and absolute discretion, to elect to (A) direct JV Member to deliver to Seller a termination notice under the Purchase Agreement and seek a return of the Deposit and thereafter cause the Company to be dissolved pursuant to Article VIII, or (B) deliver written notice to JV Member requiring JV Member to withdraw from the Company.  If KBS elects to deliver a notice pursuant to clause (B), then KBS shall thereupon reimburse JV Member for the amount of the sum of (x) JV Member's Pursuit Costs (defined below) and (y) the portion of the Deposit then posted by JV Member (and not previously reimbursed by KBS) and KBS shall therafter be free to cause Property Owner LLC or an Affiliate (defined below) of KBS to consummate the Property Closing without JV Member being a Member of the Company or otherwise a party to such transaction.  As used in this Agreement, the term “Affiliate” shall mean, with respect to a specified individual, partnership, corporation, limited liability company, trust, estate, joint venture, association, company or other legal entity (a “Person”), (i) any Person that directly or indirectly through one or more intermediaries controls or is controlled by or is under common control with, the specified Person, (ii) any Person owning or controlling ten percent (10%) or more of the outstanding voting securities of or other ownership interests in the specified Person, (iii) any officer, director or Member of the specified Person, (iv) if the specified Person is an individual, any entity for which such Person acts as an officer, director, partner or member, or (v) any entity in which the specified Person (together with the members of his family if the Person in question is an individual) owns, directly or indirectly through one or more intermediaries an interest in any class of stock (or other beneficial interest in such entity) of ten percent (10%) or more.  Bharat Sangani and Patrick Barber (each, a “JV Member Principal” and collectively, the “JV Member Principals”) shall be deemed “Affiliates” of JV Member.  The JV Member Principals and Glenn Pedersen shall sometimes be referred to herein individually as a “JV Member Key Person” and collectively, the “JV Member Key Persons”).  Any reference in this Agreement to a “Person and an Affiliate” shall be deemed to refer to such Person and an Affiliate of such Person and any references in this Agreement to a “Person or an Affiliate” shall be deemed to refer to such Person or an Affiliate of such Person. 
(c)    JV Member Desires to Continue.  If JV Member has notified KBS in writing that it desires to close over any unsatisfied Buyer Closing Conditions and KBS has notified JV Member in writing of its desire to terminate the Purchase Agreement, then JV Member shall have the right, in its sole and absolute discretion, to elect to (A) deliver to Seller a termination notice under the Purchase Agreement and seek a return of the Deposit and thereafter cause the Company to be dissolved pursuant to Article VIII, or (B) deliver written notice to KBS requiring KBS to withdraw from the Company.  If JV Member elects to deliver a notice pursuant to clause (B), then JV Member shall thereupon reimburse KBS for the 

3

amount of the sum of (x) KBS's Pursuit Costs, and (y) the portion of the Deposit then posted by KBS (and not previously reimbursed by JV Member) and JV Member shall thereafter be free to cause Property Owner LLC or another Affiliate of JV Member to consummate the Property Closing without KBS being a Member of the Company or otherwise a party to such transaction.
(d)    Need to Extend for 3.05 Audit.  Notwithstanding anything to the contrary in Section 1.05(c) above, JV Member and KBS will cooperate in good faith to attempt to obtain whatever extension of the closing date under the Purchase Agreement KBS reasonably requires in order to complete its Section 3-05 Audit.  As part of such cooperation, JV Member and KBS shall, as additional capital contributions, provide their respective pro rata shares of any additional earnest money the seller requires to be deposited up to an additional amount of up to 10% of the Deposit then deposited under the Purchase Agreement in the aggregate as a condition to such extension.  In the event that such additional earnest money is so deposited, and the Property Closing does not occur for any reason (other than any act or omission of JV Member that constitutes a default of this Agreement), and as a result of such state of facts such additional earnest money is not refunded to Property Owner LLC, then KBS shall reimburse JV Member the amount so contributed by JV Member.  In the event that as a condition to such extension the seller requires a lump sum payment (as opposed to additional earnest money) that is not applicable to the purchase price at the Property Closing, KBS shall provide such funds and the same shall be deemed a capital contribution; provided that in no event shall the amount of such lump sum deposit exceed 10% of the Deposit then deposited under the Purchase Agreement.  
For purposes of this Section 1.05, the silence of a Member shall be deemed to be a Member’s election not to waive the applicable Buyer’s Closing Conditions and to terminate the Purchase Agreement.  
1.06.    Formation of Master Tenant/TRS Joint Venture and Other Pre-Closing Actions.  The Members acknowledge that the Company will not authorize the consummation of the Property Closing unless and until each of the following have occurred (the “Additional Closing Conditions”): (A) the Members (or their respective Affiliates) have entered into the limited liability company agreement for KBS SOR II Q&C Operations JV, LLC in substantially the form of this Agreement (the “OpCo JV Agreement”) and the final form thereof shall have been approved by the Members in writing prior to the expiration of the due diligence period under the Purchase Agreement; (B) a hotel management agreement between Hotel Manager and Master Tenant has been executed in a form and substance mutually acceptable to Hotel Manager and Master Tenant (the “Hotel Management Agreement”) and the final form thereof shall have been approved by the Members and the respective counterparties in writing prior to the expiration of the due diligence period under the Purchase Agreement; (C) the Mortgage Loan with Lender has been approved by the Members pursuant to Section 2.02(d) below and is closing simultaneously with the Property Closing pursuant to loan documents approved by the Members pursuant to Section 2.02(d) below; (D) a franchise agreement (defined below) between Master Tenant and Hilton Hotels or Marriott International, as applicable (or one of their applicable affiliates) (“Franchisor”) has been executed in a form and substance mutually acceptable to Master Tenant and Franchisor (the “Franchise Agreement”) and the final form thereof shall have been approved by the Members and Franchisor in writing prior to the expiration of the due 

4

diligence period under the Purchase Agreement; and (E) the Master Lease between Property Owner LLC and Master Tenant has been executed in a form and substance mutually acceptable to Hotel Manager and Master Tenant and the final form thereof shall have been approved by the Members in writing prior to the expiration of the due diligence period under the Purchase Agreement.  The Members shall each use, and cause their respective Affiliates to use, commercially reasonable, good faith efforts to (i) agree upon the final forms of the OpCo JV Agreement, the Hotel Management Agreement, the Master Lease and the Franchise Agreement and (ii) approve the Business Plan and initial Annual Budget (which shall contain (a) an overall operating and capital budget for each of the Company, its Subsidiaries, the Property Manager and the Master Tenant, and (b) an approved budget for the Member’s respective pre-formation and pre-closing expenses that are to be reimbursed by the Company at the Property Closing pursuant to Section 2.12(b) hereof) in accordance with Section 2.10 hereof, in each case prior to the expiration of the due diligence period under the Purchase Agreement, and that if any of such agreements or documents have not been so approved prior to the expiration of the due diligence period under the Purchase Agreement, then JV Member shall deliver a termination notice under the Purchase Agreement and seek a return of the Deposit and thereafter cause the Company to be dissolved pursuant to Article VIII.  Similarly, if any of the Additional Closing Conditions are not satisfied as of the Property Closing, then JV Member shall deliver a termination notice under the Purchase Agreement and seek a return of the Deposit (if and to the extent such Deposit is refundable to the Property Owner LLC) and thereafter cause the Company to be dissolved pursuant to Article VIII; provided, however, that after the expiration of the due diligence period under the Purchase Agreement if the failure of the applicable Additional Closing Condition is a result of a failure of a Member or its Affiliate to execute and deliver its counterpart of the final OpCo JV Agreement, the Hotel Management Agreement, the Franchise Agreement or the Master Lease, as applicable, that was approved prior to the expiration of the due diligence period under the Purchase Agreement then, without waiving any other rights and remedies available to the non-defaulting Member under this Agreement as a result of such default, the non-defaulting Member shall have the right to elect to direct the JV Member deliver a termination notice under the Purchase Agreement and seek a return of the Deposit (if and to the extent such Deposit is refundable to the Property Owner LLC) and thereafter cause the Company to be dissolved pursuant to Article VIII.     
ARTICLE II
MANAGEMENT OF THE COMPANY
2.01.    Management of the Company.
(a)    Managing Member.  JV Member is hereby designated as the managing member of the Company ("Managing Member") and shall serve as Managing Member until the Company is dissolved or JV Member is removed as Managing Member in accordance with the terms of this Agreement.  The Company shall be managed by Managing Member, who shall have all of the powers and privileges granted by this Agreement and who shall manage and administer the business and affairs of the Company in accordance with the Business Plan, the Annual Budget, this Agreement and applicable laws. 
(b)    Specific Day to Day Rights, Powers and Duties of Managing Member.  Managing Member shall devote such time to the Company and its business as shall be 

5

necessary for Managing Member to faithfully perform its duties and responsibilities under this Agreement, however, it is specifically understood and agreed that Managing Member and its members, managers, officers and directors and their Affiliates shall not be required to devote full time to the business of the Company.  Managing Member's rights, powers, duties and responsibilities shall include, without limitation, the following with respect to the Project, all to be carried out in accordance with this Agreement:
(i)    Acquire, protect, and preserve the titles and interests of the Company and its Subsidiaries with respect to the Property as Managing Member deems to be in the best interests of the Company from time to time.
(ii)    Use commercially reasonable efforts to obtain and cause to be maintained all governmental and agency approvals, licenses, permits and other entitlements (“Licenses and Permits”) necessary for the ownership, operation, management and leasing of the Project except to the extent such Licenses and Permits are to be obtained by Master Tenant (it being agreed that liquor licenses for the Hotel will be held by Master Tenant) and/or Hotel Manager.
(iii)    Diligently work with Master Tenant to monitor and oversee (1) Hotel Manager’s management and operation of the Hotel under the Hotel Management Agreement and (2) Franchisor’s compliance with the Franchise Agreement.  Managing Member shall provide advice and recommendations to KBS with respect to Hotel Manager’s and Franchisor’s operation of the Hotel and performance under the Hotel Management Agreement and Franchise Agreement, as applicable.
(iv)    Cause the Company or its applicable Subsidiary to engage, and coordinate the services of all employees, supervisors, architects, engineers, contractors, construction or development managers, accountants, attorneys, real estate brokers, advertising personnel and other persons engaged by the Company or any of its Subsidiaries with respect to the Project.
(v)    Monitor the performance of Master Tenant under the Master Lease and make recommendations to the Members with respect thereto.
(vi)    Oversee and supervise all work at the Project undertaken on behalf of the Company or any of its Subsidiaries, or to oversee and supervise any general contractors or construction managers engaged in accordance with this Agreement.
(vii)    Except to the extent such efforts require KBS’s approval as a Major Decision, use commercially reasonable efforts to enforce all of the Company’s rights and cause performance of all of the Company’s obligations arising in connection with any contract or agreement entered into in connection with the Project, excluding de minimis obligations where the cost to pursue the obligation exceeds the benefit to be gained.
(viii)    Deliver to the Members promptly upon its receipt, copies of all (i)  notices or other written materials received by Managing Member in connection with any material dispute or material claims relating to the Project, (ii) summonses and complaints 

6

received by Managing Member served on the Company or any Subsidiary or Master Tenant, (iii) notices of default received by Managing Member under any mortgage loan secured by the Property or any portion thereof (a “Mortgage Loan”) or any other Financing (defined below), (iv) other non-ministerial notices received by Managing Member from Lender or any other holder of a Mortgage Loan (each, a “Mortgage Lender”) under any Mortgage Loan, (v) notices of default received by Managing Member from Franchisor under the Franchise Agreement or from the Hotel Manager under the Hotel Management Agreement, (vi) notices of default received by Managing Member from the Master Tenant under the Master Lease, (vii) notices of default received by Managing Member from tenants or the landlord under any leases of space at any Property, and (viii) other material written communications received by Managing Member from third parties with respect to the Company or any Subsidiary.  To the extent that any of the notices or other written materials described in this Section 2.01(b)(viii) are received by KBS and not Managing Member, KBS shall deliver such notice and/or other written materials to Managing Member promptly upon its receipt thereof.  As used in this Agreement, the term “Financing” shall mean any loan or indebtedness obtained by the Company or any of its Subsidiaries, including any Mortgage Loans, but excluding unsecured trade payables.
(ix)    Provide operating reports and financial statements in accordance with Article IX.
(x)    Notify KBS of such matters and render such reports to KBS from time to time as KBS may reasonably request in writing, including, without limitation, in all events not less frequently than monthly keeping KBS informed of material information received in writing by Managing Member relating to the Project by (1) notifying KBS in advance of public hearings and other proceedings of which Managing Member receives advance written notice relating to any existing or proposed entitlements, mapping, subdivision or material permits for the Project, and (2) promptly notifying KBS and promptly delivering to KBS copies of any written offers received by Managing Member to purchase or otherwise acquire the Project, or any interest therein, and of any written indications of interest, written invitations to deal or written solicitations of sales received by Managing Member, in each case which represent bona fide offers specifically tailored to the Project, and which shall specifically exclude generic or cold call type letters seeking to purchase properties generally.  To the extent that any of the notices or other written materials described in this Section 2.01(b)(x) are received by KBS and not Managing Member, KBS shall deliver such notice and/or other written materials to Managing Member promptly upon its receipt thereof.  
(xi)    Comply with the Annual Budget, as it may be modified and approved from time to time under Section 2.10 below and subject to the further provisions of this clause (xi).  Except for expenditures made and obligations incurred, in each case as previously approved pursuant to the Annual Budget, Managing Member shall have no authority to make any expenditure or incur any obligation or liability on behalf of the Company or any Subsidiary.  Subject to the Annual Budget, Managing Member shall not expend on behalf of the Company or any Subsidiary more than what it in good faith believes to be the fair and reasonable market value at the time and place of 

7

contracting for any goods purchased or services engaged on behalf of the Company or any Subsidiary.  Subject to Section 2.01(d) below, Managing Member may enter into any contracts on behalf of the Company or any Subsidiary for goods purchased or services contemplated by the Annual Budget, if any; provided that such contracts shall be terminable by the Company or the applicable Subsidiary upon thirty (30) days’ notice and shall be for an amount not to exceed (i) the sum of $10,000 as to any single expenditure and (2) the sum of $50,000 annually (in each case, such expenditures may hereinafter be referred to as the "De Minimis Expenditures").  Any such contract that is either (1) not terminable by the Company or the applicable Subsidiary upon thirty (30) days’ notice or (2) for amounts that would exceed the De Minimis Expenditures threshold shall in each case require the prior written approval of KBS.  
Notwithstanding the foregoing, the Members acknowledge that it is expected that Hotel Manager will procure the vast majority, if not all, the goods and services for the Project during the term of Hotel Management Agreement, and the limitations set forth in this Section 2.01(b)(xi) shall not apply to Hotel Manager (whose acts shall be governed by the Hotel Management Agreement) and the acts or omissions of Hotel Manager under the Hotel Management Agreement shall not be imputed to Managing Member.
(c)    Affiliate Agreements; Special Powers of KBS Regarding Affiliate Agreements.
(i)    JV Member, in its capacity as Managing Member, shall not cause the Company or any of its Subsidiaries to enter any agreement or other arrangement for the furnishing to or by the Company or any Subsidiary of goods or services or any other contract or agreement pursuant to which JV Member or any Affiliate or Related Person (defined below) will receive any benefit, or pay any fees or compensation to, itself or any Person that is an Affiliate of JV Member or a Related Person (an “Affiliate Agreement”), unless such agreement or arrangement has been previously approved in writing by KBS.  JV Member shall not amend or modify or terminate any such Affiliate Agreement after the entry by the Company or any Subsidiary into such Affiliate Agreement without the prior consent of KBS.  As used in this Agreement, the term “Related Person” shall mean any JV Member Principal and such JV Member Principal’s spouse and the ancestors, descendants, aunts, uncles or first cousins of such JV Member Principal, whether by birth or adoption.
(ii)    Notwithstanding anything to the contrary contained herein, KBS shall have the right, in its sole discretion upon prior written notice to JV Member, to take all actions on behalf of the Company with respect to:  (A) the determination of the existence of any default by any Affiliate of JV Member under any Affiliate Agreements made between the Company and any Affiliate of JV Member, (B) the enforcement of all rights and remedies of the Company under any Affiliate Agreements made between the Company and any Affiliate of JV Member, and (C) termination of any Affiliate Agreements made between the Company and any Affiliate of JV Member (in each case of clauses (A), (B) and (C), subject to the terms and conditions set forth in such Affiliate Agreements for the nature of defaults, notice of defaults and applicable cure periods).  JV 

8

Member will cooperate in good faith with KBS in the exercise by KBS of the foregoing rights and actions hereunder.
(iii)    Nothing in this Section 2.01(c) shall be deemed to permit KBS to enter into any agreement or other arrangement in the name of and on behalf of the Company with any third party or any Affiliate of KBS relating to the Hotel in any circumstance, unless KBS has duly replaced JV Member as the Managing Member pursuant to and in accordance with the provisions of this Agreement.
(d)    Hotel Management Agreement.  During the term of the Hotel Management Agreement, the Members acknowledge that Hotel Manager will manage and operate the Hotel pursuant to the Hotel Management Agreement.  
(e)    Execution of Approved Documents; Third-Party Reliance.  Subject to the terms and provisions of this Agreement (specifically including, but not limited to, this Section 2.01 and Section 2.02), once a decision or action of the Company is authorized, Managing Member shall be the sole party authorized to execute and deliver, in the name and on behalf of the Company and on behalf of any of its direct or indirect Subsidiaries, such approved agreements, contracts, notes and other evidence of indebtedness, certificates, assignments, deeds, loan agreements, mortgages, deeds of trust, operating agreements, consents, approvals, demands, notices, affidavits, pleadings, waivers, releases, and indemnities, and the Members hereby agree that any third party is hereby authorized to rely on the signature (or the electronic or facsimile equivalent thereof) of Managing Member, acting alone.
2.02.    Major Decisions.  Notwithstanding anything contained in this Agreement to the contrary, Managing Member shall not take, or cause or permit the Company or any Subsidiary to enter into any agreement to take, any of the following actions on behalf of the Company or any Subsidiary (in each case the taking of which hereinafter shall be referred to as a “Major Decision”) without the prior written consent of KBS, which consent may be given or withheld in KBS’s sole and absolute discretion; provided, however, that to the extent Hotel Manager has the authority to make a decision with respect to the Project under the Hotel Management Agreement that would otherwise be a Major Decision under this Section 2.02, Managing Member need not prevent the same and shall not by inaction be deemed to have permitted such decision to be made in violation of this Section 2.02:
(a)    Annual Budget; Business Plan.  Subject to Section 2.01(b)(xi), cause the Company or its Subsidiaries to deviate from, amend, update or replace the Business Plan or deviate from, amend, update or replace the Annual Budget, except as provided in Section 2.10 below.  
(b)    Sale of the Company or the Project.  Subject to Articles VI and VII, sell, convey, exchange, hypothecate, pledge, encumber or otherwise transfer any interest in the Company or any Subsidiary or all or any portion of the Project, or enter into any agreement to sell, convey, exchange, hypothecate, pledge, encumber or otherwise transfer any interest in the Company or any Subsidiary or all or any portion of the Project.

9

(c)    Acquire Real Property.  Purchase or otherwise acquire any interest in real property other than the Company’s indirect ownership interest in the Project.
(d)    Financing.  Cause the Company or any Subsidiary to finance or refinance the operations of the Company or any Subsidiary and/or any of the Company’s or any Subsidiary’s assets (including, without limitation, any acquisition, development, construction, interim and long-term financing or refinancing in connection with the Project (or any portion thereof) or the improvement, renovation or expansion thereof) or retain any mortgage bankers or brokers on behalf of the Company or any Subsidiary in connection therewith or enter into any modifications, amendments, extensions, substitutions or other agreements regarding any Financing or to refinance any existing Financing.  If any Financing is within 90 days of its stated maturity or the stated maturity has passed and the Members do not agree on the terms of a refinancing or the loan documents evidencing such refinancing pursuant to this Section 2.01(d), KBS shall have the sole right to approve, in its reasonable discretion, the terms of any such refinancing and the loan documents evidencing such refinancing to the extent necessary so that such disagreement does not prevent such refinancing if KBS desires to obtain such refinancing; provided, however, that (i) no such term so approved by KBS over the objection of the JV Member shall disproportionately benefit KBS or be disproportionately to the detriment of the JV Member (recognizing, however that a disproportionate effect solely due to the fact that the Members have different Percentage Interests is not intended to be prohibited by this clause (i)), (ii) the refinancing shall be on commercially reasonable terms, and (iii) in such event neither the JV Member nor any Affiliate of the JV Member shall be obligated to provide any Required Guaranty (defined below).  In addition, if any Financing is within 90 days of its stated maturity or the stated maturity has passed and the Members have not yet agreed on the terms of a refinancing or the loan documents evidencing such refinancing pursuant to this Section 2.01(d), each Member agrees to act reasonably in its approval of the terms of the refinancing and agree that it shall be unreasonable to disapprove a refinancing if it is on substantially the same terms as the then-existing Financing. Notwithstanding the foregoing, the Members agree that it shall not be a Major Decision (and shall only require the consent of KBS and not of JV Member), for the Company to enter into any interest rate swap agreement, interest rate cap agreement, or other similar agreement (collectively, “Interest Rate Protection Agreements”), and if necessary to amend any Financing in order to allow the Company to enter into any such Interest Rate Protection Agreements that KBS determines in its sole discretion, is necessary or desirable.  In the event the Company enters into any Interest Rate Protection Agreements in accordance with the preceding sentence the Members shall each pay their pro rata share of the costs and expenses incurred by the Company in connection therewith (including reasonable attorneys’ fees and expenses) in accordance with their Percentage Interests.  As of the execution of this Agreement, the Members are negotiating a term sheet with Lender and the Members agree to pursue a Financing from Lender that is substantially consistent with the term sheet.
(e)    Master Lease.  Cause the Property Owner LLC to amend, modify, terminate, or waive any material rights under, the Master Lease, or enter into, amend, modify, terminate, or waive any material rights under, any replacement thereof.

10

(f)    Hotel Management Agreement.  
(i)    Cause Master Tenant to amend, modify or terminate the Hotel Management Agreement, or enter into, amend, modify or terminate any replacement thereof, in each case to the extent Managing Member on behalf of the Company and any of its Subsidiaries has the right and ability to cause Master Tenant to do so.
(ii)    Cause Master Tenant to enforce or knowingly waive any material rights under, the Hotel Management Agreement, or enforce or knowingly waive any material rights under, any replacement thereof, in each case to the extent Managing Member on behalf of the Company and any of its Subsidiaries has the right and ability to cause Master Tenant to do so.
(iii)    Cause Master Tenant to approve any annual operating or capital budget, or any amendment thereto, under the Hotel Management Agreement, except to the extent such budget has already been approved by the Members in accordance with this Agreement.
(g)    Indemnity.  Make, execute or deliver on behalf of the Company or any Subsidiary any indemnity bond or surety bond or obligate the Company, any Subsidiary or any other Member as a surety, guaranty, guarantor or accommodation party to any obligation or grant any lien or encumbrance on any of the assets of the Company or any Subsidiary, including the Project, other than with respect to (i) any Financing that has been approved as a Major Decision and (ii) ordinary course transactions with utility companies for the provision of utility services to the Hotel and similar ordinary course transactions.
(h)    Loans.  Lend funds belonging to the Company or any Subsidiary to any Member or its Affiliate or to any third party, or extend any person, firm or corporation credit on behalf of the Company or cause any Member Loan to be made to the Company as provided in Section 3.03. 
(i)    Expenditures.  Except for De Minimis Expenditures and as expressly contemplated by Section 2.01(b)(xi) or Section 2.01(c)(iii), cause the Company or any Subsidiary to take any action or make any expenditure or incur any obligation by or on behalf of the Company or any Subsidiary which is not included in the Annual Budget (including, without limitation, obligating the Company or any Subsidiary to pay for any goods or services in excess of the foregoing); in addition, in the event that the then current Mortgage Loan or other Financing is past its stated maturity, or is in default, Managing Member may not reallocate any excess funds among line items or make any expenditures from any reserves without KBS’s consent, which consent shall not be unreasonably withheld, conditioned or delayed.
(j)    Duties.  Delegate any of the duties of Managing Member set forth herein except as set forth in the Hotel Management Agreement, any other approved Affiliate Agreement, or the Master Lease.
(k)    Assignment Benefiting Creditors.  Make, execute or deliver on behalf of the Company or any Subsidiary an assignment for the benefit of creditors; or file, consent to 

11

or cause the Company, any Subsidiary, a Member’s Interest, or the Project, or any part thereof or interest therein, to be subject to the authority of any trustee, custodian or receiver or be subject to any proceeding for bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, relief of debtors, dissolution or liquidation or similar proceedings.
(l)    Partition of Company Assets.  Partition all or any portion of the assets of the Company or any Subsidiary, or file any complaint or institute any proceeding at law or in equity seeking such partition.
(m)    Governmental Proposals.  Make application to, or enter into any agreements with, any government officials relating to mapping, development, zoning, subdivision, environmental or other land use or entitlement matters which may affect the Project, or any portion thereof, other than (i) minor or ministerial applications and agreements that could not reasonably be anticipated to result in a material adverse consequence to the Hotel or any Member, and (ii) procedural and/or interim applications and agreements in furtherance of end results that have been duly approved as Major Decisions.
(n)    Purchase Assets.  Except as may be provided in the then-applicable Annual Budget, cause the Company or any Subsidiary to purchase any automobiles or vehicular equipment or cause the Company or any Subsidiary to purchase any fixed assets.
(o)    Confess Judgments; Legal Actions.  Confess a judgment against the Company or any Subsidiary; settle or adjust any claims against the Company or any Subsidiary; or commence, negotiate and/or settle any legal actions or proceedings brought by the Company or any Subsidiary against unaffiliated third parties; provided, however, Managing Member may settle or adjust any claim which is not the subject of a legal action or proceeding of $100,000 or less.
(p)    Dissolve the Company.  Except as provided in this Agreement, dissolve, terminate or liquidate the Company or any Subsidiary prior to the expiration of the term.
(q)    Acts Making Business Impossible.  Do any act that would make it impossible to carry on the business of the Company or any Subsidiary.
(r)    Material Agreements.  Except as provided in the Annual Budget or in the express terms of this Agreement, cause the Company or any Subsidiary to enter into any agreement obligating the Company or any Subsidiary to pay an amount in excess of a De Minimis Expenditure and any amendment, modification or termination of any such agreement, including, without limitation, any agreement providing for the payment of any commission, fee or other compensation payable in connection with the sale of all or any portion of the Project, or any portion thereof.
(s)    Limited Liability Company Act.  Take any other action for which the consent of the Members is required under the Act (and such consent is not waivable under the Act) or this Agreement.

