EXHIBIT 10.10

FRANCHISE LICENSE AGREEMENT

HILTON SAN FRANCISCO FINANCIAL DISTRICT

SAN FRANCISCO, CA

Table of Contents

EXHIBIT 10.10

FRANCHISE LICENSE AGREEMENT

Dated as of the date set forth on the Rider attached hereto as Attachment B (the “Rider”) between the licensor entity set forth on the Rider (“we,” “us,” “our” or “Licensor”), and the licensee entity (“you,” “your” or “Licensee”), the name and address of which is set forth on the Rider.

INTRODUCTION

We are a subsidiary of Hilton Hotels Corporation, a Delaware corporation (“ HHC ”). HHC and its subsidiaries and affiliates (collectively, “ Hilton ”) own, lease, operate, manage and provide various services for a network of hotels, inns, conference centers, time share properties and other operations (the “ Network ”). HHC and Hilton Hospitality, Inc., a wholly owned subsidiary of HHC, have authorized us to grant licenses to selected, first-class, independently owned or leased hotel properties, to operate under the brand name set forth in the Rider (the “ Licensed Brand ”). You have expressed an interest in operating the property identified on the Rider under the Licensed Brand. You have confirmed to us that you (i) independently investigated the risks of operating a hotel under the Licensed Brand, including current and potential market conditions, and competitive factors and risks, and have made an independent evaluation of all such matters, and (ii) reviewed our uniform franchise offering circular (“ UFOC ”). After doing so, you have expressed a desire to enter into a Franchise License Agreement with us to obtain a license to use the Licensed Brand in the operation of a hotel at the address set forth on the Rider.

NOW, THEREFORE, in consideration of the premises and the undertakings and commitments of each party to the other party as set forth in this agreement (the “ Agreement ”), the parties agree as follows:

1. Definitions

The following capitalized terms will have the meanings set forth after each term:

a.    The Hotel. The Hotel is the property you will operate under this Agreement. The “ Hotel ” includes all structures, facilities, appurtenances, furniture, fixtures, equipment, and entry, exit, parking and other areas located on the site we have approved for your business, or located on any land we approve in the future for additions, signs, parking or other facilities ; provided, however, that for the purposes of this Agreement, the parking garage attached to the Hotel shall not be included in the definition of “Hotel.”   Notwithstanding the foregoing, Licensee will, upon Licensor’s request from time to time, provide a plan, acceptable to Licensor, to ensure that Licensee is able to meet guests’ ongoing parking needs in connection with the Hotel.

b.    The Marks. References to the “ Marks ” will include the Licensed Brand service marks and all other service marks, copyrights, trademarks, logos, insignia, emblems, symbols, designs, slogans, distinguishing characteristics, trade names, domain names, and all other marks or characteristics associated or used with or in connection with the System (as we define that term in Subparagraph 1c.), and similar intellectual property rights, that we designate from time to time to be used in the System.

c.    The System. The “ System ” is the elements we designate from time to time to identify hotels operating under the Licensed Brand that provide to the consuming public a similar, distinctive, high quality hotel service. “ System hotels ” means hotels we license to operate under the System and to use the Licensed Brand name. The System currently includes the Licensed Brand and the Marks; access to a reservation service; advertising, publicity and other marketing programs and materials; training programs and materials, standards, specifications and policies for construction, furnishing, operation, appearance and service of the Hotel, we refer to in this Agreement or in the Manual (as defined in Subparagraph 1.d.) and programs for our inspecting the Hotel and consulting with you. We may add elements to the System or modify, alter or delete elements of the System at our sole discretion.

d.    The Manual. References to the “ Manual ” will include all written standards and requirements we adopt from time to time for constructing, equipping, furnishing, supplying, operating, maintaining and marketing System hotels, including the Hotel. Changes made in the Manual will apply to System hotels as specified and may not apply to all System hotels. We may set forth these standards and requirements in one or more documents or guides. All of these items, as we modify them from time to time, will be considered the Manual. We will change the Manual from time to time. We will notify you at least thirty (30) days before any change becomes effective. You will be responsible for the costs of complying with the Manual, including any changes.

e.    Including. The word “ including ,” whenever used in this Agreement, will mean “including, by way of example, but without limitation.”

f.    License Term. References to the “ License Term ” will mean the period from the date of this Agreement through the expiration of this Agreement.

2. Grant of License - Paragraph 2 of the Franchise License Agreement is deleted in its entirety and a new Paragraph 2 has been inserted in its place on Attachment B – Rider to Franchise License Agreement.

3. Our Responsibilities

a.    Training. We will specify required and optional training programs and provide these programs at various locations. We may charge you for (i) required training services and materials and (ii) optional training services and materials we provide to you. You are also responsible for all travel, lodging and other expenses you or your employees incur in attending these programs.

b.    Reservation Services. We will, directly or indirectly, furnish you with the Reservation Service (as defined in Subparagraph 6a(15) below). This service will be furnished to you on the same basis as is furnished to other System hotels, subject to the provisions of Subparagraph 14.a.(3) below.

c.    Consultation. We may, from time to time at our sole discretion, make available to you consultation and advice in areas such as operations, facilities, and marketing on the same basis as other Licensed Brand hotels. We have the right to establish fees in advance or on a project-by-project basis, for consultation and advice you request.

d.    Arrangements for Marketing, Etc. Periodically, we or one of the Entities will publish and make available to the traveling public a directory of System hotels, including the Hotel. Additionally, we will include the Hotel, or cause the Hotel to be included in (i) national or regional group advertising of System hotels, and (ii) international, national and regional market programs offered by us or the Entities; subject to and in accordance with the general practice for System hotels.

We will use your Monthly Program Fee (as defined in Subparagraph 7.a. below) to pay for various programs to benefit the System, including (i) advertising, promotion, publicity, public relations, market research, and other marketing programs; (ii) developing and maintaining Licensed Brand directories and Internet sites; (iii) developing and maintaining the Reservation Service systems and support; and (iv) administrative costs and overhead related to the administration or direction of these projects and programs. We will have the sole right to determine how we spend these funds, including sole control over the creative concepts, materials and media used in the programs, and the placement and allocation of advertising. We may enter into arrangements for development, marketing, operations, administrative, technical and support functions, facilities, programs, services and/or personnel with any other entity, including our affiliates. You acknowledge that Monthly Program Fees are intended for the benefit of the System, and will not simply be used to promote or benefit any one property or market. We will have no obligation in administering any activities paid by the Monthly Program Fee to make expenditures for you which are equivalent or proportionate to your payments, or to ensure that the Hotel benefits directly or proportionately from such expenditures. We may create any programs and allocate monies derived from Monthly Program Fees to any regions or localities, as we consider appropriate in our sole judgment. The aggregate of Monthly Program Fees paid to us by System hotels does not constitute a trust or “advertising fund” and we are not a fiduciary with respect to the Monthly Program Fees paid by you and other System hotels. We are not obligated to expend funds in excess of the amounts received from System hotels. If any interest is earned on unused Monthly Program Fees, we will use the interest before using the principal. The Monthly Program Fee does not cover your costs of participating in any optional marketing programs and promotions offered by us or Hilton from time to time in which you voluntarily choose to participate. These fees also do not cover the cost of operating the Hotel in accordance with the standards in the Manual.

e.    Inspections/Compliance Assistance. We will administer a quality assurance program for the System which may include conducting periodic inspections of the Hotel and guest satisfaction surveys and audits to ensure compliance with System standards. We have the right to inspect the Hotel and its operations at any time, with or without prior notice to you, and to determine if the Hotel is in compliance with the standards and rules of operation set forth in this Agreement and in the Manual. If the Hotel fails to comply with such standards and rules of operation, we may, at our option and at your cost, require an action plan to correct the deficiencies. You must then take all steps necessary to correct any deficiencies within the times we establish. You may be charged a fee (“ Quality Assurance Re-Evaluation Fee ”), and you will provide complimentary accommodations for the quality assurance auditor, each time we conduct a special on-site quality assurance re-evaluation (a) after the Hotel has failed a regular quality assurance evaluation or (b) to verify that deficiencies noted in a quality assurance evaluation report or property improvement plan have been corrected or completed by the required dates. The Quality Assurance Re-Evaluation fee is subject to change by us from time to time provided that any change will be established in the Manual. Our approval of an action plan does not waive any rights we may have under this Agreement, nor does it relieve you of any obligations under this Agreement. We will also have the right to place materials required for System and Hilton purposes at the Hotel.

f.    Manual. We will issue the Manual to you, and any revisions and updates we may make to the Manual.

g.    Equipment and Supplies. We will make available to you for use in the Hotel various purchase, lease, or other arrangements with respect to exterior signs, operating equipment, operating supplies, and furnishings, which we or Hilton may have and which we make available to other System hotels.

4. Proprietary Rights

You acknowledge, and will not contest, either directly or indirectly during the License Term or after termination or expiration of this Agreement: (i) our (and/or any Entities’) ownership of, rights to and interest in the System, Licensed Brand, Marks and any of their element(s) or component(s), including present and future distinguishing characteristics; (ii) our sole right to grant licenses to use all or any element(s) or component(s) of the System; (iii) that we (and/or the Entities) are the owner of (or the licensee of, with the right to sub-license) all right, title and interest in and to the Licensed Brand and the Marks used in any form and in any design, alone or in any combination, together with the goodwill they symbolize; and (iv) the validity or ownership of the Marks. You acknowledge that these Marks have acquired a secondary meaning which indicates that the Hotel, Licensed Brand and System is operated by or with Hilton’s approval. All improvements and additions to, or associated with, the System, all Marks, and all goodwill arising from your use of the System and the Marks, will inure to our benefit and become our property (or the Entities), even if you develop them. At our request, you will promptly assign to us any rights or registrations to the Marks that you may obtain. You acknowledge that you are not entitled to receive any payment or other value from us or any of the Entities for any goodwill associated with your use of the System or the Marks, or any element(s) or component(s) of the System.

5.   Proprietary Marks

a.    Use of Trade Name. You will operate under, and prominently display, the Marks in the Hotel. You will not adopt any other names in operating the Hotel that we do not approve. You also will not use any of the Marks, or the word “Hilton,” or other Network trademarks, trade names or service marks, or any similar word(s) or acronyms, in (i) your corporate, partnership, business or trade name except as we provide in this Agreement or the Manual, or (ii) any Internet-related name (including a domain name), except as we provide in this Agreement or in the Manual, or (iii) any business operated separately from the Hotel, including the name or identity of developments adjacent to or associated with the Hotel. You agree that any unauthorized use of the Marks will be an infringement of our rights and a material breach of this Agreement.

b.    Trademark Disputes. We and you each agree that the protection of the Marks and their distinguishing characteristics as standing for the System is important to all of us. Accordingly, you will immediately notify us of any infringement or dilution of or challenge to your use of any of the Marks and will not, absent a court order or our prior written consent, communicate with any other person regarding any such infringement, dilution, challenge or claim. We will take the action we deem appropriate with respect to such challenges and claims and have the sole right to handle disputes concerning use of all or any part of the Marks or the System. You will extend your full cooperation to us at your expense in these matters. You appoint us as your exclusive attorney-in-fact, to prosecute, defend and/or settle all disputes of this type at our sole discretion. You will sign any documents we believe are necessary to prosecute, defend or settle any dispute or obtain protection for the Marks and the System and assign to us any claims you may have related to these matters. Our decision as to the prosecution, defense and settlement of the dispute will be final. All recoveries made as a result of disputes regarding use of all or part of the System or the Marks will be for our account.

c.    Web Sites. You may not register, own, maintain or use any domain names, World Wide Web or other electronic communications sites (collectively, “ Site(s) ”), relating to the Network or the Hotel or that include the Marks. The only domain names, Sites, or Site contractors that you may use relating to the Hotel or this Agreement are those assigned or otherwise approved in writing by us. You also agree to obtain our prior written approval concerning any third-party Site in which the Hotel will be listed, and any proposed links between such Site and any other Site(s) (“ Linked Sites ”) and any proposed modifications to same. All Sites containing any of the Marks and any Linked Sites must advertise, promote, and reflect on the Hotel and the System in a first-class, dignified manner. You acknowledge and agree that our right to approve all materials is necessitated by the fact that those materials will include and be linked with our Marks. Therefore, any use of the Marks on the World Wide Web, the Internet, or any computer network/electronic distribution, must conform to our requirements, including the identity and graphics standards for all System hotels. Given the changing nature of this technology, we have the right to withhold our approval, and to withdraw any prior approval, and to modify our requirements.

You acknowledge that you may not, without a legal license or other legal right, post on your Site(s) any material in which any third party has any direct or indirect ownership interest (including video clips, photographs, sound bites, copyrighted text, trademarks or service marks, or any other text or image in which any third party may claim intellectual property ownership interests). You also agree to incorporate on your Site(s) any other information we require in the manner we deem necessary to protect our Marks.

Upon the expiration or termination of this Agreement, you agree to irrevocably assign and transfer to us (or to our designee) all of your right, title and interest in any domain name listings and registrations which contain any reference to our Marks, System, Network or Licensed Brand, and will notify the applicable domain name registrar(s) of the termination of your right to use any domain name or Site(s) associated with the Marks or the Licensed Brand, and will authorize and instruct the cancellation or transfer of the domain name to us (or our designee), as directed by us. You will also delete all references to our Marks, System, Network or Licensed Brand from any other Site(s) you own, maintain or operate beyond the expiration or termination of this Agreement.

d.    Covenant. You agree, as a direct covenant with Hilton, that you will comply with all of the provisions of this Agreement related to the manner, terms and conditions of the use of the Marks, and the termination of any right on your part to use any of the Marks. You agree that any non-compliance by you with this covenant, the terms of this Agreement, or any unauthorized or improper use of the System or the Marks will cause irreparable damage to us and/or to the Entities. You therefore agree that if you engage in this non-compliance, or unauthorized and/or improper use of the System or the Marks during or after the License Term, Hilton, its successors and assigns, separately or along with us, will be entitled to both temporary and permanent injunctive relief against you from any court of competent jurisdiction, in addition to all other remedies that Hilton or we may have at law. You consent to the entry of such temporary and permanent injunctions. You will be responsible for payment of all costs and expenses, including, reasonable attorneys’ fees, which we and/or Hilton and/or the Entities may incur in connection with your non-compliance with this covenant.

6. Your Responsibilities

a.    Operational and Other Requirements. During the License Term, you agree to:

(1) promptly pay to us, or reimburse us for, all amounts due to us and/or Hilton as Monthly Royalty Fees, Monthly Program Fees, and other charges, or for goods or services purchased by you or your agents, including those set forth in Paragraph 7 below;

(2) operate the Hotel twenty-four (24) hours a day every day, except as we may otherwise permit based on special circumstances;

(3) operate, furnish, maintain and equip the Hotel in a clean, safe and orderly manner and in first-class condition in accordance with the provisions of this Agreement and the Manual, and in compliance with all applicable local, state, and federal laws, customs and regulations, including maintaining and conducting your business in accordance with sound business and financial practices;

(4) provide efficient, courteous and high-quality service to the public;

(5) adopt, use and comply with the standards, requirements, services, products, programs, materials, specifications, policies, methods, procedures, and techniques set forth in the Manual, as it may be amended by us from time to time, and keep your Manual current at all times;

(6) comply with System standards, specifications and requirements regarding the purchase of products and services, including furniture, fixtures, equipment, food, operating supplies, consumable inventories, merchandise for resale to be used at, and/or sold from, the Hotel, in-room entertainment, computer networking, and any and all other items used in the operation of the Hotel (collectively, the “ Supplies ”), including our specifications for all Supplies. We may from time to time require you to purchase a particular brand of product (“ Required Brand ”), however, you may purchase this Required Brand from any authorized source of distribution;

(7) comply with System standards, specifications and requirements as to the types and levels of services, amenities and products that either must or may be used, promoted or offered at or in connection with the Hotel;

(8) install, display, and maintain signage displaying or containing the Licensed Brand name and other distinguishing characteristics in accordance with plans, specifications and standards we establish for System hotels;

(9) comply with System requirements for the training of persons involved in the operation of the Hotel, including completion by the general manager and other key personnel of the Hotel of a training program for operation of the Hotel under the System at a site we designate, except that if, in our sole opinion, it is not necessary or desirable for the general manager or any other key personnel of the Hotel to complete that training program, then we may waive this requirement in whole or in part. You will pay us for all fees and charges, if any, we require for your personnel to attend these training program(s) on the same basis as we charge other System hotels. You will also be responsible for the wages, room, board and travel expenses of your personnel;

(10) purchase and maintain property management, revenue management, in-room entertainment, telecommunications and other computer and technology systems we designate as System-wide (or area-wide) programs based on our assessment of the long-term best interests of hotels using the System, considering the interest of the System as a whole;

(11) advertise and promote the Hotel and related facilities and services on a local and regional basis in a first-class, dignified manner, using our identity and graphics standards for all System hotels, at your cost and expense. You agree to submit to us samples of all advertising and promotional materials that we have not previously approved (including any materials in digital, electronic or computerized form, or in any form of media that exists now or is developed in the future) before you produce or distribute them. You will not begin using the materials until we approve them. You also agree to immediately discontinue your use of any advertising or promotional materials we reasonably believe is not in the best interest of the Hotel or System, even if we previously approved the materials;

(12) participate in, and pay all charges in connection with (i) all required System guest complaint resolution programs, which programs may include chargebacks to the Hotel for guest refunds or credits, and (ii) all required System quality assurance programs, such as guest comment card and mystery shopper programs; and maintain minimum performance standards and scores for such quality assurance programs that we may establish from time to time in the Manual;

(13) comply with System standards, specifications and requirements as to maintenance, appearance and condition of the Hotel, and adopt in your business all changes or additions to the System as we may periodically designate;

(14) honor all nationally recognized credit cards and credit vouchers issued for general credit purposes which are generally honored at other System hotels, and enter into all necessary credit card and voucher agreements with the issuers of such cards or vouchers;

(15) participate in and use, on the terms set forth in this Agreement and in the Manual, those reservation services which we require (the “ Reservation Service ”), including any additions, enhancements, supplements or variants which we or the Entities develop or adopt; and honor and give first priority on available rooms to all confirmed reservations referred to the Hotel through the Reservation Service. You agree that the only reservation service or system you may use in regard to outgoing reservations referred by and from the Hotel to other hotels will be the Reservation Service or other reservation services we or the Entities designate;

(16) comply with all governmental requirements, including the filing and maintenance of any required trade name or fictitious name registrations, pay all taxes, and maintain all governmental licenses and permits necessary to operate the Hotel in accordance with the System;

(17) permit inspection of the Hotel by our representatives at any time to ensure compliance with System standards, cooperate fully with our representatives during these inspections and take all steps necessary to correct any deficiencies detected within the time periods we specify. You will also provide free lodging to our personnel at the Hotel while they are making their inspections on a space-available basis;

(18) provide to us statistics on Hotel operations in the form we specify and using definitions we specify;

(19) not engage, directly or indirectly, in any cross-marketing or cross-promotion of the Hotel with any other hotel, lodging or related business, except for Affiliated Hotels (as defined in Subparagraph 6.a.21), without our prior written consent;

(20) participate in, and pay all fees of, any System travel agent commission payment program(s) as modified from time to time, and promptly pay as we require in the Manual and/or specific program terms, all travel agent commissions and third party reservation service charges (such as airline reservation systems) in accordance with the terms of these programs;

(21) refer guests and customers, wherever reasonably possible, only to, Licensed Brand, Network, Hilton International, and Conrad International hotels (collectively, the “ Affiliated Hotels ”) and (if and as we direct) any other hotel systems owned or licensed by us and/or the Entities (each, an “ Other Hotel ”) (except that this will not prohibit us from requiring you to participate in programs designed to refer prospective customers to other hotels, whether in the System or otherwise); display all material, including brochures and promotional material we provide for Affiliated Hotels and Other Hotel Systems; and allow advertising and promotion only of Affiliated Hotels and Other Hotel Systems on the Hotel premises;

(22) treat as confidential the Manual, and all other information or materials concerning the methods, techniques, plans, specifications, procedures, information, systems and knowledge of and experience in the development, operation, marketing and licensing of the System (the “ Proprietary Information ”). You acknowledge and agree that you: (i) do not acquire any interest in Proprietary Information other than the right to utilize the same in the development and operation of the Hotel under the terms of this Agreement, (ii) will not use the Proprietary Information in any business or for any purpose other than in the development and operation of the Hotel under the System, (iii) will maintain the absolute confidentiality of the Proprietary Information during and after the License Term, (iv) will not make unauthorized copies of any portion of the Proprietary Information, and (v) will adopt and implement all reasonable procedures we may periodically establish to prevent unauthorized use or disclosure of the Proprietary Information, including restrictions on disclosure to employees and the use of non-disclosure and non-competition clauses in agreements with employees, agents and independent contractors who have access to the Proprietary Information. These restrictions will not apply to any information that does not relate or refer in any way or part to the System, Manual, Licensed Brand and/or Marks and that you can demonstrate came lawfully to your attention before our disclosure or which, at the time of or after our disclosure, becomes a part of the public domain through lawful publication or communication by others;

