HOTEL MANAGEMENT AGREEMENT Between TRS JAX COURT, LLC and PEACHTREE HOSPITALITY MANAGEMENT, LLC Dated October 1, 2015

Section 1.01.  

Definitions.»

(a)  

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

(i)  

Fiscal Year 1: Beginning January 1, 2016, Lessee shall pay to Operator an amount equal to 1% of Gross Hotel Income for such Fiscal Year if the Hotel achieves an IR of 8% to 8.499% for such Fiscal Year. Lessee shall pay to Operator an additional amount equal to 1% of Gross Hotel Income for such Fiscal Year if the Hotel achieves an IR of 8.5% or higher for such Fiscal Year.

(ii)  

Fiscal Year 2: Beginning January 1, 2017, Lessee shall pay to Operator an amount equal to 1% of Gross Hotel Income for such Fiscal Year if the Hotel achieves an IR of 8.5% to 8.99% for such Fiscal Year.  Lessee shall pay to Operator an additional amount equal to 1% of Gross Hotel Income for such Fiscal Year if the Hotel achieves an IR of 9% or higher for such Fiscal Year.

(iii)  

Year 3: Beginning January 1, 2018 and continuing until the termination of this Agreement, Lessee shall pay to Operator the following amounts, up to a maximum payout of 2% of Gross Hotel Income:

(a)  

0.5% of Gross Hotel Income if the Portfolio achieves budgeted NOI.

(b)  

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

(c)  

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

(i)  

The cost of all food and beverages sold or consumed and of all Hotel Operating Equipment and Hotel Operating Supplies;

(ii)  

Salaries and wages of on-site Hotel personnel, including costs of payroll taxes and employee benefits and amounts payable under bonus plans approved by Lessee. The salaries or wages of other employees or executives of Operator, or any Affiliate of Operator shall in no event be Operating Expenses;

(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 claim, 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 and real estate tax abatement and appeal services excluding legal fees with respect to employee claims;

(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, exclusive of Operator’s marketing manager and similar administrative personnel (which expenses shall be borne by Operator);

(x)  

Municipal, county and state license and permit fees;

(xi)  

All normal and recurring fees, assessments and charges due and payable under Franchisor Agreements;

(xii)  

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

(xiii)  

The cost of un-collectible accounts receivable as reasonably determined by Operator pursuant to its standard policies consistently applied;

(xiv)  

All parking charges 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 governmental laws, rules, regulations, ordinances, orders and requirements;

(xvii)  

All reasonable travel expenses of Operator’s supervisory personnel (to the extent set forth in an Approved Budget, requested by Lessee, or otherwise approved 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;

(xviii)  

The costs to send above property supervisory personnel to brand conferences, which costs shall be reimbursed in proportion to the number of Lessee’s hotels associated with the brand conference out of Operator’s total portfolio of hotels managed associated with the specific brand conference, provided that the percentage of reimbursable costs shall be pre-approved by Lessee prior to the date of the conference;

(xix)  

Other potential operating expenses which are budgeted for and approved by Lessee provided they are disclosed in advance to Lessee’s designated representative;

(xx)  

Operator’s Fee, the Accounting Fee and the Revenue Management Fee; and

(xxi)  

The Hotel’s portion of the cost of Group Services so long as (i) the cost of the Group Services are without mark-up and are allocated in good faith on a consistent, fair and equitable basis among the Hotel and other Operator-managed hotels; and (ii) the cost of the Group Services are either (a) itemized by Operator in each Approved Budget and identified as an affiliated-party transaction or (b) otherwise approved in writing by Lessee.

(i)  

Fiscal Year 1: From January 1, 2016, through December 31, 2016, the average monthly Operator’s Fee over the trailing twelve (12) months prior to the relevant termination (which may include monthly Operator’s fees calculated on Gross Hotel Income for the Hotel for periods prior to the Commencement Date), multiplied by six (6).

(ii)  

Fiscal Year 2: From January 1, 2017 through December 31, 2017, the average monthly Operator’s Fee over the trailing twelve (12) months prior to the relevant termination, multiplied by five (5).

(iii)  

Fiscal Year 3: From January 1, 2018 and continuing until the termination of this Agreement, the average monthly Operator’s Fee over the trailing twelve (12) months prior to the relevant termination, multiplied by three (3).

Section 2.01.  

Term.»