12

(t)    Leases.  Cause or permit the Company or any Subsidiary to enter into any new space or other lease affecting the Project, or amend, modify, terminate, or waive rights under any existing leases with the Company or any Subsidiary (but not Hotel Manager), for space in any of the Project, excluding, however, equipment leases contemplated by or otherwise consistent with the Business Plan and Annual Budget.
(u)    Insurance; Accounting.  Except for insurance obtained by and accounting and auditing functions performed by Hotel Manager pursuant to the Hotel Management Agreement and/or the Franchise Agreement, create or change the insurance program for the Company, any Subsidiary or the Project in a manner inconsistent with the Business Plan or inconsistent with the insurance requirements set forth in Section 2.05 below or alter or change the reporting, accounting and/or auditing systems and/or procedures for the Company, any Subsidiary or the Project.
(v)    Employees.  Employ any individuals as an employee of the Company or any Subsidiary.
(w)    Awards and Proceeds.  Settle, apply or dispose of any casualty insurance proceeds or any condemnation award, any insurance company or any condemning authority, as applicable.
(x)    No REIT Prohibited Transactions.  Take, or permit to be taken, any action that is or results in a REIT Prohibited Transaction as defined in Section 11.01(b) hereof.  
(y)    Consultants.  Retain or dismiss on behalf of the Company or any Subsidiary any accountants, auditors, property managers or leasing agents.  Ernst & Young is hereby approved as the approved audit and tax firm for the Company and Encore Hospitality, LLC is hereby approved as the Hotel Manager.
(z)    Additional Capital Contributions.  Except as expressly (1) set forth in Section 3.01 below or (2) set forth in the approved Annual Budget or (3) otherwise approved by KBS in writing, require any additional capital contributions of the Members.
(aa)    Member Loans.  Except as expressly set forth in Section 3.03 or otherwise approved by KBS in writing, require or request any Member Loan.
(bb)    Franchise Agreement.  
(i)    Cause Master Tenant to amend, modify or terminate the Franchise Agreement, or enter into, amend, modify, terminate any replacement thereof, in each case to the extent Managing Member on behalf of the Company and any of its Subsidiaries has the right and ability to cause Master Tenant to do so.
(ii)    Cause Master Tenant to enforce or knowingly waive any material rights under the Franchise Agreement, or enforce or knowingly waive any material rights under, any replacement thereof, in each case to the extent Managing Member on behalf of 

13

the Company and any of its Subsidiaries has the right and ability to cause Master Tenant to do so.
The failure by KBS to approve any Major Decision in writing within five (5) days after KBS’s receipt of a request therefor from Managing Member shall be deemed a disapproval of such Major Decision.  The disapproval (or deemed disapproval) of a Major Decision by a KBS shall be deemed final and conclusive for all purposes.
2.03.    Company Funds.  No Company funds, assets, credit or other resources of any kind or description shall be paid to, or used for the benefit of, any Member, except as specifically provided in this Agreement or the Annual Budget or after the written approval of all the Members has been obtained.  Except as otherwise required under the loan documents evidencing the Mortgage Loan, the Hotel Management Agreement, or the Franchise Agreement, all funds of the Company shall be deposited only in federally insured checking and savings accounts of the Company in the Company name with banks and other financial institutions reasonably approved by KBS, which funds shall not be commingled with funds of any other person or entity, and shall be withdrawn only upon the signature of any JV Member Principal or other JV Member Key Person, or such other signature or signatures as may be designated in writing from time to time by KBS after receiving approval of KBS. Nothing in this Section 2.03 is intended to limit the cash management and reserve accounts established under the loan documents evidencing the Mortgage Loan and/or operating and reserve accounts established pursuant to the Hotel Management Agreement and/or the Franchise Agreement.  
2.04.    Employees.  The Company shall not have employees.  Each Member shall be solely responsible for all wages, benefits, insurance and payroll taxes with respect to any of its employees.  Each Member agrees to perform its duties under this Agreement as an independent contractor and not as an agent, employee or servant of the Company.  Each Member shall be solely responsible for its own acts and those of its subordinates, employees and agents during the term of this Agreement and, subject to, and without the waiver of the benefits of, the provisions of Section 2.09, each Member hereby indemnifies and holds harmless the Company and each other Member from any liabilities, damages, costs and expenses (including, without limitation, reasonable attorneys’ fees) arising from the acts of any such subordinates, employees and agents of such Member. 
2.05.    Insurance.
(a)    Company Policies.  The Members anticipate that much of the necessary insurance for the Project will be maintained by Hotel Manager under the Hotel Management Agreement.  If however, Managing Member or KBS determines in their reasonable discretion that additional coverage is required, Managing Member shall purchase and maintain such insurance, in the exercise of its reasonable discretion, and shall provide the Members upon request with the certificates or other evidence of insurance coverage as provided therein, and shall provide the Members upon request with the certificates or other evidence of insurance coverage as provided therein. 
(b)    Contractor’s Insurance Obligations.  Managing Member shall require all general contractors and all subcontractors retained by the Company and any Subsidiary working 

14

at the Project, or any portion thereof, to obtain and maintain at all times during performance of work for the Company or any Subsidiary an occurrence form commercial general liability policy on a primary and non-contributing basis with a minimum of $1,000,000 per occurrence/$1,000,000 annual aggregate, or in such other amounts as may be approved by KBS, on which the Company and any Subsidiary is named as an additional insured.  In addition, Managing Member shall require that the general contractors and all subcontractors retained by the Company and any Subsidiary carry worker’s compensation coverage as required by law.  Notwithstanding the foregoing, general contractors and subcontractors retained by Hotel Manager shall have such insurance as required by the Hotel Manager under the Hotel Management Agreement.
(c)    D&O Insurance.  Managing Member may purchase and maintain insurance on behalf of the executive officers of Managing Member (and if requested by KBS, executive officers of KBS) against liability asserted against such Person and incurred by such Person arising out of such Persons' actions on behalf of Managing Member (or KBS, as applicable) under this Agreement; provided that the cost of such insurance is included in the approved Annual Budget for the applicable year and such coverage is available at commercially reasonable rates.
2.06.    Election, Removal, Resignation of Managing Member.
(a)    Number, Term and Qualifications of Managing Member.  The Company shall have one Managing Member, which shall initially be JV Member.  
(b)    Removal of Managing Member for Cause.  KBS may, but shall not be obligated to, exercise any of the remedies provided in Section 2.06(c) and/or (d) below, as applicable, under any of the following circumstances (each a “Removal Event”): 
(i)    if JV Member or any principal, officer, executive or employee of JV Member or any of its Affiliates has committed fraud adversely affecting the Company, any Subsidiary or the Project, or any portion thereof, or has embezzled Company funds or the funds of any Subsidiary or funds of the Project, or any portion thereof, provided that, in the case of embezzlement or fraud, if within ten (10) business days after such embezzlement or fraud is discovered by or disclosed to KBS, (x) such funds are replaced, and (y) if such embezzlement or fraud is committed by an individual other than a JV Member Principal, such individual is terminated, then such occurrence shall not be a Removal Event; for the avoidance of doubt, the commission of any act or conduct described in this clause (i) by a JV Member shall constitute a Removal Event that is not subject to the foregoing ten (10) day cure period;
(ii)    if JV Member or any principal, officer, executive or employee of JV Member or any of its Affiliates has committed an intentional material misrepresentation or willful misconduct (other than an act or conduct described in clause (i) above) materially and adversely affecting the Company, any Subsidiary or the Project, or any portion thereof, which is not timely cured within thirty (30) days after written notice from KBS (or, if such default is not susceptible of cure within such thirty (30) day period, within such period as is required to effect such cure, so long as JV Member has 

15

commenced such cure within such thirty (30) day period and thereafter prosecutes such cure to completion with diligence), not to exceed sixty (60) additional days in the aggregate;
(iii)    if any JV Member Principal is convicted or pleads guilty or nolo contendere to (x) any felony that involves in any material respect the Company and/or any Subsidiary, and/or (y) any crime involving moral turpitude or breach of trust; 
(iv)    the affairs of JV Member cease to be principally controlled by a JV Member Principal or other JV Member Key Person;
(v)    a default by JV Member as Managing Member under this Agreement materially adversely affecting the Company, any Subsidiary or the Project, or any portion thereof, which is not timely cured within thirty (30) days after written notice from KBS (or, if such default is not susceptible of cure within such thirty (30) day period, within such period as is required to effect such cure, not to exceed an additional thirty (30) days,  so long as JV Member has commenced such cure within such thirty (30) day period and thereafter prosecutes such cure to completion with diligence), not to exceed sixty (60) additional days in the aggregate.  Notwithstanding the foregoing, if the applicable material default is not susceptible of being cured but the actual damages caused by such material default can be quantified so that KBS and/or the Company or the applicable Subsidiary can be “made whole”, as reasonably determined by KBS in its good faith discretion, and the JV Member makes the necessary payment within thirty (30) days after KBS notifies JV Member of its determination of the necessary “make whole” payment then such payment shall be deemed to have cured such Removal Event;
(vi)    bankruptcy of the Company or any Subsidiary filed by the Managing Member without the written approval of KBS;
(vii)    bankruptcy of JV Member or any JV Member Principal;
(viii)    if any default under any Financing, including any Required Guaranty (defined below) (for which there are no notice and cure rights or for which such rights have expired and the lender has not otherwise waived such default in accordance with the terms of any Financing document) occurs, the applicable lender elects to exercise remedies as a result of such default, which such default is caused by JV Member or any Affiliate thereof; provided that it shall not be a Removal Event if the event of default in question is a result of the Company or any Subsidiary having insufficient funds or revenues due to the performance of the Project or any other circumstance outside the control of JV Member;
(ix)    the failure of JV Member to fund any capital contributions as and when required pursuant to Section 3.01(a) or Section 3.06 below, as applicable and such failure is not cured within ten (10) days of written notice from KBS;
(x)    if any default continues past applicable notice and cure periods under the Hotel Management Agreement, which default would entitle Hotel Manager to terminate the Hotel Management Agreement, which such default is caused by JV 

16

Member or any Affiliate thereof; provided that it shall not be a Removal Event if the event of default in question is a result of the Company or any Subsidiary having insufficient funds or revenues due to the performance of the Project or any other circumstance outside the control of JV Member;
(xi)    if any default by Master Tenant continues past applicable notice and cure periods under the Franchise Agreement and Franchisor elects to exercise remedies as a result of such default, which such default is caused by JV Member or any Affiliate thereof; provided that it shall not be a Removal Event if the event of default in question is a result of the Company or any Subsidiary or the Master Tenant having insufficient funds or revenues due to the performance of the Project or any other circumstance outside the control of JV Member;
(xii)    the failure of JV Member to cause all liquor licenses with respect to the Project, or any portion thereof, to be maintained if such failure results in a notice of default from Lender or Franchisor and JV Member fails to use commercially reasonable efforts to reinstate or replace the applicable liquor license(s); provided that it shall not be a Removal Event if the same is a result of the Company having insufficient funds or revenues due to the performance of the Project or any other circumstance outside the control of JV Member;
(xiii)    if JV Member resigns as Managing Member without the prior written consent of KBS unless such action is taken by JV Member in response to an act or omission (or series of acts or omissions) by KBS which constitute a willful and material default by KBS hereunder adversely affecting the Company, any Subsidiary or the Project, or any portion thereof, which is not timely cured within thirty (30) days after written notice from JV Member (or, if such default is not susceptible of cure within such thirty (30) day period, within such period as is required to effect such cure, not to exceed an additional thirty (30) days, so long as KBS has commenced such cure within such thirty (30) day period and thereafter prosecutes such cure to completion with diligence), not to exceed sixty (60) additional days in the aggregate;
(xiv)    a breach by JV Member of any representation or warranty contained herein materially adversely affecting the Company, any Subsidiary or the Project, or any portion thereof, which is not timely cured within thirty (30) days after written notice from KBS (or, if such default is not susceptible of cure within such thirty (30) day period, within such period as is required to effect such cure so long as JV Member has commenced such cure within such thirty (30) day period and thereafter prosecutes such cure to completion with diligence), not to exceed sixty (60) additional days in the aggregate; provided, however, that if such breach was unintentional and the adverse effect on KBS of such material breach can be remedied, and JV Member promptly so remedies such adverse effect in all material respects, then such breach shall not be deemed a Removal Event.  Notwithstanding the foregoing, if the applicable material breach is not susceptible of being cured but the actual damages caused by material breach can be quantified so that KBS and/or the Company or the applicable Subsidiary can be “made whole”, as reasonably determined by KBS in its good faith discretion, and the JV Member makes the necessary payment within thirty (30) days after 

17

KBS notifies JV Member of its determination of the necessary “make whole” payment then such payment shall be deemed to have cured such Removal Event; and
(xv)    a Removal Event occurs under the Limited Liability Company Agreement of KBS SOR II Q&C Operations, LLC (as the same may from time to time be amended, supplemented, restated or otherwise modified, the “Operations JV LLC Agreement”).
(c)    Remedies Upon Removal Event.  Upon the occurrence of a Removal Event, at the option of KBS (and in addition to any other remedy available to KBS at law or in equity), KBS may, but shall not be obligated to, exercise any or all of the following remedies:
(i)    terminate any or all of the Affiliate Agreements (but excluding the Hotel Management Agreement), in each case, without penalty or payment of termination fees, but any fees earned under any Affiliate Agreement prior to such termination shall be paid through the applicable termination date, but not thereafter; and/or
(ii)    replace JV Member as Managing Member by delivering written notice of removal (“Removal Notice”) to JV Member, and designate a new Managing Member (which may be KBS or one of its Affiliates).
(d)    Further Remedies Upon Certain Removal Events.  In addition to and not in limitation of the rights of KBS pursuant to Section 2.06(c) above, upon the occurrence of a Removal Event identified in Sections 2.06(b)(i), (ii), (iii), (v), (vi), (viii), (xiii), and (xiv) (but not any other Removal Event), at the option of KBS (and in addition to any other remedy available to KBS at law or in equity).  KBS may, but shall not be obligated to, exercise any or all of the following remedies:
(i)    terminate distributions of Net Cash (defined below) of the Company in accordance with Section 5.01 below and have any and all Net Cash of the Company thereafter distributed in accordance with the provisions of Section 5.02(a) (i.e., JV Member shall lose its “promote” and Net Cash shall be thereafter distributed pro rata to the Members in accordance with their Percentage Interests in accordance with Section 5.02(a)); 
(ii)    terminate JV Member’s right to participate in Major Decisions; and/or
(iii)    terminate JV Member’s Purchase Election set forth in Section 7.01.
(e)    Effective Date of Remedies.  If KBS elects to exercise any of the foregoing remedies set forth in Section 2.06(c) or Section 2.06(d) above because of the occurrence of a Removal Event, KBS shall deliver written notice to Managing Member and JV Member, which notice shall specify the effective date of the election of its remedies (the "Removal Date").

18

(f)    Challenge to Determination of Removal Event and Removal of JV Member for Cause.  If JV Member challenges KBS’s determination of the existence of a Removal Event (which challenge must be commenced within 45 days of the date on which JV Member received the Removal Notice) and such determination is adjudicated in favor of JV Member by a final and non-appealable judgment rendered by a court of competent jurisdiction (a “Reinstatement Determination”), then JV Member shall be re-instated as Managing Member and the provisions of Section 2.06(c) and (d), as applicable, that took effect as a result of the removal of JV Member as Managing Member shall no longer be effective and shall be restored effective for all purposes as of the Removal Date.  Upon the issuance of a Reinstatement Determination, JV Member shall be entitled to receive all distributions of Net Cash that it would have received pursuant to Section 5.01 below had Managing Member not been removed as Managing Member together with interest on such amounts calculated using the Default Rate (collectively, such amounts, as may hereinafter be adjusted, shall be referred to herein as the “Reinstatement Payments”).  No later than thirty (30) days following the Reinstatement Determination, KBS shall pay or cause to be paid to JV Member or its Affiliates, as applicable, in cash or immediately available funds, the Reinstatement Payments.  For avoidance of doubt, the provisions of this Section 2.06(f) shall only apply to a removal of the JV Member as Managing Member for Cause pursuant to Section 2.06(c) and (d), as applicable, but do not apply to the removal of the JV Member as Managing Member without Cause pursuant to Section 2.06(g) below.
(g)    Removal of Managing Member Without Cause.  Upon thirty (30) days prior written notice by KBS to JV Member, KBS may elect, in its sole discretion, to remove JV Member as Managing Member and designate a new Managing Member (which may be KBS or one of its Affiliates), in which case the following shall apply:
(i)    KBS may terminate any or all of the Affiliate Agreements (but excluding the Hotel Management Agreement), in each case, without penalty or payment of termination fees, but any fees earned under any Affiliate Agreement prior to such termination shall be paid through the applicable termination date, but not thereafter; and
(ii)    terminate distributions of Net Cash (defined below) of the Company in accordance with Section 5.01 below and have any and all Net Cash of the Company thereafter distributed in accordance with the provisions of Section 5.02(b) (i.e., JV Member shall receive an adjusted “promote” and Net Cash shall be thereafter distributed to the Members in accordance with Section 5.02(b)).
(h)    Definition of Net Cash.  As used in this Agreement, the term “Net Cash” shall mean the gross cash receipts of the Company from all sources as of any applicable date of determination, less the portion thereof used to pay (i) all cash disbursements (inclusive of any guaranteed payment within the meaning of Section 707(c) of the Code paid to any Member, including, without limitation, any reimbursements made to any Member and any amounts applied to repay any Member Loans or Default Loans of the Company prior to that date); and (ii) all reserves established by the Annual Budget, the Hotel Manager, or any Financing or otherwise approved by KBS for anticipated cash disbursements that will have to be made before additional cash receipts from third parties will provide the funds therefor, 

19

including for payment of debt service, capital improvements and other anticipated contingencies and expenses of the Company.
2.07.    Members Have No Managerial Authority.  The Members shall have no power to participate in the management of the Company, except as expressly authorized by this Agreement.  
2.08.    Meetings.  The Company shall not be required to hold regular meetings of Members.  Any Member may call a meeting of Members for the purpose of discussing Company business.  Unless otherwise approved by the Members, any meeting of Members shall be held during normal business hours either telephonically or in person at the Company's principal office on such day and at such time as are reasonably convenient for the Members.
2.09.    Liability and Indemnity.  No Member (nor any officer, director, member, manager, constituent partner, agent or employee of the Company or a Member) shall be liable or accountable in damages or otherwise to the Company or to any other Member for any good faith error of judgment or any good faith mistake of fact or law in connection with this Agreement, or the services provided to the Company to except as provided in the last sentence of this Section 2.09.  To the maximum extent permitted by law, the Company does hereby indemnify, defend and agree to hold Managing Member and each Member (and each such officer, director, member, manager, constituent partner, agent or employee) wholly harmless from and against any loss, expense or damage (including, without limitation, attorneys’ fees and costs) suffered by such Member (and/or such officer, director, member, manager, constituent partner, agent or employee) by reason of anything which such Member (and/or such officer, director, member, manager, constituent partner, agent or employee) may do or refrain from doing hereafter for and on behalf of the Company and in furtherance of its interest; except as provided in the last sentence of this Section 2.09.  To the maximum extent permitted by law, Managing Member and each Member does hereby indemnify, defend and agree to hold the Company and each other Member wholly harmless from and against any loss, expense or damage (including, without limitation, attorneys’ fees and costs) suffered by the Company or such other Member as a result of such indemnifying Member’s willful misconduct or gross negligence in performing or failing to perform such indemnifying Member’s duties hereunder.  No Person shall be entitled to indemnification under this Section 2.09 to the extent any losses arise directly or indirectly out of such Indemnitee’s gross negligence, willful or wanton misconduct, fraud, intentional misrepresentation, criminal conduct, a knowing violation of any applicable law, breach of this Agreement, failure to perform duties specifically enumerated hereunder, or an action outside the scope of such Indemnitee’s authority.
2.10.    Business Plan and Budget.  KBS and JV Member shall use all good faith, commercially reasonable efforts to agree, prior to the expiration of the due diligence period under the Purchase Agreement, on a plan which sets forth the general description of the overall business plan of the Company with respect to the Project (the “Business Plan”), the approval of which shall be a Major Decision determined as follows:  an initial draft of the Business Plan shall be prepared by Managing Member and submitted for KBS’ comment or approval within ten (10) business days after the date of this Agreement; KBS shall approve or comment on such draft within five (5) business days after receipt thereof; such approval shall not be unreasonably withheld or conditioned; Managing Member shall submit a revised proposed Business Plan 

20

within five (5) business days of receipt of KBS’ comments, if any.  Any remaining line item that KBS does not approve within five (5) business days shall be conclusively deemed disapproved.  Notwithstanding the approval of such Business Plan, in the event of any conflict or inconsistency between any provision of the Business Plan and any provision of this Agreement, the provisions of this Agreement shall control and supersede the provisions of the Business Plan. On or before the Update Date (defined below) in any year, Managing Member shall prepare an update and any other necessary modifications to the Business Plan for KBS’s review and approval in accordance with the foregoing procedure.
(a)    Annual Budget.  KBS and JV Member shall use all good faith, commercially reasonable efforts to agree, prior to the expiration of the due diligence period under the Purchase Agreement, on a budget (the “Annual Budget”) which shall set forth, by category, the estimated costs that are projected to be incurred for the 2016 fiscal year in connection with the ownership, renovation, construction, and operation of the Project in accordance with the Business Plan by the Company, the approval of which shall be a Major Decision determined as follows:  an initial draft of the Budget shall be prepared by Managing Member and submitted for KBS’ comment or approval within ten (10) business days after the date of this Agreement; KBS shall approve or comment on such draft within five (5) business days after receipt thereof; such approval shall not be unreasonably withheld or conditioned; Managing Member shall submit a revised proposed Budget within five (5) business days of receipt of KBS’ comments, if any.  Any remaining line item that KBS does not approve shall be conclusively deemed disapproved.  On or before the last business day of November of each year commencing in 2016 or such date as may be specified in the Hotel Management Agreement (each an "Update Date"), Managing Member shall work with the Hotel Manager to prepare a new Annual Budget for this year, which shall be required to be approved by KBS as a Major Decision in accordance with the foregoing procedure, and  which shall set forth, by individual category, the costs and expenses projected to be incurred by the Company for the ensuing fiscal year.
(b)    Interim Annual Budget.  If any Annual Budget, or any category thereof, is not approved as a Major Decision under Section 2.02(a) for any fiscal year as of the commencement of such fiscal year (or other period), then the approved categories of the proposed Annual Budget shall be in effect, but as to the categories which were disapproved, one hundred five percent (105%) of the last approved Annual Budget line items shall be in effect until the new Annual Budget as to such categories is approved as a Major Decision.  Adjustments to the last approved Annual Budget shall automatically be made to reflect actual increases in non-discretionary costs, including but not limited to real property taxes, insurance premiums, utility charges and payments required under contracts to which the Company is a party at the time of the expiration of the Annual Budget, and shall not require approval under Section 2.02(a).  Notwithstanding the foregoing, if the Hotel Management Agreement shall authorize Hotel Manager to operate pursuant to an interim procedure prior to approval of an Annual Budget, then such procedure shall control over this Section 2.10(b); provided that in all events the decision to require additional capital contributions from the Members shall be a Major Decision under Section 2.02(a).
(c)    Emergency Expenditures.  Notwithstanding anything to the contrary contained in this Agreement, Managing Member shall have the right, power and authority, 

21

without the approval of KBS pursuant to Section 2.02 or otherwise, to cause or permit Hotel Manager, the Company or any of its Subsidiaries to incur emergency expenditures to the extent Managing Member reasonably believes that such expenditures are necessary to prevent imminent damage to persons or property on or about the Project, or the imposition of imminent civil or criminal liability against the Company, any Subsidiary, or any member, partner, officer, director, shareholder, agent, employee, or representative of any of them (and shall notify the Members prior to making or authorizing such expenditures to the extent reasonably possible under the circumstances).
2.11.    Material Agreements.  The Members contemplate that the Company shall execute the following agreements at the Property Closing, but if any of them are entered prior to the Property Closing, no fees or other amounts payable by the Company thereunder shall accrue prior to the date on which the Property Closing occurs:
(a)    Master Lease.  Subject to Section 1.06, the Company shall cause Property Owner LLC to enter the Master Lease, which Master Lease shall be in customary and reasonable form and which shall be agreed to by the Members prior to the expiration of the Due Diligence Period under the Purchase Agreement.
2.12.    Reimbursements and Fees.
(a)    Reimbursements.  Except as otherwise provided by this Agreement, none of the Members (or their respective Affiliates and/or other representatives) shall be paid any compensation for rendering services to the Company.  Each Member shall be reimbursed for any costs and/or expenses incurred by such Member on behalf of the Company that relate to the business and affairs of the Company to the extent such Member had authority to act on behalf of the  Company (without reduction to such Member’s capital account in the Company maintained in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv) (each a "Capital Account")); provided, however, that except as otherwise provided in this Agreement or in the Annual Budget no Member shall be reimbursed for any such costs and/or expenses that exceed an aggregate amount of $2,000 during any calendar year without Member Approval.  As used in this Agreement, the term: “Treasury Regulation” means any proposed, temporary, and/or final federal income tax regulation promulgated by the United States Department of the Treasury as heretofore and hereafter amended from time to time (and/or any corresponding provisions of any superseding revenue law and/or regulation).
(b)    Reimbursement for Pre-Formation Costs.  The Company shall reimburse KBS and JV Member at the Property Closing for any and all legal and accounting fees, organizational costs and any other reasonable, actual, out-of-pocket formation and due diligence costs incurred by KBS and JV Member (and/or any Affiliate or representative thereof) in connection with the formation of the Company, the negotiation and documentation of this Agreement and the acquisition of the Project (“Pursuit Costs”) set forth in the initial Annual Budget approved pursuant to Sections 1.06 and 2.10 hereof.  The foregoing reimbursements shall not be debited to or otherwise reduce any Member’s Capital Account.  KBS and JV Member shall use good faith commercially reasonable efforts to cause all such accounts amounts approved by KBS to be reimbursed hereunder at the Property Closing.

22

(c)    Acquisition Fee.  At the Property Closing, the Company shall pay JV Member the amount of $600,000.  A portion of such amount shall be paid over by JV Member to Silver Portal Capital (“SPC”) as an equity placement fee pursuant to a separate agreement between JV Member and SPC, which agreement shall provide that no other fees or amounts shall be due or payable to SPC in connection with the Property Closing, the formation of the Company or the Mortgage Loan.  The balance of such amount shall be retained by Encore Hospitality, LLC as an acquisition fee, and no other fees of other amounts shall be due or payable to Encore Hospitality, LLC or its Affiliates by the Property Owner LLC, the Company or KBS (or any Affiliate of KBS) on account of an acquisition fee or similar fee in connection with the Property Closing, the formation of the Company or the Mortgage Loan.
2.13.    Limited Liability.  Except as otherwise provided by the Act, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and the Members shall not be obligated personally for any such debt, obligation or liability of the Company solely by reason of being a Member of the Company.
		
	2.14
	Representations, Warranties, and Covenants of the Members.

(a)    Certain Representations and Warranties of the Members.  Each Member hereby represents and warrants to the Company and the other Member as follows:
(i)    Such Member is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization.
(ii)    Such Member has all requisite power, authority and capacity to enter into and perform its obligations under this Agreement.
(iii)    Such Member has duly authorized the execution and delivery of this Agreement, and this Agreement constitutes a binding obligation of such Member, enforceable against such Member in accordance with its terms.
(iv)    The execution, delivery and performance of this Agreement by such Member will not violate any agreement to which such Member or any of its Affiliates is a party or order of a governmental body.
(v)    Such Member is otherwise duly qualified to purchase and hold its Interest and to execute and deliver this Agreement and all other instruments executed and delivered on behalf of it in connection with the acquisition of its Interest.
(b)    Intentionally Omitted.  
2.15    REIT Tax Provisions.  Notwithstanding any other provisions in this Agreement, it is the intention of the Members that during the term of the Master Lease to the Master Tenant:

23

(a)    Any rents received by the Property Owner LLC from Master Tenant shall qualify as “rents from real property” in accordance with the requirements of Section 856(d)(8) of the Internal Revenue Code of 1986, as amended (the “Code”).
(b)    the Hotel Manager shall qualify as an “eligible independent contractor” as defined in Section 856(d)(9) of the Code.
To that end, during the term of this Agreement, the Hotel Manager:
(i)    shall not permit wagering activities to be conducted at or in connection with the Hotel; 
(ii)    shall not own, directly or indirectly (within the meaning of Section 856(d)(5) of the Code), more than 35% of the shares of KBS; 
(iii)    shall be actively engaged in the trade or business of operating “qualified lodging facilities” (defined below) for persons who are not “related persons” within the meaning of Section 856(d)(9)(F) of the Code with respect to KBS (“Unrelated Persons”). In order to meet this requirement, Hotel Manager agrees that it (i) shall derive at least 10% of both its revenue and profit from operating “qualified lodging facilities” for Unrelated Persons and (ii) shall comply with any regulations or other administrative guidance under Section 856(d)(9) of the Code with respect to the amount of hotel management business with Unrelated Persons that is necessary to qualify as an “eligible independent contractor” within the meaning of such Code Section (so long as Master Tenant has advised Hotel Manager in writing of such regulations or other administrative guidance); and 
(iv)    A “qualified lodging facility” is defined in Section 856(d)(9)(D) of the Code and means a “lodging facility” (defined below), unless wagering activities are conducted at or in connection with such facility by any person who is engaged in the business of accepting wagers and who is legally authorized to engage in such business at or in connection with such facility. A “lodging facility” is a hotel, motel or other establishment more than one-half of the dwelling units in which are used on a transient basis, and includes customary amenities and facilities operated as part of, or associated with, the lodging facility so long as such amenities and facilities are customary for other properties of a comparable size and class owned by other owners unrelated to KBS. 
ARTICLE III
MEMBERS’ CONTRIBUTIONS TO COMPANY
3.01.    Initial Capital Commitments.  
(a)    JV Member.  JV Member shall contribute to the capital of the Company, in cash, an aggregate amount equal to 10% of the initial equity necessary to acquire the Project and capitalize the Company, as follows: (i) when due pursuant to the Purchase Agreement, JV Member will fund $51,200, which is ten percent (10%) of the $512,000 Initial Deposit under the Purchase Agreement, (ii) when due pursuant to the Purchase Agreement, JV Member will fund ten percent (10%) of the Additional Deposit and the Franchise Deposit (if applicable) under the Purchase Agreement, and (iii) JV Member will fund the remainder of its required initial capital 

24

when due hereunder prior to or at the Property Closing.  JV Member shall also contribute its pro rata share of the PIP required by the Hotel Management Agreement in accordance with its Percentage Interest as and when required pursuant to the Hotel Management Agreement.
(b)    KBS.  KBS shall contribute to the capital of the Company, in cash, an aggregate amount equal to 90% of the initial equity necessary to acquire the Project and capitalize the Company, as follows: (i) when due pursuant to the Purchase Agreement, KBS will fund $460,800, which is ninety percent (90%) of the $512,000 Initial Deposit under the Purchase Agreement, (ii) when due under the Purchase Agreement, JV Member will fund ninety percent (90%) of the Additional Deposit and the Franchise Deposit (if applicable) under the Purchase Agreement, and (iii) KBS will fund the remainder of its required initial capital when due hereunder prior to or at the Property Closing.  KBS shall also pay its pro rate share of the PIP required by the Hotel Management Agreement in accordance with its Percentage Interest as and when required pursuant to the Hotel Management Agreement.
(c)    Failure to Close Property Closing.  In the event a Member fails to fund the portion of its initial capital contribution required to be funded at or prior to the Property Closing pursuant to Section 3.01(a) or (b), as applicable, or otherwise refuses to allow the Property Owner LLC to close the Property Closing under the Purchase Agreement and such failure to fund or close results in or would result in a default under the Purchase Agreement, then in addition to any other remedy set forth in this Agreement, the non-defaulting Member shall have the unilateral authority without the consent of the defaulting Member to cause the Company and the Property Owner LLC to close the Property Closing, in which event the defaulting Member shall no longer be a Member of the Company and shall receive no return of its capital to the extent such defaulting Member had previously funded any part of its capital under this Section 3.01.  In the event a Member fails to fund the portion of its initial capital contribution required to be funded at or prior to the Property Closing pursuant to Section 3.01(a) or (b), as applicable, or otherwise refuses to allow the Property Owner LLC to close the Property Closing under the Purchase Agreement and such failure to fund or close results in or would result in a default under the Purchase Agreement and the non-defaulting member elects not to close the Property Closing, the defaulting Member shall be liable for the non-defaulting Member’s share of the Deposit that is not returned to the non-defaulting Member and for all costs and expenses incurred by such non-defaulting Member incurred in connection with this Agreement and the Property, including all costs to negotiate this Agreement, to the extent such costs and expenses have not previously been reimbursed to such non-defaulting Member (the lost Deposit and such costs and expenses, collectively, the “Reimbursable Expenses”).  The defaulting Member shall pay to the non-defaulting Member such reimbursement within ten (10) days of the non-defaulting Member’s written request therefor, which request shall reasonably substantiate the costs and expenses incurred.  If the defaulting Member is (i) KBS then KBS SOR US Properties II LLC, a Delaware limited liability company (the “KBS Credit Party”), shall guaranty the payment of the Reimbursable Expenses incurred by JV Member, or (ii) JV Member then Encore Hospitality, LLC, a Delaware limited liability company (the “JV Member Credit Party”) shall guaranty the Reimbursable Expenses incurred by KBS.  Except as provided in Section 1.05 above, if the Property Closing does not otherwise occur and the Deposit is returned to the Property Owner LLC, then the Company shall be dissolved pursuant to Article VIII.