(23) not own, at any time during the term of this Agreement, in whole or in part, or be the licensor of, a hotel brand, or trade name, either directly or through an Affiliate as defined in Subparagraph 11.b.(2)(a)(i)of this Agreement, without our prior written consent. Any entity that, directly or through an Affiliate, owns in whole or in part, or is the licensor or other owner of a hotel brand or trade name (whether or not licensed) that, in our judgment, competes with the System, irrespective of the number of hotels comprising the competitive hotel brand or trade name will be referred to as a “ Competitor ”. These restrictions do not restrict you or your Affiliate from (i) owning a minority interest in a Competitor if you or your Affiliate do not provide services to the Competitor (including as a consultant or employee), do not have any officer, director, or similar position with the Competitor, and have no control or influence in the business decisions of the Competitor; (ii) being a licensee of a Competitor; or (iii) managing a property for a Competitor;

(24) own fee simple title (or long-term ground leasehold interest, provided that such interest has been granted to you by an unrelated third party ground lessor in an arms length transaction for a term equal to, or longer than, the License Term) to the real property and improvements of the Hotel, or, at our request, cause the fee simple owner or other third party acceptable to us, to provide its guarantee covering all of your obligations under this Agreement in form and substance acceptable to us;

(25) maintain possession and control of the Hotel and Hotel site, and promptly deliver to us a copy of any notice of default you receive from any mortgagee, trustee under any deed of trust, or ground lessor for the Hotel, and upon our request, provide any additional information we may request related to any alleged default or any subsequent action or proceeding in connection with any alleged default;

(26) refrain from directly or indirectly conducting, or permitting by lease, concession arrangement or otherwise, gaming or casino operations in the Hotel or on its premises without our express written permission, which we may withhold at our sole discretion, and then only to the extent and subject to the terms set forth in such permission;

(27) refrain from directly or indirectly conducting, or permitting the marketing or sale of timeshares or condominiums at, or adjacent to, the Hotel without our express written permission, which we may withhold at our sole discretion, and then only to the extent and subject to the terms set forth in such permission; provided, however, that the foregoing shall not prohibit you from directly or indirectly conducting timeshare or condominium sales or marketing at and for any property located adjacent to the Hotel that is owned or leased by you so long as (i) you do not use any of the Marks in such sales or marketing efforts and (ii) you do not use the Hotel or its facilities in such sales, marketing efforts or business operations;

(28) obtain and maintain in full force and effect from and after the confirmed Opening Date of the Hotel as set forth in Attachment A (conditional or otherwise) all licenses required for the sale of alcoholic beverages at the Hotel (unless no alcoholic beverages are offered at or from the premises of the Hotel);

(29) promptly provide to us or Hilton all information we reasonably request with respect to you and your affiliates, including your respective officers, directors, shareholders, partners or members, and/or the Hotel, title to the property on which the Hotel is constructed and any other property used by the Hotel. The information requested may include, but not necessarily be limited to, financial condition, personal and family background, litigation, indictments, criminal proceedings and the like in which any of the aforementioned may have been involved;

(30) participate in, and pay, all charges related to (i) our and Hilton’s marketing programs (in addition to programs covered by Monthly Program Fees), and (ii) all guest frequency programs we or Hilton require. You also agree to honor the terms of any discount or promotional programs (including any frequent guest program) that we or Hilton offer to the public on your behalf, any room rate quoted to any guest at the time the guest makes an advance reservation, and any award guest certificates issued to Hotel guests participating in these programs;

(31) operate the Hotel so as to maximize Gross Rooms Revenue (as defined in Subparagraph 7.b.) consistent with sound marketing and industry practice and not engage in any conduct that is likely to reduce Gross Rooms Revenue in order to further other business activities; and

(32) maintain, at your expense, insurance, of the types, and in the minimum amounts, we specify in the Manual. All such insurance must (i) be with insurers having minimum ratings we specify, (ii) name as additional insureds the parties we specify in the Manual, and (iii) carry the endorsements and notice requirements we specify in the Manual. If you fail or neglect to obtain or maintain the insurance or policy limits required by this Agreement, we have the option, but not the obligation to obtain and maintain such insurance without notice for you, and you, will immediately upon our demand, pay us the premiums and cost we incur in obtaining this insurance.

b.    Hotel Quality Assurance. We may from time to time require you to modernize, rehabilitate and/or upgrade the Hotel’s fixtures, equipment, furnishings, furniture, signs, computer hardware and software and related equipment, supplies and other items to meet the then-current standards and specifications specified in the Manual. These standards will benefit the System as a whole and you will make all these changes at your sole cost and expense. Nothing in this paragraph will relieve you from the obligation to maintain acceptable product quality ratings at the Hotel and maintain the Hotel in accordance with the Manual at all times during the Agreement. We may make limited exceptions to some of those standards based on local conditions or special circumstances, but we are not required to do so. You may not make any change in the number of approved guest rooms (the “ Guest Rooms ”) set forth in the Rider or any other significant change (including major changes in structure, design or decor) in the Hotel without our prior written approval. Minor redecoration and minor structural changes that comply with our standards and specifications will not be considered significant.

c.    Staff and Management. You are at all times responsible for the management of the Hotel’s business. You may fulfill this responsibility only by providing (i) qualified and experienced management, which may be a third-party management company, and (ii) a general manager, (the “ Management ”), each approved by us in writing. However, you represent and agree that you have not, and will not, enter into any lease, management agreement or other similar arrangement for the operation of the Hotel or any part of the Hotel with any person or entity without our prior written consent. To be approved by us as the operator of the Hotel, you or any proposed Management must be qualified to manage the Hotel. We may refuse to approve you or any proposed Management which, in our reasonable business judgment, is inexperienced or unqualified in managerial skills or operating capacity or capability, or is unable to adhere fully to the obligations and requirements of this Agreement. You understand that we reserve the right to not approve a Competitor, or any entity that (through itself or an affiliate) is the exclusive manager for a Competitor, to manage the Hotel. If the Management becomes a Competitor or otherwise becomes unsuitable in our sole discretion to manage the Hotel at any time during the License Term, you will have ninety (90) days to retain qualified substitute Management acceptable to us. Any Management must have the authority to perform all of your obligations under this Agreement, including all indemnity and insurance obligations. In the case of any conflict between this Agreement and any agreement with Management, this Agreement prevails.

7. Fees

a.    Monthly Fees. Beginning on the Opening Date, you will pay to us for each month (or part of a month, including the final month you operate under this Agreement) the Monthly Royalty Fees as set forth and defined in the Rider and a Monthly Program Fee in the amount of four percent (4%) of the Hotel’s Gross Rooms Revenue (as the term is defined more specifically in Subparagraph 7.b. below) for the preceding calendar month. The amount of this Monthly Program Fee is subject to change by us from time to time, provided that any change will be established in the Manual. However, increase in the Monthly Program Fee, if any, will not exceed one percent (1%) of the Hotel’s Gross Rooms Revenue in any calendar year, and the cumulative increases in the Monthly Program Fee, during the Term of this Agreement, will not exceed five percent (5%) of Gross Rooms Revenue.

b.    Determination and Payment of Fees. The monthly fees (described in Subparagraph 7.a.) will be determined in accordance with the accounting methods of then current Uniform System of Accounts for Lodging Industry (currently, the Ninth Revised Edition, 1996), or such other accounting methods as may otherwise be specified by Licensor from time to time in the Manual. “ Gross Rooms Revenue ,” as used in the calculation of the Monthly Royalty Fee and the Monthly Program Fee under the Agreement, means all revenues derived from the sale or rental of Guest Rooms (both transient and permanent) of the Hotel, including guaranteed no-show revenue and credit transactions, whether or not collected, at the actual rates charged, less allowances for any Guest Room rebates and overcharges, and will not include federal, state and local taxes collected directly from patrons or guests. Gross Rooms Revenue will also include the proceeds from any business interruption insurance applicable to loss of revenues due to the non-availability of Guest Rooms. The Monthly Royalty Fee and the Monthly Program Fee will be paid to us at the place we designate on or before the fifteenth (15th) day of each month and will be accompanied by our standard schedule setting forth in reasonable detail the computation of the Monthly Royalty Fee and Monthly Program Fee for such month. There will be an annual adjustment within ninety (90) days after the end of each operating year so that the total Monthly Royalty Fees and Monthly Program Fees paid annually will be the same as the amounts determined by audit. We reserve the right to require you to transmit the Monthly Royalty Fee and the Monthly Program Fee and all other payments required under this Agreement by wire transfer or other form of electronic funds transfer. You agree to bear all costs of wire transfer or other form of electronic funds transfer.

c.    Room Addition Fee. If you desire to add or construct additional Guest Rooms at the Hotel (the “ Room Addition ”) at any time after you Open the Hotel under the Licensed Brand, you will pay us a nonrefundable fee equal to the prevailing per Guest Room initial fee charged to System hotels multiplied by the number of additional Guest Rooms (“ Room Addition Fee ”). You must pay the Room Addition Fee to us when you submit an application for the Room Addition, and you must submit that application to us before you enter into any agreement to construct the Room Addition. As a condition to our granting approval of your Room Addition application, we may require you to modernize, rehabilitate or upgrade the Hotel, subject to Subparagraph 6.b. of this Agreement.

d.    Other Fees. You will timely pay all amounts due any of the Entities for any invoices or for goods or services purchased by or provided to you or paid by any of the Entities on your behalf, including pre-opening sales and operations training.

e.    Taxes. If any gross receipts, sales, use, excise or any similar tax (the “ Gross Receipts Tax ”) is imposed upon Hilton based on any payment(s) made by you to Hilton under this Agreement, then you must reimburse us for any such Gross Receipts Tax to ensure that the amount of your payment(s) we retain after we pay the Gross Receipts Tax, equals the full amount of the payment(s) you are required to pay us under this Agreement had such Gross Receipts Tax not been imposed on Hilton.

This Subparagraph 7.e., does not apply to federal or state income taxes payable by Licensor or Hilton as a result of its net income relating to any fees collected under this Agreement.

f.    Application of Fees. We may apply any amounts received under this Paragraph 7 to any amounts due under this Agreement. If any amounts are not paid when due, such non-payment will constitute a material breach of this Agreement and, in addition, such unpaid amounts will accrue a service charge beginning on the first day of the month following the due date of one and one-half percent (1 ½%) per month or the maximum amount permitted by applicable law, whichever is less. Should we hire counsel to collect any amounts due under this Agreement, and/or any late charges, you will pay our reasonable attorneys’ fees.

8. Records and Audits

a.    Reports. At our request, you will prepare and deliver to us daily, monthly, quarterly and annual operating statements, profit and loss statements, balance sheets, and other reports (the “ Reports ”) we require, prepared in the form, and by the methods and within the time frames, we require in the Manual. The reports will contain all information we require, including daily rate and room occupancy, and will be certified as accurate in the manner we require. You will also provide us any additional related information and Reports we may periodically request and permit us to inspect your books and records at all reasonable times. At least monthly, you will prepare a statement that will include all information concerning Gross Rooms Revenue, other revenues generated at the Hotel, room occupancy rates, reservation data and other information we require (the “ Data ”). By the fifteenth (15th) day of each month, you will submit to us a statement setting forth the Data for the previous month and reflecting the computation of the amounts then due under Paragraph 7, in the form and detail we reasonably request.

b.    Maintenance of Records. You will, in a manner and form satisfactory to us and using accounting and reporting standards we reasonably require, prepare on a current basis (and preserve for no less than the greater of four (4) years or our record retention requirements), complete and accurate records concerning Gross Rooms Revenue and all financial, operating, marketing and other aspects of the Hotel, and maintain an accounting system that fully and accurately reflects all financial aspects of the Hotel and its business. These records will include books of account, tax returns, governmental reports, register tapes, daily reports, and complete quarterly and annual financial statements (including profit and loss statements, balance sheets and cash flow statements).

c.    Audit. We may require you to have the Gross Rooms Revenue or other monies due to us computed and certified as accurate by a certified public accountant. During the License Term and for two (2) years thereafter, we and our authorized agents will have the right to verify information required under this Agreement by requesting, receiving, inspecting and auditing, at all reasonable times, any and all records referred to above wherever they may be located (or elsewhere if requested by us). If any inspection or audit reveals that you understated or underpaid any payment due to us that is not fully offset by overpayments, you will promptly pay to us the deficiency plus interest from the date each payment was due until paid at a rate of one and one-half percent (1½%) per month or the maximum amount permitted by applicable law, whichever is less. If the audit or inspection reveals that the underpayment is either willful, or is for five percent (5%) or more of the total amount owed for the period being inspected, you will also reimburse us for all inspection and audit costs (including reasonable travel, lodging, meals, salaries and other expenses of the inspecting or auditing personnel). Our acceptance of your payment of any deficiency will not condone your breach of this Agreement, or waive that breach, or any rights we may have for your breach, including our right to terminate this Agreement as provided in Paragraph 14. If the audit discloses an overpayment, we will credit this overpayment against your future payments under this Agreement, without interest, or if no future payments are due under this Agreement, we will promptly pay you the amount of the overpayment without interest.

d.    Ownership of Information. All of the information we obtain from you or about the Hotel or its guests under this Agreement, or under any agreement ancillary to this Agreement (including agreements relating to the computerized reservation, revenue management, property management, and other system(s) we provide or require), or otherwise related to the Hotel (the “ Information ”), and all revenues we derive from such Information will be our property. However, you may at any time during or after the License Term use to the extent lawful and at your sole risk and responsibility any information that you acquire from third parties in operating the Hotel, such as customer data. The Information (except for Information you provide to us or Hilton with respect to you and your affiliates, including your respective officers, directors, shareholders, partners or members) will become our Proprietary Information which we may use for any reason as we deem necessary or appropriate, in our discretion, including making an earnings claim in our UFOC.

9. Indemnity

You agree, during and after the License Term, to indemnify us and the Entities, and our successors and assigns, and the members, officers, directors, employees, agents, predecessors, successors and assigns of each such entity (the “ Indemnified Parties ”) against, and hold them harmless from, all losses, costs, liabilities, damages, claims, and expenses, including reasonable attorneys’ fees, arising out of or resulting from (i) any claimed occurrence at the Hotel or arising from, as a result of, or in connection with the development, construction or operation of the Hotel (including the design, construction, financing, furnishing, equipment, acquisition of Supplies or operation of the Hotel in any way); (ii) any bodily injury, personal injury, death or property damage suffered by any guest, customer, visitor or employee of the Hotel; (iii) your alleged or actual infringement or violation of any patent, mark or copyright or other proprietary right owned or controlled by third parties; (iv) your alleged or actual violation or breach of any contract, federal, state or local law, regulation, ruling, standard or directive applicable to the Hotel, or of any industry standard; (v)  any other business conducted by you or a third party in, on or about the Hotel or its grounds; or (vi) any other of your acts, omissions or obligations or those of anyone associated or affiliated with you or the Hotel or in any way arising out of or related to this Agreement. However, you do not have to indemnify us to the extent damages otherwise covered under this Paragraph 9 are adjudged by a court of competent jurisdiction to have been the result of the gross negligence or willful misconduct of any of the Indemnified Parties so long as the claims are not asserted on the basis of (i) theories of vicarious liability, including agency, apparent agency or employment or (ii) our failure to compel you to comply with the provisions of this Agreement. You will give us written notice of any action, suit, proceeding, claim, demand, inquiry or investigation involving an Indemnified Party within five (5) days of your actual or constructive knowledge of it. At our election, you will defend us and/or the Indemnified Parties against the same, or we may elect to assume (but under no circumstance will we be obligated to undertake) the defense and/or settlement of the action, suit, proceeding, claim, demand, inquiry or investigation at your expense and risk. We may obtain separate counsel of our choice if we believe your and our interests may conflict. Our undertaking of defense and/or settlement will in no way diminish your obligation to indemnify the Indemnified Parties and to hold them harmless. In either case, you will also reimburse the Indemnified Parties upon demand for all expenses, including reasonable attorneys’ fees and court costs the Indemnified Parties incur to protect themselves, or to remedy your defaults. Under no circumstances will the Indemnified Parties be required to seek recovery from third parties or otherwise mitigate their losses to maintain a claim against you, and their failure to do so will in no way reduce the amounts recoverable from you by the Indemnified Parties. Further, you will indemnify the Indemnified Parties for any claim for damages by reason of failure of any contractor, subcontractor, supplier or vendor doing business with you relating to the Hotel to maintain adequate insurance as required in the Manual.

10. Right of First Offer: INTENTIONALLY DELETED

11. Transfer

a.     Our Transfer of this Agreement. We have the right to transfer or assign this Agreement or any of our rights, obligations, or assets under this Agreement to any person or legal entity. You acknowledge and agree that this Agreement is a license for the Licensed Brand only, and the programs that are unique to the Licensed Brand. Therefore, if we transfer or assign this Agreement, your right to use any programs, rights or services related to or provided by the Entities or their designees, including the Reservation Service, any guest frequency program not unique to the Licensed Brand, and any Marks (except the principal name identified in the Rider), may terminate. The transferee must assume all of our obligations to you under this Agreement.

b.           Your Transfer. We recognize that at some time, you or other persons associated with you or the Hotel may want to sell or transfer all or part of an interest in this Agreement, the Licensee or in the Hotel. At the same time, you understand and acknowledge that the rights and duties set forth in this Agreement are personal to you, and that we are entering into this Agreement in reliance on your business skill, financial capacity, and personal character (if you are an individual), and that of your officers, directors, partners, members, stockholders or trustees (if you are a partnership, company, corporation, trust or other legal entity). As a result, you agree that if you or other persons associated with you or the Hotel desire to sell, transfer or lease an interest in this Agreement, the Licensee or in the Hotel, or in any entity that has an interest in this Agreement, the Licensee or the Hotel, you will abide by the terms of this Subparagraph 11.b.

For purposes of this Subparagraph 11.b., the term “ control ” in all its forms, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of an entity, or of the power to veto major policy decisions of an entity, whether through the ownership of voting securities, by contract, or otherwise. References in this Agreement to “ Equity Interests ” mean any direct or indirect beneficial interest in the Licensee, the Equity Owners and/or the Hotel (an “ indirect ” interest is an interest in an entity other than the Licensee that either itself, or through others, has an interest in the Licensee). References in this Agreement to “ Equity Owners ” mean the owners of a direct or indirect Equity Interest in the Licensee, the Agreement, and/or in the Hotel. “ Publicly Traded Equity Interest ” means any Equity Interest that is traded on any securities exchange or is quoted in any publication or electronic reporting service maintained by the National Association of Securities Dealers, Inc., or any of its successors. In computing changes of Equity Interests, limited partners will not be distinguished from general partners except as provided below. General partners, managing members and other controlling interests in Licensee will be considered Equity Owners for purposes of this section, regardless of whether they have any actual ownership interest in the Licensee. Non-voting equity interests may not qualify as an Equity Interest, at our discretion. Our judgment will be final if there is any question as to the definition of Equity Interest or as to the computation of relative Equity Interests. You represent that as of the date of this Agreement the Equity Interests are directly and (if applicable) indirectly owned as shown on the Rider.

(1)           Transfers That Do Not Require Our Consent or Notification.

(a)            Privately Held Equity Interests: Less than 25% Change/No Change of Control. Equity Interests that are not publicly traded may be transferred by you and the Equity Owners without notice to us and without our consent, if after the transaction: (i) less than twenty-five percent (25%) of all Equity Interests in Licensee will have changed hands since the date of this Agreement, and (ii) there has not been a change of control of the Licensee, of this Agreement or of the Hotel since the date of this Agreement.

(b)            Publicly Held Equity Interests. Publicly Traded Equity Interests may be transferred without notice to us and without our consent if the transfer does not effectuate a change of control of the Licensee, of this Agreement or of the Hotel since the date of this Agreement.

(c)            Commercial Leases. You may lease or sublease commercial space in the Hotel that is customarily subject to lease, or enter into concession arrangements in the ordinary course of business at the Hotel, without notice to us and without our consent.

(2)           Other Transfers. No other direct or indirect interest in the Hotel or in this Agreement, and no direct or indirect Equity Interest in the Licensee, may be sold, leased, assigned, or transferred in any way (individually or collectively, a “ Transfer ”), except as specifically provided in this Subparagraph 11.b.(2). If you or any Equity Owners want to transfer any Equity Interest, other than in a transaction that meets the requirements of the foregoing clause (1), you must first notify us and you must first obtain our consent.

(a)           Permitted Transfers. Certain transfers are transfers we describe as “ Permitted Transfers .” We will consent to a Permitted Transfer, so long as you (i) give us sixty (60) days advance written notice of any proposed Permitted Transfer (the “ Permitted Transfer Consent Request ”), and (ii) submit to us a nonrefundable processing fee of Two Thousand Five Hundred Dollars ($2,500) with the Permitted Transfer Consent Request to cover our costs to review the Transfer (except that in the case of a Transfer of Equity Interests which requires registration under any federal or state securities law, you must pay us an additional processing fee of Two Thousand Five Hundred Dollars ($2,500) as provided for in Subparagraph 11.b.(3) below), and meet the requirements for the particular Permitted Transfer as described below.