Section 3.01.  

Representations by Operator; Engagement of Operator.»

Section 3.02.  

Standards of Operation.»

Section 3.03.  

Reservations Services and Revenue Management.»

Section 3.04.  

Marketing.»

(a)  

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 Budget and in accordance with the Hotel Standards.  Operator will make every effort 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, subject to Lessee’s prior written approval.  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.  The Hotel shall be visited at least once every six (6) months by a member of Operator’s sales leadership team.

(b)  

Operator may, consistent with the Approved Budget, 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. 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 3.05.  

Consultations Between Lessee and Operator.»

Section 3.06.  

Transactions with Affiliates and Other Relationships.»

(a)  

Operator shall obtain the prior written consent of Lessee (which Lessee may withhold in Lessee’s sole and absolute discretion) prior to contracting with any Affiliate (or companies in which Operator has an ownership or other economic interest if such interest is not sufficient to make such a company an Affiliate) to provide goods and/or services to the Hotel.

(b)  

Prior to entering into any contract, agreement or arrangement 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 will accrue to the benefit of Lessee and will be applied against Operating Expenses.

Section 3.07.  

Regional Manager.»

Section 3.08.  

Certain Expenses.»

(a)  

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

(b)  

Travel expenses described in (xvi) of “Operating Expenses” above.

Section 4.01.  

Operator Status.»

Section 4.02.  

Employees.»

(a)  

Each Hotel employee shall be the employee of Operator, or an affiliate company of Operator, and not of Lessee, and every person performing services in connection with this Agreement shall be acting as the employee of Operator, but their salaries and other related expenses shall be an Operating Expense.

(b)  

Operator shall provide evidence to Lessee of statutory Worker’s Compensation Insurance and Employer’s Liability Insurance for each such 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 reasonably satisfactory to Lessee in all respects. Upon request of Lessee, Operator will deliver to Lessee waiver of subrogation endorsements in favor of Lessee and Owner.

(c)  

The hiring policies and the discharge of employees at the Hotel shall in all respects comply with all Applicable Requirements, and Operator shall comply with all laws, regulations and ordinances regarding the employment and payment of persons engaged in the operation of each Hotel.

(d)  

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

Section 4.03.  

Employee Expenses.»

(a)  

All costs of every nature pertaining to all employees at the Hotel, including, without limitation, salaries, benefits, EPLI coverage, the terms of any bonus plan or arrangement, costs incurred in connection with governmental laws and regulations and insurance rules, shall be set forth in the Approved Budget as an Operating Expense.

(b)  

Compensation, overhead costs and other expenses of Operator and its Affiliates not specifically provided for herein 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 employees located at the Operator’s corporate headquarters which have been temporarily transferred to a Hotel to serve that Hotel exclusively; provided, further, that Operator may only include in Operating Expenses that portion of such corporate employee’s salary which does not exceed the salary level of the vacant position being filled at the Hotel. Operator may also include in the calculation of Operating Expenses reasonable travel costs associated with Operator’s employees located at the Operator’s corporate headquarters which have been temporarily transferred to a Hotel to serve that Hotel exclusively. Lessee shall have the right to approve temporary travel schedule.

Section 4.04.  

Employee Benefit Plans.»

Section 4.05.  

Execution of Agreements.»

(a)  

Except as provided in Section 4.05(b), Operator shall execute as agent of Lessee leases and other agreements relating to equipment and/or services provided to each 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, unless permitted in the Approved Budget or otherwise permitted by this Agreement, 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 Budget, (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 Budget, (iv) to lease any part of any Property, (v) relating to alterations to the exterior, interior or structural design of the Hotel, unless otherwise required by the Franchisor, (vi) which requires an unbudgeted payment of more than $5,000, or (vii) which is not cancelable by Lessee upon 30 days’ notice or less unless the term of said agreement is one year or less, or (viii) which provides for any automatic renewal terms greater than thirty (30) days.  Unless permitted in the Approved Budget or otherwise permitted by this Agreement, without the prior written approval of Lessee, Operator shall not enter into any contracts for multiple rooms and / or multiple days that (i) exceed a 1-year term and/or (ii) exceed 30% of the Hotel’s room inventory for a period of 14 days or more, or (iii) exceed 50 room nights and have a negotiated net rate of $55 or less, including promoting such rates online, 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) business days of receipt of such notice.  Lessee’s failure to timely respond to said request shall be deemed approval.