25

3.02.    Default in Capital Commitment.  If JV Member or KBS (as applicable, the “Defaulting Member”) shall fail to contribute its share of any amounts required to be contributed pursuant to Section 3.01 or any approved additional capital contributions pursuant to Section 3.06 (the “Defaulted Amount”) and such failure shall continue for at least five (5) business days following notice to the Defaulting Member (provided that no notice or cure period shall apply to a Member’s failure to fund its share of the required capital to the Company for the Property Closing pursuant to the Purchase Agreement), KBS or JV Member, as applicable (the “Non-Defaulting Member(s)”) may, but shall not be obligated to, contribute some or all of the Defaulted Amount as a capital contribution to the Company or as a loan to the Defaulting Member (a “Default Loan”).  If the Non-Defaulting Member elects to contribute some or all of the Defaulted Amount as a capital contribution to the Company, then the Percentage Interests of KBS and the JV Member on Exhibit A shall be adjusted as if the Non-Defaulting Member contributed 150% of the amount of capital actually contributed by the Non-Defaulting Member following the failure of the Defaulting Member to contribute its share of required capital to the Company.  If the Non-Defaulting Member elects to provide the Default Loan, then it shall pay the proceeds directly to the Company.  A Default Loan shall not be considered a capital contribution by the Non-Defaulting Member and shall not increase the Capital Account balance or the Percentage Interest of the Non-Defaulting Member, but instead shall be treated as a non-recourse loan by the Non-Defaulting Member to the Defaulting Member (and a capital contribution by the Defaulting Member) and shall bear interest at the lesser of (x) the Default Loan Rate (hereinafter defined) or (y) the maximum amount permitted by law.  To the extent not repaid directly by the Defaulting Member, a Default Loan, together with any accrued and unpaid interest thereon, shall be repaid out of any subsequent distributions of Net Cash or any other payment from the Company to which the Defaulting Member would otherwise be entitled (but such distributions actually paid to the lending Members shall nonetheless constitute a distribution to the Defaulting Member for purposes of this Agreement), and such payments shall be applied first to the payment of accrued but unpaid interest on each such obligation and then to the payment of the outstanding principal until the Default Loan is paid in full.  “Default Loan Rate” is defined as a cumulative annual rate equal to twenty percent (20%), compounded quarterly (pro-rated for periods of less than one year), on the daily average outstanding balance during each fiscal year of the Member’s aggregate unreturned Default Loan.
3.03.    Member Loans.  In the event Managing Member determines, in its reasonable discretion, that funds in addition to those otherwise obtained pursuant to Sections 3.01 are necessary for the Company to meet the Annual Budget and carry out the Business Plan, then Managing Member shall deliver written notice of such actual or projected cash deficit to the Members requesting that they agree that a loan (a “Member Loan”) should be made to the Company, which notice shall specify the term and interest rate of the requested Member Loan.  Within 10 business days following the effective date of such notice, each such Member shall notify Managing Member (a) whether or not such Member agrees that Member Loan(s) to the Company should be made in the amount specified in Managing Member’s notice, and (b) whether such Member elects, in its sole and absolute discretion, to make such Member Loan.  If all Members (y) agree that a Member Loan in the amount specified in Managing Member’s notice should be made, and (z) elect to advance such funds by the Company, such funds shall be advanced by the Members in proportion to their respective percentage set forth opposite such Member's name under the column labeled "Percentage Interest" on Exhibit A attached hereto (the "Percentage Interests") (or as such Members otherwise agree).  Any and all advances made 

26

by any Member to the Company pursuant to this Section 3.03 shall be treated as a Member Loan with recourse only to the assets of the Company (and not to the assets of any Member), and shall bear annual interest as set forth in Managing Member’s notice.  If, from any circumstances whatsoever, any Member ever receives interest under a Member Loan in an amount which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the unpaid principal balance due under such Member Loan and not to the payment of interest.  Any and all Member Loans shall be due and payable from the first available funds of the Company and in any event upon the liquidation of the Company.  The repayment of any Member Loan shall be made prior to any distributions of Net Cash or other cash proceeds to the Members, but shall be subordinate to any fees or reimbursements required to be made to the Members and/or their Affiliates pursuant to Section 2.13.  Accordingly, notwithstanding the provisions of Articles V and VIII, until any and all Member Loans are repaid in full, the Members shall draw no further distributions from the Company and all cash or property otherwise distributable with respect to the Interests of the Members shall be paid to the Member(s) making Member Loan(s) in proportion to, and as a reduction of, the outstanding balance(s) of such Member Loan(s), with such funds being applied first to reduce any interest accrued thereon, and then to reduce the principal amount thereof.  As used in this Agreement, the term “Interest” means in respect to any Member, all of such Member’s right, title and interest in and to the Net Profits, Net Losses, Net Cash, and capital of the Company, and any and all other interests therein in accordance with the provisions of this Agreement and the Act.  As used in this Agreement, the terms “Net Profits” and “Net Losses” mean, for each fiscal year or other period, an amount equal to the Company’s taxable income or loss, as the case may be, for such year or period, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss and deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss); provided, however, for purposes of computing such taxable income or loss, (i) such taxable income or loss shall be adjusted by any and all adjustments required to be made in order to maintain Capital Account balances in compliance with Treasury Regulation Section 1.704-1(b), and (ii) any and all items of gross income or gain and/or partnership and/or partner “nonrecourse deductions” specially allocated to any Member pursuant to Section 4.02 shall not be taken into account in calculating such taxable income or loss.  If KBS does not approve a Member Loan, such disapproval shall be deemed final and conclusive for all purposes.
3.04.    Determination of IRR Returns and Equity Multiple.  
(a)    IRR Return.  The IRR Return described in Section 5.01 below shall be determined based upon internal rate of return of KBS.  As used in this Agreement, the term "IRR Return" means the annual discount rate that when compounded monthly results in a net present value equal to zero when the discount rate is applied to all capital contributions by KBS and all distributions made by the Company to KBS pursuant to this Agreement.  The IRR Return shall be calculated using the XIRR function provided in Microsoft Office Excel or any replacement software issued by Microsoft to compute internal rate of return. It is understood by the Members that the achievement of a particular IRR Return requires both a return of all capital contributions plus a cumulative return on such capital contributions at the applicable percentage IRR Return.

27

(b)    Equity Multiple.  The “Equity Multiple” described in Section 5.01 shall equal all actual distributions made by the Company to KBS pursuant to this Agreement divided by all of KBS’s capital contributions to the Company.  
3.05.    Capital Contributions in General.  Except as otherwise expressly provided in this Agreement or as otherwise agreed to by all Members in writing (i) no Member may withdraw all or any portion of any contribution that such Member may have made to the capital of the Company without each other Member’s consent, (ii) no Member shall be entitled to receive interest on such Member’s contributions to the capital of the Company, and (iii) no Member shall be required or entitled to contribute additional capital to the Company
3.06.    Additional Capital Contributions.  Following the contribution of all the amounts described in Section 3.01, Managing Member shall have the right to make a capital call by delivering written notice to the Members under this Section 3.06 if and only if such additional capital was either (1) set forth in the approved Annual Budget or (2) otherwise approved as a Major Decision pursuant to Section 2.02.  Each Member shall contribute its share of the additional capital contributions called for under this Section 3.06 (in accordance with its Percentage Interest) in cash on or before the due date specified in the written notice, which due date shall be no less than ten (10) business days from the date of this written notice.  If a Member fails to make its share of the additional capital contributions called for on or before the due date specified in Managing Member’s written notice, the Non-Defaulting Member shall have the right (but not the obligation and without waiving any remedies hereunder as a result of such failure) to make a Default Loan pursuant to Section 3.02.
3.07.    Guaranties.
(a)    Required Guaranties. Except as set forth in Section 2.02(d), if in connection with any Financing of the Property, including any mezzanine financing pertaining to the Property, a lender requires a guaranty of (i) standard non-recourse carve outs, (ii) certain environmental conditions and (iii) payment obligations related to Financing (each a “Required Guaranty” and collectively, the “Required Guaranties”), such Required Guaranties shall be from the Company and/or one or more entities (individually and collectively, the “Guarantor”) that are identified in connection with the approval of the applicable Financing pursuant to Section 2.02(d).  The Guarantor shall not receive any fees or other compensation for making a Required Guaranty.
(b)    Proportionate Guaranty Obligations of the Members.  Except to the extent Section 3.07(c) provides otherwise, if a Guarantor shall deliver a Required Guaranty and if such Guarantor shall make, or be required to make, any payment under any such Required Guaranty, each Member hereby covenants and agrees to satisfy, or cause to be satisfied, its Proportionate Guaranty Obligation (as defined below) with respect to any and all of the Required Guaranties and each Member’s payment of its Proportionate Guaranty Obligation shall be treated as an additional capital contribution to the Company by each Member for all purposes of this Agreement.  If and to the extent a Member (or its Affiliate) has failed to fully satisfy its Proportionate Guaranty Obligation within thirty (30) days following the date such Member is notified that such Guarantor has made, or is required to make, such payment under the applicable Required Guaranty, the other Member may exercise its rights under Section 

28

3.07(d) below.  “Proportionate Guaranty Obligation” means with respect to any Required Guaranty which any Guarantor shall provide to a lender, the obligation of each Member pursuant to this Section 3.07(b) to make payments (to a third party lender, the Company, to any other Member or the Guarantor) in an amount equal to the product of (x) the aggregate amount paid and/or due and payable under any and all such Required Guaranties multiplied by (y) the Percentage Interest of such Member.  
(c)    Exceptions to Proportionate Guaranty Obligations.  Notwithstanding anything to the contrary in Section 3.07(b):
(i)    Conduct By KBS.  Any and all amounts paid by a Guarantor with respect to any Required Guaranty as a result of any conduct or action that KBS (or its Affiliates) shall have taken in violation of this Agreement or which is a result of any gross negligence, fraud or intentional misconduct of KBS (and/or its Affiliates) shall be funded solely by KBS (subject to the rights of indemnification set forth in Section 3.07(e)), JV Member (or its Affiliate) shall have no Proportionate Guaranty Obligation with respect to such payments, such amounts funded by KBS (or its Affiliates) shall not be considered a capital contribution by KBS, and KBS (or its Affiliate) shall reimburse the Guarantor for such amount within thirty (30) days of written demand. If KBS (or its Affiliate) fails to make such payment, JV Member shall, as its sole remedy, be entitled to exercise its rights set forth in Section 3.07(d) hereof; and

(ii)     Conduct by JV Member. Any and all amounts paid by a Guarantor with respect to any Required Guaranty as a result of any conduct or action that JV Member (or its Affiliates) shall have taken in violation of this Agreement or which is a result of any gross negligence, fraud or intentional misconduct of JV Member (or its Affiliates) shall be funded solely by JV Member (subject to the rights of indemnification set forth in Section 3.07(e)), KBS (or its Affiliate) shall have no Proportionate Guaranty Obligation with respect to such payments, such amounts funded by JV Member (or its Affiliates) shall not be considered a capital contribution by JV Member, JV Member (or its Affiliate) shall reimburse the Guarantor for such amount within thirty (30) days of written demand. If JV Member (or its Affiliate) fails to make such payment, KBS shall, as its sole remedy, be entitled to exercise its rights set forth in Section 3.07(d) hereof.

(d)    Failure to Pay Portion of Guaranty Payment by a Member.   If any Member fails to pay (A) its Proportionate Guaranty Obligation in accordance with Section 3.07(b) or (B) the amounts such Member is required to pay under Section 3.07(c), as applicable, the non-defaulting Member affiliated with the Guarantor that made or was required to make, the payment in question under a Required Guaranty, may elect to either (X) contribute some or all of the amount incurred by the applicable Guarantor that should have been repaid by the defaulting Member as a capital contribution to the Company (so the Company can reimburse the Guarantor), in which case the Percentage Interests of the Members shall be adjusted as if the non-defaulting Member contributed 150% of the amount of capital actually contributed by the non-defaulting Member, or (Y) treat such amount incurred by the applicable Guarantor that should have been repaid by the defaulting Member as a Default Loan made to the defaulting Member.   If KBS is the defaulting Member under Sections 3.07(b) or (c), then the KBS Credit Party shall guaranty KBS’s payment obligations under these sections.  If the JV Member is the 

29

defaulting Member under Sections 3.07(b) or (c), then the JV Member Credit Party shall guaranty JV Member’s payment obligations under these sections.
(e)    Indemnification.  The Company shall indemnify, defend and hold harmless each Guarantor for any and all losses suffered under any Required Guaranty, provided that no such indemnification shall be made (and a Guarantor shall reimburse any funds advanced to them in connection with a defense of a claim and indemnify the Company and the other Member) to the extent a court of competent jurisdiction determines that the Member affiliated with such Guarantor is solely liable for the losses suffered under any Required Guaranty pursuant to Section 3.07(c). The KBS Credit Party shall guaranty KBS’s indemnification obligations under this Section 3.07(e).  The JV Member Credit Party shall guaranty JV Member’s indemnification obligations under this Section 3.07(e).
(f)    Effect of Removal of JV Member as Managing Member – Guaranties.  If JV Member is replaced as Managing Member in accordance with Section 2.06, (i) KBS shall use commercially reasonable efforts to have any Guarantor that is an Affiliate of JV Member replaced or removed as a guarantor(s) under any Required Guaranties for liabilities arising from conduct, actions, inactions or events first occurring or arising after the date upon which a successor Managing Member replaces JV Member as Managing Member (but such Guarantor(s) shall not be replaced with respect to conduct, actions, inactions, or events first occurring or arising on or before the date of such replacement) and (ii) to the extent that the Guarantor that is an Affiliate of JV Member is not replaced or removed as a guarantor under the Required Guaranties as provided in clause (i), KBS shall indemnify, defend and hold harmless such Guarantor(s) for any liabilities arising from conduct, actions, inactions or events first occurring or arising after the date upon which JV Member is replaced  as Managing Member, except for any liabilities to the extent arising from the affirmative actions of JV Member, its Affiliates, or the Guarantor whether or not first arising after the date upon which successor KBS replaces JV Member as KBS.  The KBS Credit Party shall guaranty KBS’s indemnification obligations under this Section 3.07(f). 
ARTICLE IV
ALLOCATION OF PROFITS AND LOSSES
4.01.    In General.
(a)    Net Profits and Net Losses shall be allocated among the Members in such a manner so as, to the maximum extent possible, to make each Member’s Capital Account as of the close of each year (increased by the Member’s share of “partnership minimum gain” as defined in Treasury Regulation Section 1.704-2(b)(2) and “partner nonrecourse debt minimum gain” as defined in Treasury Regulation Section 1.704-2(i)(5)) equal the amount that the Member would receive if, as of the close of such year, all the assets of the Company were sold for their Deemed Book Values (as determined immediately before such deemed sale), the proceeds were applied to pay all Company liabilities and the remaining net proceeds were distributed to the Members in accordance with Section 5.01 or 5.02(a) or (b), as then applicable at the time of such allocations. As used in this Agreement, the term “Deemed Book Value” means the book value of the Company’s assets as determined under Treasury Regulation Section 1.704-1(b)(2)(iv) (i.e., the adjusted tax basis of such assets unless the asset was 

30

contributed to the capital of the Company or there has been a revaluation of book value under Treasury Regulation Section 1.704-1(b)(2)(iv)(f)).
(b)    The Company shall maintain “Capital Accounts” for each Member in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv).  The Company shall make all adjustments required under Treasury Regulation Section 1.704-1(b)(2)(iv), including the adjustments contained in Section 1.704-1(b)(2)(iv)(g), relating to Section 704(c) property as set forth in Section 4.03, below.
4.02.    Special Allocations.
(a)    Minimum Gain Chargeback.  Notwithstanding any other provision of this Agreement, if there is a net decrease in partnership minimum gain for a Company taxable year, each Member shall be allocated, before any other allocation of Company items for the taxable year, items of gross income and gain for the year (and, if necessary, for subsequent years) in proportion to, and to the extent of, the amount of the Member’s share of the net decrease in minimum gain during the year.  The income allocated under this Section 4.02(a) in any taxable year shall consist first of gains recognized from the disposition of property subject to one or more nonrecourse liabilities of the Company, and any remainder shall consist of a pro rata portion of other items of income or gain of the Company.  The allocation otherwise required by this Section 4.02(a) shall not apply to a Member to the extent not required, as provided in Treasury Regulation Section 1.704-2(f)(2) through (5).
(b)    Qualified Income Offset.  Notwithstanding any other provision of this Agreement, if a Member unexpectedly receives an adjustment, allocation or distribution described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) that causes or increases an Adjusted Capital Account Deficit with respect to the Member, items of Company gross income and gain shall be specially allocated to the Member in an amount and manner sufficient to eliminate such Adjusted Capital Account Deficit as quickly as possible.
(c)    Gross Income Allocation.  If at the end of any Company taxable year, a Member has an Adjusted Capital Account Deficit, the Member shall be specially allocated items of Company income or gain in an amount and manner sufficient to eliminate the Adjusted Capital Account Deficit as quickly as possible.
(d)    Nonrecourse Deductions.  Any "nonrecourse deductions" (as defined in Treasury Regulation Section 1.704-2(b)(1)) shall be allocated among the Members in accordance with their Percentage Interests.
(e)    Partner Nonrecourse Debt.  Notwithstanding any other provision of this Agreement, any “partner nonrecourse deductions” (as defined in Treasury Regulation Section 1.704-2(i)(2)) shall be allocated to those Members that bear the economic risk of loss for the applicable partner nonrecourse debt, and among those Members in accordance with the ratios in which they share the economic risk, determined in accordance with Treasury Regulation Section 1.704-2(i).  If there is a net decrease for a Company taxable year in any partner nonrecourse debt minimum gain, each Member with a share of such partner nonrecourse debt 

31

minimum gain as of the beginning of such year shall be allocated items of gross income and gain in the manner and to the extent provided in Treasury Regulation Section 1.704-2(i)(4).
(f)    Adjusted Capital Account Deficit.  As used in this Agreement, “Adjusted Capital Account Deficit” means, with respect to any Member, the deficit balance, if any, in the Member’s Capital Account as of the end of the relevant taxable year, after giving effect to the following adjustments:  (i) crediting thereto (A) the amount of the Member’s shares of partnership minimum gain and partner nonrecourse debt minimum gain, and (B) the amount of Company liabilities allocated to the Member under Section 752 of the Code with respect to which the Member bears the economic risk of loss (as defined in Treasury Regulation Section 1.752-2(a)), to the extent such liabilities do not constitute partner nonrecourse debt under Treasury Regulation Section 1.752-2 and (ii) reduced by all reasonably expected adjustments, allocations and distributions described in Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
(g)    Interpretation.  The foregoing provisions of this Section 4.02 are intended to comply with Treasury Regulation Sections 1.704-1(b) and 1.704-2 and shall be interpreted consistently with this intention.  Any terms used in such provisions that are not specifically defined in this Agreement shall have the meaning, if any, given such terms in the Regulations cited above.
4.03.    Differing Tax Basis; Tax Allocation.
(a)    Except as otherwise provided in this Section 4.03, items of income, gain, loss and deduction of the Company to be allocated for income tax purposes shall be allocated among the Members on the same basis as the corresponding book items are allocated under Sections 4.01 and 4.02.
(b)    Depreciation and/or cost recovery deductions and gain or loss with respect to each item of property treated as contributed to the capital of the Company or revalued under Treasury Regulation Section 1.704-1(b)(2)(iv)(f) shall be allocated among the Members for federal income tax purposes in accordance with the principles of Section 704(c) of the Code and the Treasury Regulations promulgated thereunder, and for state income tax purposes in accordance with comparable provisions of the applicable law in the state in which the property is located and the regulations promulgated thereunder, so as to take into account the variation, if any, between the adjusted tax basis of such property and its book value (as determined for purposes of the maintenance of Capital Accounts in accordance with this Agreement and Treasury Regulation Section 1.704-1(b)(2)(iv)(g)).  For purposes of this Agreement, the term "Code" means the Internal Revenue Code of 1986, as heretofore and hereafter amended form time to time (and/or any corresponding provision of any superseding revenue laws). 
ARTICLE V
DISTRIBUTION OF CASH FLOW
5.01.    Distribution of Net Cash.  The  determination of whether there is sufficient Net Cash so that distributions may be made to the Members in accordance with this Agreement 

32

(including, without limitation, pursuant to this Article V) shall be in the reasonable discretion of KBS, taking into account the reasonable business needs of the Company.  Prior to the removal of the JV Member as Managing Member for Cause pursuant to Section 2.06(d) above or the removal of the JV Member as Managing Member without Cause pursuant to Section 2.06(g) above, Net Cash shall be determined and distributed quarterly (or at such other times as are determined in the reasonable discretion of KBS, taking into account the reasonable business needs of the Company) in the following order of priority: 
(h)    First, 100% to the Members, pari passu in proportion to their Percentage Interests ("Pari Passu"), until KBS has received an IRR Return of 12% and an Equity Multiple of 1.4;
(i)    Second, after KBS has received a IRR Return of 12% and an Equity Multiple of 1.4, and until distributions under this Section 5.01 have resulted in KBS having received an IRR Return of 17%, (i) 80% to KBS, and (ii) 20% to JV Member;
(j)    Third, after KBS has received an IRR Return of 17% and until distributions under this Section 5.01 have resulted in KBS receiving a IRR Return of 20%, (i) 70% to KBS, and (ii) 30% to JV Member; and
(k)    Fourth, after KBS has received a IRR Return of 20%, any distributions under this Section 5.01 thereafter shall be paid (i) 60% to KBS, and (ii) 40% to JV Member.
5.02.    Distribution of Net Cash After Removal of JV Member as Managing Member .  
(a)    Effect of Removal For Cause - Loss of Promote.  After the removal of JV Member as Managing Member for Cause pursuant to Section 2.06(d) of this Agreement, KBS shall determine on a quarterly basis whether there is sufficient Net Cash so that distributions may be distributed quarterly (or at such other times as are determined in the reasonable discretion of KBS, taking into account the reasonable business needs of the Company) to the Members in accordance with their Percentage Interests.
(b)    Effect of Removal Without Cause – Payment of Adjusted Promote.  After the removal of JV Member as Managing Member without Cause pursuant to Section 2.06(g) of this Agreement,  KBS shall determine in good faith on a quarterly basis whether there is sufficient Net Cash so that distributions may be distributed quarterly (or at such other times as are determined in the reasonable discretion of KBS, taking into account the reasonable business needs of the Company) to the Members in accordance with their Percentage Interests.  In addition to any quarterly distributions of Net Cash pursuant to the prior sentence, KBS shall reasonably calculate any Net Cash from a sale, refinance or other recapitalization of the Property (a “Capital Event”) will be calculated pursuant to this Section 5.02(b) so that the adjusted “promote” that JV Member shall receive as a result of such Capital Event can be determined.  In determining the adjusted Net Cash and the promote payable to JV Member resulting from such Capital Event, KBS shall apply the following factors:
(i)    for the period prior to the date on which the JV Member was removed as Managing Member without cause, the actual performance of the Property shall be 

33

used, as such actual performance would be reasonably adjusted for any Force Majeure Events (defined below) that may have occurred prior to such removal date and that materially and adversely affected such performance; 

(ii)    for the period after the date on which the JV Member was removed as Managing Member without cause, the projected performance of the Property shall be used based on the pro-forma projections attached hereto as Exhibit C (the “Acquisition Pro Forma”).  If, however, the Capital Event occurs after the term of the Acquisition Pro Forma, the Acquisition Pro Forma shall be extended at the same assumed inflation and growth rates used to develop the final year shown in the Acquisition Pro Forma; and

(iii)    the exit cap rate set forth in the Acquisition Pro Forma shall be used instead of the actual cap rate existing at the time of the Capital Event.

For purposes of this Section 5.02(b), the term “Force Majeure Events” shall mean acts of God, including but not limited to, hurricanes, floods, and general acts of nature, and strikes and lock outs, unavailability, shortages and delays in delivery of material or equipment, governmental action or inaction affecting the New Orleans marker generally, or similar event that is beyond the control of JV Member and the result of which have a substantial negative monetary effect on the Net Cash of the Property.  In case of any Force Majeure Event, KBS shall reasonably adjust the actual quarterly Net Cash payments that were distributed prior to the date the JV Member was removed as Managing Member without cause to estimate what would have been the performance of the Property during the effect of the Force Majeure Event for the sole purpose of determining the promote (and not the Net Cash distribution per se) under this Section 5.02(b) given a removal of the Managing Member without cause.

After using the foregoing factors to determine the amount of Net Cash from the sale of the Property and KBS’s IRR Return, such Net Cash would be distributed to the Members using the waterfall set forth in Section 5.01(a) through (d) above. 

The Members acknowledge that their expectation is that the promote to be received by JV Member pursuant to this Section 5.02(b) will exceed the promote that would have been received by JV Member pursuant to the application of Section 5.01 alone.  Notwithstanding anything to the contrary in this Agreement, the Members agree that should the promote received by JV Member pursuant to the application of this Section 5.02(b) result in a lesser promote that would have been received by JV Member pursuant to the application of Section 5.01 alone, then the provisions of Section 5.02(b) will prevail.

If JV Member disapproves of KBS’s determination of JV Member’s promote pursuant to this Section 5.02, JV Member shall deliver written notice of such objection to KBS within five (5) business days of JV Member’s receipt of such determination from KBS, which notice shall state with reasonable specificity the basis for JV Member’s objection, and thereafter the Members shall attempt to resolve such objection for a period of up to twenty (20) days before resorting to legal action.  JV Member’s failure to deliver written obligation to KBS’s determination of JV Member’s promote pursuant to this Section 5.02, shall be deemed to be JV Member’s approval thereof. 