(i)          Affiliate Transfer. You or any Equity Owners as of the date of this Agreement may sell, lease, transfer or otherwise convey any Equity Interest to an Affiliate (each an “ Affiliate Transfer ”); provided that such event does not, in our opinion, result in a change in the ultimate controlling Equity Owners of the Licensee, this Agreement or the Hotel and the following conditions are met. “ Affiliate ” means, with respect to any entity, any natural person or firm, corporation, partnership, association, trust or other entity which, directly or indirectly, controls, is controlled by, or is under common control with, you or any Equity Owners as of the date of this Agreement. A natural person or entity which has an entity as an Affiliate will also be deemed to be an Affiliate of that entity. We will not withhold our consent to an Affiliate Transfer if (x) you are not then in material default under this Agreement; (y) the Affiliate Transfer is not, directly or indirectly, to a Competitor; and (z) you otherwise satisfy the conditions as set forth in Subparagraphs 11.b.(2)(b)(i)-(vii), (ix) and (x) below that we may require you to satisfy.

(ii)         Family Transfers. If you or any Equity Owners as of the date of this Agreement are a natural person, and desire to sell, lease, transfer or otherwise convey any Equity Interest to: (x) a member or member of your or any such Equity Owner’s immediate family i.e. spouse, children, parents, siblings (“ Family Members ”) or (y) a trust or trusts for the benefit of Equity Owner or the Equity Owner’s Family Member(s) (each, a “ Family Transfer ”), in either case, without causing a change in the ultimate controlling Equity Owners of the Licensee, this Agreement, or the Hotel, we will not withhold our consent to a Family Transfer if you otherwise satisfy the conditions set forth in Subparagraphs 11.b.(2)(b)(i)-(vii), (ix), and (x) below that we may require you to satisfy.

(iii)        Transfer Upon Death. Upon the death of a Licensee or Equity Owner, this Agreement or the Equity Interest (if applicable) may pass in accordance with such person’s will or, if such person dies intestate, in accordance with laws of intestacy governing the distribution of such person’s estate, without our consent, provided that (x) the Transfer is to a Family Member or to a legal entity formed by such Family Member(s), and (y) within one (1) year after the death, such Family Member(s) or entity meets all our then current requirements for an approved applicant.

(iv)        Brick and Mortar Transfers. You may sell, lease or transfer the Hotel, the Hotel site, or any portion thereof if, in our reasonable judgment, after the sale, you retain possession and control of the Hotel site and the management control of the Hotel operations and continue to comply with the requirements of Subparagraph 6.a.(24), provided you give us at least sixty (60) days’ prior notice of the proposed transfer, and any Transfer Information (as defined below) that we request. If, in our reasonable judgment, the Transfer will result in your loss of possession or control of the Hotel or Hotel site or management of the Hotel, the sale will then be considered a change of ownership and you must comply with the provisions of Subparagraph 11.b.(2)(b).

(v)         Privately Held Equity Interests: 25% or Greater Change/No Change of Control. You or any Equity Owners as of the date of this Agreement may sell, lease, transfer or otherwise convey Equity Interests if a twenty-five percent (25%) or more cumulative change in Equity Interests in Licensee will have changed hands since the date of this Agreement; provided that such event does not, in our opinion, result in a change in the ultimate controlling Equity Owner of the Licensee, this Agreement or the Hotel and the following conditions are met: (x) you are not then in material default under this Agreement; (y) the Transfer is not, directly or indirectly, to a Competitor; and (z) you otherwise satisfy the conditions as set forth in Subparagraphs 11.b.(2)(b)(i)-(vii), (ix) and (x) below that we may require you to satisfy.

(b)           Change of Ownership. Any proposed Transfer that does not otherwise qualify as a Permitted Transfer as defined in Subparagraph 11.b.(2)(a) above will be considered a change of ownership (“ Change of Ownership ”). If there is a proposed Change of Ownership and the proposed owner desires to continue to operate the Hotel as a System hotel, the proposed owner must submit to us a complete application for a new franchise license agreement (the “ Change of Ownership Application ”) accompanied by payment of our then prevailing application fee. If we do not approve the Change of Ownership Application, we will refund the application fee, less Two Thousand Five Hundred Dollars ($2,500) for processing costs. The proposed owner may also be required to pay the then prevailing property improvement plan (“ PIP ”) fee for us to determine the renovation requirements for the Hotel. If we approve the Change of Ownership Application, the new owner will then be required to pay any other applicable fees and charges we then impose for new Licensed Brand franchise licenses.

We will process the Change of Ownership Application in accordance with our then current procedures, including review of criteria and requirements regarding upgrading of the Hotel, credit, background investigation, operations abilities and capabilities, prior business dealings, market feasibility, guarantees, and other factors we consider relevant. We will have sixty (60) days from our receipt of the completed and signed application to consent or withhold our consent to the proposed owner as Licensee.

We may, at our option, or as applicable, make our consent subject to satisfaction of certain conditions, including:

(i)           The cure of any existing defaults or events that would become defaults with the giving of notice and passage of time, including, the payment in full at the closing of the Transfer (the “ Closing ”) of all unpaid obligations owed to us and any Entities by you, and/or the renovation by you or the proposed owner of all or part of the Hotel;

(ii)          Receipt of evidence from the transferee that insurance coverage, as required by this Agreement, is in full force and effect on the date of Closing;

(iii)         Payment of the amount of any fees and charges we estimate will accrue to us or any of the Entities through the date of Closing;

(iv)         That you at all times remain in compliance with the terms of this Agreement pending the Closing;

(v)          Your signing of an estoppel and a general release in a form satisfactory to us, of any and all claims, demands and causes of action that you and your partners, proprietors, directors, officers, shareholders, members, successors and assigns (as the case may be) may or might have against us or any of the Entities, and their respective officers, directors, shareholders, agents, attorneys, contractors and employees in their corporate and individual capacities including claims arising under federal, state and local laws, rules and ordinances;

(vi)         That you submit to us all information related to the Transfer that we may reasonably require, including copies of any proposed agreement(s), the proposed ownership structure of the proposed transferee if ownership of this Agreement or of the Hotel is being transferred and/or all entities involved, the names and addresses of the proposed owners of the Equity Interests and of the site at which the Hotel is operated, and financial statements and business information for all participants in the proposed sale or lease (collectively, the “ Transfer Information ”);

(vii)        Evidence of adequate assurances (as determined by us in our sole discretion) of the proposed owner’s assumption of and ability to perform all, or its pro rata share, of your or any Equity Owners’ obligations under this Agreement;

(viii)       Execution by you of our then-current standard form of voluntary termination agreement covering termination of this Agreement and execution by the new owner of a new franchise license agreement (“ New License ”) with us for the then unexpired term of this Agreement (or for such other term as we may approve in our sole discretion). The New License will (i) be on our then current form for the grant of new franchise licenses, (ii) contain our then current license terms (except for duration), and (iii) contain upgrading and other requirements, if any, that we impose.

(ix)          Execution of our then-current standard form of guarantee of franchise license agreement by the same guarantors, if any, of this Agreement or substitute guarantors we approve; and

(x)           Successful completion by the proposed owner and its management team of any training and orientation programs we require.

We have the right to withhold our consent to any proposed Transfer if any of these conditions are not met to our satisfaction, or if the proposed owner is a Competitor. If we approve the Change of Ownership Application, we will not assess you any liquidated damages for early termination of this Agreement as long as the New License is signed by the new owner no later than the Closing of the Change of Ownership transaction. If we do not approve the Change of Ownership Application, or if you or the new owner do not comply with all these conditions and the Transfer still occurs, then you will be in material default of this Agreement and we will be entitled to all of our remedies, including the right to terminate this Agreement, and the right to payment of all amounts set forth in Subparagraph 14.c.

(3)            Public Offering. If you “offer to sell” or “sell” any “securities” in the Licensee or in the Hotel, you shall do so in accordance with the terms and conditions set forth in this Subparagraph 11.b.(3). All materials required by federal, state or other applicable law for the offer or sale of those securities must be submitted to us for review at least twenty (20) days before the date you distribute those materials, or file them with any governmental agency, including any materials to be used in any offering exempt from registration under federal or state securities laws. You must submit a non-refundable Two Thousand Five Hundred Dollar ($2,500) processing fee to us with the offering documents, and agree to pay any additional costs we may incur in reviewing your documents, including reasonable attorneys’ fees. You also may not use any of the Marks or otherwise imply Hilton’s or our participation or endorsement of any securities offering. We will have the right to approve any description of this Agreement or of your relationship with us, or any use of the Marks, contained in any “prospectus” or other communications or materials you use in the sale or offer of any “securities.” You may not imply Hilton’s or our participation in or endorsement of any such “securities.” To the extent we give you any comments to your documents, you must modify the documents to address those comments, satisfactory to us, before filing or distributing the documents. Our review of these documents will not in any way be considered our agreement with any statements contained in those documents, including any projections, or our acknowledgment or agreement that the documents comply with any applicable laws.

You may not sell any “securities” unless you do so in compliance with all applicable federal and state securities laws, and unless you clearly disclose to all purchasers and offerees that (i) neither we, nor any Entity, nor any of our or their respective officers, directors, agents or employees, will in any way be deemed an “issuer” or “underwriter” of said “securities,” and that (ii) we, the Entities, and our respective officers, directors, agents and employees have not assumed and will not have any liability or responsibility for any financial statements, prospectuses or other financial information contained in any “prospectus” or similar written or oral communication. You agree to indemnify, defend and hold the Indemnified Parties free and harmless of and from any and all liabilities, costs, damages, claims or expenses arising out of or related to the “sale” or “offer” of any of your “securities” to the same extent as provided in Paragraph 9 of this Agreement. All terms used in this Subparagraph 11.b.(3) will have the same meaning as in the Securities Act of 1933, as amended.

(4)         Transfers Not in Accordance With This Agreement. Any purported Transfer, by operation of law or otherwise, not in accordance with the provisions of this Agreement, will be null and void and will constitute a material breach of this Agreement, which will allow us to terminate this Agreement without giving you any opportunity to cure. Further, we will have all other rights and remedies, including the right to specific performance or mandatory or prohibitory injunctive relief, to redress any attempt on your part to transfer this Agreement other than in accordance with the provisions of this Agreement.

(5)         Pledge to Lending Institution. Notwithstanding any other provision of this Agreement, you do not need to notify us to obtain our approval if you want to pledge or mortgage the assets of the Hotel or any Equity Interest to a third-party bank or other commercial lending institution that is not a Competitor. However, you do need to notify us and obtain our consent if you want to pledge or mortgage your interest in this Agreement. As a condition to our giving our consent to a pledge or mortgage of this Agreement we will require the lender to sign a lender comfort letter that describes our requirements on foreclosure, and includes an estoppel and general release of Claims that you may have against us, Hilton or the Entities, in a form satisfactory to us. If it desires to continue to operate the Hotel as a System hotel, the lender will be required to conform to the lender comfort letter signed with us or, if no lender comfort letter was signed, then it must meet the terms and conditions of this Agreement for a Transfer involving a Change of Ownership.

12. Condemnation and Casualty

a.   Condemnation. You will, at the earliest possible time, give us notice of any proposed taking of any portion of the Hotel by eminent domain. If we agree that the Hotel or a substantial part of the Hotel is to be taken, we may, in our sole discretion and within a reasonable time of the taking (within four months) transfer this Agreement to a nearby location you select. If we approve a new location, and if within one (1) year of the closing of the Hotel you open a new hotel (or are diligently proceeding toward opening a new hotel and ultimately do so) at the new location in accordance with our specifications and in accordance with our timing requirements, then the new hotel will be deemed to be the Hotel licensed under this Agreement. If a condemnation takes place and a new hotel does not, for whatever reason, become the Hotel under this Agreement in strict accordance with this Paragraph 12 (or if it is reasonably evident to us that this will be the case), then we may terminate this Agreement immediately upon notice to you, and we will not require you to pay a Termination Fee under Subparagraph 14.c.

b.   Casualty. If the Hotel is damaged by fire or other casualty, you will immediately notify us. If the damage or repair requires closing the Hotel, you may choose to repair or rebuild the Hotel according to our standards, provided you (i) immediately notify us (ii) begin reconstruction within four (4) months after closing, and (iii) reopen the Hotel for continuous business operations as soon as practicable (but in any event within one (1) year after the closing of the Hotel), giving us ample advance notice of the date of reopening. Until we determine that the Hotel can be re-opened as a System hotel, the Hotel will not promote itself as a System hotel, or otherwise identify itself with any of the Marks without our prior written consent. You and we each have the right to terminate this Agreement if you elect not to repair or rebuild the Hotel as set forth above in this Paragraph 12, provided the terminating party gives the other party sixty (60) days written notice, in which case we will not require you to pay a Termination Fee under Subparagraph 14.c; provided however, if subsequent to such termination notice and prior to the natural expiration of the License Term, you, or any of your Affiliates, have a controlling interest in and/or operate a hotel at this Hotel site and such hotel is not operated under a license or franchise from one of the Entities, then you must pay us the Termination Fee.

c.   No Extensions of Term. Nothing in this Paragraph 12 will extend the License Term.

13.    Term of License.

a.    Unless terminated earlier, this Agreement will expire without notice on the date set forth on the Rider. You acknowledge and agree that this Agreement is non-renewable and that this Agreement confers upon you absolutely no rights of license renewal whatsoever following the expiration of the License Term.

b.    Renewal Option. Notwithstanding the terms set forth in Paragraph 13.a above, you will have a one-time option to extend the License Term (“ Renewal Option ”) for an additional five (5) years provided that you strictly comply with each of the following conditions:

(i)   You provide written notice of your exercise of the Renewal Option at least twelve (12) months prior to the expiration of the License Term (the “ Renewal Notice ”);

(ii)   Within the time frame specified by us, you (a) enter into an amended and restated franchise license agreement for the Hotel upon the then-current form in use by us, and (b) comply with all terms, conditions, fees and charges then commonly imposed by us for a franchise re-licensing, including your satisfactory completion of any required renovations and any other work required to ensure that the Hotel meets our then-current physical and operational requirements necessary to maintain the Hotel as a System hotel; and

(iii)    You are not in default under this Agreement at any time from the date of the Renewal Notice through the effective date of the amended and restated franchise license agreement. Should you be in default during such period, the Renewal Notice will be deemed cancelled, your Renewal Option will become void and this Agreement will terminate at the end of the License Term, unless terminated earlier in accordance with the terms of this Agreement.

14.   Termination

a.    Termination, Suspension or Other Interim Remedies by Us on Advance Notice. In addition to our right to immediately terminate this Agreement upon the occurrence of certain events as provided in Subparagraph 14.b below, we have the right to terminate this Agreement immediately upon notice to you if you fail to cure an Event of Default (as defined in Subparagraph 14.a.(1)) within thirty (30) days after we furnish notice of default to you based on the Event of Default, or, if there is a non-monetary Event of Default that is incapable of cure within thirty (30) days, if you fail to commence to cure within such thirty (30) day period and diligently pursue cure of such default and fail to cure the default within the additional time periods we set forth in the notice of default. In lieu of Event of Default termination at such time, we may elect to postpone termination for a period of time we alone determine and impose one or more of the Interim Remedies listed below in subsection (3), it being expressly understood that, at any time after doing so, we continue to retain the right – exercisable at any time we determine – to terminate this Agreement.

(1)   An “ Event of Default ” will occur if you fail to satisfy or comply with any of the obligations, requirements, conditions, or terms set forth in (i) this Agreement, the Manual (including the standards in the Manual and minimum performance scores required by the Manual), or any attachment to this Agreement; or (ii) any other agreement you have with us, or any of the Entities, relating to the Hotel, including, any computer system agreement, or any agreement to manage the Hotel. An “Event of Default” will also occur if you make any misrepresentations to us, whether in entering into this Agreement, or in the performance of your obligations to us.

(2)   Our notice of termination will not relieve you of your obligations under this Agreement or any of its attachments.

(3)   After expiration of the applicable notice and cure periods for an Event of Default, we may at anytime elect to postpone termination for a period of time we alone determine and impose any one or more of the following interim remedies (each, an “ Interim Remedy ”), including the suspension of our and/or Hilton’s obligations under this Agreement and/or the Hilton Information Technology System Agreement, and any other agreement between you and us or any Affiliate related to this Hotel and/or the property upon which the Hotel is located (collectively, “ Your Agreements ”):

(a)   We and/or Hilton may suspend you from any reservation and/or website services. We may remove the listing of the Hotel from any directories we publish, and from any advertising we publish, and/or remove or suspend you from the Reservation Service. If we suspend you from the Reservation Service, we will have the right to divert reservations previously made for the Hotel to other System hotels.

(b)     We and/or Hilton may disable all or any part of the software provided to you pursuant to Your Agreements, and/or may suspend any one or more of the information technology and/or network services that we and/or Hilton provide or support under Your Agreements.

(c)    We and/or Hilton may charge you for: the cost of any computer hardware, computer software, other information technology and/or information technology service which we and/or Hilton provided to you at no additional charge other than the fees you paid under Your Agreements; costs related to such suspending, disabling, together with intervention or administration fees set forth in the Manual; and, the cost of any computer hardware, computer software, other information technology and/or information technology service we and/or Hilton determine to provide you (in our and Hilton’s sole discretion) (each, an “ Information Technology Recapture Charge ”). An Information Technology Recapture Charge may, at our sole option, take the form of one or more specific dollar amounts and/or of a percentage increase to any of the fees charged based on a percentage of your Gross Room Revenues under this Agreement and/or Your Agreements (a “ Percentage Fee ”). If an Information Technology Recapture Charge consists of one or more specific dollar amounts, then you must pay each such amount to us or Hilton immediately upon demand. If an Information Technology Recapture Charge consists of an increase to a Percentage Fee, you must pay the increased Percentage Fee when and as provided in Your Agreements (as applicable). You understand and agree that such increases may be levied in any Percentage Fee notwithstanding any other provision of this Agreement and/or any other of Your Agreements.

If, after we impose any Interim Remedy, but before we exercise our reserved right to terminate this Agreement (as provided above), you completely cure to our satisfaction the subject Event(s) of Default, then we may either elect to terminate this Agreement despite your untimely cure, or, at our sole option, elect not to terminate this Agreement; if the latter, we will withdraw the Interim Remedy on a going-forward basis.

You agree that our exercise of the right to elect Interim Remedies will not result in actual or constructive termination or abandonment of this Agreement, and that the rights granted to us in this clause (3) to elect Interim Remedies are in addition to, and apart from, any other rights we may have in this Agreement, including our right to thereafter at any time we determine terminate this Agreement. If we exercise the right to elect Interim Remedies, the exercise will not be a waiver of any breach by you of any term, covenant or condition of this Agreement. You will not be entitled to any compensation, including repayment, reimbursement, refund or offsets, for any fees, charges, expenses or losses you may directly or indirectly incur by reason of our exercise and/or withdrawal of any Interim Remedy.

(4)   In addition to the cure requirements specified in our written notice of an Event of Default, we may also require you to cause person(s) or entity(ies) acceptable to us to guarantee all of your obligations under this Agreement by executing our then-current standard form guarantee.

b.   Immediate Termination by Us. We have the right to terminate this Agreement immediately upon notice to you (or terminate it at the earliest time permitted by applicable law) if one or more of the following breaches to this Agreement or any of its attachments occur:

(1)   After curing any material violation of this Agreement or the Manual, you engage in the same noncompliance within any consecutive twenty four (24) month period, whether or not the noncompliance is corrected after notice; or after we have notified you of your noncompliance with any of the requirements imposed by this Agreement or the Manual, regardless of materiality, you engage in a pattern of noncompliance with any of those requirements, whether or not the noncompliance is corrected after notice, which pattern of non-compliance in and of itself will be deemed material;

(2)   You or any guarantor of your obligations under this Agreement:

(a)   Generally fails to pay its debts as they become due or admits in writing its inability to pay its debts, or makes a general assignment for the benefit of its creditors;

(b)   Commences any case, proceeding or other action seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its property;

(c)   Takes any corporate or other action to authorize any of the actions set forth above in clauses (a) or (b);

(d)   Suffers initiation of any case, proceeding or other action against it seeking to have an order for relief entered against it as debtor, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its property, and such case, proceeding or other action (i) results in the entry of an order for relief against it which is not fully stayed within seven (7) business days after the entry of the order or (ii) remains undismissed for forty-five (45) days;

(e)   Allows an attachment to remain on all or a substantial part of the Hotel or of its assets for thirty (30) days;

(f)    Fails within sixty (60) days of the entry of a final judgment against it in any amount exceeding One Hundred Thousand Dollars ($100,000) to discharge, vacate or reverse the judgment, or to stay execution of it, or if appealed, to discharge the judgment within thirty (30) days after a final adverse decision in the appeal;

(g)   Loses possession or the right to possession of all or a significant part of the Hotel or Hotel site, whether through foreclosure, including, but not limited to, foreclosure of any lien, trust deed, or mortgage, loss of lease, or for other reasons apart from those described in Paragraph 12;

(h)   Fails to continue to identify the Hotel to the public as a System hotel, or abandons the operation of the Hotel by failing to operate the Hotel for five (5) consecutive days, or any shorter period after which it is not unreasonable under the facts and circumstances for us to conclude that you do not intend to continue to operate the Hotel, unless the failure to operate is due to fire, flood, earthquake or similar causes beyond your control, provided that you have taken reasonable steps to minimize the impact of such events;

(i)   Contests in any court or proceeding our ownership of the System or any part of the System, or the validity of any of the Marks;

(j)   Takes any action toward dissolving or liquidating itself, if it is a corporation, limited liability company or partnership, except for death of a partner;

(k)   Any of the owners of a controlling Equity Interest is discovered to have been convicted of a felony (or any other offense or conduct if we reasonably determine it is likely to adversely reflect upon or affect the Hotel, the System, us and/or any Entity);

(l)   Conceals revenues, maintains false books and records of accounts, submits false reports or information to us or otherwise attempts to defraud us;

(m)    Becomes a Competitor (as defined in Subparagraph 6.a.(23));

(n)   Transfers any interest in this Agreement or in the Hotel other than in the transaction that we have approved (unless the Transfer is of a type described in Paragraph 11 where our approval is not required); or

(o)   Does not purchase or maintain insurance required by this Agreement, or does not reimburse us for our purchase of insurance on its behalf; of

(p)    Becomes a “Specially Designated National or Blocked Person” as defined in Subparagraph 16.o. or fails to comply with the provisions of Subparagraph 16.o, including a breach of the representations set forth therein or we discover through notice from you or through our own investigation that the representations set forth in Subparagraph 16.o are or have become false.