(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 the Property, and (ii) equipment rental and/or lease agreements which cannot be terminated upon thirty (30) days’ notice or less without the payment of a penalty or fee. Operator shall exercise commercially reasonable efforts to obtain in each equipment agreement a right on the part of the lessee of such equipment to terminate the same on thirty (30) days’ notice or less without the payment of a penalty fee. 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.

Section 5.01.  

Indemnification by Operator.»

Section 5.02.  

Limitations on Indemnification.»

Section 5.03.  

Indemnification by Lessee.»

Section 5.04.  

Survival of Indemnity.»

Section 6.01.  

Budgets.»

(a)  

No later than November 1 of each year, Operator will prepare and submit (following discussions with Lessee) to Lessee an annual capital budget for each Fiscal Year for each Hotel (the “Hotel 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.  The Hotel 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 Hotel Capital Budget will be subject to the approval of Lessee and Owner, in their sole and absolute discretion.  No later than November 15 of each year, Operator shall prepare and submit (following discussions with Lessee) to Lessee an annual operating budget for the operation of each Hotel for the forthcoming Fiscal Year containing detailed projections of Gross Hotel Income and budgets of Operating Expenses (the “Hotel 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 Hotel Operating Budget.  The Hotel Operating Budget shall be month-to-month as well as annual and shall be in the form designated by Lessee, and approved by Operator, which approval of the form shall not be unreasonably withheld.  The Hotel Operating Budget and the Hotel Capital Budget shall provide for operating, equipping and maintaining the Hotel in accordance with the Hotel Standards. Contemporaneously with the submission of the Hotel Capital Budget, Operator shall submit to Lessee monthly budgeted occupancy, average daily rate and RevPAR statistics for each hotel. The Hotel 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 Hotel Capital Budget and the Hotel Operating Budget.  Lessee and Owner shall be responsible for implementing the Hotel Capital Budget and may, in their sole discretion, increase, decrease, delete or modify in any respect any capital expenditure in any Hotel Capital Budget, subject to the requirements of any Holder and Frachisor.

(b)  

Operator shall review the Hotel Capital Budget and the Hotel Operating Budget with Lessee, and upon Lessee’s written approval of the Budget, it shall constitute the Approved Budget for the succeeding Fiscal Year and shall be implemented by Operator.  The Approved Budget for the Hotel shall be prepared in both dollar amounts and percentages.  In the event Lessee does not provide Operator with written objections to the Hotel Capital Budget and Hotel Operating Budget within 30 days following Lessee’s receipt of the same, they shall be deemed approved.  If Lessee objects to any portion of the Hotel Capital Budget or the Hotel Operating Budget within 30 days after receipt of the same, or to any portion of the revisions within 20 days after submission of the revisions by Operator to Lessee, the parties hereto will call a special budget meeting to resolve the points of disagreement.  In the event that Lessee and Operator are unable to agree on the Hotel Operating Budget for a Hotel prior to the commencement of the applicable Fiscal Year, an interim operating budget shall be implemented which will reflect CPI increases for expenses and RevPAR increases based on the appropriate previous 12-month RevPAR growth percentage for the sector in which the Hotel is included, as published by Smith Travel Research, for revenue growth over the prior year’s actual amounts.

Section 6.02.  

Budget Meetings.»

Section 7.01.  

Payment of Operating Expenses.»

(a)  

In performing its authorized duties hereunder, 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 V, all reasonable 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 Budget or otherwise pursuant to the terms of this Agreement.

(c)  

Lessee acknowledges that the Approved Budget is a reasonable estimate only and that any projections set forth in the Approved Budget are subject to and may be affected by changes in financial, economic and other conditions and circumstances beyond Operator’s reasonable control, and that such projections are not to be construed as a guaranty by Operator of the actual results of operations to be obtained.  Accordingly, in no event shall failure to meet or exceed the Approved Budget constitute an Event of Default by Operator as long as Operator uses commercially reasonable efforts to meet the revenue and expense projections set forth in the Approved Budget.

