HOTEL MANAGEMENT AGREEMENT Between TRS AUS TECH, LLC and PILLAR HOTELS AND RESORTS, LLC Dated January 17, 2018





Page

ARTICLE 1  DEFINITIONS

Section 1.01.

Definitions

ARTICLE 2  TERM OF AGREEMENT

Section 2.01.

Operating Term

ARTICLE 3  OPERATION OF THE HOTEL

Section 3.01.

Representations by Lessee and Operator; Engagement of Operator

Section 3.02.

Standards of Operation

Section 3.03.

Limitations on Operator’s Authority

Section 3.04.

Reservations Services and Revenue Management

Section 3.05.

Marketing

Section 3.06.

Consultations Between Lessee and Operator

Section 3.07.

Transactions with Affiliates and Other Relationships

Section 3.08.

Regional Manager

Section 3.09.

Certain Expenses

ARTICLE 4  INDEPENDENT CONTRACTOR

Section 4.01.

Operator Status

Section 4.02.

Employees

Section 4.03.

Employee Expenses

Section 4.04.

Employee Benefit Plans

Section 4.05.

Execution of Agreements

ARTICLE 5  INDEMNIFICATION

Section 5.01.

Indemnification by Operator

Section 5.02.

Limitations on Indemnification

Section 5.03.

Indemnification by Lessee

Section 5.04.

Survival of Indemnity

ARTICLE 6  BUDGETS AND POLICY MEETINGS

Section 6.01.

Annual Plan

Section 6.02.

Budget Meetings

ARTICLE 7  OPERATING EXPENSES

Section 7.01.

Payment of Operating Expenses

Section 7.02.

Operating Expenses Not an Obligation of Operator

ARTICLE 8  BANK ACCOUNTS

Section 8.01.

Lessee Revenue

Section 8.02.

Operating Account

Section 8.03.

Ownership of Accounts

Section 8.04.

Exculpation of Operator

Section 8.05.

Reimbursement of Operator

Section 8.06.

Working Capital Funds

ARTICLE 9  BOOKS, RECORDS AND STATEMENTS

Section 9.01.

Books and Records

Section 9.02.

Statements

ARTICLE 10  OPERATOR’S FEE AND TRANSFERS TO LESSEE

Section 10.01.

Payment of Operator’s Fee

ARTICLE 11  REPAIRS AND MAINTENANCE, CAPITAL IMPROVEMENTS AND RESERVE FOR FF&E

Section 11.01.

Repair and Maintenance

Section 11.02.

Capital Improvements

Section 11.03.

Liens

Section 11.04.

Reserve for FF&E

ARTICLE 12 INSURANCE

Section 12.01.

General

Section 12.02.

Workers’ Compensation and Other Employment Insurance

Section 12.03.

Approval of Companies and Cost by Lessee

Section 12.04.

Maintenance of Coverages

Section 12.05.

Waiver of Subrogation

Section 12.06.

Blanket Coverage

Section 12.07.

Employment Practice Liability

Section 12.08.

Cyber/Network/Privacy Liability

Section 12.09.

Liquor Liability

Section 12.10.

Automobile Liability

Section 12.11.

General Liability

Section 12.12.

Property

Section 12.13.

Crime

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

Section 13.01.

Property Taxes

Section 13.02.

Lessee’s Right to Contest

ARTICLE 14  DAMAGE OR DESTRUCTION - CONDEMNATION

Section 14.01.

Damage

Section 14.02.

Condemnation

ARTICLE 15  USE OF NAME

ARTICLE 16  TERMINATION

Section 16.01.

Optional Termination

Section 16.02.

Sale of Hotel

Section 16.03.

Lessee Change of Control

Section 16.04.

Tax Law Change

Section 16.05.

Performance Standard

Section 16.06.

Operator Change of Control

Section 16.07.

Quality Assurance Reports

Section 16.08.

Satisfaction Scores

Section 16.09.

Reporting

Section 16.10.

Default or Termination of Concession and Lease Agreement

Section 16.11.

Termination Fees

Section 16.12.