(3)   Information involving you or your affiliates, whether provided by you under Subparagraph 6.a.(28) or obtained through Hilton’s or our own investigation, discloses facts concerning you or your affiliates, including your respective officers, directors, shareholders, partners or members, and/or the Hotel, or title to the property over which the Hotel is constructed or any other property used by the Hotel, including leased commercial space, which, in the reasonable opinion of Hilton is likely to adversely reflect upon or affect in any manner, any gaming licenses or permits held by the Entities or the then current stature of any of the Entities with any gaming commission, board, or similar governmental or regulatory agency, or the reputation or business of any of the Entities;

(4)   We make a reasonable determination that continued operation of the Hotel by you will result in an imminent danger to public health or safety; or

(5)   Any guarantor of your obligations under this Agreement breaches its guarantee, if any, or any guarantee fails to be a continuing obligation fully enforceable against the person(s) signing the guarantee, or if there is any inadequacy of the guarantee or guarantor, and the guarantor fails to provide adequate assurances to us as we may reasonably request.

c.    Liquidated Damages upon Termination by Us. If we terminate the Agreement under Subparagraphs 14.a. or 14.b. above, you acknowledge that your default will cause substantial damage to us, the actual amount of which will be difficult to determine. Therefore, you agree that if we terminate this Agreement under Subparagraphs 14.a. or 14.b. as a result of your default or breach of this Agreement, or if you unilaterally terminate this Agreement without cause, which is not authorized and which would be a material breach of this Agreement, then upon termination you must pay us a lump-sum payment equal to the sum of the following: (i) all amounts owed to us for periods prior to the date of termination, plus (ii) as liquidated damages for the future Monthly Royalty Fees and Monthly Program Fees we will lose, a “ Termination Fee ” determined by multiplying the average of the Monthly Royalty Fees and Monthly Program Fees (collectively, the “ Average Monthly Fees ”) with respect to the Hotel for the twenty-four (24) month period immediately preceding the month of termination, by thirty-six (36), or by such lesser multiple as would represent the remaining full or partial months between the date of termination and the expiration of the License Term. If the Hotel has been open for less than twenty-four (24) months, then in calculating the Termination Fee we will multiply thirty-six (36) by the greater of a) the Average Monthly Fees you owed us from the Opening Date through the month immediately preceding the month of termination, and b) the average Monthly Royalty Fees and Monthly Program Fees per Guest Room owed to us by all System hotels in operation throughout the same twenty-four (24) month period, multiplied by the number of Guest Rooms in the Hotel. The Termination Fee is intended to compensate us only for the value lost in Monthly Royalty Fees and Monthly Program Fees as a result of the early termination of the Agreement, and you agree that you remain liable for all other obligations and claims under the Agreement, including obligations following termination under Subparagraphs 5.c., 5.d., 8.c., 14.d. and Paragraph 9 and liabilities arising out of your breach or default.

d.    De-identification of Hotel Upon Termination. Upon expiration or termination of this Agreement for any reason, you will immediately stop holding yourself out to the public as a System hotel, and will take whatever action is necessary to assure that no use is made of any part of the System (including the Marks, all forms of advertising and other indicia of operation as a System hotel), and discontinue use of all distinguishing indicia of System and HHC hotels, including such indicia on exterior and interior signs, stationery, operating equipment and supplies, Internet sites, brochures and other promotional material at or in connection with the Hotel or otherwise. You will return to us the Manual and all other proprietary materials, remove all distinctive System features of the Hotel, including the primary freestanding sign down to the structural steel, and take all other actions (“ De-identification Actions ”) required to preclude any possibility of confusion on the part of the public that the Hotel is still using all or any part of the System or is otherwise holding itself out to the public as a System hotel. If within thirty (30) days after the termination or expiration of this Agreement, you fail to comply with this paragraph, we and our agents, at your expense, may enter the premises of the Hotel to perform the De-identification Actions without being deemed guilty of or liable for trespass or any other tort, and make or cause to be made such changes at your expense. You will pay all such expenses that we incur upon demand. If you fail to take all De-identification Actions, we and Hilton will be entitled to recover all losses, costs, expenses and damages caused by that failure. We and Hilton will also be entitled to relief by injunction, and any other right or remedy at law or in equity to enforce our rights under this Agreement.

e.    Special Termination. You recognize the additional harm by way of confusion for national accounts, greater difficulty in re-entering the market, and damage to goodwill of the Marks that we will suffer if (i) you (or any of your Affiliates) cause two (2) or more franchise license agreements for the Licensed Brand between yourself (or any of your Affiliates) and us to be terminated prior to the expiration date of such agreements within twelve (12) months of each other (if we terminate those agreements following your breach or default, you (or your Affiliate) will be deemed to have caused the termination) or (ii) this Agreement terminates or is terminated by us following an unapproved Transfer to a Competitor (each of these will be referred to as a “Special Termination” ). In the case of a Special Termination, the amount due to us upon termination will be an amount equal to the amount set forth in clause (i) of Subparagraph 14.c., plus an additional amount equal to two (2) times the Termination Fee payable under clause (ii) of Subparagraph 14.c. This Subparagraph 14.e. is not triggered upon mutual voluntary termination of this Agreement. For purposes of Subparagraph 14.e.(i) above only, Licensed Brand includes Hilton and Hilton Suites.

15. Relationship of Parties

a.    No Agency Relationship. You are an independent contractor. Neither of us is the legal representative or agent of the other, or has the power to obligate (or has the right to direct or supervise the daily affairs of) the other for any purpose. You expressly acknowledge that we have a business relationship based entirely on, and defined by, the express provisions of this Agreement and that no partnership, joint venture, agency, fiduciary or employment relationship is intended or created by reason of this Agreement. Neither we nor any of the Entities will have any responsibility to any person for any debts, liabilities, damages, claims or expenses related to the establishment, construction or operation of the Hotel or arising out of or related to your policies, procedures, practices or alleged practices in the operation of the Hotel or any other business conducted at the Hotel.

b.    Notices to Public Concerning Your Independent Status. You will take all steps reasonably necessary to minimize the chance of a claim being made against us for anything that occurs at the Hotel, or for the acts or omissions of you or anyone associated or affiliated with you or the Hotel, including steps mandated by us in the Manual or otherwise. You will not incur any obligation or indebtedness on our behalf. All contracts for the Hotel’s operations and services at the Hotel will be in your name or in the name of your management company. You will not enter into or sign any contracts in our name or using the name of the Licensed Brand or the Marks or any acronyms or variations on same. You will disclose in all dealings with suppliers and third parties that you are an independent entity and that we have no liability for your debts.

a.    Severability and Interpretation. The remedies provided in this Agreement are cumulative. These remedies are not exclusive of any other remedies to which you or we may be entitled in case of any breach or threatened breach of the terms and provisions hereof. If any provision of this Agreement is held to be unenforceable, void or voidable, that provision will be ineffective to the extent of the prohibition without in any way invalidating or affecting the remaining provisions of this Agreement, and all remaining provisions will continue in effect. If any provision of this Agreement is held unenforceable due to its scope, but may be made enforceable by limiting its scope, the provision will be considered amended to the minimum extent necessary to make it enforceable. This Agreement will be interpreted without interpreting any provision in favor of or against either of us by reason of the drafting of the provision, or either of our positions relative to the other. Any covenant, term or provision of this Agreement that provides for continuing obligations after the expiration or termination of this Agreement will survive any expiration or termination. To the extent that the provisions of this Agreement provide for periods of notice less than those required by applicable law, or provide for termination, cancellation, non-renewal or the like other than in accordance with applicable law, those provisions will, to the extent they are not in accordance with applicable law, be superseded by said law, and we will comply with applicable law in connection with each of these matters.

b.    Controlling Law. This Agreement will become valid when signed by both of us. We each agree that the State of New York has a deep and well developed history of business decisional law. For this reason, we each agree that except to the extent governed by the United States Trademark Act of 1946 (Lanham Act; 15 U.S.C. ¶ 1050 et seq.), as amended, this Agreement, all relations between us, and any and all disputes between us, whether sounding in contract, tort, or otherwise, are to be exclusively construed in accordance with and/or governed by (as applicable) the laws of the State of New York without recourse to New York (or any other) choice of law or conflicts of law principles. If, however, any provision of this Agreement would not be enforceable under the laws of New York, and if the Hotel is located outside of New York and the provision would be enforceable under the laws of the state in which the Hotel is located, then the provision in question (and only that provision) will be interpreted and construed under the laws of that state. Nothing in this section is intended to invoke the application of any franchise, business opportunity, antitrust, “implied covenant,” unfair competition, fiduciary or any other doctrine of law of the State of New York or any other state which would not otherwise apply absent this Subparagraph 16.b.

Because, as stated above, the State of New York has a well developed history of business decisional law and because the courts of the State of New York are best suited to interpret and apply that law, we each agree that any litigation arising out of or related to this Agreement, any breach of this Agreement, the relationship between us, and, any and all disputes between us, whether sounding in contract, tort, or otherwise, will be submitted to and resolved exclusively by a court of competent jurisdiction located in the City and State of New York. You waive, and agree never to assert, move or otherwise claim that this venue is for any reason improper, inconvenient, prejudicial or otherwise inappropriate (including, any claim under the judicial doctrine of forum non conveniens).

If our mutual choice of venue in the City and State of New York is not honored by the subject court(s), then we each agree that any litigation arising out of or related to this Agreement; any breach of this Agreement; the relationship between us; and, any and all disputes between us, whether sounding in contract, tort, or otherwise, will instead be submitted to and resolved exclusively by a court of competent jurisdiction located in the City and County of Los Angeles, California. You waive, and agree never to assert, move or otherwise claim that this substitute venue is for any reason improper, inconvenient, prejudicial or otherwise inappropriate (including, any claim under the judicial doctrine of forum non conveniens).

c.      Exclusive Benefit. This Agreement is exclusively for our and your benefit, and none of the obligations of either of us in this Agreement will run to, or be enforceable by, any other party (except for covenants in favor of the Entities, which covenants will run to and be enforceable by the Entities or their successors and assigns), or give rise to liability to a third party, except as otherwise specifically set forth in this Agreement.

d.     Entire Agreement . You and we acknowledge that we want all terms of this business relationship defined in this written Agreement, and that neither of us wants to enter into a business relationship with the other in which any terms or obligations are subject to any oral statements or in which oral statements serve as the basis for creating rights or obligations different than or supplementary to the rights and obligations set forth in this Agreement. Therefore, you and we agree that this Agreement and its attachments will be construed together and will supersede and cancel any prior and/or contemporaneous discussions or writings (whether described as representations, inducements, promises, agreements or by any other term) between us. We each agree that we placed, and will place, no reliance on any such discussions or writings. You agree that no claims, representations or warranties of earnings, sales, profits, success or failure of the Hotel have been made to you. This Agreement and its attachments is the entire agreement between us and contains all of the terms, conditions, rights and obligations between us with respect to the Hotel and any other aspect of the relationship between us. No change, modification, amendment or waiver of any of the provisions of this Agreement will be effective and binding upon us unless it is in writing, specifically identified as an amendment to this Agreement, signed by one of our officers, and which may include an estoppel and general release of Claims that you may have against us, Hilton or the Entities, in a form satisfactory to us . If any provision of this Agreement is inconsistent with the Manual, the provisions of this Agreement will prevail. No failure by us or by any of the Entities to exercise any power given us under this Agreement or to insist on strict compliance by you with any of your obligations, and no custom or practice at variance with the terms of this Agreement, will be considered a waiver of our or any Entity’s right to demand exact compliance with the terms of this Agreement.

e.     Consent; Business Judgment . Wherever our consent or approval is required in this Agreement, unless the provision specifically indicates otherwise, we have the right to withhold our approval in our discretion taking into consideration our assessment of the long-term interests of the System overall. You and we recognize, and any arbitrator or judge is affirmatively advised that if those decisions are supported by our business judgment, neither an arbitrator nor a judge nor any other person reviewing those decisions will substitute his, her or its judgment for our judgment. When the terms of this Agreement specifically require that we not unreasonably withhold our approval or consent, if you are in default or breach under this Agreement, any withholding of our approval or consent will be considered reasonable. Our approvals and consents will not be effective unless given in writing. In no event may you make any claim for money damages based on any claim that we have unreasonably withheld or delayed any consent or approval to a proposed act by you under the terms of this Agreement. You also may not claim damages by way of set-off, counterclaim or defense for our withholding of consent. Your sole remedy for the claim will be an action or proceeding to enforce the provisions of this Agreement by specific performance or by declaratory judgment.

f .     Notices . All notices must be in writing and will be effective on the earlier of (i) the day it is sent via facsimile with a confirmation of receipt; or (ii) one business day after it is sent by next business day delivery service; or (iii) the third business day after it is sent by first-class or certified mail or other form of express delivery to the appropriate party at the following single address, or such other single address as may be designated by the party to be notified (which, in no event, is a P.O. Box). If to us, the notice should be sent to our principal executive offices, addressed to “General Counsel.” The current address of our principal executive offices is as follows: 9336 Civic Center Drive, Beverly Hills, CA 90210. If to you, then to the address set forth for you in the Rider. Notice to you is deemed given if 1) delivered in writing via one of the delivery methods set forth above and 2) addressed to the Principal Correspondent at the address you designate in the Rider. Any change to your address or Principal Correspondent for notice must be delivered to us in writing in accordance with the delivery procedure set forth in this Subparagraph 16.f. Licensee hereby grants Licensor permission to send communications to the Licensee via facsimile for the purposes of notices under this Agreement, including this Subparagraph 16.f., and/or to provide information from the Licensor to the Licensee via facsimile or email, subject to any applicable laws. To the extent there are any regulations or laws prohibiting such mass communications and to the extent they are waivable, Licensee hereby waives them.

g .    General Release . You and your heirs, administrators, executors, agents and representatives and their respective successors and assigns release, remise, acquit and forever discharge us and the Entities and their officers, directors, employees, agents, representatives and their respective successors and assigns from any and all actions, claims, causes of action, suits, rights, debts, liabilities, accounts, agreements, covenants, contracts, promises, warranties, judgments, executions, demands, damages, costs and expenses, whether known or unknown at this time, of any kind or nature, absolute or contingent, at law or in equity, on account of any matter, cause or thing whatsoever that has happened, developed or occurred before you sign and deliver this Agreement to us (collectively, “ Claims ”). This release will survive the termination of this Agreement.

h .    Estoppel Certificate . Whenever we reasonably request it, you will deliver to us an estoppel certificate in the form we require as to the matters described in this Agreement.

i.      Descriptive Headings . The descriptive headings in this Agreement are for convenience only and will not control or affect the meaning or construction of any provision in this Agreement.

j.    Representations and Warranties. You warrant, represent and agree that all statements made by you in the Application you submitted to us in anticipation of this Agreement and all other documents and information you submitted to us are true, correct and complete as of the date of this Agreement and that you will continue to update them so that they are always true, correct and complete. You further represent and warrant to us that you have the full legal power and authority to enter into this Agreement and that by entering into this Agreement you will not be breaching any agreement to which you are a party. You hereby indemnify and hold us harmless from any breach of these representations and warranties. These warranties and representations will survive the termination of this Agreement.

k.   Time. Time is of the essence in this Agreement.

l.    Counterparts . This Agreement may be signed in counterparts, each of which will be considered an original.

m.  Performance Requirements/Responsibilities. Attachment A, setting forth certain of your performance conditions and requirements, is incorporated by reference and made a part of this Agreement.

n.   Informational Copies. You acknowledge that we may provide, but are not required to provide, copies of any information we provide to you concerning the Hotel (such as quality assurance reports and default notices) to the owner and/or lessor of the Hotel.

o.    Blocked Persons or Entities. Licensee represents and warrants to Hilton that to Licensee’s actual or constructive knowledge: (1) neither Licensee (including its directors and officers), nor any of its Affiliates, or the funding sources for any of the foregoing, is identified on the list of the Treasury’s Office of Foreign Assets Control (OFAC); (2) neither Licensee nor any of its Affiliates, is directly or indirectly owned or controlled by the government of any country that is subject to an embargo imposed by the United States government; and (3) neither Licensee nor any of its Affiliates is acting on behalf of a government of, or is involved in business arrangements or other transactions with, any country that is subject to such an embargo. Licensee agrees that it will notify Hilton in writing immediately upon the occurrence of any event which would render the foregoing representations and warranties of this Subparagraph 16.o. incorrect. Notwithstanding anything to the contrary in this Agreement, no Transfer shall be made to a Specially Designated National or Blocked Person (as herein defined below) or to an entity in which a Specially Designated National or Blocked Person has an interest. For purposes of this Agreement, " Specially Designated National or Blocked Person " means (i) a person or entity designated by OFAC (or any successor office or agency of the U.S. government) from time to time as a "specially designated national or blocked person" or similar status, (ii) a person or entity described in Section 1 of U.S. Executive Order 13224, issued on September 23, 2001, or (iii) a person or entity otherwise identified by government or legal authority as a person with whom Hilton is prohibited from transacting business. Note to Licensee: The U.S. government has published a list of such designations and the text of the Executive Order are is published under the internet website address www.ustreas.gov/offices/enforcement/ofac.

17. WAIVER OF JURY TRIAL

TO THE EXTENT EITHER PARTY INITIATES LITIGATION INVOLVING THIS AGREEMENT OR ANY ASPECT OF THE RELATIONSHIP BETWEEN US (EVEN IF OTHER PARTIES OR OTHER CLAIMS ARE INCLUDED IN SUCH LITIGATION), ALL THE PARTIES WAIVE THEIR RIGHT TO A TRIAL BY JURY. THIS WAIVER WILL APPLY TO ALL CAUSES OF ACTION THAT ARE OR MIGHT BE INCLUDED IN SUCH ACTION, INCLUDING CLAIMS RELATED TO THE ENFORCEMENT OR INTERPRETATION OF THIS AGREEMENT, ALLEGATIONS OF STATE OR FEDERAL STATUTORY VIOLATIONS, FRAUD, MISREPRESENTATION, OR SIMILAR CAUSES OF ACTION, AND IN CONNECTION WITH ANY LEGAL ACTION INITIATED FOR THE RECOVERY OF DAMAGES BETWEEN OR AMONG US OR BETWEEN OR AMONG ANY OF OUR OWNERS, AFFILIATES, OFFICERS, EMPLOYEES OR AGENTS.

  [THIS AGREEMENT CONTINUES WITH AN ATTACHMENT A AND ATTACHMENT B, WHICH ARE A PART OF THIS AGREEMENT.]

Attachment A - 1

ATTACHMENT A - PERFORMANCE CONDITIONS:
CONVERSION

A.           Consultation. You or your representative(s) will meet with us to consult and coordinate with the project manager we assign to you. The meeting will take place within forty-five (45) days after we notify you of approval, and the meeting will be held at a location we select.

B.           Work and Purchase Requirement. If applicable, the PIP is attached to this Agreement as Exhibit  A , and incorporated herein by reference. You will perform the renovation and/or construction work and purchase the items described on the PIP (the “ Renovation Work ”) on or before the completion date specified on the Rider. The Renovation Work will include your purchasing and/or leasing and installing all fixtures, equipment, furnishings, furniture, signs, computer terminals and related equipment, supplies and other items which would be required of a new System hotel under the Manual and other equipment, furnishings and supplies as we may required for you to operate the Hotel. You will be solely responsible for obtaining all necessary licenses, permits and zoning variances required for the Hotel.

C.           Approval of Architect/Engineer/Contractors. Before you submit Plans and Designs (as defined in Paragraph D) to us, you will furnish us with resumes and other information we request pertaining to the architect you desire to retain to prepare your Plans and the interior designer you desire to retain to prepare your Designs. The Plans and Designs will not be approved until we have approved the architect and designer who are to prepare the Plans and Designs. Before Renovation Work, you will also submit to us resumes and other information we request pertaining to the general contractor and/or any major subcontractors for the Renovation Work). Renovation Work will not begin until we have approved the contractors, which approval may be conditioned on bonding of the contractors.