34

5.03.    Limitation on Distributions.  Notwithstanding any other provision contained in this Agreement, the Company shall not make any distributions of Net Cash (or other proceeds) to any Member if such distribution would violate the Act or other applicable law.
5.04.    In-Kind Distribution.  Subject to Section 10.06, assets of the Company (other than cash) shall not be distributed in kind to the Members without approval of KBS.  In the event of any distribution of real property in kind, each Member hereby waives any right of partition in respect thereof.
5.05.    Tax Distributions.  Unless this provision is waived by KBS, to the fullest extent possible consistent with the distribution provisions of this Article V, the Managing Member shall use best efforts to cause the Company to distribute cash to KBS by the end of each fiscal year in an amount not less than 100% of the taxable income (including any net capital gain) allocated, directly or indirectly, to KBS for federal income tax purposes for each such fiscal year so that KBS or any owner of KBS that is a REIT may satisfy the requirements of Section 857(a)(1) of the Code for its taxable year with respect to the income and gain allocated to that owner from KBS for the taxable year, and otherwise distribute 100% of its taxable income and net capital gain.  In addition, Managing Member shall have the right to cause Company to distribute cash to the Members in an amount sufficient to cover each Member’s reasonably estimated income tax liability arising from taxable income of the Company allocated to each such Member.  Any cash distributed to a Member under this Section 5.05 shall be applied against and reduce the next distributions of Net Cash that would otherwise be made to the Member under Section 5.01 or Section 5.02(a) or (b) (as may apply), as if the cash distributed under this Section 5.05 were actually distributed under Section 5.01 or Section 5.02(a) or (b) (as may apply). 
ARTICLE VI
RESTRICTIONS ON TRANSFERS OF COMPANY INTERESTS
6.01.    Limitations on Transfer.  Except as set forth in Section 6.02 below, no Member shall be entitled to sell, exchange, assign, transfer or otherwise dispose of, or pledge, hypothecate, encumber or otherwise grant a security interest in, directly or indirectly (collectively, a “Transfer”), all or any part of such Member’s Interest, without the prior written consent of the non-transferring Members (which consent may be withheld in such Member’s sole and absolute discretion).  Any attempted Transfer in violation of the restrictions set forth in this Article VI shall be null and void ab initio and of no force or effect.  Each Member shall indemnify, defend and hold the other Members and the Company harmless from and against any and all costs, expenses and losses associated with any Transfer (including any Permitted Transfer), including without limitation any transfer taxes and any increase in real estate or other taxes incurred as a result of such transfer.
6.02.    Permitted Transfers.  Any Member and/or any direct or indirect constituent owner of any Member may transfer all or any portion of such Member’s Interest and/or such constituent owner’s direct or indirect ownership interest in such Member as follows (each a “Permitted Transfer”) to a person or entity described below (a “Permitted Transferee”) without complying with the provisions of Section 6.01:

35

(a)    Transfer Between Members.  Notwithstanding anything provided to the contrary in this Article VI or elsewhere in the Agreement, any Member may sell, assign or otherwise transfer all or any part of its Interest to any other Member on such terms as are agreed to by both Members.
(b)    KBS Indirect Transfers.  Notwithstanding anything stated to the contrary in this Article VI or elsewhere in the Agreement, any Transfer of equity interests or other interests in KBS, or in any of the direct or indirect owners of KBS (including, without limitation, KBS SOR II Acquisition II, LLC, KBS SOR US Properties II LLC, KBS Strategic Opportunity Limited Partnership II or KBS Strategic Opportunity REIT II, Inc.) shall not be prohibited (and shall be expressly permitted) provided that KBS Strategic Opportunity REIT II, Inc. continues to own, either directly or indirectly, at least fifty-one percent (51%) of the ownership interests in KBS.  All such transfers permitted pursuant to this Section 6.02(b) shall be at the sole cost and expense of KBS or a KBS Affiliate and none of the Managing Member, JV Member, the Company nor any Subsidiary or Affiliate of the Company shall bear any cost with respect thereto.
(c)    KBS Transfers.  Notwithstanding anything provided to the contrary in this Article VI or elsewhere in the Agreement, KBS shall have the right to Transfer all of its Interest to a KBS Affiliate (defined below).  A “KBS Affiliate” is any entity in which at least fifty-one percent (51%) of the ownership interests is owned, directly or indirectly, through one or more intermediaries, by KBS Strategic Opportunity REIT II, Inc.  All such transfers permitted pursuant to this Section 6.02(c) shall be at the sole cost and expense of KBS or a KBS Affiliate and none of the Managing Member, JV Member, the Company nor any Subsidiary or Affiliate of the Company shall bear any cost with respect thereto
(d)    JV Member Transfers.  Notwithstanding anything  provided to the contrary in this Article VI or elsewhere in the Agreement, any direct or indirect constituent owner of JV Member may transfer all or any portion of such constituent owner’s direct or indirect ownership interest in JV Member so long as any one or more JV Member Principals or other Key Persons continues to directly or indirectly have the power to direct management decisions of the JV Member and Encore Enterprises, Inc. continues to own, directly or indirectly, at least fifty-one percent (51%) of the ownership interests in JV Member.  All such transfers permitted pursuant to this Section 6.02(d) shall be at the sole cost and expense of JV Member and none of KBS, the Company nor any Subsidiary or Affiliate of the Company shall bear any cost with respect thereto.
In the event of any Permitted Transfer, any such Permitted Transferee shall receive and hold such Interest, such ownership interest or portion thereof subject to the terms of this Agreement and to the obligations hereunder of the transferor and there shall be no further transfer of such Interest, such ownership interest or portion thereof except to a person or entity to whom such Permitted Transferee could have transferred such Interest, such ownership interest or portion thereof in accordance with this Section 6.02 had such Permitted Transferee originally been a Member or a constituent owner of a Member as of the date hereof or otherwise in accordance with the terms of this Agreement.  Notwithstanding any provision of this Agreement to the contrary, no Member and/or any direct or indirect constituent owner of any Member shall transfer all or any portion of such Member’s Interest or permit the transfer of any direct or 

36

indirect ownership interest in such Member if such transfer would be a default under the Loan or any Refinance.
6.03.    Admission of Substituted Members.  If any Member transfers such Member’s Interest to a transferee in accordance with Sections 6.01 or 6.02, then such transferee shall only be entitled to be admitted into the Company as a substituted Member if (i) the Members approve such admission in writing and this Agreement is amended to reflect such admission; (ii) the non-transferring Member approves the form and content of the instrument of transfer; (iii) the transferor and transferee named therein execute and acknowledge such other instruments as the non-transferring Member may reasonably deem necessary to effectuate such admission; (iv) the transferee accepts and adopts in writing all of the terms and conditions of this Agreement, as the same may have been amended; (v) the transferor pays all reasonable expense (as the non-transferring Member may reasonably determine) incurred in connection with such admission, including, without limitation, legal fees and costs; and (vi) to the extent required the lender under the Loan or any Refinance has consented to such transfer.  To the maximum extent permitted by applicable law, any transferee of an Interest who does not become a substituted Member shall have no right to require any information regarding or accounting for the Company’s transactions, to inspect the Company books, or to vote on any of the matters as to which a Member would be entitled to vote under this Agreement.  Any such transferee shall only be entitled to share in such Net Profits and Net Losses, to receive such distributions, and to receive such allocations of income, gain, loss, deduction or credit or similar items to which the transferor was entitled, to the extent transferred.  A Member that transfers such Member’s Interest pursuant to Section 6.02 shall not cease to be a Member of the Company until the admission of the transferee as a substituted Member in accordance with this Agreement and, except as provided in the preceding sentence, shall continue to be entitled to exercise, and shall continue to be subject to, all of the other rights, duties and obligations of such Member under this Agreement.
6.04.    Election; Allocations Between Transferor and Transferee.  Upon the transfer of the Interest of any Member or the distribution of any property of the Company to a Member, the Company shall file, in the reasonable discretion of the Members, an election in accordance with applicable Treasury Regulations, to cause the basis of the Company property to be adjusted for federal income tax purposes as provided by Sections 734 and 743 of the Code.  Upon the transfer of all or any part of the Interest of a Member as hereinabove provided, Net Profits and Net Losses shall be allocated between the transferor and transferee on the basis of a computation method that is in conformity with the methods prescribed by Section 706 of the Code and Treasury Regulation Section 1.706-1(c)(2) and approved by the Members affected by the method.
6.05.    Waiver of Withdrawal and Purchase Rights.  In accordance with the Act, each Member acknowledges and agrees that such Member may not voluntarily withdraw, resign or retire from the Company without the prior written consent of each other Member, which consent may be withheld in each such other Member’s sole and absolute discretion.  Each Member further acknowledges and agrees that such Member shall not be entitled to receive the fair market value of such Member’s Interest in the Company pursuant to the Act. 

37

ARTICLE VII
KBS’S RIGHT TO CAUSE SALE OF THE PROJECT
7.01.    KBS’s Right to Sell Project.
(a)    Sale Procedure.  At any time after the second (2nd) anniversary of the date of this Agreement, KBS shall have the continuing right to solicit offers from third parties to sell the Project; provided that prior to soliciting any such offers KBS shall provide written notice to the Members (a “Sale Notice”) of its intent to solicit offers for the Project.  The Sale Notice shall set forth the proposed sales price of the Project (the “Proposed Project Value”).  For thirty (30) days following receipt of a Sale Notice, the JV Member may elect to purchase KBS’ Interest in the Company (a “Purchase Election”) in lieu of having the Project sold.  If a Purchase Election is timely made, the purchase price for KBS’ Interest shall be the amount KBS would receive if the Project were to be sold for the Proposed Project Value and the proceeds distributed upon a liquidation of the Company had the Project been sold for the Proposed Project Value as provided in this Agreement.  The closing of the purchase and sale of KBS’ Interest in the Company pursuant to such Purchase Election shall take place on a date agreed upon by KBS and JV Member, which date may not be later than ninety (90) days after the date of the Sale Notice (the “Purchase Closing Date”).  Within ten (10) business days after the Purchase Election (a) JV Member shall deliver a non-refundable (but applicable to the purchase price) cash deposit (the “Member Deposit”) to KBS equal to two percent (2%) of the Proposed Project Value, and (b) KBS and JV Member shall enter into a membership interest purchase agreement (“Member Purchase Agreement”) containing such terms to which such parties may agree that are consistent with the provisions of this Section 7.01 and that provides for the transfer of KBS's Interest in the Company to JV Member free and clear of all liens, encumbrances and similar claims.  KBS and JV Member shall use their good faith diligent efforts to execute the Member Purchase Agreement within ten (10) business days thereafter.  Notwithstanding anything provided to the contrary herein, if the parties are unable to agree upon the Member Purchase Agreement within such ten (10) business day period, after good faith and diligent efforts to do so or JV Member fails to close the purchase of KBS’s interests on or before the Purchase Closing Date, KBS shall have the right to terminate the Member Purchase Agreement (if executed) and retain the Member Deposit as liquidated damages (whether or not the Member Purchase Agreement is executed), and the Member Purchase Agreement shall so provide, and thereafter, KBS shall have the right to cause the Company to sell the Project pursuant to this Section 7.01.
(b)    No Purchase Election.  If a Purchase Election is not timely made, KBS shall have the right to retain brokers on behalf of the Company and to advertise the Project for sale.  KBS shall keep Managing Member and JV Member informed of the progress of the sale of the Project.  JV Member shall cooperate with KBS in connection with the sale of the Project and shall execute such documents as may be reasonably required to effectuate the sale of the Project; provided that Managing Member and JV Member shall not be exposed to any personal liability.  JV Member hereby irrevocably constitutes and appoints KBS as its agent and attorney-in-fact, coupled with an interest, for the purpose of executing and delivering any documents required to be executed and delivered by KBS (in its capacity as a member in the Company) pursuant to this Section 7.01 in the event JV Member fails or refuses to execute the same upon the request of KBS.  In the event that KBS fails to consummate a sale of the Project in accordance with the provisions hereof within one (1) year following JV Member’s failure to timely make a Purchase 

38

Election, then KBS shall once again deliver a Sale Notice to JV Member prior to consummating or entering into any agreement for such a sale of the Project, and JV Member shall thereafter again have thirty (30) days to make a Purchase Election and the other provisions of Section 7.01(a) shall apply.
7.02    Liquidity Event - Buy/Sell.  
(a)    At any time after the fourth (4th) anniversary of the date of this Agreement, the JV Member (the “Initiating Member”) shall have the continuing right to deliver written notice to KBS (the “Non-Initiating Member”) of its desire to liquidate its investment in the Company (the “Call Notice”) by either purchasing KBS’s entire Interest in the Company or KBS acquiring JV Member’s Interest in accordance with the provisions of this Section 7.02.  Notwithstanding the foregoing, the JV Member shall not be permitted to send a Call Notice if KBS has previously sent a Sale Notice under Section 7.01 and the procedures of Section 7.01 remain in effect, including that KBS is authorized to sell the Project under Section 7.01 and the Company has retained a broker to advertise the sale of the Project.  Upon the delivery of a Call Notice, the Members shall be required to comply with the terms of Section 7.02(b).
(b)    The Call Notice shall make reference to this Section 7.02(b) and shall state (i) the purchase price that the Initiating Member would be willing to pay for the purchase of all of the Company’s assets (the “Purchase Price”), (ii) that the Initiating Member thereby offers to purchase the Non-Initiating Member’s Interest in the Company for the Call Purchase Price (as defined in Section 7.02(c)), and (iii) a specified date for such purchase, which such date shall be not less than sixty (60) days and not more than one hundred twenty (120) days after the delivery of the Call Notice.
(c)    In the event that the Initiating Member delivers the Call Notice as aforesaid, the Non-Initiating Member shall, by delivery of written notice (the “Call Response Notice”) to the Initiating Member within thirty (30) days following the receipt of the Call Notice (time being of the essence) choose either to:  (A) accept the Initiating Member’s offer to purchase the Non-Initiating Member’s interest in the Company for a sum equal to the amount that the Non-Initiating Member would be entitled to receive if the Company sold its assets at the Purchase Price, including the payment of all existing Company debts and liabilities and any prepayment penalties actually incurred (pursuant to the terms of any mortgage encumbering all or any portion of the assets without further negotiations with the holder of such mortgage) in connection with the exercise of the right contained in this Section 7.02 and distributed the net proceeds (i.e., net of reasonable and customary closing costs) to the Members in liquidation of the Company pursuant to Section 8.02 (the “Call Purchase Price”), on the date set forth in the Call Notice; or (B) purchase the Initiating Member’s Interest for the Initiating Member Call Purchase Price (as hereinafter defined), and on the date set forth in the Call Notice.  Failure to deliver the Call Response Notice within said thirty (30) day period shall be deemed to constitute an acceptance by the Non-Initiating Member of the Initiating Member’s offer to purchase the Non-Initiating Member’s Interest for the Call Purchase Price, on the date set forth in the Call Notice.  In the event the Non-Initiating Member shall choose to purchase the Initiating Member’s interest in the Company pursuant to the terms of this Section, the Initiating Member shall be obligated to sell its Interest to the Non-Initiating Member for the Initiating Member Call Purchase Price, on the date set forth in the Call Notice.  For purposes of this Section, the term 

39

“Initiating Member Call Purchase Price” shall mean a sum equal to the amount that Initiating Member would be entitled to receive if the Company of the Company sold its assets at the Purchase Price, including the payment of all existing Company debts and liabilities and any prepayment penalties actually incurred (pursuant to the terms of any mortgage encumbering all or any portion of the assets without further negotiations with the holder of such mortgage) in connection with the exercise of the right contained in this Section 7.02 and distributed the net proceeds (i.e., net of reasonable and customary closing costs) to the Members in liquidation fo the Company pursuant to Section 8.02.  Once the Buy/Sell Purchaser (as hereinafter defined) is determined, the Buy/Sell Purchaser shall post a deposit in escrow with First American Title Insurance Company or Fidelity National Title Insurance Company (“Buy/Sell Escrow Agent”) a deposit equal to five percent (5%) of the Call Purchase Price or the Initiating Member Call Purchase Price, as applicable (the “Deposit”).
(d)    The closing of the purchase and sale of the Interests of the Company of the Member selling its Interests in the Company pursuant to the terms of this Section (the “Buy/Sell Seller”) shall be held on or before the date provided in the Call Notice, at the office of the Company, or at such other location as the parties shall find mutually agreeable.  At the closing:  (A) the Buy/Sell Seller shall receive, by wire transfer of immediately available federal funds to an account designated by the Buy/Sell Seller, an amount equal to the Call Purchase Price or the Initiating Member Call Purchase Price, as the case may be; (B) the Buy/Sell Seller shall deliver to the Member purchasing the Seller’s Interest (the “Buy/Sell Purchaser”) a duly executed and acknowledged instrument assigning to the Buy/Sell Purchaser the Buy/Sell Seller’s Interest, which assignment shall be accompanied by such other documents and instruments, including, without limitation, corporate resolutions, as may be reasonably requested by the Buy/Sell Purchaser and the Company in the exercise of their reasonable judgment or any other documents requested by any title company; (C) Buy/Sell Purchaser shall deliver to the Buy/Sell Seller a duly executed and acknowledged instrument assuming the Buy/Sell Seller’s Interest and releasing Buy/Sell Seller from all claims pertaining to the Interests or the Company other than claims for breach of the representations and warranties of Buy/Sell Seller described in the following sentence or a breach of any of the assignment documents executed by Buy/Sell Seller and delivered to Buy/Sell Purchaser in connection with the transfer contemplated in this Section; (D) on the effective date of such assignment, the Company shall deliver a release to the Buy/Sell Seller releasing the Buy/Sell Seller from all liabilities and obligations of the Company arising from and after the date of such assignment; and (E) the Company shall use good faith commercially reasonable efforts to cause the Buy/Sell Seller or its Affiliates to be released from any liabilities under any guaranties for the benefit of the Company executed by the Buy/Sell Seller or its Affiliates, and if the beneficiaries of any such guaranty will not agree to such a release, the Buy/Sell Purchaser (or if reasonably required by Buy/Sell Seller, a creditworthy Affiliate of Buy/Sell Purchaser) shall indemnify and hold harmless the Buy/Sell Seller or its Affiliates who are guarantors of such liabilities in a form reasonably acceptable to Buy/Sell Seller.  Such assignment shall be free and clear of all liens and encumbrances, and the Buy/Sell Seller shall deliver a written representation and warranty to such effect at the closing, which representation and warranty shall survive for a period of six (6) months following the closing.  Each Member shall pay its legal fees in connection with the conveyance of the Interest pursuant to this Section, and all other costs and expenses (including, without limitation, transfer taxes) shall be shared by the Members in accordance with their Interests.  In the event that the Buy/Sell Purchaser defaults in its obligation to purchase the Buy/Sell Seller’s Interests pursuant to this 

40

Section 7.02, the Deposit shall be forfeited by the Buy/Sell Purchaser.  In the event that the Buy/Sell Seller defaults in its obligation to sell the Buy/Sell Seller’s Interests pursuant to this Section 7.02, the Buy/Sell Purchaser may elect either to avail itself of the remedy of specific performance or direct Buy/Sell Escrow Agent to return the Deposit to it. 
ARTICLE VIII
DISSOLUTION AND WINDING UP OF THE COMPANY
8.01.    Events Causing Dissolution of the Company.  Upon any Member’s bankruptcy, retirement, resignation, expulsion or other cessation to serve or the admission of any new member into the Company, the Company shall not dissolve, but the business of the Company shall continue without interruption and without any break in continuity.  The Company shall be dissolved and its affairs wound up upon the first to occur of:  (i) the expiration of the term of the Company unless such term has been extended by the Members; (ii) the sale, transfer or other disposition by the Company of all or substantially all of its assets and the collection by the Company of any and all Net Cash derived therefrom; (iii) the agreement of the Members to dissolve the Company; or (iv) the entry of a decree of judicial dissolution pursuant to the Act.
8.02.    Winding Up of the Company.  Upon the Liquidation of the Company caused by other than the termination of the Company under Code Section 708(b)(1)(B) (in which latter case the Company shall remain in existence in accordance with the provisions of such Section of the Code), the Managing Member shall proceed to the winding up of the affairs of the Company.  During such winding up process, the Net Profits, Net Losses and Net Cash distributions shall continue to be shared by the Members in accordance with this Agreement.  The assets shall be liquidated as promptly as consistent with obtaining a fair value therefor, and the proceeds therefrom, to the extent available, shall be applied and distributed by the Company on or before the end of the taxable year of such Liquidation or, if later, within 90 days after such Liquidation, in the following order:  (i) first, to creditors of the Company (including Members who are creditors in the order of priority as provided by law including, without limitation, any Members that have made Member Loans and Default Loans); (ii) second, to the setting up of any reserves which KBS determines, in its reasonable discretion, are necessary for any contingent, conditional or unmatured liabilities or obligations of the Company (which shall be distributed at such time as is determined in the reasonable discretion of KBS); and (iii) the balance, if any, to the Members in accordance with the distribution schedule of Section 5.01 or Section 5.02(a) or (b), as then applicable at the time of such Liquidation.  Such distribution shall be made by the date specified in Treasury Regulation Section 1.704-1(b)(2)(ii)(b)(2).  As used in this Agreement, the term "Liquidation" means (i) in respect to the Company the earlier of the date upon which the Company is terminated under Code Section 708(b)(1) or the date upon which the Company ceases to be a going concern (even though it may continue in existence for the purpose of winding up its affairs, paying its debts and distributing any remaining balance to its Members), and (ii) in respect to a Member wherein the Company is not in Liquidation, means the liquidation of a Member’s interest in the Company under Treasury Regulation Section 1.761-1(d).
8.03.    Negative Capital Account Restoration.  No Member shall have any obligation whatsoever upon the Liquidation of such Member’s Interest, the Liquidation of the Company or in any other event, to contribute all or any portion of any negative balance standing 

41

in such Member’s Capital Account to the Company, to each other Member or to any other person or entity.
ARTICLE IX
BOOKS AND RECORDS
9.01.    Books of Account and Bank Accounts.  The fiscal year and taxable year of the Company shall be the year ending December 31.  Managing Member shall:  (i) maintain all of the books and records of the Company on an accrual basis in accordance with generally accepted accounting principles, consistently applied and (ii) provide operating reports and financial statements to the Members not less frequently than once each month summarizing the operating activities of the Company during the immediately preceding calendar month and on a year-to-date basis, any material deviations from the Business Plan or the Annual Budget during such preceding calendar month, and such other information as is reasonably requested by any Member as more fully detailed in the Hotel Management Agreement and/or the Franchise Agreement, all within fifteen (15) days after the end of such preceding calendar month.  Such other information will include all information necessary in order for KBS to comply with its SEC and other statutory requirements including, but not limited to, its quarterly 10Q filings, annual audit and 10K filing, and SOX 404 assessment requirements.  During normal business hours at the Project, on not less than three (3) business days prior notice, all of the following shall be made available for inspection and copying by all of the Members at their own expense for any purpose reasonably related to each such Member’s Interest in the Company:  (i) all books and records relating to the business and financial condition of the Company, (ii) a current list of the name and last known business, residence or mailing address of each Member, (iii) a copy of this Agreement, the Certificate of Formation and all amendments thereto, together with executed copies of any written powers-of-attorney pursuant to which this Agreement, the Certificate of Formation and all amendments thereto have been executed, (iv) the amount of cash and a description and statement of the agreed value of any other property or services contributed by each Member to the capital of the Company and which each Member has agreed to contribute in the future, and (v) the date upon which each Member became a Member of the Company.  Upon not less than seven (7) business days prior notice, Managing Member shall cooperate with any Member that requests, at such Member’s sole cost and expense, and not more than one (1) time in each calendar year, to conduct an independent audit of the Company. 
9.02.    Tax Returns.  Managing Member shall cause to be prepared and timely filed and distributed to each Member, at the expense of the Company (and prepared by an accounting firm approved pursuant to Section 2.02(y) above), all required federal and state Company tax returns, which shall be delivered to the Members by no later than March 31 each year; provided however, in the event that it is not possible for Managing Member to have such materials by said date using best efforts to meet the deadline, Managing Member shall: (i) notify the Members by March 15 that such materials will not be available, (ii) deliver estimated drafts of such information to the Members by March 31, and (iii) deliver all such information to the Members by June 30 of said year. Managing Member shall not file any tax return on behalf of the Company without the prior written approval of KBS; provided that if KBS shall not respond to a written request to approve a tax return within 15 days then KBS shall be deemed to have disapproved such tax return. Managing Member is hereby designated as the “tax matters partner” 

42

of the Company as determined in accordance with the provisions of Section 6231(a)(7) of the Code and the Treasury Regulations promulgated thereunder.  
The tax matters partner shall cause each Member to be a “notice partner” within the meaning of Code Section 6223.  The tax matters partner shall inform each Member of all significant matters that come to its attention in its capacity as tax matters partner by giving notice thereof within five days after becoming aware thereof and, within that time, shall forward to each Member copies of all material written communications it may receive in that capacity.  The tax matters partner shall not enter into any settlement or other agreement with any tax authority that purports to bind any Member without such Member’s prior written consent.
9.03.    KBS Specific Accounting Expenses.  Notwithstanding anything to the contrary herein, the KBS Specific Accounting Expenses attributable to the Company or the Property Owner LLC shall be a KBS expense and shall not be an expense of the Company.  As used in this Agreement, the term “KBS Specific Accounting Expenses” shall mean any and all internal and third-party costs, expenses and/or amounts incurred by the Company or the Property Owner LLC in connection with performing (1) any SOX 404 – Internal Controls (Business Processes and IT Systems) or other similar internal audit conducted by KBS to identify, document and test the business controls and IT systems for the Property, and (2) the Section 3-05 Audit.
ARTICLE X
MISCELLANEOUS
10.01.    Notices.  All notices or other communications required or permitted hereunder shall be in writing, and shall be delivered or sent, as the case may be, by any of the following methods:  (i) personal delivery, (ii) overnight commercial carrier, (iii) registered or certified mail, postage prepaid, return receipt requested, or (iv) email via PDF, telecopy or facsimile.  Any such notice or other communication shall be deemed received and effective upon the date of acceptance or rejection of delivery.  Any notice or other communication sent by email via PDF, cable, telex, or telecopy must be confirmed within 48 hours by letter mailed or delivered in accordance with the foregoing.  Any reference herein to the date of receipt, delivery, or giving, or effective date, as the case may be, of any notice or communication shall refer to the date such communication becomes effective under the terms of this Section 10.01.  Any such notice or other communication so delivered shall be addressed to the party to be served at the address for such party set forth on Exhibit A attached hereto.  Such addresses may be changed by giving written notice to the other parties in the manner set forth in this Section 10.01.  Rejection or other refusal to accept or the inability to deliver because of changed address of which no notice was given shall be deemed to constitute receipt of notice or other communication sent.
10.02.    Construction of Agreement.  This Agreement contains the entire understanding between the parties hereto and supersedes any prior or contemporaneous understanding, correspondence, negotiations or agreements between them respecting the within subject matter.  No alteration, modification or interpretation hereof shall be binding unless in writing signed by all of the Members (and the KBS Credit Party and the JV Member Credit Party, as applicable, if such modification would affect such credit party's obligations under the Agreement).  The Article and Section headings of this Agreement are used herein for reference 

43

purposes only and shall not govern, limit, or be used in construing this Agreement or any provision hereof.  Any Exhibit attached hereto is incorporated herein by this reference and expressly made a part of this Agreement for all purposes.  Time is of the essence of this Agreement.  The provisions of this Agreement shall be construed and enforced in accordance with the laws of the State of Delaware, and all rights, duties, obligations and remedies shall be governed by the Act without regard to principles of conflict of laws.  If any legal action is brought by any Member against any other Member that arises out of this Agreement, then the prevailing Member in such legal action shall be entitled to recover reasonable attorneys’ fees and costs.  Subject to the restrictions set forth in Articles VI and VII, and Section 10.04, this Agreement shall inure to the benefit of and shall bind the parties hereto and their respective personal representatives, successors, and assigns.  Any agreement to pay any amount and any assumption of liability herein contained, express or implied, shall be only for the benefit of the Members and their respective successors and assigns, and such agreements and assumptions shall not inure to the benefit of the obligees of any indebtedness or any other party, whomsoever, deemed to be a third-party beneficiary of this Agreement.  Each of the Exhibits attached hereto is incorporated herein by this reference and expressly made a part of this Agreement for all purposes.  References to any Exhibit made in this Agreement shall be deemed to include this reference and incorporation.  This Agreement may be executed in multiple counterparts, each of which shall be deemed an original Agreement, but all of which shall constitute a single Agreement, binding on the parties hereto.  Where the context so requires, the use of the neuter gender shall include the masculine and feminine genders, the masculine gender shall include the feminine and neuter genders, and the singular number shall include the plural and vice versa.  The signature of any party hereto to any counterpart hereof shall be deemed a signature to, and may be appended to, any other counterpart.  Every provision of this Agreement is intended to be severable.  Each Member acknowledges that (i) each Member is of equal bargaining strength; and (ii) each Member has actively participated in the drafting, preparation and negotiation of this Agreement.  The Recitals set forth at the beginning of this Agreement are a material part of this Agreement and are incorporated into this Agreement.
10.03.    Partnership Intended Solely for Tax Purposes.  The Members have formed the Company as a Delaware limited liability company under the Act, and do not intend to form a corporation or a general or limited partnership under Delaware  or any other state law.  The Members do not intend to be shareholders and/or partners to one another or to any third party.  The Members intend the Company to be classified and treated as a partnership solely for federal and state income taxation purposes.  Each Member agrees to act consistently with the foregoing provisions of this Section 10.03 for all purposes, including, without limitation, for purposes of reporting the transactions contemplated herein to the Internal Revenue Service and all state and local taxing authorities.
10.04.    Investment Representations.  Each Member agrees as follows with respect to investment representations:
(a)    Each Member understands:That the Interests in the Company evidenced by this Agreement have not been registered under the Securities Act of 1933, 15 U.S.C. § 15b et seq., or any state securities laws (collectively, the “Securities Acts”) because the Company is issuing Interests in the Company in reliance upon the exemptions from the registration 

44

requirements of the Securities Acts providing for issuance of securities not involving a public offering;
(i)    That the Company has relied upon the representation made by each Member that such Member’s Interest in the Company is to be held by such Member for investment; and
(ii)    That exemption from registration under the Securities Acts would not be available if any Interest in the Company was acquired by a Member with a view to distribution.  Each Member agrees that the Company is under no obligation to register the Interests in the Company or to assist the Members in complying with any exemption from registration under the Securities Acts if the Member should at a later date wish to dispose of such Member’s Interest in the Company.
(b)    Each Member hereby represents to the Company that such Member is acquiring such Member’s Interest in the Company for such Member’s own account, for investment and not with a view to the resale or distribution of such Interest (except for any transfers made in accordance with the provisions of Article VI).Each Member recognizes that no public market exists with respect to the Interests and no representation has been made that such a public market will exist at a future date.
(c)    Each Member recognizes that no public market exists with respect to the Interests and no representation has been made that such a public market will exist at a future date.
(d)    Each Member hereby represents that such Member has not received any advertisement or general solicitation with respect to the sale of the Interests.
(e)    Each Member acknowledges that such Member has a preexisting personal or business relationship with the Company or its officers or principal Interest holders, or, by reason of such Member’s business or financial experience or the business or financial experience of such Member’s financial advisors (who are not affiliated with the Company), could be reasonably assumed to have the capacity to protect such Member’s own interest in connection with the purchase of such Member’s Interest.  Each Member further acknowledges that such Member is familiar with the financial condition and prospects of the Company’s business, and has discussed with each other Member the current activities of the Company.  Each Member believes that the Interests are securities of the kind such Member wishes to purchase and hold for investment, and that the nature and amount of the Interests to be acquired by such Member is consistent with such Member’s investment program.
(f)    Before acquiring any Interest in the Company, each Member has investigated the Company and its business and the Company has made available to each Member all information necessary for the Member to make an informed decision to acquire an Interest in the Company.  Each Member considers itself to be a person possessing experience and sophistication as an investor adequate for the evaluation of the merits and risks of the Member’s investment in the Company.
(g)    Each Member understands the meaning and consequences of the representations, warranties and covenants made by such Member set forth herein and that the 

45

Company has relied upon such representations, warranties and covenants.  Each Member hereby indemnifies, defends, protects and holds wholly free and harmless the Company and each other Member from and against any and all losses, damages, expenses or liabilities arising out of the breach and/or inaccuracy of any such representation, warranty and/or covenant.  All representations, warranties and covenants contained herein and the indemnification contained in this Section 10.04(g) shall survive the execution of this Agreement, the formation of the Company, and the liquidation of the Company.
10.05.    Waiver of Conflict of Interest.  The Company is not represented by separate counsel; provided, however, in connection with the formation of the Company and the drafting and negotiation of this Agreement, JV Member and the Company (and not KBS) have been represented by Cassin & Cassin LLP, Attention, Bret R. Salzer, and KBS (and not JV Member or the Company) has been represented by Sheppard Mullin Richter & Hampton LLP, Attention, Scott Morehouse.  To the extent that the foregoing representation constitutes a conflict of interest, the Company and each Member hereby expressly waive any such conflict of interest.  Upon creation of the Company, the Company shall only be represented by counsel in accordance with Section 2.02 above.