(d)  

Except as otherwise expressly provided in this Agreement, Operator shall not vary from the Approved Budget, or make any expenditure or incur any expense not provided for therein or in excess of the line item in the Approved Budget therefor, without Lessee’s prior approval, which may be given or withheld in Lessee’s sole and absolute discretion; provided, however, Operator and Lessee agree that the following variations are acceptable and approved by Lessee:

(i)  

Lessee acknowledges that certain expenses provided for in an Approved Budget will vary based on the occupancy of the Hotel; and, accordingly, to the extent that occupancy of the Hotel exceeds the occupancy or use, as applicable, projected in an Approved Budget, such Approved Budget shall be deemed to include corresponding increases in such variable expenses and in revenues from the Hotel, and to the extent that occupancy of the Hotel is less than the occupancy or use, as applicable, projected in an Approved Budget, such Approved Budget shall be deemed to include corresponding decreases in such variable expenses and in revenues from the Hotel, and Operator shall use commercially reasonable efforts to implement reasonable changes in operations to compensate for variations in occupancy in an effort to achieve the projected operating results shown in the applicable Approved Budget and in accordance with the Hotel Standards;

(ii)  

Operator may, without securing Lessee’s prior written consent, incur costs or expenses in excess of the corresponding amounts in the Approved Budget by ten percent (10%) or less for any one line item and by five percent (5%) or less in the aggregate to the extent Operator reasonably determines that it is necessary to do so to comply with the Hotel Standards or the Applicable Requirements, and Operator shall promptly notify Lessee in writing if any such expenses exceed or are reasonably anticipated to exceed the corresponding amount in the Approved Budget;

(iii)  

The amount of certain expenses (“Uncontrollable Expenses”) including real estate taxes, utilities, license and permit fees, and accrued and/or earned vacation, may not be within the ability of Operator to control. Operator shall have the right to pay all Uncontrollable Expenses without reference to the amounts provided for in respect thereof in an Approved Budget; provided, however, Operator shall use commercially reasonable efforts to compensate for increases in Uncontrollable Expenses in an effort to achieve the projected operating results shown in the applicable Approved Budget and in accordance with the Hotel Standards;

(iv)  

If any expenditures are required to comply with Applicable Requirements, or to cure or prevent any violation thereof, subject to Lessee’s right to direct Operator to contest such Applicable Requirements (which direction Operator shall follow, and if the same results in a dispute, then Operator shall follow Lessee’s directions pending the resolution of the dispute in accordance with this Agreement), Operator may make such expenditures, as may be necessary to comply with such Applicable Requirements or to remove or prevent the violation thereof even if the amounts of such expenditures are not provided for or within the amounts provided for in the Approved Budget for the Fiscal Year in question; and

(v)  

If any expenditures are required due to a fire, any other casualty, or any other events, circumstances or conditions (including, without limitation, those involving hazardous materials) as to which Operator in its reasonable judgment must take immediate action to prevent the physical injury or death of any of the Hotel’s guests or Hotel’s employees, or to prevent material property damage or material loss to the Hotel or to prevent a material violation of any Legal Requirements, to the extent such action, by its nature, in Operator’s reasonable judgment, must be taken prior to contacting Lessee for approval or direction or which action is taken after Operator is unable to contact Lessee for approval or direction, whether by telephone, email, facsimile or otherwise, after making reasonable efforts under the circumstances to contact Lessee, provided that Operator shall notify Lessee of any such expenditure within seventy-two (72) hours thereof.

Section 7.02.  

Operating Expenses Not an Obligation of Operator.»

Section 8.01.  

Lessee Revenue Account.»

Section 8.02.  

Bank Accounts.»

(a)  

Operator shall have the responsibility for payment of all Operating Expenses (which may include Operator’s Fee and the monthly accruals of the Hotel along with bank fees and analysis charges such as fees for checks cashed, positive pay (with reconciliation), and incoming federal wire transfer charges) with funds provided by Lessee upon submission of Operator’s request therefor with such backup documentation reasonably requested by Lessee. Lessee funds shall not be commingled with Operator’s funds and Operator shall provide to Lessee monthly a detailed accounting of all Hotel Operating Account receipts and disbursements. Operator shall comply with Lessee’s or Owner’s or their lenders’ requirements with respect to lock-box accounts provided that Lessee shall be responsible for any incremental out-of-pocket costs of Operator resulting from any such lock-box arrangement (which shall not be an Operating Expense).