D.           Approval of Plans and Designs. On or before the date specified on the Rider for submission of the Plans, you must submit to us your plans, layouts, specifications, and drawings for the Hotel, (collectively, the “ Plans ”). We may supply you with representative prototype Guest Room and public area plans and schematic building plans as a guide for preparation of the Plans. Renovation Work will not begin unless and until we have approved the Plans. You must also submit to us your plans, layouts, specifications, drawings and designs for the proposed furnishings, fixtures, equipment, signs and décor of the Hotel (collectively, the “ Designs ”) when we instruct you to do so. Once we approve the Plans and Designs, no change may be made to the Plans and Designs without our advance consent. In approving the Plans and Designs, we do not warrant the depth of our analysis or assume any responsibility for the efficacy of the Plans and Designs, or the resulting Renovation Work. You will cause the Renovation Work to be in accordance with this Agreement, the approved Plans and Designs, the Manual and the PIP. You will be solely responsible for obtaining all necessary licenses, permits and zoning variances that may be required for the Renovation Work. It is solely your responsibility to ensure your Plans comply with our then prevailing standards and specifications as set forth in the Manual and with all Legal Requirements (as defined below).

You are solely responsible for making certain that the Hotel and the Renovation Work comply in all respects with all Legal Requirements. For purposes of this Agreement, “ Legal Requirements ” means all public laws, statutes, ordinances, orders, rules, regulations, permits, licenses, authorizations, directions and requirements of all governments and governmental authorities, which, now or hereafter, may apply to the construction, completion, equipping and opening of the Hotel and the operation of the Hotel, including environmental, zoning, building, and life safety. We and Hilton will have the right to, and you will arrange for us and Hilton to, participate in all progress meetings during the Renovation Work, to have access to all contract and construction documents relating to the Hotel and the Renovation Work, and to have access to the Hotel during reasonable business hours to visit the Hotel, its construction, completion, furnishing and equipping. However, neither we nor Hilton are obligated to participate in progress meetings, or visit the Hotel, and our and Hilton’s participation and site visits are not to be considered as a representation of the adequacy of the construction, the structural integrity, or the sufficiency of mechanical and electrical systems for the Hotel or the Renovation Work. Before we approve your Plans, your architect or other certified professional must certify to us that the Plans comply with, or do not require compliance with, the Americans with Disabilities Act and its architectural guidelines as well as the applicable state and local codes for accessible facilities. Upon completion of the Renovation Work and as a condition to Opening of the Hotel, your architect, general contractor or other certified professional must provide us with a certificate stating that the as-built premises comply with, or do not require compliance with, the Americans with Disabilities Act and its architectural guidelines and all state and local codes for accessible facilities.

Attachment A - 1

E.           Commencement; Completion. You will begin the Renovation Work on or before the date specified on the Rider (the “ CCD ”) and will continue the Renovation Work uninterrupted (except to the extent continuation is prevented by events beyond Licensee’s control, such as acts of God, third party strikes, acts of terrorism, war, or general governmental restrictions (“ Force Majeure ”)) until it is completed. For purposes of this Paragraph E, Force Majeure does not include your own financial inability, inability to obtain financing, inability to obtain permits or any other events unique to you or the Hotel. Notwithstanding any Force Majeure, or any other matter, the Renovation Work must be completed and the Hotel must be furnished, equipped, and comply with this Agreement no later than the date specified in the Rider (the “ Renovation Work Completion Date ”). If you fail to complete the Renovation Work in accordance with this Agreement on or before the Renovation Work Completion Date and this failure to meet the Renovation Work Completion Date is due solely to Force Majeure, the Pre-Opening Termination Fee (as defined in Paragraph S below) will not be assessed. Your failure to complete the Renovation Work by the Renovation Work Completion Date will be an Event of Default, unless we extend such date. If you want to request an extension of the Renovation Work Completion Date, you must submit a written request and a Ten Thousand Dollar ($10,000) extension fee before the Renovation Work Completion Date. If we approve the extension, we will set a new Renovation Work Completion Date and the extension fee will become non-refundable. If we deny the extension, we will refund the extension fee. We will have the sole right to determine whether the Renovation Work has been completed in accordance with this Agreement, the approved Plans and Designs, the Manual and the PIP.

F.           Site Visits. During the course of Renovation Work, you and your architect, designer, contractors, and subcontractors will cooperate fully with us for the purpose of permitting us to visit the Hotel and review the progress of the Renovation Work. In addition, you and your contractors, architect and designer will (i) supply us with samples of construction materials, supplies, equipment, materials and reports as we may request and (ii) give our representatives access to the Hotel site and Renovation Work in order to permit us to carry out our site visits.

G.           Progress Reports. You will submit to us each month (or more frequently if we so request) a report showing progress made toward fulfilling the terms of this Agreement.

H.           Acquisition of Equipment, Furnishings, and Supplies. You will purchase and/or lease and install all fixtures, equipment, furnishings, furniture, signs, computer terminals and related equipment, supplies and other items we require in order to assure that the Renovation Work is completed under this Agreement.

I.           Cost of Construction and Equipping. You will bear the entire cost of the Renovation Work, including the cost of the Plans and Designs, professional fees, licenses, permits, equipment, furniture, furnishings and supplies.

J.           Insurance During Conversion. In addition to the insurance coverage required under this Agreement, during the course of Renovation Work, you will maintain or will cause the general contractor to maintain Builder’s Risk coverage for the replacement value of the Hotel, which policies must name us and the Entities as additional insureds. This coverage must be evidenced by an original certificate of insurance, submitted to us at least thirty (30) days before you begin Renovation Work and thereafter any time before a change is made in the coverage. Prior to the Opening, you will submit to us a certificate of insurance evidencing the other types of insurance we require under subparagraph 6.a.(31) of this Agreement.

Attachment A - 2  

K.          Limitation of Liability. We will have no liability or obligation with respect to design and construction of the Hotel. We have furnished to you that portion of the Manual which contains the technical standards and specifications to assist you in completing the Renovation Work. You acknowledge you have studied these standards and specifications and satisfied yourself that the Hotel can be designed, furnished and equipped in accordance with these standards and specifications and that you and your design and construction consultants and contractors have the necessary resources and skills to do so. The Manual does not encompass the architectural, structural, mechanical or electrical safety, adequacy, integrity or efficiency of the design or compliance with applicable Legal Requirements. We do not undertake to approve the Hotel as complying with governmental requirements or as being safe for guests or other third parties and we have no responsibilities in these areas. You must indemnify us with regard to compliance with these matters to the extent provided in Paragraph 9 of this Agreement. The Manual may not be used by you or by any design or construction professional for any hotel project other than the Hotel.

L.           Trademarks. During the Renovation Work, you will have the right, so long as this Agreement is in effect: (i) to place a sign on the Hotel site, advising the general public that a System hotel is under construction or renovation, and you agree, at your sole expense, on or before the date specified in the Rider, to erect, install and maintain in complete working order at the site of the Hotel a large construction sign using the Licensed Brand name and other distinguishing characteristics in accordance with our plans and specifications for System hotels; (ii) to advertise and promote the development and Opening of the Hotel in the media; (iii) to purchase, from vendor(s) approved by us, operating supplies and equipment bearing the Marks required for the operation of the Hotel; and (iv) to purchase, from vendor(s) approved by us, and install the permanent Licensed Brand signage required for the operation of the Hotel. Once we authorize the Hotel to Open (conditionally or otherwise) as a System hotel, you may use the Marks and the System in the operation of the Hotel consistent with the terms and conditions of this Agreement. Upon Opening, you will stop using all other names, symbols, trademarks or trade logos other than those used and associated with the System.

N.           Opening. The Hotel will be considered open for business (“ Open ” or “ Opening ”) on the date (“ Opening Date ”) we authorize you to make available the facilities, Guest Rooms or services of the Hotel to the general public under the Licensed Brand name(s). You will not Open the Hotel unless and until you receive our written authorization to do so. We will only authorize the Hotel to Open when we, in our sole discretion, are satisfied that: (i)  you have complied with all the terms and conditions set forth in this Agreement; (ii) your staff has received adequate training and instruction; and (iii) all fees and charges you owe to us or the Entities have been paid. Opening the Hotel before we authorize you to Open will constitute unauthorized use of our Marks and a material breach of this Agreement. Recognizing the difficulty of ascertaining damages for such a breach, you agree to pay to us, as liquidated damages, solely for the damage to our Marks, and not as a penalty, Five Thousand Dollars ($5,000) per day to compensate us for the damage to our Marks. You also agree to reimburse us for our costs, including attorneys fees, incurred in enforcing our rights. These damages do not limit any other remedies we may have, at law or in equity.

O.           Compliance/Investigation. You will give us at least fifteen (15) days advance notice that, in your opinion, you have complied with all the terms and conditions of this Agreement and the Hotel is ready to Open (conditionally or otherwise). We will use reasonable efforts within fifteen (15) days after we receive your notice to visit the Hotel and to conduct other investigations as we deem necessary to determine whether to authorize the Opening (conditional or otherwise) of the Hotel, but we will not be liable for delays or loss occasioned by our inability to complete our investigation and to make this determination within the fifteen (15) day period. If you fail to pass our initial opening site visit, we may, in our sole discretion, charge you reasonable fees associated with any additional visits.

Attachment A – 3

P.           Conditional Opening. Notwithstanding Paragraph N above, we may, in our sole discretion, conditionally authorize you to Open and operate the Hotel as a System hotel (“ Conditional Opening ”) even though you have not fully complied with the terms of this Agreement, if you are meeting your performance obligations under this Agreement and if you agree to fulfill all remaining terms of this Agreement, including any attachment, on or before the completion date set forth on the Rider, or any extension we approve. Our determination as to whether to authorize a Conditional Opening will be final and binding.

Q.           Performance of Agreement. You agree to satisfy all of the terms and conditions of this Agreement, and to equip, supply, staff and otherwise make the Hotel ready to Open under our standards. As a result of your efforts to comply with the terms and conditions of this Agreement, you will incur significant expense and expend substantial time and effort. You acknowledge and agree that we will have no liability or obligation to you for any losses, obligations, liabilities or expenses you incur if we do not authorize the Hotel to Open or if we terminate this Agreement because you have not complied with the terms and conditions of this Agreement.

R.           Termination Prior to Opening. Your failure to satisfy the terms of this Agreement, including your failure to begin or complete the Renovation Work in accordance with the Plans, the Manual and our requirements (including the milestone and completion dates) will constitute a material breach of your obligations under this Agreement and will be considered an Event of Default. If an Event of Default occurs before the Opening, we may terminate this Agreement if that Event of Default continues for ten (10) days (or longer, if required by law) after written notice to you.

S.           Pre-Opening Termination Fees. If there is an Event of Default by you prior to Opening and, as a result of your failure to cure such Event of Default, we terminate this Agreement either:

then you will be liable to us for a Pre-Opening termination fee equal to One Thousand Two Hundred Dollars ($1200.00), for each Guest Room, multiplied by three (3) (the “ Pre-Opening Termination Fee ”). You must pay the entire Pre-Opening Termination Fee to us in one lump sum upon demand. The Pre-Opening Termination Fee represents the minimum damages we would incur as a result of the additional time necessary for us to develop an alternative site in the market. It does not substitute for any other damages we may incur as a result of any breach by you of any provision of this Agreement before or after the termination date, for which you will remain liable.

T.           Termination after Opening of the Hotel. Termination of this Agreement after the Opening of the Hotel (conditionally or otherwise) will be governed by Paragraph 14 of this Agreement.

(Remainder of page left intentionally blank.)

Attachment A – 4

ATTACHMENT B -
RIDER TO FRANCHISE LICENSE AGREEMENT

Effective Date: NOVEMBER 24, 2004

Licensor Name: HILTON INNS, INC., a Delawarecorporation

Licensed Brand: Hilton (excluding Hilton Suites, Hilton Garden Inn,Homewood Suites by Hilton and any other sub-brands containing Hilton in the name.)

Initial Approved Hotel Name (Trade Name): Hilton San Francisco Financial District

Principal Name in Licensed Brand: Hilton

Address of Hotel: 750 Kearny Street, San Francisco, CA 94108

Initial Number of Approved Guest Rooms: 555

Licensee agrees that the Renovation Commencement Date and Renovation Work Completion Date may be extended by written notice from Licensor in its discretion.

Expiration of Term: At midnight on the day before the 15 ^th anniversary of the Opening Date, subject to the Renewal Option set forth in Subparagraph 13.b.

Attachment B - 1

Monthly Royalty Fee: You will pay a Monthly Royalty Fee representing a percentage of the Gross Rooms Revenue of the Hotel, as defined in Subparagraph 7.b. of the Agreement, in the amounts set forth below:

*through the first twelve (12) full calendar months after the Opening of the Hotel.

Additional Requirements/Special Provisions:

2. Grant of License

a.    Non-Exclusive License. We hereby grant to you and you hereby accept a non-exclusive license (the “ License ”) to use the System at, and in connection with the operation of, the Hotel, in accordance with the terms of this Agreement. You acknowledge and agree that you are not acquiring any rights other than the non-exclusive right to use the System to operate the Hotel under the Licensed Brand at the site licensed under this Agreement and in accordance with the terms of this Agreement.

Except as provided below, this Agreement does not limit our right, or the right of any of our present or future owners, subsidiaries, and affiliated entities (the “ Entities ”), to own, license or operate any other business of any nature (“ Other Businesses ”), including a hotel, inn, conference center, time share property, lodging facility or similar business, whether under the Licensed Brand or as a competitive brand, or otherwise. We reserve the right to engage in any Other Businesses, even if they compete with the Hotel, the System, or the Licensed Brand, whether we start those businesses, or purchase, merge with, acquire, are acquired by, or affiliate with, those businesses. We may also: (a) use or license to others all or part of the System; (b) use the facilities, programs, services and/or personnel used in connection with the System inOther Businesses; and (c) use the System, the Licensed Brand, and the Marks in the Other Businesses. You waive and release any claims, demands or damages arising from or related to any of the foregoing activities, and you acknowledge and agree that those activities will not give rise to any liability on our part, including liability for claims for unfair competition, breach of contract, breach of any applicable implied covenant of good faith and fair dealing, or divided loyalty.

Notwithstanding the foregoing, neither we nor any of the Entities will operate, or allow to operate, a full-service hotel or motel under the Licensed Brand, as such name may be changed by us from time to time, within the Restrictive Area One and Restrictive Area Two (defined below) during the two time periods (the “ Restrictive Period(s) ”) as shown below. This restriction does not apply to any hotel that is currently open or under construction or has been approved for development or opening as a Licensed Brand hotel as of the Effective Date (“ Existing Hotel ”). The term Existing Hotel also includes any hotel located or to be located within the Restrictive Area that replaces such Existing Hotel under the Licensed Brand .

Attachment B - 2 

Restrictive Period One: The first Restrictive Period will commence on the Effective Date and continue to the FOURTH (4 ^TH ) anniversary of the Opening Date (“ Restrictive Period One ”). Under Restrictive Period One, the Restrictive Area is generally outlined on the map attached to, and incorporated by reference into, this Agreement as Exhibit B-1 (“ Restrictive Area One ”) . Except as may otherwise be specifically provided in this Subparagraph 2.a., Restrictive Area One means the area located within the boundaries below and is from the shore or side of the street currently closest to the Hotel. If there is a conflict between Exhibit B-1 and this narrative description, this description will control.

Restrictive Period Two: The second Restrictive Period will commence on FOURTH (4 ^TH ) anniversary of the Opening Date and continue to the TENTH(10 ^th ) anniversary of the Opening Date(“ Restrictive Period Two ”). Under Restrictive Period Two, the Restrictive Area is generally outlined on the map attached to, and incorporated by reference into, this Agreement as Exhibit B-2 (“ Restrictive Area Two ”) . Except as may otherwise be specifically provided in this Subparagraph 2.a., Restrictive Area Two means the area located within the boundaries below and is from the shore or side of the street currently closest to the Hotel. If there is a conflict between Exhibit B-2 and this narrative description, this description will control.

b. You agree that nothing contained in this Agreement or any laws, prohibits or limits us, Hilton, the Entities or any successors (by purchase, merger, acquisition or otherwise) from (1) engaging in any of the activities relating to Other Businesses under brand names other than the Licensed Brand, (2) constructing, owning, leasing, managing, franchising, licensing, operating or authorizing the operation of any Existing Hotel, and (3) constructing, owning, leasing, managing, franchising, or licensing any hotel other than an Existing Hotel under the Licensed Brand in the Restrictive Area, as long as the subject hotel does not begin operating under the Licensed Brand until after the expiration of the Restrictive Period. In addition, the restrictions do not apply to (i) areas located anywhere outside the Restrictive Area; (ii) any period after the earlier of the expiration of the Restrictive Period or termination of this Agreement; (iii) any gaming-oriented hotels, facilities, or Other Businesses; (iv) any shared ownership properties commonly known as “vacation ownership” or “time share ownership” or similar real estate properties; or (v) any hotel(s), motel(s), or inn(s) that are part of a chain or group of four (4) or more hotels, motels, or inns that we, Hilton or the Entities, in a single transaction, after the Effective Date own, operate, acquire, lease, manage, franchise, license, or join through a merger, acquisition or marketing agreement (or otherwise), whether under their existing name or the Licensed Brand name or any other name.

You waive and release any claims, demands or damages arising from or related to any of the foregoing activities, and you acknowledge and agree that those activities will not give rise to any liability on our part, including liability for claims for unfair competition, breach of contract, breach of any applicable implied covenant of good faith and fair dealing, or divided loyalty.

Attachment B - 3

c. Trade Name. The Hotel will be initially known by the trade name set forth in the Rider (the “ Trade Name ”). We may change the Trade Name and/or the Licensed Brand name and/or any of the Marks at any time at our sole discretion, but we will not change the principal name identified in the Rider. You may not change the Trade Name without our specific written consent. You acknowledge and agree that you are not acquiring the right to use any service marks, copyrights, trademarks, logos, designs, insignia, emblems, symbols, slogans, distinguishing characteristics, trade names, domain names or other marks or characteristics owned by the Entities that we do not specifically designate to be used in the System.

Your Ownership Structure: JUSTICE INVESTORS

IN WITNESS WHEREOF, the parties have executed this Agreement, which has an effective date as of the date set forth in this Rider (the “Effective Date”).

Attachment B - 4

EXHIBIT 10.11

MANAGEMENT AGREEMENT

Between

JUSTICE INVESTORS,
as Owner

And

PRISM HOSPITALITY, L.P., a
Texas limited partnership,
as Operator

FOR

THE HOTEL LOCATED AT 750 KEARNY STREET,
SAN FRANCISCO, CALIFORNIA, currently known as the HILTON SAN FRANCISCO
FINANCIAL DISTRICT

DATED: As of February 2, 2007

Exhibits:

MANAGEMENT AGREEMENT

This Management Agreement made as of February 2, 2007 between JUSTICE INVESTORS, a California limited partnership (“Owner”), and PRISM HOSPITALITY, L.P., a Texas limited partnership (“Operator”).

WITNES SETH:

WHEREAS, certain capitalized terms used in this Agreement are defined in Article 1; and

WHEREAS, Owner owns the property located at 750 Kearny Street, San Francisco, CA, currently known as the Hilton San Francisco Financial District, containing a total of approximately 549 guest rooms. The Hotel does not include the Chinese Cultural Center premises, TruSpa premises, gift shop premises and the parking garage that are located in the same structure or on the same property as the Hotel; and

WHEREAS, the Hotel is currently managed for Owner by another operator, but Owner has the right to terminate its management agreement with the current operator at any time without cause upon 60 days notice; and

WHEREAS, Owner desires to have the Hotel managed by Operator as an agent of Owner pursuant to the First Class Hotel Standard commencing upon the termination of the existing management agreement; and

WHEREAS, Operator is experienced in the management and operation of hotels directly and through affiliated entities; and

WHEREAS, Owner and Operator desire to enter into this Agreement respecting the operation of the Hotel from and after the Transition Date in accordance with the terms and conditions and subject to the limitations contained in this Agreement.

NOW, THEREFORE, Owner and Operator covenant and agree as follows:

ARTICLE 1    DEFINITIONS, TERMS AND REFERENCES

1.1            Definitions . In this Agreement and any Exhibits, the following terms shallhave the following meanings:

“ Account Category ” shall include the major account categories set forth in Exhibit A attached hereto and made a part hereof as well as other major account categories, which are applicable to the Hotel consistent with the Statement of Income as defined by the Uniform System of Accounts or otherwise approved by Owner.

“ Accounting Period ” shall mean each month (whether of 28, 29, 30 or 31 days) during each Fiscal Year.

“ Accounting Period Report ” shall mean a report pursuant to Section 10.2 hereof for each Accounting Period.