10.06.    Section 1031 Exchange.  Subject to the provisions of this Section 10.06, each Member agrees to take any and all actions reasonably necessary to accommodate each other Member in effectuating a like-kind exchange pursuant to Section 1031 of the Code prior to the negotiation of or in connection with any proposed sale of all or any portion of the Project and any purchase and sale of a Member’s Interest pursuant to Article VII or otherwise including, without limitation, allowing any Member to cause the Company to make an in-kind distribution of a portion of the Project to such Member (and/or any Affiliate thereof).  In furtherance of the foregoing, each Member hereby agrees to execute any and all deeds, documents and/or other instruments that may be required to distribute and vest an undivided interest in the Project in such Member and/or otherwise necessary to effect such Code Section 1031 exchange, provided that (i) the distribution and exchange of such portion of the Project does not reduce the cash proceeds that otherwise would be distributed to any non-exchanging Member from the sale of the Project; (ii) the distribution and exchange does not materially delay or otherwise adversely affect the closing of any such sale of the Project; (iii) the exchanging Member pays any and all additional costs, fees, and/or expenses, including, without limitation, attorneys’ fees and costs incurred as a result of the proposed distribution and exchange; and (iv) there is no additional loss, cost or damage incurred (or which may be incurred) by the Company or any non-exchanging Member as a direct consequence of the distribution and exchange.  In addition, nothing contained herein shall obligate any Member to offer to any other Member any interest in any particular Code Section 1031 exchange structured by the exchanging Member.
10.07.    Outside Activities.  During the term of this Agreement, neither Member nor any Affiliate of such Member shall own any direct interest in or manage all or part of any motel, hotel or other similar transient lodging property located within a five (5) mile radius of the Hotel without the other Member’s prior written consent, which may be withheld in such other Member’s sole and absolute discretion.  Except as expressly provided in the prior sentence, any Member and its Affiliates may engage in and possess interests in business efforts and affairs of every type and description, including, without limitation, the ownership, operation, financing and management of real estate, interests in real estate or real estate-related securities, independently 

46

or with others, and neither the Company nor any Member shall by virtue of this Agreement or otherwise have any right, title or interest in or to such independent ventures.  No Member shall have any obligations (fiduciary or otherwise) with respect to the Company or the other Members insofar as making other investment opportunities available to the Company or to the other Members.  The Members may, notwithstanding the existence of this Agreement, engage in whatever activities they may choose, whether the same are competitive with the Company or otherwise, without having or incurring any obligation to offer any interest in such activities to the Company or to the other Members.  Neither this Agreement nor any activities undertaken pursuant hereto shall prevent a Member from engaging in such activities. 
ARTICLE XI
REIT PROTECTION
11.01.    Certain Definitions.  For the purposes of this Article XI, the following terms shall have the following meanings:
(a)    “KBS” shall mean KBS as defined in the recitals hereto and KBS Strategic Opportunity REIT II, Inc., a Maryland corporation that has elected to be taxable for federal income tax purposes as a real estate investment trust under the Code (herein, a “REIT”); and/or any subsidiary or affiliate of KBS.
(b)    “REIT Prohibited Transactions” shall mean any action specified in Section 11.02.
11.02.    Prohibited Transactions.  Notwithstanding anything to the contrary contained in this Agreement, during the time KBS is a Member of the Company, neither the Company nor the Managing Member nor any other Member of the Company, shall take any of the following actions (it being agreed that this Section 11.02 shall not be deemed violated by Managing Member to the extent that any such action is caused by KBS):
(a)    Entering into any lease or permitting any sublease that provides for rent based in whole or in part on the income or profits of any person, excluding for this purpose a lease that provides for rent based in whole or in part on a fixed percentage or percentages of gross receipts or gross sales of any person without reduction for any sublessor costs;
(b)    Leasing personal property, excluding for this purpose a lease of personal property that is entered into in connection with a lease of real property where the rent attributable to the personal property is less than 15% of the total rent provided for under the lease, determined as set forth in Section 856(d)(1) of the Code;
(c)    Acquiring or holding debt (other than Member Loans, Default Loans and receivables in the ordinary course of business) unless (a) the amount of interest income received or accrued by the Company under such loan does not, directly or indirectly, depend in whole or in part on the income or profits of any person, and (b) the debt is fully secured by mortgages on real property or on interests in real property;
(d)    Acquiring or holding more than 10% of the outstanding voting securities of any one issuer other than a corporation that has properly elected to be a “taxable REIT subsidiary” of KBS 

47

other than the Property Owner LLC;Acquiring or holding more than 10% of the total value of the outstanding securities (debt or equity) of any one issuer other than the Property Owner LLC;
(e)    Acquiring or holding more than 10% of the total value of the outstanding securities (debt or equity) of any one issuer other than the Property Owner LLC;
(f)    Making an election or taking any action that would cause the Company to be treated as (i) an entity that is not classified as a partnership for federal income tax purposes or (ii) a publicly traded partnership as defined in Section 7704 of the Code;
(g)    Entering into any agreement where the Company receives amounts, directly or indirectly, for rendering services to the tenants of the properties that are owned, directly or indirectly, by the Company other than (i) amounts received for services that are customarily furnished or rendered in connection with the rental of real property of a similar class in the geographic areas in which the properties are located where such services are either provided by (a) an Independent Contractor (as defined in Section 856(d)(3) of the Code) who is adequately compensated for such services and from which the Company does not, directly or indirectly, derive revenue or (b) a taxable REIT subsidiary of KBS (as defined in Section 856(l) of the Code) who is adequately compensated for such services or (ii) amounts received for services that are customarily furnished or rendered in connection with the rental of space for occupancy only (as opposed to being rendered primarily for the convenience of the Company’s tenants);
(h)    Holding cash of the Company for operations or distribution in any manner other than a traditional bank checking or savings account or a money market fund to the extent permitted by Revenue Ruling 2012-17; or
(i)    Entering into any agreement where income or gain, as applicable, received or accrued by the Company under such agreement, directly or indirectly, (a) does not qualify as “rents from real property” within the meaning of Section 856 of the Code, or (b) constitutes income or gain from a sale of property described in Section 1221(a)(1) of the Code other than a sale that would qualify under the Section 857(b)(6)(C) “safe harbor” with respect to KBS.
In connection with Managing Member’s obligations under this Section 11.02, in the event Managing Member is uncertain as to whether a proposed course of action would violate this Section 11.02, Managing Member shall have the right to engage appropriate tax counsel, at the Company’s expense, in respect thereof.   
[Signature Pages Follow]

48

IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the day and year first above written.
“JV MEMBER”

EH Q&C, LLC,
a Delaware limited liability company
	
			
	By:
	/s/ Glen Pedersen

	Name:
	Glen Pedersen

	Title:
	Authorized Signatory

Solely as to its express agreement in Sections 3.01 and 3.07:
"JV MEMBER CREDIT PARTY"
ENCORE HOSPITALITY, INC.,
a Delaware corporation
	
			
	By:
	/s/ Glen Pedersen

	Name:
	Glen Pedersen

	Title:
	President

“KBS”

KBS SOR II Q&C JV, LLC, 
a Delaware limited liability company

By:    KBS SOR II ACQUISITION II, LLC, 
a Delaware limited liability company, 
its sole member

By:    KBS SOR US PROPERTIES II LLC, 
a Delaware limited liability company, 
its sole member

By:    KBS STRATEGIC OPPORTUNITY  
LIMITED PARTNERSHIP II, 
a Delaware limited partnership,
its sole member

By:    KBS STRATEGIC OPPORTUNITY 
REIT II, INC.,
a Maryland corporation,
its sole general partner

	
			
	By:
	/s/ Jeff K. Waldvogel

	Name:
	Jeff K. Waldvogel

	Title:
	Chief Financial Officer

Solely as to its express agreement in Sections 3.01 and 3.07:
"KBS CREDIT PARTY"
KBS SOR US PROPERTIES II LLC,
a Delaware limited liability company

		
	By:
	KBS STRATEGIC OPPORTUNITY  

LIMITED PARTNERSHIP II,
a Delaware limited partnership,
its sole member

		
	By:
	KBS STRATEGIC OPPORTUNITY 

REIT II, INC., 
a Maryland corporation, 
its sole general partner

	
			
	By:
	/s/ Jeff K. Waldvogel

	Name:
	Jeff K. Waldvogel

	Title:
	Chief Financial Officer

LIST OF EXHIBITS AND SCHEDULES
	
		
	EXHIBITS:
	 

	Exhibit A
	Names, Addresses, Percentage Interests, and Capital  
Contributions of the Members

	Exhibit B
	Organizational Chart

EXHIBIT A
NAMES, ADDRESSES, PERCENTAGE INTERESTS 
AND CAPITAL CONTRIBUTIONS OF THE MEMBERS
    
	
			
	Names and Addresses of the Members:
	Percentage Interest
	Capital Contribution

	

KBS SOR II Q&C JV, LLC
800 Newport Center Drive, Suite 700 
Newport Beach, CA 92660

	

90%
	

$TBD

	

EH Q&C, LLC
c/o Encore Enterprises, Inc.
5005 LBJ Freeway, Suite 1250
Dallas, Texas 75244

	

10%
	

$TBD

EXHIBIT B
ORGANIZATIONAL CHART
(Attached)

Q&C HOTEL 
STRUCTURE

	
	
	LIMITED LIABILITY COMPANY AGREEMENT 
OF KBS SOR II Q&C PROPERTY JV, LLC

THIS AGREEMENT HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, 15 U.S.C. § 15b ET SEQ., AS AMENDED (THE “FEDERAL ACT”), IN RELIANCE UPON ONE (1) OR MORE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE FEDERAL ACT.  IN ADDITION, THE ISSUANCE OF THIS SECURITY HAS NOT BEEN QUALIFIED UNDER THE DELAWARE SECURITIES ACT, OR ANY OTHER STATE SECURITIES LAWS (COLLECTIVELY, THE “STATE ACTS”), IN RELIANCE UPON ONE (1) OR MORE EXEMPTIONS FROM THE REGISTRATION PROVISIONS OF THE STATE ACTS.  IT IS UNLAWFUL TO CONSUMMATE A SALE OR OTHER TRANSFER OF THIS SECURITY OR ANY INTEREST THEREIN TO, OR TO RECEIVE ANY CONSIDERATION THEREFOR FROM, ANY PERSON OR ENTITY WITHOUT THE OPINION OF COUNSEL FOR THE COMPANY THAT THE PROPOSED SALE OR OTHER TRANSFER OF THIS SECURITY DOES NOT AFFECT THE AVAILABILITY TO THE COMPANY OF SUCH EXEMPTIONS FROM REGISTRATION AND QUALIFICATION, AND THAT SUCH PROPOSED SALE OR OTHER TRANSFER IS IN COMPLIANCE WITH ALL APPLICABLE STATE AND FEDERAL SECURITIES LAWS.  THE TRANSFER OF THIS SECURITY IS FURTHER RESTRICTED UNDER THE TERMS OF THE LIMITED LIABILITY COMPANY AGREEMENT GOVERNING THE COMPANY, A COPY OF WHICH IS ON FILE WITH THE COMPANY.Exhibit

Exhibit 10.27

EXECUTION VERSION
LEASE
(Q&C Hotel & Bar)

THIS LEASE (this "Lease") is entered into as of December 17, 2015 (the "Effective Date") by and between KBS SOR II Q&C Property, LLC, a Delaware limited liability company ("Landlord") and an affiliate of KBS Strategic Opportunity REIT II, Inc., a Maryland corporation ("KBS SOR II"), and KBS SOR II Q&C Operations, LLC, a Delaware limited liability company ("Tenant").  
RECITALS
A.    Landlord has acquired from AGRE NV Q&C Property Owner LLC, a Delaware limited liability company ("Prior Operator") the hotel commonly known as the "Q&C Hotel & Bar", which includes a hotel, bar and event space located 344 Camp Street, New Orleans, Louisiana 70130 (the "Hotel"), pursuant to that Contract of Sale dated October 12, 2015 (as amended, the "Purchase Agreement"), between Landlord, as buyer, and Prior Operator, as seller.  
B.    Landlord and Tenant desire to enter into a lease for the Hotel.  
C.    Some of Prior Operator's personal property relating to the Hotel operations is being acquired by Landlord pursuant to the Purchase Agreement and leased or licensed to Tenant pursuant to this Lease for Tenant's use in operating the Hotel, while other items of such personal property are being assigned to Tenant for its use in operating the Hotel. 
D.     Unless otherwise provided, defined terms used herein shall have the meanings set forth in Section 37. 
AGREEMENT
NOW THEREFORE, for good and adequate consideration, receipt of which is hereby acknowledged, Landlord and Tenant agree as follows:
1.DEMISE OF THE PREMISES.
A.    Landlord hereby leases the Premises to Tenant, and Tenant hereby leases and takes the Premises from Landlord, only for the duration of the Term (defined in Section 2) and subject to the terms, conditions and covenants below, and subject to all matters of record or that are apparent by a survey or physical inspection of the Premises.
B.    Landlord hereby grants to Tenant, only for the duration of the Term and subject to the terms, conditions and covenants below, a revocable, non‐transferable, non‐sublicensable, non‐exclusive license to use all Intellectual Property owned or licensed by Landlord as of the date hereof.

C.    Upon the expiration or earlier termination of this Lease, (i) all the Ancillary Rights and Obligations, to the extent then still in force and effect, shall be assigned to and become the property and obligation of Landlord, and (ii) Landlord shall have the right, at its option, to purchase all Tenant Owned Tangible Personal Property, if any, for its then Fair Market Value.
D.    This Lease is made and accepted subject to all indebtedness, liens, easements, rights, rights-of-way, conditions, covenants, mineral interests, royalties, reservations, restrictions and encumbrances of record in the real estate records of the county and state in which the Real Property is located and to all rights of tenants, licensees and concessionaires, in possession under unrecorded Use Agreements as of the date hereof, to the extent valid and enforceable against the Premises.
E.    In consideration of the foregoing demise of the Premises, Tenant hereby grants Landlord an option to purchase all of any and all Tenant Owned Tangible Personal Property located at or used in connection with the Premises at the then Fair Market Value, to be exercised in connection with Landlord's exercise of remedies pursuant to Section 17, or upon the expiration or earlier termination of this Lease.  Landlord and Tenant agree that said option shall be subordinate to all liens and rights of First Mortgagee (hereinafter defined) under the Loan Documents (hereinafter defined).
2.    TERM.
A.    The term of this Lease (the "Term") shall commence on the Effective Date and end on December 31, 2020, unless sooner terminated in accordance with the terms and conditions of this Lease.  Notwithstanding the foregoing, Tenant shall have the right to extend the Term of this Lease for up to three (3) additional terms of three (3) years each ("Additional Terms") by providing written notice of such extension on or before the date that is 30 days preceding the date upon which the then current Term would otherwise expire.
B.    Landlord shall have the right to terminate this Lease upon either (i) a sale of the Real Property or (ii) any of the members in Landlord (or if Landlord has only one member, then the members in such single member) buying out any other member in Landlord (or such single member), under the rights to do so provided in Landlord's (or such single member's) limited liability company agreement (as it exists on the date hereof).  Upon any such termination under this Section, and, concurrently therewith, the provisions of Section 1.C with respect to the transfer of Ancillary Rights and Obligations and Tenant Owned Tangible Personal Property shall apply.  
C.    Upon any termination of this Lease: (i) Tenant shall convey, assign or otherwise transfer to or as directed by Landlord, all remaining Ancillary Rights and Obligations, and surrender possession of the Premises to or as directed by Landlord in good operating condition (subject only to unperformed Major Repairs and to damage, destruction or other loss resulting from casualty or condemnation that Tenant is not obligated hereunder to repair, restore or replace); (ii) each of Landlord or Tenant shall execute and deliver such further assurances of the termination of this Lease as the other party may reasonably request and (iii) neither Landlord nor Tenant shall have any further obligations or liabilities hereunder, except (unless a termination 

pursuant to Section 2.B) for any obligations of indemnification for events or acts occurring prior to termination or arising out of such party's default under this Lease and for obligations to be performed upon expiration or termination.
3.    RENT.  Tenant covenants and agrees to pay to Landlord, promptly when due, without notice or demand or deduction, abatement or set off of any amount for any reason whatsoever, as rent hereunder ("Rent"), all Basic Rent and all Percentage Rent (as defined below). All Rent to be paid by Tenant to Landlord shall be in lawful currency of the United States of America and shall be paid to Landlord at the address or into the account as may be designated from time to time by Landlord ("Landlord's Address").
A.    Basic rent for the Premises ("Basic Rent") shall be paid in monthly installments, each of which shall be due and payable in advance on the first business day of the calendar month in the amount specified in Exhibit A hereto. Basic Rent for the partial  month following the Effective Date shall be paid on or before the first business day of January 2016.
B.    In addition to the Basic Rent, Tenant shall also pay during the Term, without notice, demand, abatement, reduction or set off, additional percentage rent ("Percentage Rent") in accordance with the formulae for Percentage Rent set forth in Exhibit B hereto.  Percentage Rent for each calendar month during the Term shall be payable in monthly installments on the 20th day of the following calendar month.  Within 20 days after the end of each calendar month in the Term, Tenant shall deliver to Landlord a statement executed by Tenant accurately setting forth the amount of Gross Receipts for such month and Tenant's calculation of the Percentage Rent payable for such month, itemized in reasonable detail.  Within 90 days after the end of each calendar year of the Term, Tenant shall furnish to Landlord a statement accurately showing Gross Receipts and Percentage Rents for such year itemized in reasonable detail, and shall contemporaneously therewith pay any Percentage Rent due and unpaid for such year, provided, however, that if Tenant has overpaid Percentage Rents during such year, Landlord shall, at its option, either refund such excess to Tenant or credit the amount thereof to the next succeeding monthly, installments of Percentage Rent payable by Tenant.  With respect to the last Lease Year of the Term, such annual reconciliation and adjustment, if any, shall be made within 30 days.  The provisions of this Section 3.B shall survive the end of the Term.
C.    The term "Gross Receipts" with respect to any period shall:
(1)    Include all of the following items attributable to such period (determined in accordance with the Uniform System of Accounts for the Lodging Industry - 11th edition ("USALI") and generally accepted accounting principles ("GAAP"):
(a)    all gross revenues derived from the operation of the Premises and Tenant's business upon the Premises during such period, including, without limitations, revenues from:
(i)    the sale of all conference and event services;
(ii)    rentals of conference and event facilities;
(iii)    rentals of guest rooms;

(iv)    the sale of food, and of liquor, soft drinks and other beverages;
(v)    revenues from any gift shop located in the Premises, unless such gift shop is operated by a subtenant, concessionaire or licensee;
(vi)    dues paid by members for membership of any club associated with the Premises.
(vii)    charges for audio-visual services;
(viii)    sales of cigars, cigarettes, candy, and any and all other goods, services or merchandise (except sales from vending machines, which are addressed in clause (b) below);
(b)    revenues derived during such period in connection with the operation of any vending machines located in or on the Premises, but including only revenues received, collected or payable to Tenant (rather than the gross revenues of such vending machines) and specifically excluding all such revenues if any thereof are based on or constitute a share of the net income of such machines;
(c)    revenues derived during such period from any subtenant, licensee, concessionaire or assignee of Tenant or its subtenants, licensees, concessionaires or assignees, but only to the extent of the amounts received, collected or payable to Tenant from its subtenants, licensees, concessionaires or assignees, and specifically excluding all such revenues if any thereof are based on or constitute a share of the net income of such person or entity.
(2)    Exclude all of the following items attributable to such period (determined in accordance with USALI and GAAP:
(a)    federal state and municipal excise taxes and sales taxes paid by customers in connection with goods, merchandise or services purchased by them, to the extent such taxes are separately itemized on the customers' bills or checks; 
(b)    gratuities to employees, if separately itemized on the customers' bills or checks;
(c)    subtenants', concessionaires' or licensees' security deposits, unless forfeited;
(d)    proceeds payable to Landlord from the sale, financing or other disposal of all or any part of the Premises;
(e)    proceeds payable to Landlord by reason of any hazard insurance policies, title insurance policies or items of a similar nature; 
(f)    proceeds of any taking by condemnation or eminent domain by a public or quasi-public authority of all or any part of the Premises;

(g)    payments made to Landlord to induce it to enter into any lease, concession or licensing agreement or other transaction in connection with the Premises;
(h)    money received representing the amortization of subtenant, concessionaire, or licensee improvements;
(i)    amounts received from the sale of assets in connection with the liquidation or reorganization of Tenant's business, including any such sale occurring upon termination of this Lease;
(j)    credits, payments or refunds received from shippers or manufacturers resulting from Tenant's claims for loss or damage to merchandise in transit;
(k)    to the extent previously included in Gross Receipts for any period and then refunded or credited in such current period, the sales price of merchandise returned by customers;
(l)    amounts received from on account of any sales, liquor or gross receipts tax and paid directly to the taxing authority; and
(m)    amounts received from sale of U.S. postage stamps.
D.    For the purpose of ascertaining the amount payable as Percentage Rent, if any (and whether or not Tenant is obligated to pay Percentage Rent hereunder), Tenant shall keep on the Premises or at such other location acceptable to Landlord, for a period of not less than three years following the end of each year of the Term, records of the Gross Receipts, sales and hotel occupancy tax returns with respect to said years and all pertinent original records and accounts to show inventories and receipts of merchandise at the Premises, and daily receipts from all sales and other transactions by Tenant and, to the extent reported to Tenant in connection with any payments to Tenant based thereon, the receipts of any other persons conducting any business on or from the Premises during such three-year period.  Such records and accounts shall indicate whether sales were for cash or credit and shall include, without limitation, cash register tapes, invoices, billing statements, original records of all telephone orders, settlement sheets of · transactions with subtenant, concessionaires and licensees, records of bank deposits, and such other records, if any, which would customarily be audited by an independent accountant in performing an audit of Tenant's receipts.  All records specified to be kept by Tenant shall be kept in accordance with the USALI and GAAP.  Landlord's authorized representative shall have the right to examine on the Premises (or at such other location approved by Landlord for their storage) all of such records during regular business hours.
E.    Landlord and/or First Mortgagee may, at any time, or times, examine or have audited Tenants records of Gross Receipts and sales tax, liquor tax and hotel occupancy tax reports, Tenant's inventory movement sheets, and other relevant records for such period, and Landlord's acceptance of any Percentage Rent tendered by Tenant shall not prejudice these rights.  If it shall be determined as a result of such audit that there has been a deficiency in payment of Percentage Rent, then such deficiency shall become immediately due and payable as Percentage Rent hereunder, with interest at ten percent per annum from the date when such payment(s) of Percentage Rent should have been made until paid.  The cost of the audit shall be 

borne by Landlord or First Mortgagee, as applicable, unless such audit shows that Tenant's statement was in error by two percent or more of the Gross Receipts of Tenant for the relevant year, in which event Tenant will pay the entire cost of such audit in addition to the amount of the deficiency in Percentage Rent disclosed by such audit (plus interest on such deficiency as set forth above).  Any such audit may be required by Landlord at any time or times during normal business hours designated by Landlord upon three business days prior written notice to Tenant.
F.    Except as to any information which Landlord provides or is required to provide to the First Mortgagee pursuant to the Loan Documents, any information obtained by Landlord under Sections 3.B, 3.C, 3.D or 3.E shall be held in confidence by Landlord and shall not be divulged by Landlord to any person or used for any purpose, except that Landlord shall be permitted to divulge such information (1) when reasonable in connection with the trial of any action, proceeding or arbitration between Landlord and Tenant, (2) in connection with any bona fide prospective sale of the Premises or any part thereof, (3) to any mortgagee or prospective mortgagee of the Premises, and (4) pursuant to a subpoena duly and validly served upon Landlord.  The First Mortgagee shall be permitted to reveal any information it receives from Landlord or Tenant relating to the Premises to any investor in any securities issued pursuant to any securitization of its loan, to any rating agencies, and any prospectus referring to such loan and to all other persons and entities which First Mortgagee believe is necessary, provided that Landlord and Tenant are given a fair opportunity to object to the proposed release of any information delivered to Tenant under restrictions regarding confidentiality.  Tenant shall endeavor to obtain the consent of such third parties to any such release.
G.    Except as provided in Section 3.C(2)(1), computation of Percentage Rent shall be made separately and independently for each calendar year of the Term, without regard to the Gross Receipts received during or Basic or Percentage Rent paid for any other year of the Term.
H.    All other sums and charges of every nature required to be paid by Tenant to Landlord pursuant to the terms of this Lease shall also constitute rent reserved under this Lease.  Except as otherwise provided in Section 3.J, all Rent and such other sums and charges which are past due for more than 30 days shall bear interest at ten percent per annum from the due date until paid.
I.    Acceptance by Landlord of any late payment of Rent (including Percentage Rent) shall not constitute a waiver of any of Landlord's rights and remedies available in connection with any subsequent failure of Tenant to pay the Rent or to make any other payment due Landlord hereunder in the manner or time provided for herein.
J.    For each Additional Term, if any, commencing on the first day of Additional Term, the amount of the monthly installments of Basic Rent and the formulae for determining the Percentage Rent (including the Percentage Rent percentage(s) and the amount of threshold levels) shall be adjusted, if necessary, to fair market levels ("Fair Market Rents"), but in no event shall the Basic Rent amount be less than the amount of the debt service required to be paid pursuant to the Loan Documents.  If Landlord and Tenant are unable to agree on Fair Market Rents at least 60 days before such Rents are due to become effective, either of them may submit such issue to arbitration before (and under the applicable rules of) the American Arbitration Association, in its office nearest the Hotel, and the award of such arbitration shall be binding on 

the Parties and enforceable by either of them in any other legal proceeding.  During the period of any dispute prior to such determination, the amounts payable as Rent hereunder shall in no event be less than those in effect for the immediately preceding period.  Upon the final determination of the Basic Rent and Percentage Rent formula after a dispute and arbitration thereof, (A) any additional Basic Rent or Percentage Rent which, in accordance with such determination, is owing for the portion of such period which has already elapsed shall he immediately due and (B) Landlord and Tenant shall promptly execute an amendment to this Lease specifying such amounts and formula as the Basic Rent and Percentage Rent for the balance of such period (but any delay or failure in executing such amendment shall not affect Tenant's liability for payment of any increased amount of Basic Rent or Percentage Rent in accordance with such determination).
4.    SPECIAL ASSESSMENTS AND REAL ESTATE TAXES; GROUND RENTS.
A.    As a component of Basic Rent, Tenant shall pay to Landlord, and prior to the date the same are delinquent, and subject to Section 4.C herein, all taxes, excises, levies and assessments, general and special, of whatever kind or nature, federal, state, county, municipal or otherwise, levied, assessed or imposed upon or with respect to the Premises or any part thereof or the business conducted thereon which may become a lien upon the Premises or any part thereof.
B.    As a component of Basic Rent, Tenant shall pay to Landlord any and all taxes assessed against or with respect to the Intangible Personal Property, prior to delinquency.
C.    It is the intent of Landlord and Tenant to enter into a net lease by this instrument.  Tenant shall pay all income taxes of Tenant with respect to any business conducted at the Premises, any sales or revenue taxes imposed upon the payment of Rent as provided for in this Lease, as well as all taxes, assessments, levies and charges with respect to the Premises payable as a consequence of ownership of the Premises (including the interests of both Tenant and Landlord therein) provided, however, that nothing herein shall be interpreted to render Tenant liable for the income taxes of Landlord.
D.    To the extent permitted under the Loan Documents, Tenant shall have the right to contest or review the amount or validity of any such tax required to be paid by Tenant hereunder by appropriate legal proceedings; provided, however, that such contest or review shall not relieve Tenant from its covenants to pay such tax at the time and in the manner as provided herein; and provided further that, if such contested tax is not paid beforehand and if such legal proceedings shall not operate to prevent the enforcement of the collection of the tax so contested and to prevent the sale of the Premises or any part thereof to satisfy the same, then, before instituting any such proceedings, Tenant shall furnish to Landlord a surety company bond, cash deposit or other security reasonably satisfactory to Landlord and the First Mortgagee, as security for full payment of such tax, together with all interest and 

penalties in connection therewith and all charges that may or might be assessed against or be charges on the Premises or any part thereof in said legal proceedings.  Upon termination of such legal proceedings or any time when Landlord or the First Mortgagee shall deem the security to be insufficient for the purpose, Tenant shall forthwith upon demand deliver to Landlord additional security as is sufficient and necessary for the purpose, and upon the failure of Tenant so to do, the security originally deposited shall be applied to the payment, removal and discharge of said tax and the interest and penalties in connection therewith and the charges and costs accruing in such legal proceedings and the balance, if any, shall be paid to Tenant, provided that Tenant is not then in default under this Lease.  Notwithstanding anything to the contrary contained in this Section, Tenant shall pay (under protest, if necessary) all amounts due to the taxing authority to prevent the sale of the Premises or any part thereof to satisfy such amounts; and if Tenant fails to do so at least ten (10) days before any such anticipated sale (regardless of whether Landlord has given Tenant notice of such delinquency), then Landlord may do so on Tenant's behalf and without such default being thereby deemed waived or cured, either from any security posted with Landlord or from Landlord's own funds (for which Landlord shall be reimbursed in accordance with Section 17.H).
5.    CONDITION OF PREMISES.  Landlord may, at its sole cost and expense, and commencing before or after execution hereof, renovate the Premises as described on Exhibit C attached hereto (the "Renovations"). Landlord may modify the scope of the Renovations at its sole and absolute discretion, and Tenant's obligations hereunder are not contingent upon Landlord's completion of the Renovations or Landlord making any other improvements to the Premises. Landlord shall construct such Renovations in coordination with Tenant so as to minimize the impact on Hotel operations to the extent reasonably possible.   Tenant represents that it has examined the Premises, is satisfied with the physical condition thereof and agrees to accept same in "AS IS" condition.  Tenant further acknowledges that Landlord has not made any representation as to such physical condition, the rents, leases, expenses of operation or any other matter or thing affecting or relating to the Premises, except as may be herein expressly set forth.
AS A MATERIAL INDUCEMENT TO LANDLORD'S ENTERING INTO THIS LEASE, (A) LANDLORD EXPRESSLY DISCLAIMS AND TENANT ACKNOWLEDGES AND ACCEPTS THAT LANDLORD HAS DISCLAIMED MAKING ANY REPRESENTATIONS, WARRANTIES, OR ASSURANCES WITH RESPECT TO THE PREMISES OTHER THAN AS SPECIFICALLY SET OUT HEREIN, SPECIFICALLY INCLUDING, BUT NOT LIMITED TO, REPRESENTATIONS OR WARRANTIES AS TO MATTERS OF TITLE, ZONING, TAX CONSEQUENCES, PHYSICAL CONDITION, OPERATING HISTORY OR PROJECTIONS, VALUATIONS, GOVERNMENTAL APPROVALS OR GOVERNMENTAL REGULATIONS AND (B) TENANT AGREES THAT WITH RESPECT TO THE PREMISES IT WILL RELY UPON ITS INSPECTIONS THEREOF OR ITS DETERMINATIONS NOT TO INSPECT THE SAME, DOES HEREBY ACCEPT THE PROPERTY IN ITS "AS IS" CONDITION, WITH ALL DEFECTS, AND· WITHOUT REFERENCE TO HABITABILITY, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE.
6.    USES, HOTEL MANAGER, ELIGIBLE INDEPENDENT CONTRACTOR
A.    Tenant is authorized and shall be permitted to use the Premises only for the following purposes: (A) operation and maintenance of the Premises as a first class hotel; (B) to the extent customarily found in similar hotels, operation of restaurant(s) and a related cocktail lounge(s), (including, without limitation, the sale of alcoholic beverages pursuant to a liquor license issued in the name of Tenant or its concessionaire), private club(s), banquet and conference facilities, lobby retail shops, health club, car rental, and on-site liquor and personal services; and (C) other incidental uses reasonably related to operation of a first-class hotel in the Premises.  Tenant agrees to continuously use the Premises for the above-specified purposes 