Bookings Beyond Expiration of Term

ARTICLE 17  DEFAULT AND REMEDIES

Section 17.01.

Events of Default – Remedies

Section 17.02.

Rights Not Exclusive

Section 17.03.

Operator’s Rights to Perform

ARTICLE 18  NOTICES

Section 18.01.

Notices

ARTICLE 19  ASSIGNMENT

Section 19.01.

No Assignment by Operator

Section 19.02.

Assignment by Lessee

ARTICLE 20  SUBORDINATION

Section 20.01.

Subordination to Mortgage

Section 20.02.

Foreclosure

Section 20.03.

Estoppel Certificates

ARTICLE 21  MISCELLANEOUS

Section 21.01.

Further Documentation and Reporting Compliance

Section 21.02.

Captions

Section 21.03.

Successors and Assigns

Section 21.04.

Intentionally Deleted

Section 21.05.

Assumption of Post Termination Obligations

Section 21.06.

Entire Agreement

Section 21.07.

Governing Law

Section 21.08.

No Political Contributions

Section 21.09.

Eligible Independent Contractor

Section 21.10.

Time of the Essence

Section 21.11.

Offsets

Section 21.12.

Attorney’s Fees

Section 21.13.

Final Accounting

Section 21.14.

Franchisor Communications

Section 21.15.

Consent and Approval

Section 21.16.

Partial Invalidity

Section 21.17.

Disputes

Section 21.18.

Further Assurances

Section 21.19.

Waiver

Section 21.20.

Unavoidable Interruptions

Section 21.21.

Effect of Approval of Plans and Specifications

Section 21.22.

Prohibited Persons and Transactions

Section 21.23.

Confidentiality

Section 21.24.

No Third Party Rights

Section 21.25.

No Representations as to Income or Financial Success of Hotel

Section 21.26.

Dispute Resolution

Section 21.27.

Termination of the Franchise Agreement

ARTICLE 1

DEFINITIONS

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

(i)

Fiscal Year 1: Beginning January 1, 2018, Lessee shall pay to Operator an amount equal to one percent (1%) of Gross Hotel Income for such Fiscal Year if the Hotel achieves an IR of 8.7% to 9.199% for such Fiscal Year. Lessee shall pay to Operator an additional amount equal to one percent (1%) of Gross Hotel Income for such Fiscal Year if the Hotel achieves an IR of 9.2% or higher for such Fiscal Year.  

(ii)

Fiscal Year 2: Beginning January 1, 2019, Lessee shall pay to Operator an amount equal to one percent (1%) of Gross Hotel Income for such Fiscal Year if the Hotel achieves an IR of 10.4% to 10.899% for such Fiscal Year.  Lessee shall pay to Operator an additional amount equal to one percent (1%) of Gross Hotel Income for such Fiscal Year if the Hotel achieves an IR of 10.9% or higher for such Fiscal Year.

(iii)

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

a.

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

b.

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

c.

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

(i)

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

(ii)

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

(iii)

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

(iv)

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

(v)

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

(vi)

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

(vii)

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

(viii)

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

(ix)

All expenses for marketing and sales, including all expenses of advertising, sales promotion and public relations activities at the Hotel;

(x)

Municipal, county and state license and Permit fees;

(xi)

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

(xii)

Allocated Services;

(xiii)

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

(xiv)

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

(xv)

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

(xvi)

The costs of obtaining and keeping in force all licenses or Permits (including liquor licenses, if any) necessary for the operation of the Hotel and in complying with Legal Requirements;

(xvii)

All reasonable travel expenses of Operator’s corporate supervisory personnel, to include director of engineering, revenue manager and internal auditors (to the extent approved or requested by Lessee) for visits to the Hotel in the performance of their duties hereunder, but not including travel between Operator’s main office and Operator’s regional offices. Travel shall be limited to economy fares;

(xviii)

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

(xix)

The Management Fee;

(xx)

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

(xxi)

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

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

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

clause of, or exhibit attached to, this Agreement, unless specific reference is made to the articles, sections or other subdivisions of, or exhibits to, another document or instrument.