“ Affiliate ” An “Affiliate” of a person means any person which, directly or indirectly, controls, is controlled by or is under common control with, such person. The term “control” (including, with correlative meaning, the terms “controlled by” and “under common control with”), as used with respect to any person, means the possession, directly or indirectly, or the power to direct or cause the direction of the management and policies of such person, whether through the ownership of voting securities or by contract or otherwise, including, without limitation, control exists when a person is a managing member, managing partner, trustee, president and/or chief executive officer of a person and/or of an Affiliate of such person. A “person” shall mean an individual, corporation, partnership, limited liability company, limited partnership and/or trust. A natural person is an Affiliate to another natural person if he or she is a spouse, parent or lineal descendent of the other person.

“ Agreement ” shall mean this Management Agreement, as it may be amended or supplemented from time to time.

“ Annual Financial Plan” (“AFP”) shall mean the Annual Financial Plan for a Fiscal Year which shall consist of the Annual Operating Budget, the Capital Budget, the Marketing Plan and the Management Plan and any other material included therein by Operator or Owner as provided in Section 4.5 , and which has been approved by Owner.

“ Annual Operating Budget ” shall mean schedules containing the annual operating projection for the Hotel and prepared and submitted by Operator to Owner in each Fiscal Year pursuant to Section 4.5(b) .

“ Approved Capital Budget ” shall have the meaning set forth in Section 4.5(d) .

“ Building and Appurtenances ” shall mean (a) the approximately 565 guest room hotel building on the Property, and (b) landscaping and other related facilities, together with all installations for the operation of the building for hotel purposes including, without limitation, any swimming pools, walkways, heating, lighting, sanitation equipment, air conditioning, laundry facilities, refrigeration, built-in kitchen equipment, and elevators.

“ Capital Budget ” shall mean schedules containing Operator’s proposed estimate of FF&E and Capital Improvements submitted to Owner each Fiscal Year pursuant to Section 4.5(d) .

“ Cause ” shall mean the occurrence at any time of any material act of fraud, misappropriation of funds, dishonesty, or willful misconduct by Operator in connection with its management of the Hotel.

“ CPI ” shall mean the Consumer Price Index for All Urban Consumers, United States City Average, All Items (1982-84-100), issued by the Bureau of Labor Statistics of the United States Department of Labor.

“ Effective Date ” shall mean the date when the operation and management of the Hotel by Operator shall commence; however, this Agreement shall be binding upon execution and delivery of it by the parties.

“ Environmental Authority ” shall mean any department, agency or other body or component of any government that exercises any form of jurisdiction or authority under any Environmental Law.

“ Environmental Laws ” shall mean all applicable federal, state, local and foreign laws and regulations relating to pollution of the environment (including without limitation, ambient air, surface water, ground water, land surface or subsurface strata), including without limitation laws and regulations relating to emissions, discharges, Releases or threatened Releases of Hazardous Materials or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials.

“ Environmental Liabilities ” shall mean any and all actual or potential obligations to pay the amount of any judgment or settlement, the cost of complying with any settlement, judgment or order for injunctive or other equitable relief, the cost of compliance or corrective action in response to any notice, demand or request from an Environmental Authority, the amount of any civil penalty or criminal fine, and any court costs and reasonable amounts for attorney’s fees, fees for witnesses and experts, and costs of investigation and preparation for defense of any claim or any proceeding, regardless of whether such proceeding is threatened, pending or completed, that may be or have been asserted against or imposed upon Owner, Operator, any predecessor in interest, the Hotel or any property used therein and arising out of:

(a)          the failure to comply at any time with any Environmental Law applicable to the Hotel;

(b)          the presence of any Hazardous Materials on, in, under, at or in any way affecting the Hotel;

(c)          a Release or threatened Release of any Hazardous Materials on, in, at, under or in any way affecting the Hotel;

(d)          the identification of Operator, Owner or any predecessor in interest as a potentially responsible party under any Environmental Law;

(e)          the presence at any time of any above-ground and/or underground storage tanks, as defined in any applicable Environmental Law on, in, at or under the Hotel or any adjacent site or Hotel; or

(f)          any and all claims for injury or damage to persons or property arising out of exposure to Hazardous Materials originating or located at the Hotel, or resulting from operation thereof or any adjoining property.

“ Event of Default ” shall mean any of the events described in Article 18 , provided that any condition contained therein for the giving of notice or the lapse of time, or both, has been satisfied and any cure period has elapsed without the event having been cured.

“ Executive Staff ’ means the General Manager, the Financial Controller, the Human Resources Director (if applicable), the Resident Manager (if applicable), the Chief Engineer, the Director of Marketing and Sales, the Director of Food and Beverage, and the Director of Catering.

“ First Class Hotel Standard ” shall mean all of the following standards:

(a)          with respect to the physical condition, furnishing and equipping of the Hotel, unless Owner otherwise requires, (i) keeping the Hotel in its present condition and keeping it furnished and equipped in the same manner as on the Effective Date, provided that following any renovation or upgrading of the Hotel, its furniture, furnishings and equipment, keeping them in the upgraded or renovated condition, and (ii) meeting any applicable requirements with respect to the physical condition, furnishing and equipping the Hotel of (A) any Franchise Agreement in effect, (B) any Mortgage in effect and (C) the Legal Requirements;

(b)          With respect to operational standards, the operation of the Hotel in the manner required to (i) satisfy the operational requirements of the Franchise Agreement, if any, the Mortgage, if any, and Legal Requirements, and (ii) meet the level of service and quality generally considered to be “first class;” and

(c)          Subject to compliance with (a) and (b), management and operation of the Hotel in a manner which will be most likely to achieve the objective of maximizing the present value of the Hotel, while minimizing the capital investment required of Owner.

“ Fiscal Year ” shall mean the fiscal year which ends on the last day of each calendar year. The first Fiscal Year shall be the period commencing on the Effective Date and ending on December 31, 2007. The words “ full Fiscal Year ” shall mean any Fiscal Year containing not fewer than three hundred sixty-four (364) days. A partial Fiscal Year after the end of the last full Fiscal Year and ending with the expiration or earlier termination of the Term shall constitute a separate Fiscal Year.

“ Franchise Agreement” or “Franchise ” shall mean the franchise or license agreement from time to time issued to Owner with respect to the operation of the Hotel, if any. Presently, “Franchise Agreement” means the Franchise License Agreement having an effective date of November 24, 2004 between Hilton Inns, Inc, as franchisor, and Owner, as franchisee.

“ Franchisor ” shall mean any issuer of a franchise or license agreement with respect to operation of the Hotel from time to time. Presently, the Franchisor is Hilton Inns, Inc.

“ Fully Adjusted NOI ” shall mean for a Fiscal Year the NOI (except that the incentive management fee due under Article 11 shall not be deducted as a Gross Operating Expense for purposes of determining Fully Adjusted NOI) for that Fiscal Year less: (a) the Owner’s Return for that Fiscal Year; (b) any additions to Working Capital during that Fiscal Year resulting in total Working Capital exceeding Seven Hundred Fifty Thousand Dollars ($750,000), less any amount of Working Capital paid back to Owner during that Fiscal Year as a result of a subsequent reduction in Working Capital during that Fiscal Year; and (c) any other amounts paid or advanced by Owner toward payment of expenses of the Hotel, including any capital expenses not paid from the Reserve (such capital expenses in any Fiscal Year to be amortized on a straight line basis (with interest at twelve percent (12%) per year on the unamortized amount) over the useful life of the capital item for which such capital expenses were incurred, with the amortized annual amount to be deducted in determining Fully Adjusted NOI for that Fiscal Year and each succeeding Fiscal Year until the useful life of the capital item has expired, as determined by the Independent Public Accountant in accordance with generally accepted accounting principles).

“ Furniture, Fixtures and Equipment ” (“FF&E”) shall mean all furniture, furnishings, wall coverings, fixtures, carpeting, rugs, fine arts, paintings, statuary, decorations, and hotel equipment and systems located at, or used in connection with, the operation of the Building and Appurtenances as a hotel, including without limitation, major equipment and systems required for the operation of kitchens, bars, laundry and dry cleaning facilities, office equipment, dining room wagons, major material handling equipment, major cleaning and engineering equipment, telephone systems, computerized accounting and vehicles together with all replacements therefor and additions thereto, but excluding Operating Equipment and Supplies.

“ Gross Operating Expenses ” shall mean, for any period, all expenses incurred during such period in the operation of the Hotel determined on an accrual basis other than Operator’s Expenses. Gross Operating Expenses shall include:

(a)          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 for the Hotel Employees; and all other costs incurred by Operator in connection with employment of Hotel Employees, excluding, however, those amounts for which Operator is required to indemnify Owner pursuant to Section 22.1 ;

(b)          Departmental expenses; administrative and general expenses; the cost of third party vendor sources engaged to print payroll checks and reports; advertising and business promotion for the Hotel; franchise fees, chain reservation fees and all other fees relating to the Franchise Agreement; the cost of utilities, service contracts; and repairs and maintenance made under Section 8.1 ;

(c)          The cost of replacing Operating Equipment and Supplies and Inventories;

(d)          The cost of uncollectible accounts receivables;

(e)          The cost and expenses of technical consultants and operational experts for specialized services in connection with non-routine Hotel work including roofing consultants, environmental engineers and others;

(f)           The cost of insurance (less the allocable amount of property insurance premiums applicable to the Chinese Cultural Center, TruSpa, gift shop and parking garage to the extent and if such insurance cannot be segregated and paid directly, which allocable amount shall be fair and equitable and shall be proposed by Operator and approved by Owner);

(g)          The amounts paid into the Reserve as provided in Section 7.2 but in no event more than five percent (5%) of the Gross Operating Revenues for the applicable period;

(h)          The Management Fee as set forth in Article 11 ;

(i)           Real estate and personal property taxes levied or assessed against the Hotel and other like charges (less the allocable amount of real estate taxes applicable to the Chinese Cultural Center, TruSpa, gift shop and parking garage to the extent and if such tax(es) cannot be segregated and paid directly, which allocable amount which allocable amount shall be fair and equitable and shall be proposed by Operator and approved by Owner);

(j)            Political contributions for which Owner has given its prior written consent;

(k)           All other reasonable costs and expenses incurred in connection with the operation of the Hotel and otherwise approved as part of the AFP or otherwise allowed by this Agreement;

(1)           Charges for the use of the parking facilities serving the Hotel;

(m)          Fees and other amounts payable pursuant to the Franchise Agreement; and

(n)          Takeover Expenses.

“ Gross Operating Revenues ” shall be determined in a manner consistent with the Uniform System of Accounts (except in any respect where the same is inconsistent with the provisions hereof), and shall mean all revenues and receipts of every kind derived by Owner from the operation of the Hotel and all departments and parts thereof, including, but not limited to all income and revenue received from transient guests, tenants, licenses, concessionaires and other persons occupying space at and/or rendering services to the guests of the Hotel (but not the gross receipts received by such tenants, licensees, concessionaires and other persons) from the following:

(a)           rental of rooms and lobby space, exhibit or sales space of any kind;

(b)           net vending income (gross vending revenue less the amount payable to equipment vendors for the use thereof);

(c)           health club membership fees;

(d)           retail sales of merchandise;

(e)           service charges;

(f)            license, lease and concession fees and rentals (but not including the gross receipts of any licensees, lessees and concessionaires);

(g)           food and beverages sales;

(h)           telecommunication charges;

(i)            valet parking charges;

(j)            retail sales of every kind; and

(k)           net proceeds of business interruption insurance claims or other loss of income insurance.

Gross Operating Revenues shall not include any of the following:

(a)           federal, state and municipal excise, sales and use taxes or similar impositions collected directly from patrons, guests or users of the Hotel or included as part of the sales price of any goods, services, or displays, such as gross receipts, admission, cabaret or similar or equivalent taxes;

(b)          proceeds arising from the sale or other disposition of property described in Section 1231 of the Internal Revenue Code or of capital assets;

(c)           proceeds from condemnation or eminent domain;

(d)          payments received on account of insurance policies or items of a similar nature (other than business interruption insurance);

(e)           proceeds from claims for damages suffered by Operator or Owner, unless in recompense for a lost revenue item;

(f)           allowances for rebates and adjustments;

(g)          gratuities or service charges paid by patrons or guests to and retained by employees;

(h)          proceeds or other economic benefit received as a result of any equity raising or borrowing of Owner whether or not secured by the Hotel;

(i)           consideration received for hotel accommodations or other goods or services not accruing to the benefit of the Hotel, although arranged by, for or on behalf of Operator;

(j)           advances or security deposits from Hotel guests or other users of the Hotel (other than those deposits that are forfeited by such guests to the Hotel);

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

(1)           any cash or credit rebates or refunds paid to patrons, guests, lessees,concessionaires or other users of the Hotel, any correction of overcharges;

(m)          any allowance for bad debts;

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

(o)           the proceeds of any loan to Owner;

(p)          any deposits made to Owner;

(q)          proceeds from the sale of FF&E;

(r)           interest received or accrued with respect to the funds in the Reserve or the other operating accounts of the Hotel;

(s)           proceeds of collection of accounts receivable to the extent the amount of any receivable was previously included in Gross Operating Revenues;

(t)           payments made under warranties and guaranties from providers of goods or services to the Hotel, whether received by Owner or by Operator on Owner’s behalf, except to the extent paid in reimbursement for costs included in Gross Operating Expenses;

(u)          other income derived from capital transactions which are not related to the operation of the Hotel;

(v)          any funds furnished by Owner; and

(w)          amounts representing the value or cost of room occupancy, meals or other services provided as compensation to employees of the Hotel or as complimentary benefits to any other persons.

“ Hazardous Materials ” shall mean all chemicals, pollutants, contaminants, wastes and toxic substances, including without limitation:

(a)          Solid or hazardous waste, hazardous substances, toxic substances andinsecticides, fungicides, or rodenticides, as defined in any Environmental Law;

(b)          Gasoline or any other petroleum product or byproduct, polychlorinated biphenyls, asbestos and urea formaldehyde;

(c)          Asbestos or asbestos containing materials;

(d)          Urea formaldehyde foam insulation; and

(e)          Radon gas.

“ Hotel ” shall mean the Building and Appurtenances, the Property, all FF&E, all Operating Equipment and Supplies, and all Inventories containing a total of 549 guest rooms (but excluding the Chinese Cultural Center premises, TruSpa premises, gift shop premises and the parking garage).

“ hotel ” shall mean any hotel (other than the Hotel), inn, motor inn, motor hotel, motel, suite hotel, conference center, meeting center or any other facility providing either or both of short-term lodging and meeting arrangements.

“ Hotel Employees ” shall mean the employees of Owner or any Affiliate of Owner working at the Hotel.

“ Independent Public Accountant ” shall mean a qualified firm of independent certified public accountants having hotel accounting experience, designated from time to time by Owner, subject to Operator’s reasonable approval of the firm selected.

“ Inventories ” shall mean “Inventories of Supplies” as defined in the Uniform System of Accounts, such as soap, toilet paper, stationery, writing pens, food and beverage inventories, paper products, menus, expendable office and kitchen supplies, fuel, supplies and items similar to any of the foregoing.

“ Legal Proceedings ” shall mean all complaints, counterclaims or cross-claims filed in a court of competent jurisdiction by or against the Hotel or by or against Owner or Operator in connection with the Hotel.

“ Legal Requirements ” shall mean (a) all laws, ordinances, statutes, regulations and orders relating to the Hotel now or hereafter in effect, including but not limited to, environmental laws and (b) all terms, conditions, requirements and provisions of (i) all Permits; (ii) all leases; and (iii) all liens, restrictive covenants and encumbrances affecting the Hotel.

“ Management Fee ” shall have the meaning set forth in Article 11 .

“ Management Plan ” shall have the meaning set forth in Section 4.5(f) .

“ Marketing Plan ” shall have the meaning set forth in Section 4.5(e) .

“ Mortgage ” shall mean any mortgage, deed of trust, deed to secure debt or similar security instrument from time to time existing on the Project and any indebtedness of Owner and other obligations secured thereby.

“ Mortgagee ” shall mean the mortgagee or beneficiary under any Mortgage.

“ Net Operating Income (NOI) ” shall mean the excess of Gross Operating Revenues over Gross Operating Expenses and specifically excluding any principal and interest payments from Gross Operating Expenses.

“ Operating Account ” shall mean a special account or accounts, bearing the name of the Hotel, established by Operator in a federally insured bank or trust company selected by Owner, subject to Operator’s reasonable approval of the bank or trust company.

“ Operating Equipment and Supplies ” shall mean supply items which constitute “Operating Equipment and Supplies” under the Uniform System of Accounts, all miscellaneous serving equipment, linen, towels, uniforms, silver, glassware, china and similar items.

“ Operator ” shall mean Prism Hospitality, L.P., a Texas limited partnership.

“ Operator’s Expenses ” shall mean the following:

(a)          All costs, expenses, salaries, wages or other compensation of any corporate, regional or other headquarters/corporate level employees of Operator, except to the extent such employees are regularly employed full time at the Hotel by Operator;

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

(c)          Any part of Operator’s capital expenses;

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

(e)          All costs and expenses of providing centralized data processing and accounting services to the Hotel;

(f)           Any expenses for advertising or promotional materials that feature Operator’s name or activities but which do not promote the Hotel, unless and to the extent approved in advance by Owner to be a Gross Operating Expense;

(g)          Any travel expenses of Operator’s corporate, regional or headquarters office employees for a period that are (i) in excess of the amount shown on the Annual Financial Plan for Operator’s travel expenses for such period (ii) are not reasonable and necessary travel expenses incurred while engaged in the performance of this Agreement, (iii) in the case of air travel, exceed the coach or economy fare reasonably available under the circumstances for the flight in question; provided, however, that for purposes of including travel expenses in GrossOperating Expenses, all expenses incurred on any trip which includes visits to more than one property managed by Operator or its Affiliates or is otherwise for purposes related to the Hotel and other properties managed by Operator or its Affiliates shall be equitably allocated among all the properties visited or benefited;

(h)          Any interest or penalty payment with respect to an imposition or lien upon the Hotel imposed on Owner by reason of (1) the failure of Operator to make a payment required to be made by Operator under this Agreement when the funds therefor were available, or (2) the funds therefor were not available and Operator failed to so notify Owner; and

(i)          Any cost for which Operator is liable under Section 22.1 or any other provision of this Agreement.

“ Operator System Service ” shall have the meaning set forth in Section 14.1 .

“ Owner ” shall mean Justice Investors, a California limited partnership.

“ Owner Indemnified Parties ” shall have the meaning set forth in Section 22.1 .

“ Owner’s Return ” shall mean an amount equal to Seven Million Dollars ($7,000,000.00) for each Fiscal Year, prorated for any partial Fiscal Year.

“ Partially Adjusted NOI ” shall mean for a Fiscal Year the Fully Adjusted NOI for that Fiscal Year, before deduction of the capital expenses described in (c) of the definition of Fully Adjusted NOI.

“ Permits ” shall mean all governmental or quasi-governmental licenses and permits necessary for the operation of and issued in connection with the Hotel.

“ Permitted Investments ” shall mean (subject to modification, addition or deletion from time to time at the option of Owner (Operator may request that Owner make modifications, additions and deletions)):

(a)          interest-bearing deposit accounts (which may be represented by certificates of deposit, time deposit open account agreements or other deposit instruments) in commercial banks approved by Owner; or

(b)         all other investments designated or approved by Owner.

“ Project ” shall mean the Hotel, the parking garage underlying the Hotel, the Chinese Cultural Center premises, TruSpa premises, the gift shop and all other parts of the structure and improvements in which the Hotel is located.

“ Property ” shall mean the land on which the Hotel is located, which land is described in Exhibit B attached hereto.

“ Release ” shall mean a “Release” as defined in any Environmental Law, unless such Release has been properly authorized and permitted in writing by all applicable Environmental Authorities or is allowed by such Environmental Law without authorizations or permits.

“ Repairs and Maintenance ” shall have the meaning set forth in Section 8.1 .

“ Reserve ” shall mean an account maintained by Owner in a commercial bank selected by Owner as a Reserve for Replacement for Furniture, Fixtures and Equipment and Other Capital Improvements as described in Section 7.1 and funded as provided in Section 7.2 , which may be invested in Permitted Investments at the direction of Owner.

“ State ” shall mean the State of California.

“ Takeover Expenses ” shall mean all reasonable and proper non recurring Operator’s Expenses attributable to the installation of Operator as the manager of the Hotel, which are shown on Exhibit E attached to and made a part of this Agreement, incurred by Operator in accordance with Section 3.6 .

“ Term ” shall mean the Term of this Agreement, which shall be an initial ten (10) year period commencing on the Effective Date and expiring at midnight on the tenth (10 ^th ) anniversary of the Effective Date as such Term may be (x) extended or canceled pursuant to Article 3 , or (y) shortened by termination pursuant to any provision of this Agreement.

“ Unavoidable Interruptions ” shall mean interruptions in the operation of the Hotel or any of its essential services on account of an interruption in any one or more of the utility services described in Section 13.2 , or on account of labor disputes, strikes, lockouts, fire or other casualty, acts of God and similar causes beyond Operator’s reasonable control. Operator’s obligations hereunder (other than obligations to pay money) shall be suspended during the period of an Unavoidable Interruption to the extent adversely affected by the cause of the Unavoidable Interruption and such effect cannot be mitigated with reasonable diligence. Operator shall immediately notify Owner, following commencement of an Unavoidable Interruption, of the nature and existence thereof, any actions recommended by Operator to mitigate the effect of the cause of the Unavoidable Interruption.