(b)  

Operator may establish one or more separate bank accounts for handling payroll costs. Such accounts shall be in a bank selected by Lessee, and shall be handled exclusively by the individuals designated by Operator and approved in writing by Lessee. Funds shall be deposited in the payroll account or accounts by the Lessee, as needed, in order to meet payroll requirements; provided, however, all expenditures from such accounts shall be subject to and in accordance with the terms of this Agreement.

Section 8.03.  

Authorized Signatures.»

Section 9.01.  

Books and Records.»

(a)  

Operator shall keep reasonably full and adequate books of account and other records reflecting the results of operation of the Hotel on an accrual basis, all in accordance with GAAP.

(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 upon not less than forty-eight (48) hours’ prior notice, 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 physical books and records as maintained by Operator pertaining to the Hotel shall be promptly delivered to Lessee upon request. Additionally, electronic records previously maintained by Operator 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.

Section 9.02.  

Statements.»

(a)  

Operator shall deliver to Lessee by the eighth (8th) business day following the last day of each month, for each Hotel, 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 eight (8) 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 Budget and the prior year and comparing current month, quarter and Fiscal Year-to-date average daily rate, occupancy and RevPAR to the Approved Budget and the prior 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 fifteen (15) business days following the end of each month and fifteen (15) business days following the end of each quarter a written narrative discussing any of the aforementioned reports and year-to-date variances from the Approved Budget, without thereby implying Lessee’s approval of such variance.

(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. Any disputes as to the contents of any financial statement or any accounting matter hereunder shall be determined by an Expert pursuant to Exhibit D.

(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.

(d)  

In addition, Operator shall timely deliver to Lessee a copy of (i) a monthly STAR report from Smith Travel Research for each Hotel, where available (which Operator hereby agrees to order with respect to each 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)  

Operator shall ensure that any accounting software and payroll processor used by Operator is compatible with, and will provide information useable by (which compatibility and usability will be determined by Lessee in their sole and absolute discretion), the accounting software and payroll processor specified in Exhibit C. Additionally, Operator shall reasonably cooperate and assist Lessee as may be necessary, for a period up to five (5) years following the expiration or termination, to allow Lessee or successor operator access to Operator’s accounting systems as they relate to the Hotel for accounting or audit purposes.

Section 12.01.  

General.»

Section 12.02.  

Workers’ Compensation and Other Employment Insurance.»

Section 12.03.  

Approval of Companies and Cost by Owner and Lessee.»

Section 12.04.  

Maintenance of Coverages.»

Section 12.05.  

Waiver of Subrogation.»

Section 12.06.  

Blanket Coverage.»

Section 12.07.  

Employment Practice Liability.

Cyber/Network/Privacy Liability.

Section 12.09.  

Liquor Liability.

Section 12.10.  

Automobile Liability.

(a)  

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

Section 1.01.  

Section 12.11.  

General Liability.

Section 12.12.  

Property.

Section 12.13.  

Crime.

Section 13.01.  

Property Taxes.»

Section 13.02.  

Lessee’s Right to Contest.»

Section 14.01.  

Damage.»

(a)  

If at any time during the Operating Term the Hotel or any portion thereof should be damaged or destroyed, Owner and Lessee shall have the respective rights and obligations set forth in the Lease with respect to damage or destruction.  In the event that, pursuant thereto, the Hotel will not be repaired, rebuilt or replaced, Owner shall promptly notify Operator thereof, and thereafter Lessee may terminate this Agreement by written notice to Operator, effective as of the date sent, and upon such termination, Lessee shall have no obligation to pay to Operator any Termination Fee.

(b)  

In the event that Owner and/or Lessee is required or elects to repair or restore the Hotel, and thereafter fails to timely (subject to delays caused by Operator, including delays in adjusting the insurance claim with the carriers which participate in Operator’s blanket insurance program) commence and thereafter pursue the completion of the repair and restoration of the Hotel in accordance with any Mortgage, Operator may, at its option, elect to terminate this Agreement, by written notice to Lessee, effective as of the date sent, and upon such termination, Lessee shall have no obligation to pay to Operator any Termination Fee.

Section 14.02.  

Condemnation.»

Section 16.01.  

Lessee’s Right to Terminate.»

Section 16.02.  

Sale of Hotel.

Section 16.03.  

Performance Failure.