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

ARTICLE 2

TERM OF AGREEMENT

Section 2.01.

Operating Term.    

ARTICLE 3

OPERATION OF THE HOTEL

Section 3.01.

Representations by Lessee and Operator; Engagement of Operator.    

Section 3.02.

Standards of Operation.    

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

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

(c) Develop, revise, and implement all prudent policies and practices relating to all aspects of the Hotel, which shall be set forth in one or more policy manuals or other writings, and train and supervise all Hotel Employees for compliance with all such policies and practices,

including policies and practices relating to:  (i) terms and conditions of employment, applicant screening, background checks, selection, hiring, training, supervision, compensation, employee benefits, discipline, dismissal, transfer and replacement;  (ii) compliance with laws, including but not limited to anti-discrimination, sexual harassment and environmental laws; and (iii) safety procedures, including those relating to the handling of hazardous and other dangerous materials;

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

(i)

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

(ii)

Each bid will be solicited in a uniform format.

(iii)

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

(iv)

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

(v)

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

(vi)

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

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

(i)

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

(ii)

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

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

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

(h) Legal Proceedings of a “non-extraordinary nature” (hereafter defined), may be instituted by Operator, in accordance with guidelines and policies determined from time to time by Operator and Lessee, in the name of Operator or the Hotel or Lessee and by counsel designated by Operator pursuant to such guidelines and policies.  Legal Proceedings of an “extraordinary nature” (hereafter defined) shall require Lessee’s prior approval of the proceedings and counsel approved by Lessee.  Operator shall furnish Lessee with quarterly status reports with respect to all Legal Proceedings of an extraordinary nature.  In addition, Operator shall have the right to defend, through counsel designated by Operator, Legal Proceedings of a non-extraordinary nature against Lessee or Operator resulting from the operation of the Hotel.  The defense of Legal Proceedings against the Hotel of an extraordinary nature (including, without limitation, any aspect of any claims against Operator or Lessee arising out of the operation of the Hotel as to which the insurance company denies coverage) shall be coordinated with Lessee, designated counsel shall be subject

to Lessee’s reasonable approval and Operator shall furnish Lessee with quarterly status reports with respect to such actions.  All claims against Lessee and/or Operator arising out of the management or operation of the Hotel which (i) are not covered by insurance shall be promptly communicated to Lessee and (ii) are covered in whole or in part by insurance shall be promptly forwarded by Operator to the appropriate insurer (with a copy thereof to Lessee in the case of claims against Lessee).  Legal Proceedings of a “non-extraordinary nature” shall be proceedings in which the monetary exposure is less than $25,000 that are (i) initiated by Operator or Lessee relating to the operation of the Hotel for matters such as collections, maintenance of licenses and permits, enforcement of contracts and proceedings against Hotel tenants; and/or (ii) defense of actions against the Lessee or Operator resulting from the operation of the Hotel for matters such as guest claims for loss of property or injury to persons and claims relating to employment or the application for employment at the Hotel.  Legal Proceedings of an “extraordinary nature” shall mean all other Legal Proceedings;

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

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

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

(l) Pay all Operating Expenses;

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

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

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

approved budget process.  Notwithstanding anything to the contrary, the Hotel shall at all times comply with the Franchise Agreement and Manual;

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

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

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

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

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

Section 3.03.

Limitations on Operator’s Authority.    

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

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

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

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

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

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

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

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

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

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

(k) Other than as required and/or permitted by Section 3.02(d), (e) and/or (t), purchase goods, supplies and services from itself or any Affiliate of Operator, or enter into any other transaction with an Affiliate of Operator, unless (i) such purchase from or other transaction with Operator or any Affiliate of Operator is disclosed in the Approved Annual Plan or (ii) prior to the consummation of such transaction all of the prices and other terms thereof and the identity of the vendor and its relationship to Operator shall have been disclosed to and approved by Lessee, which may be withheld in Lessee’s reasonable discretion.  Except to the extent disclosed to Lessee in advance and approved by Lessee in its sole and absolute discretion, neither Operator nor any Affiliate of Operator shall charge or receive any ▇▇▇▇-up, profit or purchasing fee on the purchase by or for the Hotel of any goods, supplies or services.  Operator shall use commercially reasonable

efforts to ensure that the prices and terms of goods and services purchased under such contracts are competitive with the prices and terms of goods and services of equal quality available from others.  Operator shall use its commercially reasonable efforts to obtain the maximum available discounts and rebates on purchases and the most favorable terms available.  Any allowances, credits, rebates, discounts and the like received with respect to any such purchases shall be for the account of Lessee, and if received by Operator or any of its Affiliates, shall be turned over to Lessee;