“ Uniform System of Accounts ” shall mean the Uniform System of Accounts for the Lodging Industry, 10th Revised Edition, 2006, by the Hotel Association of New York City, Inc. or at the option of Owner, any later edition thereof.

“ Union ” shall mean Bartenders and Service Employees Culinary Local 2; Stationary Engineers Local 39; Front Desk, Accounting, Reservations Teamsters Local 856 and any other labor unions at any time representing Hotel employees.

“ Union Agreement ” shall mean any collective bargaining agreement or other agreement entered into by Operator with any Union with respect to employees of the Hotel, which has been approved by Owner.

“ Working Capital ” shall mean the funds which are reasonably necessary for the day-to-day operation of the Hotel’s business, including, without limitation, amounts sufficient for the maintenance of petty cash funds, operating bank accounts, receivables, payrolls, prepaid expenses, advance deposits, funds required to maintain inventories, and amounts due to/or from Operator and/or Owner less accounts payable and accrued current liabilities.

1.2          Terminology . All personal pronouns used in this Agreement, whetherused 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 Table of Contents, and 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, subclauses or exhibits shall refer to the corresponding Article, Section, Subsection, paragraph, clause or subclause 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.

1.3          Exhibits . All exhibits attached hereto are by reference made a part hereof.

ARTICLE 2   MANAGEMENT OF HOTEL

2.1          Agent/Fiduciary . Owner hereby authorizes and contracts for Operator,pursuant to the terms of this Agreement, to operate and manage the Hotel as its agent and its fiduciary, and Operator hereby agrees and contracts to operate and manage the Hotel pursuant to such terms as a fiduciary of Owner, in all ways preferring Owner’s interests to Operator’s interests. Operator shall operate and manage the Hotel for Owner in strict compliance in all material respects with the First Class Hotel Standard, the Franchise Agreement, the Mortgage, if any, the Annual Financial Plan, Legal Requirements and the requirements of any Union Agreements. Operator shall also operate and manage the Hotel for Owner in a commercially reasonable, business-like, prudent and professional manner.

2.2         Hotel Operations .Hotel operations shall be under the exclusivesupervision and control of Operator which, except as otherwise specifically provided in this Agreement, shall be responsible for the proper and efficient operation of the Hotel in accordance with the terms of this Agreement. Except as specifically hereinafter set forth, Operator shall have discretion and control in all matters relating to management and operation of the Hotel, including, without limitation, charges for rooms and commercial space, credit policies, food and beverage services, other Hotel services, employment policies, granting of concessions or leasing of shops and agencies within the Hotel, receipt, holding and disbursement of funds, maintenance of bank accounts, procurement of inventories, supplies and services, promotion and publicity and, in general, all activities necessary for operation of the Hotel. Unless Owner agrees, the Hotel shall be operated as a Union hotel. Without limiting the generality of the foregoing, Operator’s engagement under this Agreement shall include the responsibility and authority (subject to the limitations on Operator’s authority set forth in this Agreement), on behalf of and at the expense of Owner to do the following, at all times in material compliance with the AnnualFinancial Plan, the Franchise Agreement, Mortgage, if any, Legal Requirements and the First Class Hotel Standard:

(a)          Train, supervise, discharge and determine and pay the compensation, fringe benefits, pension and retirement plans and other policies and terms of employment of all personnel as may be reasonably required to provide proper operation, supervision, and management of the Hotel in a professional manner suitable to the character of the Hotel;

(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)         Assist Owner in the selection for purchase and installation of all FF&E, Inventories and Operating Supplies for the Hotel;

(e)          Negotiate and enter into service contracts on Owner’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. Unless Owner otherwise elects, all such service contracts shall be entered into in Owner’s name;

(f)          Establish all credit policies, and enter into agreements with credit card companies, in connection with the Hotel;

(g)         Apply for, and obtain and maintain in the name of Owner or Operator, as required by Legal Requirements and this Agreement, all licenses and permits required of Owner or Operator in connection with the management and operation of the Hotel;

(h)          Institute and defend in the name of Operator or Owner (or both), utilizing legal counsel selected by Owner, any and all legal actions or proceedings (i) involving routine collection litigation and similar matters respecting ordinary day-to-day operations of the Hotel where the amount in controversy is less than $10,000; or (ii) which Owner shall deem necessary or proper in connection with the operation of the Hotel and requests Operator to institute or defend;

(i)          Establish, supervise and implement a sales and marketing program for the Hotel consistent with the sales and marketing plan approved by Owner as part of the Annual Financial Plan for the then-current year;

(j)          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, operated or franchised 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 Owner, Operator and their Affiliates in accordance with the customary practices of the travel industry;

(k)          Engage such persons, as have been approved by Owner (in Owner’s sole discretion) for providing services of a specialist nature (such as legal counsel and independent accountants) related to matters within Operator’s responsibility under this Agreement;

(l)          Use diligence and best business practices in the collection of all GrossOperating Revenues;

(m)         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 First Class Hotel Standard;

(n)         Perform any obligations of Owner under any Mortgage which are applicable to the operation and management of the Hotel;

(o)          Pay all Gross Operating Expenses, including but not limited to the Hotel’s allocable share of real property taxes and assessments and insurance premiums, and gross receipts, transient occupancy and similar taxes, and comply with all Legal Requirements and the requirements of insurance companies which are applicable to the operation and management of the Hotel;

(p)          Perform each and all of the obligations of Owner and Operator under the Franchise Agreement;

(q)          Upon request by Owner, pay, as and when due, all payments due under any Mortgage or other loans relating to the Project;

(r)          Operate and/or lease to third parties approved by Owner the food and beverage, banquet and room service facilities of the Hotel;

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

(t)          Comply with the provisions of any covenants, conditions and restrictions recorded against the Hotel.

2.3         Limitations on Operator’s Authority . Operator shall have no authority onbehalf of Owner to do any of the following without Owner’s prior written approval in each instance, which may be withheld in Owner’s sole and absolute discretion:

(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 Furnishings and Equipment or other property;

(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)           Engage in collective bargaining with the bargaining representative or representatives of Hotel employees enter into collective bargaining agreements, or modify or renew existing Union Agreements;

(f)           Enter into any contract or other arrangement (or series of related contracts or arrangements) if (i) the contract or other arrangement would, or are reasonably anticipated to, exceed $10,000 in the aggregate, (ii) the term of such contract or other arrangement is in excess of one year, or (iii) the contract or other arrangement is not terminable by Owner or Operator without payment or penalty upon not less than thirty (30) days notice. Operator shallnevertheless promptly report to Owner the execution of each such contract having a liability to the Hotel of in excess of $5,000;

(g)           Settle any casualty and 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 by Section 2.2 (h);

(i)           Employ any professional firm for more than $10,000 in the aggregate except as set forth in the Annual Plan, or enter into any arrangement for the employment of any attorney or accountant (other than legal counsel retained to collect accounts receivable);

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

(k)           Purchase goods, supplies and services from itself or any Affiliate ofOperator, or enter into any other transaction with an Affiliate of Operator, unless 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 Owner, which may be withheld in Owner’s sole discretion. Owner may require that the supplier of anygoods, supplies or services for the Hotel be selected through competitive bidding by qualified independent third parties, with the transaction being awarded to the lowest bidder. Except to the extent disclosed to Owner in advance and approved by Owner in its sole and absolute discretion, neither Operator nor any Affiliate of Operator shall charge or receive any mark-up, profit or purchasing fee on the purchase by or for the Hotel of any goods, supplies or services. Manager shall use its best 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 Owner, and if received by Operator or any of its Affiliates, shall be turned over to Owner;

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

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

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

(o)           Sell, transfer or otherwise dispose of all or any portion of the Hotel or any capital assets of the Hotel or other interest therein, except for dispositions of Furnishings and Equipment to the extent expressly provided for in the Annual Plan;

(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 Annual Plan;

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

(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; and

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

2.4         Role of Owner . Owner has an office in the Building and Appurtenancesand intends to oversee actively the operation of the Hotel. Operator recognizes that Owner has interests in other operations located in the same structure as the Hotel whose operations and success will be dependent upon the operations and success of the Hotel. Owner may engage an asset manager for the purpose of overseeing Operator’s management of the Hotel. Operator, acting through its senior executives, agrees to consult regularly with Owner regarding the operations and condition of the Hotel and take into account Owner’s recommendations in its operation of the Hotel. Owner and Operator shall meet at least monthly (or on such more frequent basis as Owner shall reasonably require) to provide Owner with a status report on the Hotel operations and discuss any other matters concerning the operation or condition of the Hoteldesired by Owner. Operator, through its headquarters office, shall determine the corporate staff of Operator and members of the Executive Staff; as appropriate, to attend the meetings. However, upon reasonable advance notice of Owner, Operator shall cause any of its corporate executives as may be appropriate to attend any of the meetings. In furtherance of the foregoing, Operator shall, and shall instruct the Executive Staff, to provide Owner with access to real-time information concerning the Hotel, which shall be in addition to the periodic reports on the operation of the Hotel required elsewhere in this Agreement.

ARTICLE 3   TERM

3.1         Original Term . The original term of this Agreement shall commence onthe Effective Date and shall continue for an aggregate term of ten (10) years thereafter, unless this Agreement shall be extended or sooner terminated as herein provided. Operator agrees to commence management and operation of the Hotel when the existing management agreement of the Hotel has terminated and the existing manager has vacated the Hotel. Owner will endeavor to give at least seven (7) days’ advance notice to Operator of the anticipated Effective Date.

3.2         Option of Owner to Extend . Owner shall have the right (amounting to one(1) separate renewal option) to extend the original term for one (1) successive period (“renewal term”) of five (5) years, provided that Owner shall give notice to Operator of its election to extend the term at least three (3) months prior to the time when the original term wouldotherwise expire.

3.3         Meaning of Term . As used herein the “Term” shall mean the original termand any renewal term or terms.

3.4         Early Termination . Owner shall have the right to terminate thisAgreement upon seven (7) days advance notice to Operator without any liability to Operator, except for any amounts due to Operator for Takeover Expenses incurred prior to the date of early termination, if for any reason on or before thirty (30) days after the date of this Agreement:

(a)           Owner’s agreement with its current hotel operator has not terminated, or Owner has not recovered possession of the Hotel from its current operator;

(b)           Franchisor has not approved this Agreement and the management of the Hotel by Operator; or

(c)           Any mortgagee of Owner having a right to approve or consent to the termination of Owner’s agreement with the existing operator or Owner’s entry into this Agreement has not given its approval or consent.

The foregoing matters described in (a) through (c) are conditions subsequent in favor of Owner upon the full effectiveness of this Agreement.

3.5        Transition Provisions .Operator agrees to perform the followingobligations in all material respects in connection with the transition of operation of the Hotel that will occur on the Effective Date:

(a)           Operator shall honor any reservations for Hotel guest rooms and other Hotel facilities on or after the Effective Date which have been made by guests or customers before the Effective Date with the current operator of the Hotel. Owner shall cause to be transferred to Operator any guest and customer deposits held by the current operator of the Hotel with respect to those reservations;

(b)          Operator shall comply with all obligations binding upon Owner following the Effective Date under the Union Agreements;

(c)           Operator shall assume responsibility for guest tray ledger transferred by the current operator of the Hotel and the care and protection of the contents of safe deposit boxes and any luggage, parcels, packages, faxes, messenger and overnight courier packages and mail of guests held by the current Hotel operator on the Effective Date;

(d)           Operator shall accept and perform the obligations being assumed by Owner from and after the Effective Date under space leases, concession and license agreements, equipment leases and service contracts of the current Hotel operator or lessee;

(e)           Operator shall assist Owner with the transfer of existing Permits, to the extent transferable, and in applying for and obtaining all other necessary Permits for the lawful operation of the Hotel from and after the Effective Date;

(f)           If requested by Owner, Operator shall acquire from the existing hotel operator or its affiliates and lawfully transfer into its name or one of its affiliates acceptable to Owner the liquor license for the sale of alcoholic beverages at the Hotel and the liquor inventory of the Hotel; and

(g)           Operator shall otherwise assist and cooperate with Owner in the orderly and smooth transition of operation of the Hotel from the current operator to Operator on the Effective Date.

3.6           Takeover Expenses . Subject to the limitations in the approved budget ofTakeover Expenses attached as Exhibit E, following the Effective Date, Operator may reimburse itself for the Takeover Expenses following Owner’s approval of an invoice for the Takeover Expenses as and when funds in the Operating Account are available for such purpose, and the Takeover Expenses shall be charged as a Gross Operating Expense, unless otherwise agreed by Owner.

3.7           Vacation by Operator at the End of the Term. On the expiration or soonertermination of the Term, Operator shall vacate the Property and otherwise perform its obligations under Article 17 respecting the transition of operations of the Hotel upon the termination of this Agreement.

ARTICLE 4    USE AND OPERATION OF THE HOTEL

4.1         Employment . Subject to the terms of this Agreement, Operator shall beresponsible for selecting, hiring, establishing salary and payroll benefits, promoting, terminating where appropriate, supervising, directing, training, and assigning the duties of a sufficient number of Hotel Employees whom Operator reasonably determines to be necessary or appropriate for the proper, adequate, safe and economical operation and management of the Hotel including, without limitation, the general manager, sales manager, controller and food and beverage director of the Hotel; provided, however, that the employees paid from the Hotel shall not include any persons who are properly the personnel of Operator’s regional or central office or any other personnel of Operator. The Hotel Employees in all respects will be the employees of Owner or at Owner’s option, an Affiliate of Owner. Operator shall be responsible for compliance by Owner or its Affiliates with all Legal Requirements and Union requirements having to do with worker’s compensation, social security, unemployment insurance, hours or labor, wages, working conditions, and other employer-employee related subjects respecting the Hotel Employees. Operator shall cause the Hotel’s general cashier and all employees having check signing authority to be adequately bonded to the satisfaction of Owner, and the cost of bonding shall be a Gross Operating Expense. The salaries, payroll benefits and other costs of such employment arrangements shall be charged as Gross Operating Expenses of the Hotel and shall be accrued in accordance with the Uniform System of Accounts. The costs provided for in the immediately preceding sentence shall include, by way of example and not limitation, 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 the Uniform System of Accounts. Operator shall use all commercially reasonable efforts and exercise reasonable care to select qualified, competent, and trustworthy employees. To the extent possible, Operator shall use local labor in the operation of the Hotel. Notwithstanding anything to the contrary herein, Operator agrees to select for hiring a sufficient number of former employees of the Hotel (or of Owner’s previous third party manager of the Hotel) who desire employment by Operator on sufficient terms and conditions to avoid the notification requirements of the Federal Worker Adjustment and Retraining Notification Act (29 U.S.C. Sec. 2101, et seq.) and similar state law requirements. The Operator may not hire any individuals for employment at the Hotel who are related to the officers, directors or shareholders of Operator without Owner’s prior approval. Operator shall use its best efforts to design, promote and implement employment practices which emphasize the continuity of management (including but not limited to the Executive Staff), minimize training and moving costs and reduce personnel turnover and shall make all staffing and employee transfer and retirement decisions with the objective of minimizing Gross Operating Expenses.

4.2         Executive Staff . The Executive Staff shall be selected by Operator subjectto approval by Owner. Operator shall deliver the resume of any candidate for an Executive Staff position to Owner for its review, and Owner shall have an opportunity to meet the candidate at the Hotel or another location in the City of San Francisco before making a decision about whether to approve the hiring of the candidate. Owner will endeavor to notify Operator of its opinion of a candidate within five (5) business days after its meeting with the candidate. If Owner does not notify Operator, whether orally or in writing, of its opinion of the candidate within the five (5) business day period, Owner shall be deemed to have approved that candidate. Operator shall hire qualified Executive Staff and cause members of the Executive Staff to commence full-time employment at the Hotel on or before the Effective Date. If any of the Executive Staff shall resign or be terminated or shall be absent from the Hotel for any period in excess of ordinary vacations and leave time, Operator shall replace such Executive Staff with qualified persons approved by Owner as soon as reasonably practicable. Operator acknowledges that Owner is vitally interested in the qualifications of those persons designated as the Executive Staff. Operator shall, from time to time, consult with Owner and consider Owner’s recommendations as to the appointment of individuals to such positions and shall discuss with Owner and give good-faith consideration to any request by Owner during the Term that one or more of the Executive Staff of the Hotel be replaced. However, Operator shall not transfer any Executive Staff employee to other hotels or resorts owned or managed by Operator or any of its Affiliates, unless it first delivers to Owner at least fifteen (15) days advance written notice (which may be delivered by e-mail to geoffreyp@msn.com or another e-mail address provided by Owner to Operator for such purpose) of the transfer, and the transfer is being made to promote the career advancement of the employee or at the employee’s request.

4.3         Subsequent Employment of Employees . During the Term and for a periodof three (3) years after the termination of this Agreement, Operator agrees not to solicit Hotel Employees for employment by Operator or any of its Affiliates or at another hotel, and Operator shall not, directly or indirectly, induce or encourage any employee of Owner or person employed at the Hotel to terminate his or her employment, except that the foregoing covenants of Operator shall not be applicable to persons employed by Operator immediately before or as of the Effective Date and who are subsequently transferred to the Hotel and employed by Owner.

4.4        Legal Proceedings . Operator shall furnish Owner with quarterly statusreports with respect to all Legal Proceedings instituted or being defended by Operator pursuant to Section 2.2(h) . All claims against Owner and/or Operator arising out of the management or operation of the Hotel which are covered in whole or in part by insurance shall promptly be forwarded by Operator to the appropriate insurer (with a copy thereof to Owner in the case of claims against Owner).

4.5          Annual Financial Plan .

(a)         On or before sixty (60) days after the Effective Date, Operator shalldeliver to Owner a proposed Annual Financial Plan (excluding a Capital Budget) for the period between the Effective Date and December 31, 2007 for Owner’s approval. Pending Owner’s approval of the proposed Annual Financial Plan for that period, Operator shall operate the Hotel based upon budgeted expenses consistent with the historical practices for the Hotel, as required by the Franchise Agreement, or as otherwise directed by Owner. On or before November 1st of each Fiscal Year thereafter commencing November 1, 2007, Operator shall submit to Owner for its approval a proposed Annual Financial Plan (“AFP”) consisting of an Annual Operating Budget, Capital Budget, Marketing Plan and Management Plan as set forth hereunder, including the information described on Exhibit F attached to and made a part of this Agreement. Owner’s approval may be withheld in its sole and absolute discretion. On or before December 1 of each year commencing December 1, 2007 or thirty (30) days after receipt of the proposed AFP, whichever is later, Operator shall at the request of Owner consult with Owner and meet withOwner if necessary (either members of the Executive Staff or corporate executives of Operator or both, as deemed appropriate by Owner), and Owner either shall accept the AFP submitted to Owner as provided above or shall submit to Operator a detailed list of Owner’s objections or questions to the AFP (“Owner’s AFP Objections”). Within fifteen (15) days after Operator’s receipt of Owner’s AFP Objections, Owner and Operator shall meet and discuss Owner’s AFP Objections with the goal of agreeing upon an AFP for the subject Fiscal Year. If Owner objects to any specific item of expense in the AFP and Owner and Operator are unable to reach agreement thereon as provided above prior to commencement of the Fiscal Year in question, pending such agreement, unless Owner otherwise determines, the AFP or the specific item or items of expense (not revenue) in question shall be suspended, and except as to Capital Budget items which shall be suspended until approved by Owner in its sole and absolute discretion, be replaced for such period that the AFP or such item is in question by an amount equal to the greater of (a) one hundred and five percent (105%) of the amount for such actual item of expense in the immediately preceding Fiscal Year, or (b) such actual 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)          The Annual Operating Budget shall be prepared in accordance with the Uniform System of Accounts. The Annual Operating Budget shall incorporate Operator’s good faith reasonable estimates of the items of revenue and expense contained therein, including without limitation, (a) a separate itemization of an estimate of Operator’s Management Fee and any other income or expense reimbursements to the Operator or its Affiliates applicable to the period covered by the Annual Operating Budget, (b) a separate itemization of the amount and timing of any irregular payments that are to be made by Owner at times when cash flow may be insufficient to meet the Hotel’s obligations, and (c) any other items required by any other provision of this Agreement or reasonably required by Owner. The Annual Operating Budget shall include a summary of the estimated income and expenses for the two (2) succeeding Fiscal Years following the Fiscal Year otherwise covered by the Annual Operating Budget. Owner shall have the right, from time to time, upon reasonable notice to Operator, to require reasonable additions, deletions and changes to the format, style and contents of the Annual Operating Budget.