(a)  

If (i) the Hotel fails to achieve on a trailing twelve (12) month basis (1) actual NOI of at least 90% of the budgeted NOI for the Hotel and (2) 100% of the Hotel’s running twelve (12) month RevPAR index (as measured by STR) and (ii) the Hotel has a RevPAR index change which is less than its Competitive Set on a trailing twelve (12) month basis (as measured by STR).

(b)  

If the Hotel, after the Operator has managed the Hotel for a consecutive twelve (12) month period, at any point, has a negative RevPAR change versus its Competitive Set, as measured by the monthly STR Report of greater than three (3) points for a running twelve (12) month period.

(c)  

If Operator fails, in accordance with Section 9.02, to deliver operating statements to Lessee by the eighth (8th) business day following the last day of each month more than twice within a twelve (12) month time period.

(d)  

If the Hotel receives a failure on its Franchisor Quality Assurance inspection for deficiencies which are within Operator’s control.

(e)  

If, due to circumstances which are within Operator’s control, the Hotel’s Overall Satisfaction or Overall Experience score, as measured by Franchisor’s guest scoring system either (i) falls 5% or greater below current brand average over a six (6) month period or (ii) causes the Hotel to be placed in default with Franchisor.

(f)  

If the Hotel fails to deliver Hotel Capital Budgets or Hotel Operating Budgets to Lessee on agreed upon budget submission dates as required by Section 6.01 of this Agreement.

Section 16.04.  

Termination Fees.»

Section 16.05.  

WARN Act.

Section 17.01.  

Events of Default- Remedies.»

(a)  

The following shall constitute “Events of Default”:

(i)  

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

(ii)  

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

(iii)  

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

(iv)  

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

(v)  

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

(vi)  

The failure of either Lessee or Operator to perform, keep or fulfill any of the other covenants, undertakings, obligations or conditions set forth in this Agreement, including, without limitation, those set forth in Section 7.01(a), and the continuance of any such default for a period of thirty (30) days after written notice of such failure;

(vii)  

Default or termination of the franchise license for the Hotel as a result of any action, or failure to act, on the part of Operator; and

(viii)  

The Hotel receives a “failure” or its equivalent in any quality inspection report from any of the Franchisors, if such deficiencies are within Operator’s reasonable control.

(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 thirty (30) days from such date of notice and, upon the expiration of such period, this Agreement shall terminate and expire without penalty. If, however, with respect to the Events of Default referred to in items (iii), (iv), (v), (vi), and (viii) of subsection (a) above, unless a specific right of termination is specified elsewhere in this Agreement for the event in question, upon receipt of such notice, the defaulting party shall promptly and with all due diligence cure the default or take and continue action to cure such default within such ten (10) day period.  If such default shall not be capable of being cured within such ten (10) day period, then provided the defaulting party diligently pursues the cure of such default, such party shall have an additional period, not to exceed ten (10) days, to cure any such default unless otherwise extended by the non-defaulting party. The procedure set forth in the preceding sentences shall not be available for the curing of any default under items (i), (ii) or (vii) of subsection (a) above. In the event such default is not cured by the expiration of such period, the non-defaulting period may terminate this Agreement effective upon expiration of such period without penalty or payment of any fee.

Section 17.02.  

Rights Not Exclusive.»

(a)  

The rights granted under this Article XVII shall not be in substitution for, but shall be, except as otherwise provided in this Agreement, in addition to any and all rights and remedies for breach of contract granted by applicable provisions of law; provided, however, upon any termination of this Agreement by Operator or Lessee as provided in this Agreement, Operator shall be entitled to recover only such sums as are owing to Operator under this Agreement on the date of any such termination and in no event will Operator have any claim or cause of action for “future profits,” damages resulting from termination or otherwise under this Agreement.

(b)  

No failure of Operator or Lessee to insist upon the strict performance of any covenant, agreement, term or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof, shall constitute a waiver of any such breach or any subsequent breach of such covenant, agreement, term or condition. No covenant, agreement, term or condition of this Agreement and no breach thereof shall be waived, altered or modified except by written instrument signed by both Lessee and Operator. No waiver of any breach shall affect or alter this Agreement but each and every covenant, agreement, term and condition of this Agreement shall continue in full force and effect with respect to any other then existing or subsequent breach thereof.

Section 18.01.  

Notices.»