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

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

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

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

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

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

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

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

Section 3.04.

Reservations Services and Revenue Management.    

Section 3.05.

Marketing.    

(a) Subject to the terms and conditions of this Agreement, including, without limitation, Lessee’s obligation to provide sufficient funds,  Operator shall maintain a sales staff dedicated to the Hotel to arrange, contract for and carry out such marketing, advertising, national trade show attendance, and promotion of the Hotel as Operator shall deem advisable and consistent with the Approved Annual Plan and in accordance with the Hotel Standards.  Operator will use commercially reasonable efforts to ensure that the Hotel shall receive an equitable share of the benefit of the cooperative advertising and promotion reasonably commensurate with its contribution to the costs thereof.  The costs thereof shall be equitably allocated by Operator between the Hotel and other participating hotels. Upon Lessee’s request, Operator shall provide reasonable documentation to support such allocations.  Operator shall provide Lessee with detailed monthly reports of its marketing, advertising and promotional activities through standard monthly reporting.  The Hotel shall be visited at least once every three (3) months by a member of Operator’s corporate sales leadership team, if set forth in the Approved Operating Budget, and Operator shall make a member of Operator’s corporate sales leadership team available to Lessee telephonically at least monthly to discuss the marketing aspects of the Hotel.

(b) Operator may, consistent with the Approved Marketing Plan, and otherwise with the consent of Lessee, cause the Hotel to participate in sales and promotional campaigns and activities involving complimentary rooms, food and beverages, consistent with customary practices in the travel industry.  Except as set forth in the Approved Annual Plan and subject to Section 3.07(c) of this Agreement,  Operator shall not provide rooms or Hotel facilities at no cash charge or at a discounted cash rate in trade for non-cash consideration or services without the consent of Lessee.

Section 3.06.

Consultations Between Lessee and Operator.    

Section 3.07.

Transactions with Affiliates and Other Relationships.    

(a) Except as otherwise permitted by Section 3.02(d) and (e) and subject to Section 3.03(k), Operator shall obtain the prior written consent of Lessee (which Lessee may withhold in Lessee’s reasonable discretion) prior to contracting with any Affiliate (or companies in which Operator has an ownership or other economic interest if such interest is not sufficient to make such a company an Affiliate) to provide goods and/or services to the Hotel.

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

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

Section 3.08.

Regional Manager.    

Section 3.09.

Certain Expenses.    

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

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

ARTICLE 4

INDEPENDENT CONTRACTOR

Section 4.01.

Operator Status.    

Section 4.02.

Employees.    

(a) Each Hotel Employee shall be the employee of Operator, or an Affiliate of Operator, and not of Lessee, and every person performing services in connection with this Agreement shall be acting as the employee of Operator (except for any independent contractors engaged by Operator, in accordance with this Agreement), but their salaries and other related expenses and employment arrangements shall be an Operating Expense and shall be accrued in accordance with generally accepted accounting principles.  The costs provided for in the immediately preceding sentence shall include, by way of example and not limitation, all reasonable costs and expenses (including, without limitation, all employment related expenses incurred by Operator with respect to the Hotel Employees), such as severance pay, unemployment compensation and health insurance and related costs (i.e., in order to comply with COBRA-type regulations) as a result of the termination of employees and which shall have been paid or accrued in accordance with generally accepted accounting principles.