(subject to temporary closures to repair any damage or destruction) and to diligently conduct its business thereon to produce a reasonable and substantial gross income.  Tenant shall not cause, maintain or permit any public or private nuisance or any waste in, on or about the Premises.
B.    Tenant shall hire to perform day-to-day operation and management of the Hotel a qualified and experienced hotel manager, or wholly-owned subsidiary thereof, approved by Landlord, which approval shall not be unreasonably withheld, that, at all times, meets the requirements of Section 6(C) ("Hotel Manager").
C.    The Hotel Manager must, at all times, meet all of the following requirements:
(1)    The Hotel Manager does not own, directly or indirectly, more than thirty-five percent (35%) of the outstanding stock of KBS SOR II.
(2)    If the Hotel Manager is a corporation (within the meaning of the Code), no more than thirty-five percent (35%) of the total combined voting power of the Hotel Manager's outstanding stock (or thirty-five (35%) of the total shares of all classes of the outstanding stock) or, if it is not a corporation, no more than thirty-five percent (35%) of the ownership interest in its assets or profits is owned directly or indirectly, by one or more Persons owning thirty-five percent (35%) or more of the outstanding stock of KBS SOR II.
(3)    Neither KBS SOR II, the Tenant, the Landlord, nor any Affiliate (other than Affiliates of the Hotel Manager that have a minority indirect ownership interest in Tenant and Landlord) thereof derives any income from the Hotel Manager. 
(4)    At the time that the Hotel Manager enters into a Management Agreement with the Tenant to operate the Hotel, the Hotel Manager (or any "related persons" within the meaning of Section 856(d)(9)(F) of the Code) is actively engaged in the trade or business of operating "qualified lodging facilities" within the meaning of Section 856(d)(9)(D) of the Code for any Person who is not a "related persons" within the meaning of Section 856(d)(9)(F) of the Code with respect to KBS SOR II or the Tenant (an "Unrelated Person"). For purposes of determining whether the requirement of this paragraph (d) has been met, the Hotel Manager shall be treated as being actively engaged in such a trade or business if the Hotel Manager (i) derives at least ten percent (10%) of both its profits and revenue from operating "qualified lodging facilities" within the meaning of Section 856(d)(9)(D) of the Code for Unrelated Persons or (ii) complies with any regulations or other administrative guidance under Section 856(d)(9) of the Code that provides a "safe harbor" rule with respect to the amount of hotel management business with Unrelated Persons that is necessary to qualify as an "eligible independent contractor" within the meaning of such Code section.
7.    ALTERATIONS; RENOVATION.
A.    Tenant shall not make or permit to be made any structural demolition, alterations, additions, changes, renovations, enlargements or improvements of or to the Real Property or any part thereof (collectively, "Alterations"), without Landlord's prior written consent, which may be granted or withheld in Landlord's sole and absolute discretion.

B.    Subject to the limitations contained in Section 7.A, Tenant may, at any time during the Term, at Tenant's own cost and expense, make or permit to be made any non-structural Alterations, subject to Landlord's reasonable approval and such reasonable conditions as Landlord shall impose, provided, however, that Tenant shall not under any circumstances have the right to make any Alterations which would diminish the market value of the Premises or adversely affect the condition of the Hotel.  Tenant shall pay and discharge all costs, expenses, damages and other liabilities which may arise in connection with or by reason of any Alteration, and shall indemnify, defend and hold harmless Landlord and the First Mortgagee from any claim, liability, cost or expense in connection therewith (including, but not limited to, reasonable attorney's fees and court costs).
C.    All buildings, improvements and appurtenances thereto, as well as all Alterations, shall be deemed to be affixed to and part of the Real Property demised herein, title thereto being in Landlord during and upon expiration of this Lease, subject to the leasehold estate reserved in Tenant during the Term.  Upon expiration or earlier termination of this Lease, Tenant shall surrender and deliver the Premises to Landlord with any and all improvements and permitted Alterations, in the same condition in which they existed upon the later of the date hereof or the completion thereof, excepting only ordinary wear and tear and except for damage by fire or other casualty to the extent (but only to the extent) Tenant is not required to repair such fire or other casualty damage under the terms of this Lease.
D.    Tenant shall permit Landlord, the First Mortgagee or their authorized representatives to enter the Premises at all reasonable times during normal business hours for the purposes of inspecting the same and of making any necessary repairs to the Premises, and of performing any work therein that may be necessary to comply with any Laws (defined below), or that Tenant is obligated to perform but has not done so after written notice by Landlord, or that Landlord in its own discretion may elect to have performed, as the case may be.  Nothing in this Lease shall imply any duty or obligation on the part of Landlord to do any such work or make any Alterations or repairs of any kind whatsoever to the Premises except as expressly provided herein.
8.    MAINTENANCE AND REPAIR.
A.    Landlord shall be responsible for all maintenance, repairs and replacements of the Real Property that are capitalized expenses under GAAP, unless occasioned by the act or negligent failure to act of Tenant, or any of Tenant's employees, contractors, agents, subtenants or licenses.  Such maintenance, repairs and replacements include, but are not necessarily limited to, the replacement of roofs or other load bearing elements of Real Property structures, the replacement of major components of HVAC systems, elevators and escalators within the Premises; remediation of environmentally hazardous conditions, structural alterations required by building and safety codes or other applicable laws or by insurance underwriting requirements, and any other capital maintenance, repair and replacement.  In no event shall Landlord's responsibilities include routine maintenance and replacements or other repairs, refurbishment or replacements which do not constitute capital repairs under GAAP.  Except as set forth in this Section 8.A and in Section 15, Landlord shall have no duty to repair, replace or maintain the Premises or any part thereof.

B.    Except as otherwise provided in Sections 8.A and 15, Tenant shall, at Tenant's sole cost and expense, keep the Premises in good repair and condition and shall not permit or commit any waste thereof.  Repairs, replacements and maintenance of the Premises shall be performed by Tenant in a prompt and diligent manner so as to avoid any event of default under any Loan Documents now or hereafter affecting the Premises with respect to the condition of the Premises, and in no event shall Tenant fail to perform such repairs later than 120 days after Landlord's written notice of the necessity therefore.  Without limiting the generality of the foregoing, Tenant shall, at its sole cost and expense, but using funds from the Repair and Replacement Reserve (defined in Section 8.B(1) below) to the extent any funds then exist, repair and replace all Tangible Personal Property leased to Tenant pursuant to this Lease, which replaced Tangible Personal Property shall continue to be owned by Landlord.
(1)    For each fiscal year during the Term, Tenant shall, as additional Rent, contribute to a reserve for the periodic refurbishment, replacements and non-routine repairs of all Tangible Personal Property owned by Landlord, which reserve shall be held and owned by Landlord (the "Repairs and Replacement Reserve") no less than the amount specified in Exhibit D attached hereto, which funds Landlord shall make available to Tenant for use in making such periodic refurbishment, replacements and non-routine repairs of all Tangible Personal Property owned by Landlord.  Tenant shall not, without Landlord's prior written consent (to be given or withheld in Landlord's sole and absolute discretion) expend any funds in the Repairs and Replacement Reserve for any purpose other than such refurbishment, replacements and repairs.  To the extent Tenant makes any deposits with First Mortgagee (or its servicer for the First Mortgage Loan) pursuant to the Loan Documents for a repair and replacement reserve, Tenant's obligations to make contributions to the Repairs and Replacement Reserve shall be deemed reduced by the amount deposited with such First Mortgagee or servicer.
C.    (1)  If Tenant fails to make any repairs to the Premises required to be made by Tenant under this Section 8 within a reasonable time period and in no event later than 120 days after Landlord's 'written notices of the necessity therefore, Landlord may, at Landlord's option, make or cause to be made such repairs, to the Premises, at Tenant's expense.  Upon completion of such repairs by Landlord, Landlord shall submit to Tenant an invoice describing in reasonable detail the repairs so made to the Premises and verifying the payment for all labor and materials used in such repairs, and Tenant shall deliver to Landlord, within ten days after the date of Tenant's receipt of said invoice, cash reimbursement for the full cost of such repairs, in addition to interest thereon at ten percent per annum from the date such costs were incurred to the date of such payment from Tenant to Landlord.
(2)    Landlord shall not be required to give to Tenant the written notice of need for repair as described in Section 8.C(1) and Landlord shall be entitled to make or cause to be made to the Premises such repairs as are necessary and to obtain from Tenant reimbursement of the cost therefore, if the nature of any defect causing the need for such repair of the Premises creates an emergency.  In the event of such repair by Landlord, Landlord shall be entitled to reimbursement by Tenant for the cost thereof, and interest thereon, all as provided in Section 8.C(l) above, upon delivery by Landlord to Tenant of an invoice complying with the criteria described in, above.  For purposes of this Lease, the term "emergency" shall mean a condition which in Landlord's reasonable judgment poses an immediate and substantial threat to 

Tenant's ability to conduct its business operations on the Premises, to the personal safety of Tenant's agents, employees, guests, customers and invitees and/or other Premises itself.
9.    COMPLIANCE WITH LAWS, REIT REQUIREMENTS
A.    EXCEPT AS OTHERWISE PROVIDED IN SECTIONS 8.A AND 15 WITH RESPECT TO LEGALLY-MANDATED STRUCTURAL ALTERATIONS AND CAPITAL REPAIRS, TENANT SHALL, AT TENANT'S SOLE EXPENSE, COMPLY WITH ALL LAWS, STATUTES, REGULATIONS AND ORDINANCES APPLICABLE TO THE PREMISES AND/OR THE BUSINESS CONDUCTED THEREON BY TENANT ("Laws").  The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant, whether Landlord is a party thereto or not, that Tenant has violated any such Law, shall be conclusive of the fact between Landlord and Tenant, although the existence of a breach of this Section shall not require that the matter first be adjudicated in any forum.  If Tenant fails to so comply with all such Laws within a reasonable time period after Landlord's written notice thereof to Tenant, Landlord may at Landlord's option, take such actions as Landlord deems appropriate to ensure compliance, at Tenant's expense.  Landlord shall submit to Tenant an invoice describing in reasonable detail the costs and expenses incurred by Landlord, and Tenant shall deliver to Landlord, within ten days after the date of Tenant's receipt of said invoice, cash reimbursement for the full amount of such costs and expenses, in addition to interest thereon at ten percent per annum from the date such costs were incurred to the date of such payment from Tenant to Landlord.
B.    Tenant understands that in order for KBS SOR II to qualify as a REIT, the following requirements (the "REIT Requirements") must be satisfied:
(1)    Anything contained in this Lease to the contrary notwithstanding, the average of the Fair Market Value at the beginning and end of a Fiscal Year of Landlord's Personal Property that is leased to the Tenant under this Lease shall not exceed fifteen percent 15% of the average of the aggregate Fair Market Value s of all of the Leased Property at the beginning and at the end of such Fiscal Year (the "Personal Property Limitation"). If Landlord reasonably anticipates that the Personal Property Limitation will be exceeded with respect to the Leased Property for any Fiscal Year, Landlord shall notify Tenant, and Tenant either (i) shall purchase at Fair Market Value any personal property anticipated to be in excess of the Personal Property Limitation ("Excess Personal Property") either from the Landlord or a third party or (ii) shall lease the Excess Personal Property from a third party. In either case, Tenant's Rent obligation shall be equitably adjusted.  Notwithstanding anything to the contrary set forth above, Tenant shall not be responsible in any way for determining whether or not Tenant has exceeded or will exceed the Personal Property Limitation, and shall not be liable to Landlord or any of Landlord's shareholders in the event that the Personal Property Limitation is exceeded, as long as Tenant meets Tenant's obligation to acquire or lease any Excess Personal Property as provided above. This Section 9(B) is intended to ensure that the Rent qualifies as "rents from real property," within the meaning of Section 856(d) of the Code, or any similar or successor provisions thereto, and shall be interpreted in a manner consistent with such intent.
(2)    Anything contained in this Lease to the contrary notwithstanding, Tenant shall not sublet the Leased Property on any basis such that the rental to be paid by the sub-lessee 

thereunder would be based, in whole or in part, on either (i) the net income or net profits derived by the business activities of the sub-lessee or (ii) any other formula such that any portion of the Rent would fail to qualify as "rents from real property" within the meaning of Section 856(d) of the Code, or any similar or successor provision thereto. 
(3)    Tenant cannot sublet the Leased Property to any Person in which KBS SOR II, owns, directly or indirectly, a ten percent (10%) or more interest, within the meaning of Section 856(d)(2)(B) of the Code, or any similar or successor provisions thereto.
(4)    The owner of Tenant agrees to make an election for Tenant to be, and to operate as, a "taxable REIT subsidiary" of KBS SOR II within the meaning of Section 856(l) of the Code, or any similar or successor provision thereto. 
(5)    Tenant shall not (i) directly or indirectly operate or manage a "lodging facility" within the meaning of Section 856(d)(9)(D)(ii) of the Code or a "health care facility" within the meaning of Section 856(e)(6)(D)(ii) or (ii) directly or indirectly provide to any other Person (under a franchise, license, or otherwise) rights to any brand name under which any lodging facility or health care facility is operated; provided, however, that Tenant may provide such rights to the Hotel Manager to operate or manage a lodging facility as long as such rights are held by Tenant as a franchisee, licensee, or in a similar capacity and such lodging facility is either owned by Tenant or is leased to Tenant by Landlord or one of Landlord's Affiliates.
(6)    Tenant agrees, and agrees to use reasonable efforts to cause Tenant's Affiliates, to use their best efforts to permit the REIT Requirements to be satisfied. Tenant agrees and agrees to use reasonable efforts to cause Tenant's Affiliates, to cooperate in good faith with KBS SOR II and Landlord to ensure that the REIT Requirements are satisfied, including but not limited to, providing KBS SOR II with information about the ownership of Tenant, and Tenant's Affiliates to the extent that such information is reasonably available. Tenant agrees, and agrees to use reasonable efforts to cause Tenant's Affiliates, upon request by KBS SOR II, and, where appropriate, at KBS SOR II's expense, to take reasonable action necessary to ensure compliance with the REIT Requirements. Immediately after becoming aware that the REIT Requirements are not, or will not be, satisfied, Tenant shall notify, or use reasonable efforts to cause Tenant's Affiliates to notify, KBS SOR II of such noncompliance. 
(7)    Both Tenant and Landlord agree that no provision of this lease shall be construed so as to cause KBS SOR II to fail to qualify as a REIT.
(8)    Tenant shall not permit any wagering activities to be conducted at or in connection with the Leased Property by any Person who is engaged in the business of accepting wagers and who is legally authorized to engage in such business at or in connection with the Premises.
10.    COMPLIANCE WITH TERMS OF MORTGAGES.
A.    Tenant hereby covenants and agrees to at all times abide by and comply with all of the terms and provisions contained in the Loan Documents applicable to Tenant or the condition and occupancy of the Premises and such terms and provisions contained in all other deeds of trust and mortgages now or hereafter affecting the Premises (but, unless a leasehold 

mortgage, specifically excluding any covenant to pay the indebtedness described therein) and (subject to Sections 8.A and 15 to perform all maintenance and repair obligations with respect to the Properly as are set forth therein, and all and any insurance requirements that may be imposed thereunder.  Tenant further covenants and agrees not to cause or suffer to exist any condition or event that would constitute (or, following the giving of notice or the passage of time, or both, would constitute) an event of default under the provisions of the Loan Documents or other such deed of trust or mortgage relating to the condition, occupancy, maintenance, repair or insurance of the Premises.  Tenant shall perform its obligations under this Section 10.A at its sole cost and expense and in a prompt and diligent manner.  Without limiting the foregoing, Tenant shall comply with all requirements of the Loan Documents (within the time periods required by the Loan Documents without any notice or grace periods herein provided), relating to financial reporting, operational reporting, tax and insurance premium escrow provisions, insurance requirements, lease and concession restrictions, budgets, furniture, fixture and equipment reserves, building expansion and alterations, casualties, tax protests, provisions obligating Tenant to terminate the Hotel Manager, restoration obligations and rights and cash management provisions.  The provisions of this Section 10.A shall control over any inconsistent provisions contained herein. 
B.    Landlord shall be liable for and shall pay, prior to delinquency, any and all principal interest and other amounts owing or to be owing under any and all deeds of trust or mortgages that may at any time and from time to time encumber the Premises (other than payments due under any leasehold mortgages).  Tenant agrees that its interest hereunder are and will remain subordinate to any and all deeds of trust and mortgages that may at any time encumber the Premises and to any replacements, renewals, refinances, consolidations, modifications, or enlargements thereof. 
C.    Tenant shall execute certain of the Loan Documents (i) to grant the First Mortgagee, as additional collateral for the Loan, a security interest in the contracts, accounts and other tangible and intangible property owned by Tenant and exclusively used or generated in the operation of the Hotel, (ii) to subordinate this Lease to the lien of the First Mortgage Loan and (iii) to consent to a collateral assignment of Landlord's rights, title and interest under this Lease to the First Mortgagee.  Tenant acknowledges that Landlord would not have acquired the Premises without the First Mortgage Loan and that Tenant undertook to encumber its assets and subordinate its leasehold estate, to the extent required by the First Mortgagee, so that Landlord could obtain the First Mortgage Loan.  Landlord agrees to indemnify Tenant against and save Tenant harmless, from any all losses of Tenant's assets resulting from the enforcement of First Mortgagee's security interests therein, except to the extent that such loss is caused by Tenant's own actions (including, without limitation, any default by Tenant in the-payment of Rents or other sums hereunder or in the performance of covenants, other than a covenant to make payments on the Loan, under the Loan Documents to which Tenant is a party).
11.    INDEMNIFICATION OF LANDLORD.
A.    Tenant hereby waives all claims against Landlord for damage to property and injuries to person in, upon, or about the Premises, from any cause arising at any time, except injury or damage caused by Landlord's own gross negligence or willful misconduct.  Notwithstanding any contrary provision herein, Landlord shall not be responsible or liable to 

Tenant for any defect or failure, latent or otherwise, in (or any act or omission in the construction of) the Premises, nor shall it be responsible or liable for any injury, lose or damage to any person or to any property of Tenant or any other person caused by or resulting from theft, bursting, breakage, leakage, steam, snow or ice, running, backing up, seepage, or the overflow of water or sewerage in any part of the Premises or for any injury, loss damage caused by or resulting from acts of God or the elements.  Tenant shall give prompt notice to Landlord in case of fire, casualty, defect or accident at or in the Premises.
B.    Except to the extent of Landlord's responsibility under Section 11.A by reason of its gross negligence or willful misconduct, Tenant shall indemnify Landlord against and save Landlord harmless from any and all losses, costs, damages, charges, liabilities, obligations, fines, penalties; claims, demands, or judgments and any and all expenses, including, without limitation, attorneys' fees and expenses, court costs, costs of appeal, settlement and negotiations; arising out of or in connection with: (1) Tenant's use or occupancy of the Premises; (2) the conduct of Tenant's business or any activity, work or thing done, permitted or suffered by Tenant in, on or about the Premises; (3) any failure to perform or observe any of the terms, covenants, conditions or provisions required to be performed or observed by Tenant under this Lease; (4) any negligence of Tenant or of Tenant's employees, agents, contractors or guests; or (5) any mechanic's or materialman's lien or claim of lien, whether or not discharged, unless resulting from work which Landlord caused to be performed.  In the event that any action or proceeding is brought against Landlord by reason of any of the foregoing, Tenant shall, at the request of Landlord, assume the defense of the same at Tenant's sole cost with counsel satisfactory of Landlord.  Landlord and Landlord's insurers shall each have the right to employ, at its expense, separate counsel in any such action or proceeding and to participate in the defense thereof.  Tenant shall consent to and indemnify Landlord against the costs of any reasonable settlement agreed to by Landlord of such action or proceeding.
12.    INSURANCE.  
A.    Throughout the remainder of the Term, Tenant shall procure and maintain insurance at terms and rates and providing the amounts and types of coverage reasonably acceptable to Landlord and the First Mortgagee, but in any event a minimum of the following insurance:
(1)    Insurance on the Premises (including Hotel and contents) against loss or damage by fire, lightning, flood (if located in a flood hazard zone), wind, named windstorm, and all other risks covered by the usual standard extended coverage endorsements, and in such amounts and with such deductible limits as are approved by Landlord (which approval shall not be unreasonably withheld), all in an amount not less than the full replacement cost thereof;
(2)    Insurance against loss or damage from explosion of boilers, pressure vessels, pressure pipes and sprinklers installed in the Premises;
(3)    Business interruption insurance against interruptions caused by any occurrence covered by the insurance referred to in Sections 12A(l) and 12.A(2), of a type and in amounts sufficient to cover rent, any leasehold mortgage payments, real estate taxes, hazard 

insurance premiums and adequate cleaning, lighting and maintenance of the Premises for a period of at least 24 months, and with a waiting period of no more than seven days.
B.    In addition to the foregoing, Tenant shall, throughout the Term, procure and maintain (and/or cause it Hotel Manager to procure and maintain) the following insurance:
(1)    Workers' compensation and employer's liability insurance as required by the applicable laws of the state in which the Premises is located.
(2)    Commercial general public liability insurance against claims for bodily injury, death or property damage occurring on, in or about the Premises, including but not limited to the bar that is part of the Premises, and automobile liability insurance on vehicles operated in conjunction with the Hotel, with a combined single limit for each occurrence for personal injury, death and property damage in an amount which is not less than that generally provided in policies of insurance procured by operators of other hotels in the county where the Premises is located, but in no event less than $10,000,000.
(3)    "Dram shop" (liquor liability) insurance in an amount which is not less than that generally provided in policies of insurance procured by operators of other hotels in the county where the Premises is located, but in no event less than $2,000,000 per occurrence.
(4)    Such other insurance in such amounts as Landlord, in its reasonable judgment, deems advisable for protection against claims, liabilities and losses arising out of or connected with the operations of the Hotel and the Premises.
C.     All insurance described in Sections 12.A and 12.B, (i) may be obtained by Tenant or the Hotel Manager by endorsement or equivalent means under blanket insurance policies, provided that such blanket policies substantially fulfill the requirements specified herein, (ii) shall be issued by reputable companies authorized to do business in the state where the Premises is located, and (iii) shall otherwise comply with the terms of any first mortgage or deed of trust encumbering the Landlord's interest in the Premises.  Any deductibles under blanket policies must be approved by Landlord.  If Landlord does not approve the deductible limits under one or more blanket policies, Tenant shall obtain insurance coverage under policies with deductible limits approved by Landlord (which approvals shall not be unreasonably withheld).  Landlord shall request from lenders that any deed of trust or mortgages on the Premises contain provisions to the effect that the proceeds of the property insurance policies required to be carried under this Lease be available for repair and restoration of the Premises.
D.    All insurance policies (other than workers' compensation and employers' liability insurance) provided under this Section 12 shall name Tenant and Landlord as named insureds.  In addition, policies required under Sections 12.E and 12.A(1), and (2) shall name the holders of such mortgages or deeds of trust as specified by Landlord ("Mortgagees") as named insureds.  Tenant shall deliver to Landlord duplicate original policies with respect to all policies so procured, including existing, additional and renewal policies and, in the case of insurance about to expire, shall deliver certificates of insurance with respect to the renewal policies no later than the respective date of expiration.  Any losses shall be paid to the named insureds as their respective interests may appear.  All policies of insurance provided for under this Section 12 

shall have attached thereto an endorsement that such policy shall not be canceled or materially changed without at least ten days' prior written notice to each named insured.
E.    Tenant shall procure and maintain all further insurance required under the terms of any deeds of trust or mortgages now or hereafter encumbering the Premises throughout the portion of the Term in which such deeds of trust or mortgages are in effect.
F.    It is agreed that any insurance policy carried by Tenant or the Hotel Manager with respect to the Premises (whether or not required hereunder) which does not name all of Landlord, Tenant and Mortgagees (if any) as insureds shall provide that the insurance company issuing said policy shall have no rights or subrogation against those parties specified above that are not so named on the policy.
13.    FREE FROM LIENS.  Should any mechanic's or materialmen's liens or other liens or affidavits claiming liens be filed against the Premises or any portion thereof or interest therein by reason of any work done or caused or suffered to be done by Tenant, then within 30 days of being notified of any such claim, lien or filing, Tenant shall cause the same to be canceled and discharged of record by payment, bonding or otherwise as is necessary to prevent the foreclosure thereof.  Tenant shall have no power to do any act or to make any contract which may create or be the foundation for any lien, mortgage or other encumbrance upon the reversion or other estate or interest of Landlord in the Premises or the Intangible Personal Property.
14.    UTILITIES.  Tenant shall cause to be paid before delinquency all charges of water, sewage, gas, heat, electricity, power, telephone service, and all other services or utilities used in, upon, or about the Premises during the Term and cause to be maintained any and all deposits that may be required by any provider of such services.
15.    DAMAGE AND DESTRUCTION OF PREMISES.
A.    If, during the Term, the Premises or any part thereof shall be destroyed or damaged in whole or in part by fire or any other cause, except condemnation, Tenant shall give to Landlord immediate written notice thereof and, so long as such destruction or damage is or should be covered by insurance required to be maintained by Tenant under this Lease ("Insured Damage"), Tenant shall promptly repair, replace and rebuild such damaged or destroyed Premises, at least to the extent of the value of such Premises existing immediately prior to such damage.  Landlord shall not be required to perform any repair, replacement or rebuilding of Insured Damage.  Landlord shall make available the proceeds of any property hazard insurance payable on occurrence of such Insured Damage, subject to the terms of any Mortgage and subject to the following terms and conditions:
(1)    Landlord shall be entitled to require that any and all insurance proceeds payable as a result of such damage or destruction be held in trust by the First Mortgagee or a bank or trust company appointed for such purpose by First Mortgagee or Landlord ("Insurance Trustee").  Within 30 days after receipt of the insurance proceeds by Insurance Trustee, Tenant shall submit to Landlord complete plans and specifications which shall be designed to restore the Hotel or other damaged or destroyed improvements to at least the condition existing immediately prior to such damage or destruction and as completely in character as is practicable and 

reasonable and in compliance with any and all restrictions contained in any Mortgage then encumbering the Premises or any deed or use restrictions enforceable against the Premises.  The plans and specifications shall be subject to the approval of Landlord, which approval shall not be unreasonably withheld.  Within 30 days after submission of such plans and specifications, Landlord shall either approve the same or serve written notice upon Tenant of disapproval thereof and its objections thereto, but if no disapproval is given by Landlord within such 30-day period, then such plans and specifications shall be deemed to be approved by Landlord.
(2)    Following approval by Landlord of plans and specifications for the repair and/or rebuilding of the Hotel or other improvement in the Premises, Tenant shall furnish to the Insurance Trustee copies of any contracts which Tenant shall enter into for the making of repairs and/or restoration of the Hotel or other improvement in the Premises.  During the course of such repair and/or restoration work, the Insurance Trustee shall pay to Tenant or to the contractors and subcontractors of Tenant for the account of Tenant, out of the insurance proceeds, 90% of the amounts owing for labor and materials furnished and supplied, with ten percent of such amounts being held as retainage, to be paid following 35 days after completion of the work, provided that no mechanics' or materialmen's liens have been filed against the Premises and/or the Premises as a result of such work.  During such repair and/or restoration, Landlord, First Mortgagee and any architect, engineer or other representative whom either may select to act for it, may inspect the Hotel and other improvements in the Premises and all work and materials as rendered and installed during the course of such repair and/or restoration and upon completion.  In the event that during repair and/or restoration, Landlord shall reasonably determine that the materials do not substantially conform to the approved specifications or that the damaged improvements in the Premises are not being restored substantially in accordance with the approved plans, Landlord shall give prompt written notice to Tenant specifying in detail the particular deficiency or omission.  Upon receipt of any such notice, Tenant shall take such steps as shall be necessary to cause corrections to be made as to any deficiency or omission, and if necessary shall remove, replace and repair all items so that such work substantially complies with the approved plans and specifications.
(3)    If Tenant shall fail to commence repair and/or restoration, or cause such repair and/or restoration to be commenced, to the extent required under this Section 15.A, within 120 days from the date of such damage and destruction in accordance with the provisions of the Lease, or having commenced such repair or restoration, shall fail to complete it with reasonable diligence (subject to extension for acts of God and other events of force majeure), and such failure shall continue for a period of 30 days after written notice by Landlord, Landlord may, at its option and upon giving Tenant written notice that it elects so to do, make and complete such repair and restoration.  In such event, and whether or not this Lease may have theretofore been terminated by reason of any default by Tenant, Landlord shall have the right, as such repair and restoration progresses, to use and apply any and all remaining insurance proceeds to the cost of completing such restoration.  No occurrence of Insured Damage, or of any damage or destruction to Intangible Personal Property, shall give or grant to Tenant an option to terminate this Lease or entitle Tenant to any abatement of rental hereunder, except the Basic Rent shall be abated to the extent, if any, of the amount received by Landlord under any rent loss or business interruption insurance.