(a)  

Any notice, statement or demand required to be given under this Agreement shall be in writing and shall be delivered by certified or registered mail, postage prepaid, return receipt requested, or by overnight delivery with proof of delivery, or by facsimile with receipt of transmission, addressed to the parties hereto at their respective addresses listed below:

(b)  

All notices, statements, demands and requests shall be effective three (3) days after being deposited in the United States mail or one day after being sent by overnight delivery. However, the time period in which a response to any such notice, statement, demand or request must be given shall commence to run from date of receipt by the addressee thereof as shown on the return receipt of the notice, statement, demand or request, but in all events not later than the tenth (10th) day after it shall have been mailed as required herein.

(c)  

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

Section 19.01.  

No Assignment by Operator.»

Section 19.02.  

Assignment by Lessee.»

Section 20.01.  

Subordination To Mortgage.»

Section 20.02.  

Foreclosure.»

Section 20.03.  

Estoppel Certificates.»

Section 21.01.  

Further Documentation and Reporting Compliance.»

Section 21.02.  

Captions.»

Section 21.03.  

Successors and Assigns.»

Section 21.04.  

Assumption of Post Termination Obligations.

Section 21.05.  

Competitive Market Area.»

Section 21.06.  

Entire Agreement.»

Section 21.07.  

Governing Law.»

Section 21.08.  

No Political Contributions.»

Section 21.09.  

Eligible Independent Contractor.»

(a)  

At the effective time of this Agreement, Operator shall qualify as an “eligible independent contractor” as defined in Section 856(d)(9) of the Internal Revenue Code of 1986, as amended (the “Code”).  To that end:

(i)  

during the Operating Term, Operator shall not permit wagering activities to be conducted at or in connection with the Hotel;

(ii)  

during the Operating Term, Operator shall not own, directly or indirectly (within the meaning of Section 856(d)(5) of the Code), more than 35% of the shares of Supertel Hospitality, Inc.;

(iii)  

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

(iv)  

At the effective time, Operator shall be actively engaged in the trade or business of operating “qualified lodging facilities” (defined below) for a person who is not a “related person” within the meaning of Section 856(d)(9)(F) of the Code with respect to the Parent or Lessee (“Unrelated Persons”). In order to meet this requirement, Operator agrees that it (i) shall derive at least 10% of both its revenue and profit from operating “qualified lodging facilities” for Unrelated Persons and (ii) shall comply with any regulations or other administrative guidance under Section 856(d)(9) of the Code with respect to the amount of hotel management business with Unrelated Persons that is necessary to qualify as an “eligible independent contractor” with the meaning of such Code Section.

(b)  

A “qualified lodging facility” is defined in Section 856(d)(9)(D) of the Code and means a “lodging facility” (defined below), unless wagering activities are conducted at or in connection with such facility by any person who is engaged in the business of accepting wagers and who is legally authorized to engage in such business at or in connection with such facility. A “lodging facility” is a hotel, motel or other establishment more than one-half of the dwelling units in which are used on a transient basis, and includes customary amenities and facilities operated as part of, or associated with, the lodging facility so long as such amenities and facilities are customary for other properties of a comparable size and class owned by other owners unrelated to Condor Hospitality Trust, Inc.

(c)  

Operator shall not sublet Hotel or enter into any similar arrangement on any basis such that the rental or other amounts to be paid by the sublessee thereunder would be based, in whole or in part, on either (a) the net income or profits derived by the business activities of the sublessee, or (b) any other formula such that any portion of the rent would fail to qualify as “rents from real property” within the meaning of Section 856(d) of the Internal Revenue Code, or any similar or successor provision thereto.

Section 21.10.  

Time of the Essence.»

Section 21.11.  

Attorney’s Fees.»

Section 21.12.  

Final Accounting.»

(a)  

In addition to the reports required by Section 9.02, within sixty (60) days following the effective date of expiration or termination of this Agreement, Operator shall prepare and submit to Lessee a final accounting of Hotel operations through the effective date of such expiration or termination, which accounting shall be in the form of the financial statements required hereunder.

(b)  

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

(c)  

Upon the expiration or termination of this Agreement, Operator shall reasonably cooperate with and assist Lessee as may be necessary for the transfer of the operations and management of the Hotel, including the hiring of Operator’s employees should they elect and consent to the same, to the successor operator and the transfer any and all Hotel licenses and permits to Lessee or Lessee’s designee.

Section 21.13.  

Franchisor Communications.»

Section 21.14.  

Dispute Resolution

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