(b) Operator shall provide evidence to Lessee of statutory Worker’s Compensation Insurance and Employer’s Liability Insurance for each such Hotel Employee. The insurance

coverages (including, without limitation, the carrier, policy limits of each and waiver of subrogation endorsements) must be in form, substance and amount satisfactory to Lessee in all respects. Upon request of Lessee, Operator will deliver to Lessee waiver of subrogation endorsements in favor of Lessee.

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

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

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

Section 4.03.

Employee Expenses.    

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

(b) Compensation, overhead costs and other expenses of Operator and its Affiliates not specifically provided for herein which are corporate expenses of Operator shall not be Operating Expenses and shall not be payable or reimbursable by Lessee; provided, however, Operator may include in the calculation of Operating Expenses the salary of any of Operator’s corporate employees which have been temporarily transferred to the Hotel to serve the Hotel exclusively; provided, however, Operator may only include in Operating Expenses that portion of the salary of taskforce Executive Personnel which does not exceed twenty percent (20%) of the salary of the applicable Executive Personnel being replaced. Operator may also include in the calculation of Operating Expenses reasonable travel costs associated with Operator’s corporate employees located at Operator’s corporate headquarters which have been temporarily transferred to the Hotel to serve the Hotel exclusively. Lessee shall have the right to approve temporary travel schedule.

Section 4.04.

Employee Benefit Plans.    

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

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

(i)

Withdrawal liability arising with respect to Hotel Employees shall be the responsibility of Lessee, and Lessee shall either pay the amount of such withdrawal liability directly to such plan or reimburse Operator for withdrawal liability payments made to such plan by Operator with respect to Hotel Employees (including withdrawal liability arising after the sale or other termination of this Agreement, provided that such liability arises as a result of such sale, disposition, termination or other similar event).  To the extent permitted under then applicable laws, regulations and agreements, Operator shall cooperate with Lessee in structuring transactions and transferring actual or contingent withdrawal liability to a successor in ownership or purchaser of the Hotel in accordance with “relief” provisions of ERISA, such as ERISA Section 4204 or then applicable statutory or regulatory provisions of a similar nature.

(ii)

For purpose of this subparagraph (b), the term “withdrawal liability” shall mean the actual amount assessed by and payable to a multi-employer pension fund upon a complete or partial withdrawal of the Hotel or Hotel Employees from such fund.  Operator shall cooperate with Lessee in challenging a plan's assessment of such liability, provided that all costs of litigation, arbitration or other procedures shall be paid by Lessee (including

any bonds that must be posted).  If Operator or its Affiliates have employees at other locations who participate in the same multi-employer plan as Hotel Employees, Lessee shall be charged with and be responsible only for multi-employer plan withdrawal liability arising solely with respect to the participation of Hotel Employees in such plan.

Section 4.05.

Execution of Agreements.    

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

(b) Subject to Lessee’s prior approval of the same and upon Lessee’s request, Operator shall execute, as agent for Lessee, (i) all leases, as sub-lessor, of any space at any Property, and (ii) equipment rental and/or lease agreements. Notwithstanding anything in this Section 4.05 to the contrary, Lessee reserves the right, exercisable at Lessee’s option, to execute any lease or other agreement relating to equipment and/or services being provided to the Hotel.

ARTICLE 5

INDEMNIFICATION

Section 5.01.

Indemnification by Operator.    

Section 5.02.

Limitations on Indemnification.    

Section 5.03.

Indemnification by Lessee.    

Section 5.04.

Survival of Indemnity.    

ARTICLE 6

BUDGETS AND POLICY MEETINGS

Section 6.01.

Annual Plan.    

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

(b) As part of the Proposed Annual Plan,  Operator shall provide to Lessee for Lessee’s review, a written schedule for the Hotel listing all executive and management employees to be employed "on-site" in the direct management of the Hotel including, but not limited to the positions of General Manager, Director of Sales, and Chief Engineer.  These schedules shall include such employee's title, job description, and the salary range including additional compensation or prerequisites such as lodging, meals, maintenance, moving expenses, bonus/incentive compensation and the like.  In the event that any employee's services are shared with (or subsidized through a sharing arrangement with) another hotel, the employee shall be identified together with

a description of his/her responsibilities and the amount and source of any subsidy, together with a breakdown of the relative time expended with respect to the Hotel and each other hotel.  If Lessee notifies Operator that Lessee does not believe that some or all the scheduled wages and salaries are reasonable and customary as required above, then Operator shall promptly provide to Lessee a wage and salary survey that supports the scheduled wages and salaries.  No proposed amendment including changes in salary or other compensation shall be effective unless the salary or other compensation as changed is reasonable and customary.