(4)    Notwithstanding any provisions in this Section 15.A to the contrary, if the Insured Damage shall be such that at least 30% of the Hotel (by floor area) requires rebuilding or restoration, and such damage or destruction occurs in the last two years of the Term, then Landlord shall have the option, in lieu of requiring the rebuilding and restoring the Hotel, to apply all insurance proceeds to the satisfaction of any Mortgage indebtedness encumbering the Premises.  Such election shall be made within 60 days after the occurrence of the damage or destruction by written notice to Tenant.  In such event, this Lease shall terminate and be of no further force and effect, and neither Landlord nor Tenant shall have any further rights, responsibilities or obligations hereunder.
B.    In the event of any damage or destruction of the Premises other than Insured Damage ("Uninsured Damage") which results in the Premises being rendered unusable as a hotel, then this Lease shall terminate as of the date of such Uninsured Damage, unless either Landlord or Tenant provides the other party with written notice, within 30 days after such Uninsured Damage, that it will pay for and promptly and diligently perform repair of any and all such Uninsured Damage.  In the event of any Uninsured Damage which does not result in the Premises being rendered unusable as a hotel, then Basic Rent shall abate in direct proportion to the proportion that the floor area of the Hotel subject to Uninsured Damage bears to the floor area of the Hotel not subject to Uninsured Damage, effective as of the date of such the Uninsured Damage and until such time (if ever) as the same has been substantially repaired.  Any repairs undertaken by Tenant under this Section 15.B shall be conducted pursuant to the provisions of Section 15.A above, except that Landlord shall be afforded all notice and approval rights otherwise provided to the Insurance Trustee.
16.    ASSIGNMENT AND SUBLETTING 
A.    Except as otherwise expressly allowed by this Section 16, Tenant shall not, without the prior written consent of Landlord in each case, sell, assign or in any manner transfer this Lease or any interest therein or the estate of Tenant hereunder, or sublease or license the Premises or any portion thereof.  Any change in the ownership or control of Tenant (except as to transfers of ownership interests amongst the direct and indirect owners of Tenant existing as of the date of execution hereof) shall be deemed an assignment or transfer in violation of this Section 16.
B.    Tenant shall have the right, without Landlord's consent, to sublet space or grant concessions in portions of the Premises, at any time and from time is time, but only for the purpose of permitting the operation of various activities complementing the operation of the Premises for the use specified in Section 6.  The right to grant any such concession or sublease hereunder is and shall be expressly conditioned upon the furnishing of written notice by Tenant to Landlord no later than ten days after the consummation of any such granting of concession or sublease, such notice to include the name and address of the concessionaire or sublessee and the permitted use of the sublet or concession space, as well as a copy of the concession agreement or sublease instrument executed between the parties.  Any such concession or sublease agreement shall expressly provide that such agreement is and shall be expressly subordinate to this Lease and to all Mortgages whether then existing or thereafter created, and any such subtenant or concessionaire shall agree therein that in the event any termination of this Lease, of a foreclosure or exercise of a power of sale under any Mortgage or conveyance of the Premises in lieu thereof 

(each a "Foreclosure"), such sublease or concession shall terminate (and such subtenant or concessionaire shall become merely a tenant at sufferance) or, at the option of Landlord (if a termination of this Lease) or the transferee of the Premises (if a Foreclosure) such sublease or concession shall continue in force and such subtenant and concessionaire shall then attorn to Landlord or such transferee under such sublease or concession.
C.    If this Lease has been transferred, assigned or sold, or the Premises or any part thereof is sublet to or occupied by any party other than Tenant, in each case in violation hereof, Landlord may, after default by Tenant, collect rent from any assignee, subtenant or occupant and apply the net amount collected to the Rent due hereunder (but no such subletting, sale, assignment, occupancy or collection shall be deemed a waiver of any covenant contained in this Lease or release Tenant from any of its obligations hereunder).
D.    Tenant shall not at any time during the Term, without the prior written consent of Landlord, pledge, mortgage or hypothecate any of the leasehold estate hereby created or any of the Premises or the Intangible Personal Property,
E.    Engagement of a Hotel Manager in compliance with Section 6 shall not constitute a breach of this Section 16.
17.    DEFAULT BY TENANT; LANDLORD'S REMEDIES.
A.    Any one or more of the following events shall constitute an event of default under this Lease.  ("Event of Default"):
(1)    Tenant shall abandon the Premises or otherwise cease or substantially curtail its operations in the Premises (except as necessitated by force majeure), and such abandonment, cessation or curtailment shall continue for a period of three business days after written notice by Landlord.
(2)    Tenant shall default in making payment to Landlord of (a) any Basic Rent on the date the same is due or (b) any Percentage Rent or other sum due Landlord hereunder when the same is due and payable; and such default in payment shall continue for a period of three (3) business days after written notice of default from Landlord.
(3)    Tenant shall fail to pay punctually as and when same become due and payable without penalty any tax, assessment, rate or charge or other governmental imposition, or any other charge or lien against the Premises or the Hotel, and such default shall continue for a period of 30 days after written notice by Landlord specifying such failure.
(4)    Tenant shall default in complying with any other agreement, term, covenant or condition this Lease and such default shall continue for a period of 30 days after written notice by Landlord specifying the claimed default (unless Tenant in good faith, has commenced within such 30-day period to remedy such default and at all times thereafter diligently and continuously proceeds to cure the same); provided, however, that no such cure period shall be applicable to any agreement, term, covenant or conditions contained herein which for which this Lease otherwise specifies a cure period after notice.

(5)    This Lease or the estate of Tenant hereunder shall be transferred, assigned or subleased in violation of the provisions of Section 16 above.
(6)    Tenant shall make a general assignment for the benefit of creditors or shall petition or apply to any tribunal for the appointment of a trustee, custodian, receiver, or liquidator of all or any substantial part of its business, estates or assets or shall commence any proceedings under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution, or liquidation Law of any jurisdiction; whether now or hereafter in effect, or shall admit in writing an inability to pay its debts as they become due, or otherwise become insolvent.
(7)    Any such petition or application shall be filed or any such proceedings shall be commenced against Tenant and Tenant by any act shall indicate approval thereof, consent thereto, or acquiescence therein, or an order shall be entered appointing a trustee, custodian, receiver, or liquidator of all or any substantial part of the assets of Tenant or adjudicating Tenant bankrupt or insolvent or approving the petition in any such proceeding, and such order shall remain undischarged for a period of more than 60 days.
(8)    Tenant shall default under any material Ancillary Document and such default shell continue through the end of any specified cure period in such Ancillary Document.
B.    This Lease is subject to the limitations that if and whenever any Event of Default shall occur, in addition to any other rights and remedies given hereunder or by law or equity, Landlord may:
(1)    Terminate this Lease, in which event Tenant shall immediately surrender possession of the Premises to Landlord; or 
(2)    Without effecting a termination of this Lease, enter upon and take possession of the Premises and expel or remove Tenant and any other occupant therefrom concluding, without limitation, altering locks and other security devices at the-Premises); provided, however, that Landlord, by proceeding first under this clause (2), shall not be precluded later from proceeding under clause (1) above.
C.    Exercise by Landlord of the remedies granted under Section 17.B.(2) or otherwise available shall not be deemed to be an acceptance of surrender of the Premises by Tenant, whether by agreement or by operation of Law, it being understood that such surrender can be effected only by the written agreement of Landlord and Tenant.
D.    In the event Landlord elects to terminate this Lease by, reason of an Event of Default, then notwithstanding such termination, Tenant shall be liable for and shall pay to Landlord at Landlord's Address, the sum of all rent and other indebtedness accrued to the date of such termination, and all expenses incurred by Landlord as provided in Section 17.F, plus, as damages, an amount equal to the present value of: (i) the rental payable hereunder for the remaining portion of the Term (had such term not been terminated by Landlord prior to the date of expiration of the Term), including Basic Rent, Percentage Rent and all other sums payable by Tenant hereunder with respect to the Premises, projected on the basis of the average of the Percentage Rent (including, without limitation, taxes and all other expenses) paid by Tenant to 

Landlord under this Lease for the two years prior to the occurrence of the Event of Default or, if such Event of Default occurs during the first two years of the Term, the actual amount of Percentage Rent paid by Tenant to Landlord from the Commencement Date of this Lease until the date of the Event of Default, over (ii) the fair market rental value of the Premises for the remaining portion of the Term, as reasonably determined by Landlord.
E.    In the event that Landlord elects to repossess the Premises without terminating this Lease, Tenant shall be liable for, and shall pay to Landlord at Landlord's Address all Rent and other indebtedness accrued to the date of such repossession, plus Rent (including, without limitation, all taxes and expenses) and all other sums required to be paid by Tenant during the remainder of the Term until the date of expiration of the Term diminished by any net sums thereafter received by Landlord through reletting the Premises during such period (after deducting expenses incurred by Landlord as provided in Section 17.F below), it being expressly agreed that re-entry of Landlord will not affect the obligations of Tenant for the unexpired term of this Lease.  In no event shall Tenant be entitled to any excess of the Rent obtained by reletting over and above the Rent herein reserved.  Actions to collect amounts due by Tenant as provided in this Section 17.E may be brought from time to time, on one or more occasions, without the necessity of Landlord's waiting until expiration of the Term.
F.    If an Event of Default occurs, Tenant shall, in addition to all amounts due under this Section 17 be liable for and shall pay to Landlord, at Landlord's Address, any and all of the following described amounts:
(1)    The cost of removing and Storing Tenant's or other occupant's property, and
(2)    All reasonable expenses incurred by Landlord in enforcing Landlord's remedies, including, but not limited to, reasonable attorney's fees.
Past due -rental amounts, including but not limited to, Rent, Percentage Rent, and other past due payments shall bear interest at ten percent per annum from the due date until paid.
G.    In the event of termination or repossession of the Premises for an Event of Default, Landlord shall not have any obligation to relet or attempt to relet the Premises; or any portion thereof or to collect rental reletting; but Landlord shall have the option to relet or attempt to relet and in the event of reletting, Landlord may relet the whole or any portion of the Premises for any period, to any tenant for any rental, and for any use and purpose.  Notwithstanding the foregoing, if Landlord brings an action for rent, Landlord shall use commercially reasonable diligence to attempt to relet the Premises. 
H.    If Tenant should fail to make any payment or cure any default under this Lease within the time period (if any) provided for in Section 17.A above, Landlord, without being under any obligation to do so and without such default being thereby waived or deemed cured, may make such payment and/or remedy such other default for the account of Tenant (and enter the Premise for such purpose), and thereupon Tenant shall be obligated to, and hereby agrees to, pay Landlord, upon demand, all costs, expenses and disbursements (including, but not limited to, 

reasonable attorneys' fees) incurred by Landlord in taking such remedial action, plus interest thereon at the rate specified in Section 3.H above.
I.    In the event Tenant defaults in the performance of any of the terms, covenants, agreements or conditions contained in this Lease and Landlord places the enforcement of this Lease, or any part thereof; or the collection of any rent or other amount due, or to become due hereunder, or recovery of the possession of the Premise in the hands of an attorney or collection agency, or files snit upon this Lease, Tenant agrees to pay all Landlord's costs of enforcement and collection, including, without limitation, reasonable attorneys' fees.
18.    DEFAULT BY LANDLORD.  In the event of any default by Landlord, Tenant's exclusive remedy shall be an action for damages (Tenant hereby waiving the benefit of any Laws granting it a lien upon the property of Landlord and/or upon Rent due Landlord, or any right of setoff, or a right to terminate this Lease), but prior to any such action Tenant shall give Landlord written notice specifying such default with particularity, and Landlord shall thereupon have a reasonable period, but in no event less than 30 days, in which to commence to cure any such default.  Unless and until Landlord fails to so commence to cure any default after such notice or having so commenced thereafter fails to exercise reasonable diligence to complete such cure, Tenant shall not have any remedy or cause of action by reason thereof.  All obligations of Landlord hereunder shall be construed as covenants, not conditions; and all such obligations will be binding upon Landlord only during the period of its holding of legal title to the Premises and not thereafter.
Notwithstanding any provision to the contrary herein, if Landlord becomes obligated to pay Tenant a money judgment arising out of any failure by Landlord to perform or observe any of the terms, covenants, conditions or provisions to be performed or observed by Landlord hereunder, such money judgment shall be subject and subordinate to the Loan Documents and Tenant shall be limited for the satisfaction of said money judgment solely to Landlord's interest in the Premises or any proceeds arising from the sale thereof and no other property or assets of Landlord or its individual directors, officers or shareholders shall be subject to levy, execution or other enforcement procedure whatsoever for the satisfaction of said money judgment.
19.    SALES OF PREMISES BY LANDLORD.  The term "Landlord" shall mean only the then current owner of the Premises, and in to event of any sale or other transfer of the Premises by Landlord, Landlord shall be released from all liability under this Lease arising out of any action, occurrence, or omission occurring after the consummation of such sale; and the purchaser at such sale or any subsequent sale of the Premises shall be deemed to have assumed and agreed to carry out any and all of the covenants and obligations of the Landlord under this Lease; provided, however, that the benefit of Tenant's indemnification obligations under this Lease shall also run in favor of any former Landlord.
20.    CONDEMNATION.
A.    If the whole of the Premises shall be taken or condemned in any eminent domain, condemnation, compulsory acquisition or like proceeding by any competent authority, or if a material portion thereof shall be taken or condemned so as to make it imprudent or unreasonable, in the mutual opinion of Landlord and Tenant to use the remaining portion as a first-class hotel 

of the type and class existing immediately prior to such taking or condemnation, then this Lease shall terminate at Landlord's option as of the date of such taking or condemnation, and any award for such taking or condemnation, subject to the rights of the First Mortgagee or any other Mortgagees, shall belong entirely to Landlord (except for any portion of such award expressly made to compensate Tenant for the loss of its business at the Premises).
B.    If only a part of the Premises shall be taken or condemned and the taking or condemnation of such part does not make it unreasonable or imprudent, in the mutual opinion of Landlord and Tenant, to operate the remainder as a first-class hotel of the type and class to that existing immediately preceding such taking or condemnation, this Lease shall not terminate, but (subject to the rights of the First Mortgagee or any other Mortgagees) so much of any award made to Landlord shall be made available as shall be reasonably necessary for making alterations or modifications of the Premises, or any part thereof, so as to make it a satisfactory architectural unit as a hotel of similar type and class prior to the taking or condemnation.  The balance of the award, subject to the interest of any Mortgagees, after deduction of the sum necessary for such alterations or modifications, shall belong entirely to Landlord (except for any portion of such award expressly made to compensate Tenant for the loss of its business at the Premises).
C.    For the purposes of this Section 20, a material portion of the Premises shall be deemed to have been taken if ten percent or more of the public space of the Premises is so taken or if ten percent or more of the guest rooms are so taken.
21.    QUIET ENJOYMENT.  Landlord covenants that Tenant, upon paying the rent reserved and on performing all of the terms, covenants and conditions hereof on the part of Tenant to be performed, and not being in, default under any of the terms of this Lease, shall at all times during the Term peacefully and quietly have, hold and enjoy the Premises (subject to the rights of any and all Mortgages) against all persons claiming any interest therein by, through or tinder Landlord, but not as against any other person.
22.    NOTICES.  Any notice, demand, approval, consent or other communication required or desired to be given tinder this Lease shall be given in writing in the manner set forth below, addressed to the party to be served at the following address, or at such other address as that party may have designated by prior notice given pursuant to this Section:
If to Landlord:    c/o KBS Capital Advisors LLC
800 Newport Center Drive, Suite 700
Newport Beach, CA 92660
Attention: Brian Ragsdale

With a copy to:

c/o KBS Capital Advisors LLC
11150 Santa Monica Boulevard, Suite 400
Los Angeles, CA 90025
Attention: Jamie Rodgers

With a copy to:
 
c/o Encore Enterprises, Inc.
5055 LBJ Freeway, Suite 1250
Dallas, TX 75244
Attention: Charles A. Omage, General Counsel

With a copy to:
 
Sheppard Mullin Richter & Hampton LLP
650 Town Center Drive, 4th Floor
Costa Mesa, CA 92626
Attention: Scott A. Morehouse, Esq.

With a Copy to: 

Cassin & Cassin LLP
711 Third Avenue, 20th Floor
New York, NY 100173
Attention: Bret R. Salzer, Esq.

If to Tenant:    c/o KBS Capital Advisors LLC
800 Newport Center Drive, Suite 700
Newport Beach, CA 92660
Attention: Brian Ragsdale
With a copy to:
c/o KBS Capital Advisors LLC
11150 Santa Monica Boulevard, Suite 400
Los Angeles, CA 90025
Attention: Jamie Rodgers
With a copy to:
c/o Encore Enterprises, Inc.
5055 LBJ Freeway, Suite 1250
Dallas, TX 75244
Attention: Charles A. Omage, General Counsel
With a copy to:
Sheppard Mullin Richter & Hampton LLP
650 Town Center Drive, 4th Floor
Costa Mesa, CA 92626

Attention: Scott A. Morehouse, Esq.
With a Copy to:
Cassin & Cassin LLP
711 Third Avenue, 20th Floor
New York, NY 100173
Attention: Bret R. Salzer, Esq.

Any notice, demand, approval, consent or other communication given by (a) overnight common carrier courier service shall be deemed to be given on the business day (not including Saturday) immediately following the date it was deposited with such common carrier or (b) delivery in person or by messenger shall be deemed to have been given upon delivery in person or by messenger.
23.    LIEN FOR RENT.  In consideration of the mutual benefits arising under this Lease, Tenant hereby grants to Landlord a lien and security interest on all property of Tenant now or hereafter placed in or upon the Premises, and such property shall be and remain subject to such lieu and security interest of Landlord for payment of all rent and other sums agreed to be paid to Tenant in this Lease.  The provisions of this Section 23 relating to such lien and security interest shall constitute a security agreement under the Uniform Commercial Code as adopted by the State where the Real Property is located so that Landlord shall have and may enforce a security interest on all property of Tenant now of hereafter placed in or on the Premises, including, but not limited to, all fixtures, machinery, equipment, furnishings and other articles of personal property.  All exemption Laws are hereby waived by Tenant.  Tenant agrees to execute as debtor such financing statement or statement as Landlord may now of hereafter reasonably request in order that such security interest or interests may be protected pursuant to the Uniform Commercial Code as adopted by the State where the Real Property is located, and hereby appoints Landlord as its attorney-in-fact for the purposes of executing and filing such financing statements in the name of Tenant.  Landlord may at its election at any time file a copy of this Lease as, a financing statement.  Landlord, as secured party, shall be entitled to all of the rights and remedies afforded a secured party under the Uniform Commercial Code as adopted by the State where the Real Property located, which rights and remedies shall be in ,addition to and cumulative of the Landlord's liens and rights provided by Law and by the other terms and provisions of this Lease.
All of the benefits of this Section 23 shall also inure to the benefit of the First.  Mortgagee and, upon an "Event of Default," or upon the occurrence of any default beyond any applicable notice and grace periods, under any Loan Document, First Mortgagee shall have the right to exercise any and all of the rights and remedies of Landlord hereunder.  Moreover, Landlord's lien shall be and remain subject to the lien of and all of the rights of First Mortgagee under the Loan Documents.
24.    SUCCESSORS IN INTEREST.  Subject to the provisions of Section 16 above, the provisions of this Lease shall be binding upon and shall inure to the benefit of Landlord and Tenant and their respective successors and assigns..

25.    LANDLORD-TENANT RELATION.  The relation created by this Lease is that of landlord and tenant.  No provision of this Lease shall be construed in such a way as to constitute Landlord and Tenant co-venturers or partners or to make Tenant the agent of Landlord or vice versa or to make either party liable for the debts of the other.
26.    PARTIAL INVALIDITY.  If any term, covenant, condition or provision of this Lease is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remainder of the provisions hereof shall remain in full force and effect and shall in no way be affected, impaired, or invalidated thereby.
27.    HEADINGS.  The various section headings contained in this Lease are for the purpose of convenience only and shall not be considered a part hereof and shall not in any way affect the meaning in interpretation thereof.
28.    TIME OF THE ESSENCE.  Time is of the essence of each and every obligation of Tenant tinder this Lease.
29.    SUBORDINATION; ATTORNMENT.  Tenant hereby acknowledges and agrees that its rights hereunder, the lien of this Lease and all of the terms and provisions hereof are subordinate and inferior to the lien of any and all of the terms and provisions of the Loan Documents and of any other Mortgage hereafter given or granted by Landlord and any subsequent amendment or modification of the same (whether as a rearrangement, replacement, renewal, refinancing, consolidation, modification or enlargement of debt now or hereafter existing or to secure new debt).  In the event any proceedings are brought for foreclosure under any of such Mortgage, or in the event of the exercise of power of sale under either of same, and an election by the purchaser at such foreclosure sale to continue this Lease in force, Tenant shall at the request of the purchaser at such foreclosure sale attorn to and recognize such purchaser as the Landlord under this Lease.
30.    THIRD PARTY BENEFICIARY/AMENDMENT.  First Mortgagee shall be deemed a third party beneficiary hereof with respect to any provision hereof intended to benefit it.  This Lease may not be amended, modified, supplemented, replaced or terminated without the express written consent of First Mortgagee and the Landlord hereunder shall not accept a surrender of same without the express written consent of First Mortgagee; any purported amendment, modification, supplement, replacement, termination or surrender without such consent shall be ineffective against First Mortgagee provided, however, that nothing contained in this sentence shall be deemed to limit or affect the provisions of Section 29.
31.    ESTOPPEL CERTIFICATE.  Within 15 days after request therefore by either party hereto, the other party agrees to deliver to such requesting party a certificate addressed to such requesting party, certifying that this Lease is in full force and effect and amended (or, if amended, so specifying, with the date of each such amendment) and, if the case, that neither such party nor the requesting party is in default under this Lease (or, if a party is in default, specifying the same), and that neither party has any offsets, claims or defenses against the other arising under this Lease (or, if any are claimed, specifying the same).

32.    NON-WAIVER.  Waiver by Landlord of any right for any default of Tenant shall not constitute a waiver of either any subsequent default of the same obligation or of any other default.
33.    LAW GOVERNING.  This Lease shall be governed by and construed in accordance with the laws of the State in which the Premises is located.
34.    ENTIRE AGREEMENT: AMENDMENTS.  This Lease and the instruments referred to herein represent the entire agreement and understanding between the parties hereto regarding the subject matter dealt with herein and may not be amended, waived or discharged except by an instrument in writing executed by the party against which enforcement of such amendment, waiver or discharge is sought.  The following exhibits and riders are attached hereto and incorporated herein by this reference:
Exhibit A            Basic Rent 
Exhibit B            Percentage Rent Formula 
Exhibit C            Renovations 
Exhibit D            Repairs and Replacement Reserve  
Exhibit E            Legal Description
35.    COUNTERPARTS.  This Lease may be executed in multiple counterparts, each of which shall be considered an original but all of which shall constitute one agreement.
36.    GENDER AND NUMBER.  Whenever required by the context, as used in this Lease, the singular number shall include the plural, and the masculine gender shall include the feminine and the neuter.
37.    DEFINED TERMS.  For purposes of this Lease, the following terms shall have the following meanings:
(1)    "Accounts Receivable" means (a) all accounts receivable of the Hotel, and (b) the Guest Ledger.
(2)    "Affiliate" of a Person means another Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first Person.
(3)    "Ancillary Documents" means all agreements, leases, licenses, records, and other documents and instruments documenting or evidencing any of the Ancillary Rights and Obligations.
(4)    "Ancillary Rights and Obligations" means all of Tenant's right, title and interest in and to, and all of Tenant's obligations under, from time to time, any Accounts Receivable, Bartered Arrangements, Equipment Leases, Intangible Property, and Use Agreements.

(5)    "Bartered Arrangements" means any arrangements with suppliers of goods, services and materials obligating a Person to grant free or reduced room rates to such suppliers in exchange for free or reduced priced goods, services or materials.
(6)    "Claims" means any and all right, title and interest in, to and under any and all claims against any third parties which relate or may relate to the Hotel and/or the use, operation and maintenance thereof, including, without limitation, any and all claims under, against or with respect to Rebates or Refunds and any insurance companies and/or their agents with respect to any insurance claims relating to the Hotel and/or the use, operation and maintenance thereof (other than those relating to the Accounts Receivable).
(7)    "Code" means the Internal Revenue Code of 1986, as amended,
(8)    "Equipment Leases" means the leases of equipment used in the operation of the Hotel.
(9)    "Fair Market Value" means fair market value as the Landlord and Tenant agree, acting reasonably and in good faith.
(10)    "FF&E" means any and all fixtures, furniture and equipment used in connection with the operation of the Hotel. 
(11)    "First Mortgagee" means the holder of the beneficial interest under the first mortgage or deed of trust (if any) on Landlord's interest in the Real Property.
(12)    "First Mortgage Loan" means the loan secured by the mortgage or deed of trust executed in favor of First Mortgagee.
(13)    "Fiscal Year" means the calendar year.
(14)    "Guest Ledger" means any accounts receivable of registered guests who have not checked out and who are occupying rooms at the Hotel from time to time.
(15)    "Intangible Property" means all right, title and interest in and to any and all intangible personal property owned and/or used in connection with the ownership, construction, development, use and/or operation of the Hotel, including, without limitation, the Reservation Agreements and Deposits, Service Contracts, Management Agreements, the Intellectual Property, the Licenses and Permits, the Records and Plans, the Claims, the Rebates or Refunds, and the Warranties, customer lists, computer software, telephone numbers for the Hotel, web site and e-mail addresses for the Hotel.
(16)    "Intellectual Property" means any and all intellectual property owned or licensed, and used, exclusively in connection with the Hotel including, but not limited to, the appearance and design of the Hotel, the Trade Names, logos, slogans and other trademarks or service marks, registered or unregistered, and styles and treatments thereof.