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

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

(e) The Proposed Operating Budget and the Proposed Capital Budget shall provide for operating, equipping and maintaining the Hotel in accordance with the Hotel Standards. Contemporaneously with the submission of the Proposed Capital Budget, Operator shall submit to Lessee monthly budgeted occupancy, average daily rate and RevPAR statistics for the Hotel. The Proposed Operating Budget and the monthly budgeted hotel operating statistics shall contain Operator’s reasonable good faith estimates of the amounts set forth therein. Operator shall provide Lessee, upon request, all details, information and assumptions used in preparing the Proposed Capital Budget and the Proposed Operating Budget.  Lessee shall be responsible for implementing the Approved Capital Budget and may, in Lessee’s sole discretion, increase, decrease, delete or modify in any respect any capital expenditure in the Approved Capital Budget.

(f) The Proposed Marketing Plan shall contain advertising, sales and promotional plans prepared by Operator to be used in connection with the marketing of the Hotel.  When

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

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

(h) Upon approval by Lessee of a Proposed Annual Plan, Operator shall use its good faith efforts to manage, operate and maintain the Hotel for the subsequent Fiscal Year in accordance with the Approved Annual Plan; provided, however, that Operator will not be deemed to be in default of its obligations under this Agreement to operate the Hotel (including without limitation, incurring expenses) in compliance with the Approved Annual Plan or Approved Operating Budget, in the event that Operator incurs and pays expenses (1) in a Major Account Category which do not cause the aggregate expenditures for such Major Account Category to exceed the budgeted amount by more than 10% for a given Fiscal Year, or together with all other expenses do not cause the aggregate expenditures for all items to exceed the Approved Operating Budget by more than 5% for a given Fiscal Year; (2) that are necessary for the continued operation of the Hotel and are not within the reasonable control of Operator (including, but not limited to, those for insurance, taxes, utility charges, fees and reimbursements due under the franchise agreement, and compliance with applicable laws and regulations), (3) that are immediately necessary on an emergency basis to protect the physical integrity or lawful operation of the Hotel or the health or safety of its occupants, and/or (4) that are commercially desirable to be incurred in order to obtain unbudgeted Hotel revenue in the ordinary course of operating the Hotel in accordance with the then current Approved Annual Plan, provided that such unbudgeted revenue is sufficient in Operator’s good faith and professional judgment to offset such expenses.  Regardless of the foregoing provisions relating to certain expenditures beyond the Approved Annual Plan, Operator shall provide prompt notice to Lessee of such excess expenditures and Operator will provide explanations for all significant variances and programs put in place to correct or improve budget deviations.  Wherever phrases in this Agreement such as “in accordance with the Approved Annual Plan or the Approved Operating Budget”, “in the Approved Operating Budget”, “in the then-current Approved Annual Plan”, or similar phrases are used or referred to in this Agreement, the variance provisions set forth in this Section 6.01(h)  shall be applied and deemed to be included in such use or reference and Operator will not be in default of its obligations set forth in this Agreement with respect to Operator incurring and paying expenses that are included in such variances.

Section 6.02.

Budget Meetings.    

ARTICLE 7

OPERATING EXPENSES

Section 7.01.

Payment of Operating Expenses.    

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

(b) Subject to Article 5, all third party Operating Expenses incurred by Operator in performing its authorized duties shall be reimbursed or borne by Lessee; provided that such Operating Expenses are incurred pursuant to and within the limits set forth in an Approved Annual Plan or otherwise pursuant to the terms of this Agreement.

Section 7.02.

Operating Expenses Not an Obligation of Operator.    

ARTICLE 8

BANK ACCOUNTS

Section 8.01.

Lessee Revenue.

Section 8.02.

Operating Account.    

Section 8.03.

Ownership of Accounts.    

Section 8.04.

Exculpation of Operator.    

Section 8.05.

Reimbursement of Operator.    

Section 8.06.

Working Capital Funds.    

ARTICLE 9

BOOKS, RECORDS AND STATEMENTS

Section 9.01.

Books and Records.    

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

(b) Except for the books and records which may be kept in Operator’s home office or other location approved by Lessee the books of account and all other records relating to or reflecting the operation of the Hotel shall be kept at the Hotel. All such books and records pertaining to the Hotel, including, without limitation, books of account, guest records and front office records, at all times shall be the property of Lessee and, except for books of account,

accounts payable invoices, night audit packages, deposit records and similar documents which may be sent to Operator’s accounting department shall not be removed from the Hotel by Operator without Lessee’s written approval and consent. All books and records pertaining to the Hotel and of Operator (including all budgetary records of Operator), wherever kept, shall be available to Lessee and its representatives at all reasonable times for examination, audit, inspection, transcription and copying. Operator shall not remove, destroy or delete any books and records of the Hotel without the prior written consent of Lessee. Upon any termination of this Agreement, all of such books and records pertaining to the Hotel forthwith shall be turned over to Lessee so as to ensure the orderly continuance of the operation of the Hotel, but such books and records shall be available to Lessee for a period of five (5) years at all reasonable times for inspection, audit, examination, and transcription of particulars relating to the period in which Operator managed the Hotel.  This provision shall survive a termination of this Agreement.

Section 9.02.

Statements.    

(a) Operator shall deliver to Lessee by the ninth  (9th)  day following the last day of each Accounting Period, a monthly report of the state of the business and affairs of the operation of the Hotel for the immediately preceding month and for the Fiscal Year to date and within nine (9)  business days after the end of each quarter, a quarterly report with respect to the preceding quarter. Such reports shall include at least (i) a balance sheet account reconciliation including all intercompany accounts, (ii) a profit and loss statement, comparing current month and Fiscal Year-to-date profit, loss, and operating expenses to the Approved Operating Budget and the prior Fiscal Year and comparing current month, quarter and Fiscal Year-to-date average daily rate, occupancy and RevPAR to the Approved Operating Budget and the prior Fiscal Year, (iii) a statement which details the computation of all fees payable to Operator for the month and quarter, (iv) the balance of all bank accounts, and (v) an adjusting statement showing the actual cash position of the Hotel for the month, quarter and Fiscal Year-to-date. Additionally, Operator shall deliver to Lessee nine (9)  business days following the end of each Accounting Period and nine (9)  business days following the end of each calendar quarter a written narrative discussing any of the aforementioned reports and year-to-date variances from the Approved Operating Budget, without thereby implying Lessee’s approval of such variance.  Further, Operator shall provide to Lessee within nine (9)  business days following the close of each Accounting Period a report prepared in accordance with the example set forth in Exhibit A-4 attached hereto and made a part hereof.

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

(c) Within sixty (60) days after the end of each Fiscal Year, Operator shall deliver to Lessee reviewed financial statements for Operator, and, if requested by Lessee, within thirty (30) days after the end of each quarter of each Fiscal Year, Operator shall deliver to Lessee unaudited financial statements for Operator.  Further, within sixty (60) days after (i) the end of each Fiscal Year and (ii) the end of the Term of this Agreement, Operator shall deliver to Lessee an annual accounting, showing the results of operation of the Hotel during the Fiscal Year and a computation of Gross Hotel Income, Operating Expenses, and EBITDA, if any, and any other information necessary to make the computations reasonably required by Lessee, all for such Fiscal Year.  The

annual accounting for any Fiscal Year shall be controlling over the interim accountings for such Fiscal Year.  Lessee shall have the right to conduct an audit of the books.