(17)    "Inventory" means all merchandise, food beverages (including without limitation merchandise, food and beverages located in guest rooms), fuel, supplies and other items of inventory used in connection with the operation of the Hotel.  
(18)    "Licenses and Permits" means all right, title, interests, privileges, benefits and remedies in, to and under all authorizations, approvals, permits (including building permits, use permits, and certificates of occupancy), licenses (including business licenses, liquor licenses, health department licenses, and other licenses for the Hotel and its restaurants, bars and swimming pools), agreements, variances, tentative maps, final maps, plans and specifications and land use entitlements held and/or relating to the Real Property or the Tangible Personal Property.  
(19)    "Loan Documents" means the documents evidencing, securing or governing the loan made by the First Mortgagee.
(20)    "Management Agreement" means any management agreement relating to the management of the Hotel.
(21)    "Motor Vehicles" means any and all vehicles owned or leased, and used in connection with, the operation of the Hotel.
(22)    "Person" means any natural person, and any corporation, general or limited partnership, limited liability company, association, joint venture, trust, estate, governmental authority and other legal entity.
(23)    "Personal Property" means all Tangible Personal Property and all Intangible Personal Property.
(24)    "Premises" means the Real Property and any Tangible Personal Property owned by Landlord as of the date hereof.
(25)    "Real Property" means that certain real property located in New Orleans, Orleans Parish, Louisiana, as legally described on Exhibit E, together with (i) all buildings, structures, lodging facilities, fixtures, and other improvements situated thereon, including the Hotel, and (ii) all rights, privileges and easements appurtenant to such real property, but excluding all minerals, oil, gas, and other hydrocarbon substances in, on and under such real property, as well as all development rights, and air rights, relating to such real property.  The address of the Real Property is commonly known as 344 Camp Street, New Orleans, Louisiana 70130.  
(26)    "Rebates or Refunds" means any and all refunds, rebates, reimbursements or other similar payments made in connection with or as a result of (a) taxes previously paid with respect to the Hotel or any portion thereof, except for income taxes paid as a result of income earned from the operation of the Hotel, (b) fees paid to any governmental agency with jurisdiction over the Hotel or with respect to the development or operation of the Hotel, or (c) any other amounts paid to third parties in connection with the ownership, maintenance and/or operation of the Hotel, including, but not limited to, any and all deposits paid to utility companies, governmental entities and any other third parties serving the Hotel.

(27)    "Records and Plans" means (a) all books and records maintained in connection with the ownership, development, construction, maintenance or operation of the Real Property or the Hotel business, (b) all preliminary, final and "as built" plans, specifications, manuals, engineering data and reports, and surveys relating to the Real Property, and (c) all structural reviews, renovation plans and specifications, architectural drawings, and engineering, soil, seismic, geologic and architectural reports, studies and certificates and other documents pertaining to the Real Property. 
(28)    "REIT" means a "real estate investment trust" pursuant to section 856-860 of the Code.
(29)    "Reservation Agreements and Deposits" means all guest, banquet room, meeting room, restaurant and other reservations, advance bookings and reservation agreements (oral and written), as well as all deposits made thereunder, received or entered into from time to time relating to the Hotel.
(30)    "Service Contracts" means the maintenance contracts, service contracts, marketing contracts, warranties, guarantees and any other similar obligations, commitments or arrangements, together with all supplements, amendments and modifications thereto (whether written or oral), relating to the marketing, operation, maintenance or enjoyment of the Hotel.
(31)    "Tangible Personal Property" means all tangible personal property located on or in, and used in connection with, the Hotel, including, but not limited to, printing materials and stationery, advertising and promotional literature, Motor Vehicles, Inventory, FF&E, menu stock, upholstery material, computer equipment, reservation terminals, cash registers, telephone system, televisions, carpets and chests, desks, chairs, bookcases, tables, curtains, hangings, pictures, sofas, couches, linens, uniforms, works of art, chinaware, glassware, silverware, ornaments, kitchen utensils, bars, bar fixtures, safes, stoves, ranges, refrigerators, radios, electrical equipment, lamps, mirrors, heating and lighting fixtures and equipment, steam and hot water boilers, engines, generators, ice machines, cooling systems, air conditioning machines, fire prevention and extinguishing apparatus, elevators and fittings, laundry machines, individual motor drives for machines, pipes, radiators, bathtubs, plumbing fixtures, gas and electric fixtures, and all similar and related articles located in the bedrooms, sitting rooms, bathrooms, boudoirs, halls, closets, kitchens, dining facilities, convention space, bar rooms, offices, lobbies, balconies, and other portions of the Hotel.
(32)    "Tenant Owned Tangible Personal Property" means all Tangible Personal Property owned by Tenant from time to time, it being understood that all Tangible Personal Property leased to Tenant hereunder, and all replacements of such Tangible Personal Property paid for by Tenant, shall be owned by Landlord.
(33)    "Trade Names" means the trade names used exclusively with respect to the Premises including, without limitation, the names "Q&C Hotel & Bar," "Q&C" "Queen & Crescent Hotel & Bar", "Queen & Crescent".
(34)    "Use Agreements" means all subleases, licenses, concessions and similar agreements granting any other Person the right to use or occupy any portion of the Hotel.

(35)    "Warranties" means all third party warranties and guarantees relating to the Hotel or the Tangible Personal Property.
[Signature Page Follows]

IN WITNESS WHEREOF, the parties have duly executed this Lease as of the day and year fat set forth above.

LANDLORD:
KBS SOR II Q&C PROPERTY, LLC, 
a Delaware limited liability company

By:    EH Q&C, LLC,
a Delaware limited liability company,
its Managing Member

	
			
	By:
	/s/ Glen Pedersen

	Name:
	Glen Pedersen

	Title:
	Authorized Signatory

TENANT:

KBS SOR II Q&C OPERATIONS, LLC, 
a Delaware limited liability company

By:    EH Q&C, LLC, 
a Delaware limited liability company,
its Managing Member

	
			
	By:
	/s/ Glen Pedersen

	Name:
	Glen Pedersen

	Title:
	Authorized Signatory

EXHIBIT A
BASIC RENT FOR INITIAL TERM
The amount of Basic Rent during the initial Term, prorated for any partial years, shall be 
Year             Annual Amount        Monthly Amount
2016            $3,500,000            $291,666.66
2017            $3,605,000            $300,416.66
2018            $3,713,150            $309,429.16
2019            $3,824,545            $318,712.08
2020            $3,939,281            $328,273.41
Basic Rent for the stub period between the Effective Date and December 31, 2015 shall be prorated based on the 2016 monthly amount.    
Notwithstanding the foregoing, in no event shall the Basic Rent be less than the amount of the debt service and other amounts required to be paid monthly pursuant to the Loan Documents (if any).  Basic Rent shall be adjusted for any Additional Terms as provided in Section 3.J.

EXHIBIT A

EXHIBIT B
ADDITIONAL RENT FORMULA FOR THE INITIAL TERM
In addition to Basic Rent, for any calendar month (the "Current Month") during any calendar year (the "Current Year") during the Term in which Gross Receipts exceed at least the First Threshold (as shown in the table below), Tenant shall pay Percentage Rent in an amount based on the following computation which shall equal the sum of:   
		
	(1)
	The product of (i) Gross Receipts for such month and all prior calendar months during the Current Year in excess of the First Threshold but less than or equal to the Second Threshold (both prorated for any partial calendar year during the Term) and (ii) 50%, minus all previous payments of Percentage Rent under this Paragraph 1 during the Current Year; plus

		
	2.  
	The product of (i) Gross Receipts for such month and all prior calendar months during the Current Year in excess of the Second Threshold but less than or equal to the Third Threshold (both prorated for any partial calendar year during the Term) and (ii) 40%, minus all previous payments of Percentage Rent under this Paragraph 2 during the Current Year; plus

		
	3. 
	The product of (i) Gross Receipts for such month and all prior calendar months during the Current Year in excess of the Third Threshold (prorated for any partial calendar year during the Term) and (ii) 30%, minus all previous payments of Percentage Rent under this Paragraph 3 during the Current Year.

As used in this Exhibit, "First Threshold", and "Second Threshold" and "Third Threshold" shall mean the following amounts:
	
						
	Year
	2016
	2017
	2018
	2019
	2020

	First Threshold*
	$8,200,000
	$8,446,000
	$8,699,380
	$8,960,361
	$9,229,172

	Second Threshold*
	$10,900,000
	$11,146,000
	$11,399,380
	$11,660,361
	$11,929,172

	Third Threshold*
	

$12,200,000 
	

$12,446,000 
	

$12,699,380 
	

$12,960,361 
	

$13,229,172 

*Threshold amounts are to be prorated for any partial year within the Term.
The formulae for Percentage Rent set forth in this Exhibit B shall be adjusted for each Additional Term as provided in Section 3.J.

EXHIBIT B

EXHIBIT C
RENOVATIONS
PROPERTY IMPROVEMENT PLAN
(From Franchise Agreement with Marriott)
		
	1.0
	SITE / BUILDING EXTERIOR

		
	1.1
	Hotel Entry

		
	.1
	Provide an architectural canopy that includes upper upscale materials, architectural and decorative lighting and signage. Ensure guests recognize and are directed to Hotel registration upon arrival. 

		
	2.0
	PUBLIC SPACES

		
	2.1
	Lobby

		
	.1
	Provide a dedicated 24-hour doorman. Alternatively, provide automatic doors at Hotel entry; include vestibule, revolving door, or other solution to mitigate intrusion of exterior environment on interior space.

		
	.2
	Provide an operations plan to maintain all exposed conduit, ventilation systems, plumping pipes and equipment clean and dust-free. Alternatively, provide a ceiling to conceal all mechanical equipment for an upper upscale perception; combination ceiling with decorative ceiling tile system, and finished drywall accepted. 

		
	.3
	Provide new furnishings to better activate space; include coffee tables, throw pillows and decorative table lighting to give space an upper upscale ambiance. Low level lighting (table and floor lamps) needed as a priority. Consider adding cafe curtains to soften the interior.

		
	.4
	Ensure guest safe deposit boxes in the front desk area, unless not required by State law.

		
	2.2
	Public Restrooms – All Areas

		
	1.
	Provide toilet partitions with full-height front wall, louvered/ paneled doors and plastic laminate or stone dividers.

		
	2.
	Provide stone or other approved material dividers at urinals.

		
	3.
	Replace damaged acoustical ceiling tiles, and ensure upscale lighting (no exposed light bulbs).

		
	4.
	In both men's and women's restroom; provide framed full-length mirror.

		
	5.
	Lobby Restroom: Provide a complete upgrade for an upper-upscale experience; solution to be agreed by Franchisor.

		
	2.3
	Elevator Lobbies – Street Level

		
	1.
	Provide an upgrade to the elevator lobby, such as upgraded architectural door surround, graphic on doors or interesting brand relevant call buttons.

		
	2.
	Provide a new patterned area rug for visual interest and to add an element of upper upscale quality.

		
	3.
	Provide a table lamp at the seating group.

EXHIBIT C

		
	3.0
	FOOD & BEVERAGE

		
	3.1
	Restaurant & Bar

		
	.1
	Provide an operations plan to maintain all exposed conduit, ventilation systems, plumping pipes and equipment clean and dust-free. Alternatively, provide a ceiling to conceal all mechanical equipment for an upper upscale perception; combination ceiling with decorative ceiling tile system, and finished drywall accepted. 

		
	4.0
	RECREATION FACILITIES

		
	4.1
	Fitness Center

		
	.1
	Provide a ceiling solution; upgrade lay-in tile ceiling system with integral lighting, or other; solution to be agreed by Franchisor.

		
	.2
	Replace all cardiovascular equipment with new. Include cardio theatre for all aerobic equipment (remove existing TVs).

		
	.3
	Provide large ceiling or wall-mounted flat panel television to free-weight area for viewing from this area.

		
	.4
	Provide millwork cabinetry to display fruit bowl, hold towels, magazines, headphones, sanitary wipes, and trash receptacles.

		
	.5
	Add a decorative profiled frame to all wall mirrors, or replace with floor to ceiling plate glass mirror for an upper upscale appearance.

		
	.6
	Provide artwork or colorful graphics throughout. Incorporate an accent wall for visual interest.

		
	.7
	Provide card key access.

		
	5.0
	RETAIL SPACES

		
	5.1
	Retail

		
	.1
	Provide guest access within the building to a variety of sundry products.

		
	6.0
	FUNCTION SPACES

6.1    Pre-Function (Entry Area) - Crescent Bldg. ‘B’
		
	.1
	Provide a finished drywall ceiling feature with lighting to project an upper upscale quality level; similar to the floating plane in building entry area.

		
	.2
	Flooring to be upgraded throughout the pre-function area and extend the length of circulation corridor and elevator lobby. Refinish or replace all flooring to an upper upscale quality level; solution to be agreed by Franchisor.

		
	.3
	Conceal curtain rod with a decorative millwork cornice at drapery that conceals wet bar.

		
	.4
	Extend copper panels at back bar to height of space.

		
	.5
	Repair patched brick wall in wet bar area to match surrounding wall.

		
	.6
	Provide additional plants and planters and decorative throw pillows at leather sofas. 

		
	.7
	Provide lined and interlined drapery panels at windows.

6.2    Library Meeting Room
		
	.1
	Provide finished drywall coffered ceilings with lighting to project an upper upscale quality level.

EXHIBIT C

		
	.2
	Provide a door solution for privacy within the space, barn door recommended (as at Private Dining Room).

		
	.3
	Ensure ability to blackout light levels during presentations.

7.0    GUEST ACCOMMODATIONS
7.1    Guest Corridors & Elevator Lobbies - To be completed by December 31, 2017
		
	.1
	Provide a partial renovation to upgrade and lighten guest circulation areas: 

		
	a.
	Replace any acoustical ceiling tiles that are not upscale, decorative tiles.  

		
	b.
	Repaint all millwork and trim for a lighter look.

		
	c.
	Provide an accent wall at the corridor ice station to create interest and an upper upscale appearance.

		
	.2
	Relocate table lamp and provide recessed down lights at all ice machine niches.

		
	.3
	Provide house phone on console in each elevator lobby.

		
	.4
	Replace carpet tiles with 80/20 wool/nylon Axminster carpet or other solution agreed to by Franchisor to reflect an upper upscale quality level, include carpet pad. 

		
	.5
	Provide thresholds at all Guestroom entries; stone or other approved material.

7.2    Typical Guestroom - To be completed by December 31, 2017
		
	.1
	Provide a more finished look at entry foyers and other areas with extensive exposed concrete floor, stained concrete or other solution. Clean finished edges at material junctions.

		
	.2
	Provide lined and interlined drapery at all windows to raise the perceived quality level of the Guestrooms (drapery valance exists along wall length).

		
	.3
	Provide lamp at nightstand for an additional decorative element within the room and to reflect a full service standard.

		
	.4
	Provide new upscale bedding package, include duvet and new pillows (king size for king beds, and queen size for queen beds), and decorative elements such as pillows and/or bed throw that reinforce the brand message.

		
	.5
	Provide a new desk chair with an upholstered frame chair for an additional decorative element into the room.

		
	.6
	Consider providing a dedicated area for coffee service. This should not be displayed in bathrooms, closets or on desks. 

		
	.7
	Provide wider nightstands where possible.

		
	.8
	Touch-up all scratched or damaged windowsills, flooring, millwork, and Case Goods (refrigerator cabinet inside).

		
	.9
	Add painted millwork window sill where lacking. As example; this was noted as lacking in 718.

		
	.10
	Provide wire management at desk.

		
	.11
	Adjust desk location to align with the wall panel where applicable.

		
	.12
	Provide a finished edge at exposed corners where finishes differ (such as where entry foyer meets Guestroom).

		
	.13
	Modify open closet to store and conceal ironing board and iron, and supplies (blankets, pillows, etc.) if applicable. Ensure full-length clothes hanging capability.

		
	.14
	Replace area rug with a patterned design that reflects an upper upscale quality level.

		
	.15
	Replace sofa opposite bathroom entry and entry foyer with a console or credenza where applicable. New furniture to act as a welcoming gesture into the room, and ideally suitable for coffee service.

7.3    Guestroom Bath - To be completed by December 31, 2017

EXHIBIT C

		
	.1
	Provide individual amenities (in addition to bulk amenities) or have these available upon request. 

		
	.2
	Provide additional vanity space:

a.    Install a second-spare toilet paper holder.
b.    Hang hair dryer in closet or on bathroom robe hook.
		
	.3
	ADA Bath: Provide supplemental surface area for guest amenities.

		
	.4
	Replace any stained marble floor tile with new to match.

		
	.5
	Provide concept relevant artwork.

		
	.6
	Remove (over-scaled) towel racks; provide under vanity towel storage and towel bars (near shower access as possible). 

8.0    ADMINISTRATION AND EMPLOYEE FACILITIES
8.1    Administrative Offices, Employee Lockers & Cafeteria and Service Corridors
		
	.1
	Ensure F&B offerings for Hotel staff.

9.0    ENGINEERING AND MAINTENANCE – No Requirements
10.0    FOOD PRODUCTION
10.1General Requirements
		
	.1
	Food service operations must meet Franchisor, ASI and Health Department checklist of standards. Franchisor reserves the right to complete a Food and Beverage Sanitation Audit of the Hotel to ensure that it complies with all Franchisor food safety requirements. The audit will be conducted by Franchisor or a third-party consultant and will evaluate all food and beverage areas at the Hotel, including without limitation equipment, floors, walls, ceilings and storage areas. Franchisee will be responsible for all costs and expenses associated with bringing the Hotel into compliance with Franchisor’s food safety standards and other requirements, as determined by Franchisor.

		
	.2
	Perform an equipment assessment to determine end of serviceable life for all major and minor pieces of equipment. Specific attention should be given in the equipment assessment to all refrigeration equipment.

11.0    LAUNDRY AND HOUSEKEEPING - No Requirements
12.0    ELEVATORS
12.1Guest Elevator Cabs 
		
	.1
	Provide an upgrade to all elevator cabs including new controls, hall lanterns and call buttons.

		
	.2
	Bldg. A: Complete the (owner intended) modernization of elevator mechanicals.

13.0    HOTEL SUPPORT SYSTEMS
13.1Data & Telecommunications

EXHIBIT C

		
	.1
	Provide data and telecommunications systems and hardware as noted in separate report and recommendation matrix. (Document to be provided.)

13.2PMS / POS / Hotel Systems
		
	.1
	Provide property management system hardware and software as noted in separate report and recommendation matrix. (Document to be provided.)

14.0    FIRE PROTECTION AND LIFE SAFETY

		
	14.2
	Fire Alarm

		
	.1
	Replace the hardwired ionization single station smoke alarms equipped with battery back up in the Guestrooms with photoelectric single station smoke alarms equipped with battery backup. To be completed as the ionization smoke alarms have reached the end of their 10 year service life.

		
	.2
	Ensure that the fire alarm devices function and when tested meet the following requirements: Activation of room smoke alarm to immediately and automatically sound an alarm (three pulse temporal pattern) within the room of incident. Activation of a water flow switch, BOH or public area smoke detector, must create a general alarm for that designated floor.  Activation of a water flow switch, BOH or public area smoke detector must be programmed to identify the exact location/room of that device. Activation of a tamper switch must provide a supervisory signal to the panel and be programmed to identify the exact function/area it serves.  

		
	.3
	Provide hardwired battery backup carbon monoxide detectors or system carbon monoxide detectors in mechanical rooms containing gas fired water heaters and in locations with other gas appliances (i.e. kitchen, water heater rooms and generator rooms, etc.). Connect so the detectors sound a local alarm.  

		
	14.3
	Life Safety

		
	.1
	All fire doors must be self-closing and latching. This includes the access doors to the laundry and trash chutes. On the eighth floor of Tower B neither of these access doors were self-closing and latching.   

		
	.2
	Install emergency lighting on the exterior of all marked emergency exits. 

		
	.3
	Remove storage from the main electrical room in Tower A. 

		
	14.4
	Sprinkler

		
	.1
	Install an inspector's test valve at the remote area of each fire sprinkler zone during the next scheduled renovation period. Equip the test valves with a hard piped drain to the exterior on ground level or an interior drain capable of handling full flow.   

		
	.2
	Certify that all the concealed sprinklers in the Guestrooms and Guestroom corridors are quick response. If not, replace with quick response sprinklers.   

		
	.3
	Replace/repair all caulked concealed sprinklers. For example in rooms 719 and 714. Currently these sprinklers are not operable. 

		
	.4
	Provide documentation for the annual fire pump tests in accordance with NFPA 20. 

		
	14.5
	Smoke Control

		
	.1
	Install stairwell pressurization in the two exit stairwells in Tower A. Ensure they are in compliance with The Life Safety Code, NFPA 101. NFPA requires 15 lbs. to release the door hatch, 30 lbs. to set the door in motion and 15 lbs. to open the door to required 

EXHIBIT C

width.  The stair pressurization system must have a pressure difference across the barrier of not less than .05 in. water column.  
		
	14.0
	MECHANICAL PLUMBING ELECTRICAL

		
	15.1
	Mechanical

		
	.1
	Complete the ongoing installation of new Guestroom HVAC (50% in 2015 and 50% in 2016).

		
	15.2
	Electrical

		
	.1
	Replace down-light reflectors to coordinate. As example; these were noted as not matching in guest corridors in Queen Bldg. 'A', and in Guestroom bath in Crescent Bldg. ‘B’. No fluorescents in guest corridors or elsewhere.

		
	15.3
	Plumbing

		
	.1
	Complete the ongoing installation of new Guestroom toilets; ensure closed-front toilet seats.

		
	15.0
	Materials & Products / Signage

		
	16.1
	EXTERIOR SIGNAGE

		
	.1
	Provide one plaque mounted at the main entrance designating Hotel’s affiliation with The Autograph Collection. DM to provide number, size and location. The two sizes available are: 12 X 20 and 8 X 14. Both are 3⁄4" thick.

(i)    

EXHIBIT C

EEXHIBIT D
REPAIRS AND REPLACEMENT RESERVE

The Repairs and Replacement Reserve shall be based on a percentage of Gross Receipts as shown below:
	
		
	

Calendar Year
	% of Total Operating Revenue

	Prior to January 1, 2017
	2%

	

After January 1, 2017 but prior to January 1, 2018
	

3%

	

After January 1, 2018 but prior to January 1, 2019
	

4%

	

After January 1, 2019
	

5%

EXHIBIT D

EXHIBIT E
LEGAL DESCRIPTION
Real property in the City of New Orleans, County of Orleans, State of Louisiana, described as follows:
Parcel I
Two certain lots of ground, situated in the First District of the City of New Orleans, Orleans Parish, State of Louisiana, in Square No. 165, which is bounded by Camp, Magazine and Poydras Streets and Natchez Alley, designated as Lots Nos. "A" and "B" on a plan by J.A. Dutel, Jr. (J. Dutel, Jr.) on the 23rd day of February 1880, annexed to an act of J.A. Armstrong, late Notary, dated March 27, 1880. Which said lots adjoin each other and measure each, in American Measure, 26 feet front on Camp Street, by 85 feet 4 inches in depth, and are bounded in the rear by an alley opening into Natchez Street (or Natchez Alley) common to all the lots fronting thereon, which said property forms the corner of Camp Street and Natchez Alley.
According to a survey by F.C. Gandolfo, Jr., Surveyor, dated September 3, 1956, and the survey of Gilbert, Kelly & Couturie, Inc. dated December 20, 1993, this property is described as follows, to wit:
A certain piece or portion of ground, situated in the First Municipal District of the City of New Orleans, in Square 165, bounded by Camp, Natchez, Poydras and Magazine Streets. Said piece or portion of ground is composed of all of Lots A and B, forms the corner of Camp and Natchez Streets and measures 52 feet front on Camp Street, the same in width in the rear, by a depth between equal and parallel lines and front on Natchez Street of 85 feet 4 inches, no lines, and is bounded in the rear by an alley opening into Natchez Street common to all fronting thereon. Together with all of Dameron-Pierson Company, Limited's right, title and interest in and to the 5 foot alley bounding the above described property in the rear, as more fully shown on the aforesaid survey of F.C. Gandolfo, Jr., Surveyor, dated September 3, 1956.
Parcel II
That Portion of ground situated in the First District of the City of New Orleans, Orleans Parish, State of Louisiana, in Square 167, bounded by Camp, Gravier and Natchez Streets and Bank Alley, forming the corner of Camp Street, by 115 feet in depth between equal and parallel lines and front on Natchez Street, running to Bank Alley on which it has a front of 22 feet.
That portion of ground, situated in the First District of the City of New Orleans, Orleans Parish, State of Louisiana, in Square 167, bounded by Camp, Gravier, and Natchez Streets and Bank Alley or Place, designated by the Nos. 20 and 21. Lot 20 measures 21 feet 7 inches front on Camp Street, by 70 feet in depth between equal and parallel lines. Lot 21 measures 21 feet 7 inches front on Bank Alley or Place, a depth of 42 feet 11 inches on the side line, being one lot from the corner of Natchez Street.
And for greater certainty, said lots are situated in the square and district as above set forth and measure together 112 feet 9 inches 6 lines (115 feet by title) front on Natchez Street, 43 feet, 7 inches (the same by title) front on Picayune Street (formerly Bank Street), by a depth on the sideline toward Gravier Street running from Camp Street to Picayune Street of 113 feet 1 inch 6 lines (112 feet 9 inches by title), and is composed of Lots 20, 21, and 22, all in accordance with survey of Murphy Engineering, Inc., dated January 16, 1973.
Parcels I and II are also described as follows:
Lots A and B, Square 165, and Lots 20, 21 and 22, Square 167, in the First Municipal District of the City of New Orleans, Orleans Parish, State of Louisiana.

A certain piece or portion of ground, situated in the First Municipal District of the City of New Orleans, in Square 165, bounded by Camp, Natchez, Poydras and Magazine Streets. Said piece or portion of ground is composed of all of Lots A and B, forms the corner of Camp and Natchez Street and measures 52 feet front on Camp Street, the same in width in rear, by a depth between equal and parallel lines and front on Natchez Street of 85 feet 4 inches, no lines, and is bounded in the rear by an alley opening into Natchez common to all fronting thereon.
That portion of ground, situated in the First Municipal District of the City of New Orleans, in Square 167, bounded by Camp, Gravier, and Natchez Streets and Picayune Street (formerly Bank Street). Said piece or portion of ground is composed of Lots 20, 21, and 22, forms the corner of Camp and Natchez Streets, running to Picayune (formerly Bank Street), on which it has a front and forms the corner of Picayune and Natchez Streets. Said lots measure together 112 feet 9 inches 6 lines (115 feet by title) front on Natchez Street, 43 feet 7 inches (the same by title) front on Picayune Street (formerly Bank Street), by a depth on the sideline toward Gravier Street running from Camp Street to Picayune Street of 113 feet 1 inch 6 lines (112 feet 9 inches by title). All in accordance with the map and survey of BFM Corporation, R.P. Fontcuberta, Jr., Registered Professional Land Surveyor, dated June 12, 1998.
All as more fully shown on the plat of survey made by BFM Corporation, L.LC., Drawing No. B-4036-2005, Proj. No. 4170, dated May 19, 2005.
Parcel I is further described as follows:
A certain portion of ground, situated in the State of Louisiana, Parish of Orleans, First Municipal District, City of New Orleans, designated as Lots A and B, Square 165, bounded by Camp Street, Natchez Street, Poydras Street (Side), and Magazine Street (Side) and is more fully described as follows:
Begin at the intersection of the southerly right-of-way line of Camp Street and the westerly right-of-way line of Natchez Street;
Thence, along the aforesaid westerly right-of-way line, in a southerly direction a distance of 85.4.0 feet to a point;
Thence, turn an interior angle to the left of 89°56'47" in a westerly direction a distance of 52.0.0 feet to a point;
Thence, turn an interior angle to the left of 90°03'13" in a northerly direction a distance of 85.4.0 feet to a point;
Thence, turn an interior angle to the left of 89°56'47" in a easterly direction a distance of 52.0.0 feet to the Point of Beginning, said point forms an interior angle of 90°03'13".
All in accordance with a plan of survey by John S. Teegarden, Registered Professional Land Surveyor, dated May 19, 2005, revised June 10, 2005, revised June 13, 2005, Drawing No. F-5453-2005/Proj. No. 4710.
Parcel II is further described as follows:
A certain portion of ground, situated in the State of Louisiana, Parish of Orleans, First Municipal District, City of New Orleans, designated as Lots 20, 21 and 22, Square 167, bounded by Camp Street, Natchez Street, Gravier Street (Side), and Picayune Street and is more fully described as follows:
Begin at the intersection of the southerly right-of-way line of Camp Street and the easterly right-of-way line of Natchez Street;
Thence, along the aforesaid southerly right-of-way line, in an easterly direction a distance of 43.7.0 feet to a point;

Thence, turn an interior angle to the left of 90°00'27" in a southerly direction a distance of 113.1.6 (Actual), 112.9.0 (Title) feet to a point;
Thence, turn an interior angle to the left of 89°32'43" in a westerly direction a distance of 43.7.0 feet to a point;
Thence, turn an interior angle to the left of 90°27'19" in a northerly direction a distance of 112.9.6 (Actual), 115.0.0 (Title) feet to the Point of Beginning, said point forms an interior angle of 89°59'30".
All in accordance with a plan of survey by John S. Teegarden, Registered Professional Land Surveyor, dated May 19, 2005, revised June 10, 2005, revised June 13, 2005, Drawing No. F-5453-2005/Proj. No. 4710.

EXHIBIT E

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00254-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00254-of-00352.parquet"}]]