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

(e) By June, 2018, Operator agrees to annually have accounting and operations practices reviewed by a certified person or entity in order to provide Lessee with verification of a Type 2, SOC 1 Report, Report on Controls at a Service Organization Relevant to User Entities’ Internal Control over Financial Reporting.  This report is to be prepared under Statement on Standards for Attest Engagements 18 (SSAE 18) as promulgated by the AICPA.  If the standards of the AICPA change, the operator agrees to comply with revisions of these standards.

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

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

ARTICLE 10

OPERATOR’S FEE AND TRANSFERS TO LESSEE

Section 10.01.

Payment of Operator’s Fee.    

ARTICLE 11

REPAIRS AND MAINTENANCE, CAPITAL IMPROVEMENTS
AND RESERVE FOR FF&E

Section 11.01.

Repair and Maintenance.    

Section 11.02.

Capital Improvements.    

Section 11.03.

Liens.    

Section 11.04.

Reserve for FF&E.    

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

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

ARTICLE 12

INSURANCE

Section 12.01.

General.    

Section 12.02.

Workers’ Compensation and Other Employment Insurance.    

Section 12.03.

Approval of Companies and Cost by Lessee.    

Section 12.04.

Maintenance of Coverages.    

Section 12.05.

Waiver of Subrogation.    

Section 12.06.

Blanket Coverage.    

Section 12.07.

Employment Practice Liability.    

Section 12.08.

Cyber/Network/Privacy Liability.    

Section 12.09.

Liquor Liability.    

Section 12.10.

Automobile Liability.    

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

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

Section 12.11.

General Liability.    

Section 12.12.

Property.    

Section 12.13.

Crime.    

ARTICLE 13

PROPERTY TAXES, LOCAL TAXES, LEVIES AND OTHER ASSESSMENTS

Section 13.01.

Property Taxes.    

Section 13.02.

Lessee’s Right to Contest.    

ARTICLE 14

DAMAGE OR DESTRUCTION - CONDEMNATION

Section 14.01.

Damage.

Section 14.02.

Condemnation.    

ARTICLE 15

USE OF NAME

ARTICLE 16

TERMINATION

Section 16.01.

Optional Termination.    

Section 16.02.

Sale of Hotel.    

Section 16.03.

Lessee Change of Control.    

(i)

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

(ii)

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

(iii)

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

(iv)

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

Section 16.04.

Tax Law Change.    

Section 16.05.

Performance Standard.    

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

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

Section 16.06.

Operator Change of Control.    

Section 16.07.

Quality Assurance Reports.    

Section 16.08.

Satisfaction Scores.    

Section 16.09.

Reporting.    

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

(b) Operator shall deliver to Lessee any and all of Lessee’s properties and assets within the possession of Operator, including keys, locks and safe combinations, files, correspondence, information regarding group bookings, reservation lists, ledgers, bank statements for the Operating Account, accounting books and records, all electronic data maintained by Operator relating to the

Hotel (which data shall be delivered on computer disc in a format that is accessible and readable by Lessee’s then current computer systems), insurance policies, bonds and other documents, agreements, leases, licenses, records and plans (including, without limitation, the as-built or record set plans) relating to the operation of the Hotel, provided that Operator may retain possession of copies of any of the foregoing; Operator shall keep confidential all information concerning the Hotel obtained by Operator or in Operator's possession, and not use any of it for its own account, for the account of others or in any other manner that would directly or indirectly compete with the Hotel;

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

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

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

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

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

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

Section 16.10.

Default or Termination of Concession and Lease Agreement.    

Section 16.11.

Termination Fees.    

Section 16.12.

Bookings Beyond Expiration of Term.    

ARTICLE 17

DEFAULT AND REMEDIES

Section 17.01.

Events of Default – Remedies.    

(a) The following shall constitute Events of Default:

(b) Upon the occurrence of any Event of Default, the non-defaulting party shall give to the defaulting party notice of its intention to terminate this Agreement after the expiration of a period of ten (10) days from such date of notice and, upon the expiration of such period, this Agreement shall terminate and expire.  In the event such default is not cured, the non-defaulting party may terminate the Agreement without payment of any penalty or termination fees.

Section 17.02.

Rights Not Exclusive.