(c)         Operator agrees to diligently employ all commercially reasonable efforts to ensure that the actual costs of maintaining and operating the Hotel shall not exceed the Annual Operating Budget either in total or in any one Account Category. Notwithstanding theforegoing, Owner and Operator acknowledge that the Annual Operating Budget will be an estimate of revenue and expense. Except for those emergency expenses provided for below, if Operator anticipates that a Significant Variation (as defined below) is reasonably likely to occur for a Monthly Period or on cumulative basis for the Fiscal Year, Operator shall immediately deliver notice thereof to Owner, and Operator shall review with Owner (and meet with Owner respecting the expected Significant Variation if necessary for a complete review of it), and Operator shall propose any modifications of the Annual Operating Budget as may be appropriate based upon the expected Significant Variation for Owner’s approval. “Significant Variation” means a “Significant Variation” with respect to the Annual Operating Budget shall mean for any period shown thereon:

(i)           With respect to Gross Operating Expenses for the Rooms, Food and Beverage departments, after excluding workers compensation premiums, governmental license and permit fees, cable television charges and other similar expenses that are beyond the control of Operator, the percentage of the remaining departmental Gross Operating Expenses as compared to departmental Gross Operating Revenues exceed such percentage as shown on the Approved Financial Plan by more than five percent (5%) (by way of example, if in the Annual Financial Plan the percentage of such departmental Gross Operating Expenses as compared to departmental Gross Operating Revenues is 30%, an actual percentage of departmental Gross Operating Expenses as compared to departmental Gross Operating Revenues of more than 31.5% would constitute a Significant Variation);

(ii)          With respect to Gross Operating Expenses for the Administrative & General, Sales and Marketing and Maintenance departments, after excluding costs of franchise reward programs, utility expenses, worker’s compensation premiums, utility and waste removal expenses and other similar expenses that are beyond the control of Operator, percentage of the remaining departmental Gross Operating Expenses as compared to departmental Gross Operating Revenues exceed such percentage as shown on the Approved Financial Plan by more than five percent (5%) (see example in (i) above); and.

(iii)         In the case of total costs and expenses for any separate project identified in the approved Capital Budget, actual costs and expenses which exceed the total budgeted for such project (including the contingency) set forth in the approved Capital Budget.

To the extent that revenues do not achieve budgeted levels, Operator shall use its best efforts to decrease Gross Operating Expenses below budgeted levels in a corresponding amount to maintain the level of overall profitability previously budgeted. Owner and Operator shall meet periodically at a time and place designated by Owner, for the purpose of reviewing Hotel operations including profit and loss statements, Operator’s performance, capital expenditures, forecasts of cash available for disbursement for the balance of the current Fiscal Year and making any revisions to the previously approved Annual Operating Budget required by Owner in its sole discretion in order to maintain or improve the departmental profits or margins as originally budgeted.

As part of the budgeting process, Operator shall provide to Owner, with each proposed Annual Operating Budget, a complete list of all service and other contracts for the Fiscal Year which is the subject of the Annual Operating Budget having a liability to the Hotel in excess of $5,000 for such Fiscal Year for or covering the Hotel and the payments or expenditures connected or anticipated therewith.

(d)           The Capital Budget shall contain the budget for expenditures (i) from theReserve, and (ii) for other major improvements, renovations and expansion (“Capital Improvements”) for the succeeding Fiscal Year. Operator shall submit good faith reasonable estimates for capital expenditures for FF&E purchases for the two Fiscal Years following the Fiscal Year otherwise covered by the Annual Operating Budget and for Capital Improvements for the then current Fiscal Year and, in general, for the five (5) Fiscal Years following the Fiscal Year otherwise covered by the Annual Operating Budget. The expenditures for CapitalImprovements and FF&E purchases shall be listed in order of priority and shall include a cost/benefit analysis as to each. The Capital Budget shall include an analysis of alternate methods of acquiring and purchasing FF&E and Capital Improvements. When approved by Owner, the Capital Budget, or such items as may be specifically approved by Owner, is collectively referred to in this Agreement as the “Approved Capital Budget”. Owner’s approval of the Capital Budget may be withheld in its sole and absolute discretion, and Operator shall not be authorized to incur any capital expenses unless shown on an Approved Capital Budget. Unless Owner otherwise directs Operator, approval of the Capital Budget constitutes an authorization for Operator to expend money for Capital Improvements as provided in the Approved Capital Budget. However, in any event, any expenditure in excess of $25,000 shall require Owner’s specific authorization. Any changes, substitutions or additions to the Capital Budget by Operator must be approved by Owner in writing in its sole and absolute discretion. Owner may make changes, substitutions and additions to the Capital Budget without Operator’s approval. Owner will consult with Operator respecting any such changes, substitutions and additions to the Capital Budget. For purposes of this Agreement, the determination of whether an expense is capital in nature shall be made in accordance with the policies and procedures set forth on Exhibit G attached to and made a part of this Agreement.

Competitive bid rules outlined in Section 4.6 will be observed at all times by Operator for any FF&E purchases and Capital Improvements.

(e)           The Marketing Plan shall contain advertising, sales and promotional plans prepared by Operator to be used in connection with the marketing of the Hotel, including a full analysis of such plans, setting forth the estimated cost of each component of such plans with specific details of marketing and promotion expenditures. The Marketing Plan shall be written with the goal of achieving Gross Operating Revenues as submitted in the Annual Operating Budget for the Fiscal Year or, if less than a full Fiscal Year, the period between the Effective Date and the December 31 next following the Effective Date. Operator shall not use Owner’s name in any advertising or promotional material without Owner’s expressed prior written approval in each instance. Advertising and promotional materials shall be prepared in full compliance with applicable Federal, State and Municipal fair housing laws, ordinances, regulations and orders. Owner shall have the right, from time to time, to require reasonable additions, deletions and changes to the format, style and contents of the Marketing Plan. Owner agrees that it will not use to the detriment of the Hotel or to Operator any proprietary information of Operator which is furnished to Owner as part of the Marketing Plan.

(f)           The Management Plan shall contain (i) estimated contributions and distributions from or to Owner; (ii) a leasing plan for the leasing of concessions and other space in the Hotel; (iii) plans and budgets for the disposition of FF&E to be replaced; (iv) a business plan, strategy and operational policy with a discussion of long-term objectives; (v) a discussion and analysis of the forecasted operating conditions for the Fiscal Year and a comparison to the previous Fiscal year’s actual performance, with an explanation for changes and variations; (vi) a detailed training program for Hotel Employees together with the estimated cost thereof; (vii) details of future bookings, commitments, deposits taken, expressions of interest to make future bookings, together with Operator’s assessment of the likelihood of such expression of interest being exercised; (viii) an overview explanation of the pricing policy for the Hotel including aschedule of prices to be charged and discount policy for each profit center at the Hotel; and (ix) such management issues, proposals and projections or modifications as Operator may recommend for the efficient management of the Hotel. Owner shall have the right, from time to time, to require reasonable addition, deletions and changes to the format, style and contents of the Management Plan.

4.6         Competitive Bidding . All contracts for repairs, capital improvements,foods and services exceeding $20,000 and other contracts designated by Owner shall be awarded on the basis of competitive bidding, solicited in the following manner:

(a)           A minimum of two (2) written bids shall be obtained for each purchase or contract up to $35,000. Purchases over $35,000 will require a minimum of three (3) bids;

(b)           Each bid will be solicited in a uniform format;

(c)           Unless Owner directs, for any contract involving a total expenditure of $50,000 or less, Operator may accept a low bid without prior approval from Owner if the expenditure is for a budget approved item and will not result in an excess of the annual budgeted Account Category of the applicable Capital or Annual Operating Budget;

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

(e)           Owner shall have the right to accept or reject any and all bids for repair or capital expenditures.

Subject to the provisions of Article 14 and any other limitations in this Agreement on the contracting authority of Operator, in its operation of the Hotel under this Agreement, Operator may purchase goods, supplies and services from itself, or Owner or Owner’s representatives, or any affiliated or subsidiary companies or individuals so long as the quality, prices and terms thereof are competitive with, and are not less favorable than prices and terms which could be obtained from independent parties and, if required by this Section 4.6 or any other provision of this Agreement, are in compliance with competitive bidding rules, provided that Operator will provide Owner with prompt notice of any contract in excess of $2,500 regarding such an arrangement entered into with an Affiliate of Operator or Owner.

4.7         Hotel to Benefit from Operator Expertise . If, in Operator’s activities as anexperienced manager and operator of hotels, Operator develops, negotiates, contracts for or acquires any method, system, agreement or arrangement which would enhance the operations or management of the Hotel, Operator shall promptly make available to Owner for the Hotel such method, system, agreement or arrangement on terms at least as favorable as Operator is offering it to the other hotels managed by Operator, and Owner may elect to have such method, system, agreement or arrangement be used at the Hotel.

4.8         Emergencies . If any circumstance shall occur which Operator reasonably and in good faith judges to be an emergency threatening the safety of persons or property (an “Emergency”) then Operator shall take such action and cause such things to be done as Operator reasonably and in good faith believes necessary. Operator shall inform Owner of any and all emergencies as soon as practicable. If practicable, Operator shall obtain Owner’s prior approval of any action in response to an Emergency. If action must be taken before Operator can practicably contact Owner for its approval, which may be oral or in writing, Operator may make such expenditures not included in the approval Annual Operating Budget or Capital Budget, provided that the expenditure for any one Emergency may not exceed $25,000.

4.9           Compliance with Government Rules and Regulations, including Environmental Laws .

(a)           Operator shall conduct the business of the Hotel in compliance with all applicable federal, state and local laws and insure that no activity or condition occurs on or about the Hotel in violation of any laws. If Operator shall have reason to believe that any laws may be violated on or about the Hotel, then Operator shall promptly so notify Owner.

(b)           At all times during the term of this Agreement, Operator shall comply in all material respects with Environmental Laws applicable to the Hotel and its operations. Operator shall use diligent efforts to determine if any Hazardous Material is being used, released, disposed or discharged at or from the Hotel, including, without limitation, the engagement of professional environmental engineers to perform such environmental studies or tests as may be approved by Owner in its sole and absolute discretion. If any Hazardous Material is discovered at the Hotel, Operator shall not disturb, release or dispose of (or permit to be disturbed, released or disposed of) any such Hazardous Material except in strict compliance with a remediation and/or removal program approved by Owner in its sole and absolute discretion. Additionally, without the prior consent of Owner, which may be withheld in its sole and absolute discretion, Operator shall not permit on the Hotel (a) any dry cleaning operations, (b) any activity requiring a permit under any Environmental Laws, even if the permit has been or can be obtained, (c) any activity generating any Hazardous Materials as waste or using Hazardous Materials, other than (i) kitchen grease traps, and (ii) pool and spa chemicals, fertilizers and pesticides in reasonable quantities relative to the needs of the Hotel which are properly stored, handled and disposed of.

(c)           Operator and Owner each agrees to give the other prompt written notice of (1) all Environmental Liabilities; (2) all pending, threatened or anticipated proceedings, and all notices, demands, requests or investigations, relating to any Environmental Liability or relating to the issuance, revocation or change in any permit or authorization under Environmental Laws required for operation of the Hotel; (3) all Releases at, on, in, under or in any way affecting the Hotel, or any Release known by Owner or Operator, as the case may be, at, on, in or under any property adjacent to the Hotel; and (4) all facts, events or conditions that could reasonably lead to the occurrence of any of the above-referenced matters.

4.10       Owner’s Performance of Operator’s Obligations . If Operator fails to perform any of its obligations and undertakings hereunder, Owner may, after giving Operator fifteen (15) business days’ prior written notice thereof (unless such default creates an emergency in Owner’s reasonable judgment, in which case no notice need be given by Owner) perform any of Operator’s obligations (including payment of any monies due), and Owner shall beimmediately reimbursed by Operator from the Hotel Operating Account for any monies so expended (to the extent there are funds in such Hotel Operating Account). Any performance by Owner of any obligation of Operator hereunder shall not be deemed a waiver by Owner of any other right or remedy Owner has under this Agreement or in law or equity by reason of such default or a waiver of any such rights or remedies Owner has by reason of a future default by Operator.

4.11        Owner’s Right to Reserve Rooms and Facilities; Meals for Owner Personnel . Notwithstanding Operator’s responsibility to set room rates and occupancy policies for the Hotel, Owner shall have at all times the right to reserve Guest Rooms or other facilities of the Hotel (including banquet, reception, catering and other services) at the prevailing rates then charged by the Hotel or other special rates set forth in the Annual Plan. Owner shall have the right within reason to use or grant others the right to use guest rooms and facilities of the Hotel and receive meals at Hotel restaurants on a complementary basis, as determined by Owner, upon reasonable notice to Operator. All complementary rooms, facilities and meals given under this Section 4.11 must be approved in advance in writing by an authorized representative of Owner.

4.12        Credit and Pricing Policies . Operator will propose in connection with each Operating Budget, the rate and price schedules for all rooms, products and services provided at the Hotel.

4.13        Owner’s Right to Access . Owner and all of its duly authorized officers and representatives and other persons duly authorized by Owner are entitled to have access to the Hotel and to all of the facilities in the Hotel at all times. In gaining access to the Hotel, Owner and duly authorized persons must use reasonable care not to disrupt the operation of the Hotel in any material respect.

4.14        Parking . The Hotel is served by a parking garage that is located in the Project beneath the Hotel. The parking garage is not part of the Hotel. Parking rates will be determined by Owner and the parking operator or other person in control of the parking garage for Hotel employees, Hotel guests (on a 24 hour in and out basis) and banquet patrons, taking into account parking rates charged at comparable hotels in the San Francisco central business district.

4.15        Travel Expenses . Operator shall use reasonable efforts to economize on airfares and other travel expenses incurred in connection with Operator’s performance of its obligations under this Agreement that Operator desires to have reimbursed to it as Gross Operating Expenses, and in no event shall Operator be entitled to pay or include in Gross Operating Expenses any airfare in excess of the coach or economy fare reasonably available for the flight in question.

4.16          Name of Hotel . Subject to compliance with any requirements of the Franchise Agreement, the name of the Hotel shall be selected by Owner in its sole and absolute discretion and may be modified by Owner in its sole and absolute discretion. Owner recognizes that Operator has experience in naming and marketing of hotels and will consult with Operator before changing the Hotel name, but the final decisions on the name of the Hotel and any change in the name shall be that of Owner in its sole and absolute discretion.

4.17        Storage Space . Operator shall have the right to use for purposes of storage in connection with the operation of the Hotel the spaces located in the Project parking garage shown on Exhibit H attached to and made a part of this Agreement or other storage spaces of similar size located in the Project parking garage that may be designated from time to time by Owner as being for Hotel use.

ARTICLE 5   RELATIONSHIP OF THE PARTIES

In the performance of this Agreement, Operator shall act as an agent and fiduciary. Neither this Agreement nor any agreements, instruments, documents or transactions contemplated hereby shall in any respect be interpreted, deemed or construed as making either Operator or Owner a partner or joint venturer with the other party or as creating any similar relationship or entity, and Owner and Operator each agree that it will not make any contrary assertion, contention, claim or counterclaim in any action, suit or other legal proceeding involving Operator and Owner. This Agreement is a contract for the provision of services by Operator to Owner. This Agreement does not grant, and Operator does not have, by virtue of this Agreement, or otherwise any interest in the Property. Neither this Agreement nor any rights of Operator under this Agreement constitute or create a lien or encumbrance on the Hotel or any part thereof.

ARTICLE 6   ADVERTISING

Subject to and in strict compliance with the provisions of the Franchise Agreement, if any, and the other provisions of this Agreement, Operator shall arrange and contract for all advertising which Operator may reasonably deem necessary, in accordance with this Agreement, for the operation of the Hotel. The Hotel generally shall be advertised by Operator under the name designated in the Franchise Agreement, or if none, the name designated from time to time by Owner. Subject to any limitations contained in the Franchise Agreement, Operator in its advertising and marketing of the Hotel shall feature the existence of the spa in the Hotel and promote the spa as a prominent amenity of the Hotel.

ARTICLE 7   RESERVE

7.1         Reserve . The Reserve shall be funded pursuant to Section 7.2 , and theamounts in the Reserve shall be used to cover the cost of FF&E expenditures as described in Section 4.5(d) in accordance with the Approved Capital Budget. All FF&E acquired and installed and all capital improvements, whether done in accordance with this Section 7.1 or otherwise, shall be the property of Owner.

7.2        Transfer to Reserve . Subject to the terms and provisions of this Section 7.2 , during each Accounting Period, Operator shall deposit out of Gross Operating Revenues into the Reserve an amount specified by Owner or required by the Franchise Agreement or any mortgagee of Owner.

7.3         Annual Adjustment . At the end of each Fiscal Year and following receiptby Operator of the annual accounting referred to in Article 10, an adjustment will be made to such annual account, if necessary and if available, so that the appropriate amount shall have been deposited in the Reserve.

7.4         Maintenance of Reserve . Checks or other documents of withdrawal shallbe signed by representatives of Owner, and Operator shall not have any signing or otherauthority to make withdrawals from the Reserve, unless Owner otherwise agrees. The proceeds from the sale of FF&E no longer needed for the operation of the Hotel shall at the option of Owner be deposited in the Reserve, but not be credited against the obligation of Operator to deposit cash in such fund for the then current Fiscal Year. The Reserve shall be maintained in an interest bearing account for the benefit of Owner. All interest earned or accrued on amounts invested from the Reserve shall at the option of Owner either be paid to Owner or be added to the Reserve (but shall not be credited against Owner’s obligations to fund the Reserve), and shall not constitute Gross Operating Revenues or be included therein.

7.5         Accumulation of Reserve . At the end of each Fiscal Year, any amountsremaining in the Reserve shall be carried forward to the next Fiscal Year, and shall be in addition to the amount to be reserved in the next Fiscal Year.

7.6         Final Remittance . Upon expiration or termination of this Agreement,Owner may withdraw all the funds remaining in the Reserve.

ARTICLE 8   REPAIRS AND MAINTENANCE AND CAPITAL IMPROVEMENTS

8.1         Repairs and Maintenance . Operator shall, from time to time, make suchexpenditures from Gross Operating Revenues for repairs and maintenance including service contracts (“Repairs and Maintenance”) as required by any Mortgage or Legal Requirements or as are reasonably necessary to maintain the Hotel in good operating condition and in material compliance with the First Class Hotel Standard, including but not limited to repairs and maintenance of HVAC, mechanical and electrical systems, exterior and interior repainting, resurfacing building walls, waterproofing of exterior surfaces of floors, and roofs, or the like. Except in the event of an emergency due to casualty or act of God under circumstances in which it would be unreasonable to seek to obtain prior approval and provided that Operator shall notify Owner of any such expenditure within 24 hours thereof, all expenditures for the foregoing shallbe as provided in the Annual Operating Budget and the Approved Capital Budget. If any such Repairs and Maintenance shall be made necessary by any condition against the occurrence of which Owner has received the guaranty or warranty of a builder or of any supplier of labor or materials for the Hotel or its construction, Operator may invoke said guarantees or warranties inOwner’s or Operator’s name, and Owner will cooperate in all reasonable respects with Operator in the enforcement thereof.

8.2         Capital Improvements . Owner may, from time to time, at its sole expense,make such replacements, substitutions, alterations, additions or improvements (exclusive of FF&E) in or to the Hotel as Owner shall determine, or as may be necessary to comply with any Mortgage, the Franchise Agreement, or Legal Requirements, or to maintain the Hotel pursuant to a First Class Hotel Standard. Owner will consult with Operator concerning such replacements, substitutions, alterations, additions and improvements. If structural repairs or changes in the Hotel or extraordinary repairs to or replacements of any equipment (exclusive of FF&E) included in the definition of Building and Appurtenances (collectively, “Capital Improvements”) shall be required at any time during the term of this Agreement by the terms of any Mortgage or the Franchise Agreement or to maintain the Hotel in good operating condition or by reason of any Legal Requirements, or by order of any governmental or municipal power, department, agency, authority or officer, or otherwise, or because Operator and Owner jointly agree upon the desirability thereof, then in such event Owner may make any and all such repairs, changes or replacements at Owner’s expense, to the extent funds are not allocated in the Approved Capital Budget from the Reserve for such purposes. Such repairs, changes and replacements shall be made with as little hindrance to the operation of the Hotel as reasonably possible. Notwithstanding the foregoing, as long as the Hotel can continue to operate without interruption, Owner shall have the right to contest the need for any such repairs, changes or replacements required by any Legal Requirements and may postpone compliance therewith, if so permitted by law. Any recommendations of Operator of Capital Improvements shall be submitted in conjunction with the Capital Budget for the Fiscal Year.

8.3         Service Contracts . Subject to any limitations on Operator’s authoritycontained in Article 2 or elsewhere in this Agreement, Operator, without requiring the consent of Owner, shall enter into any contract for cleaning, maintaining, repairing or servicing the Hotel or any of the constituent parts of the Hotel as Operator deems necessary for the operation of the Hotel.

Unless otherwise approved by Owner, all service contracts shall: (a) be in the name of Operator, (b) be assignable, at Owner’s request, to a nominee, (c) to the extent customary, include a provision for cancellation thereof by Owner or Operator upon not more than thirty (30) days’ written notice, and (d) shall require that all contractors provide evidence of such insurance as is customarily carried by other contractors involved in similar servicing arrangements. If this Agreement is terminated, Operator shall assign to Owner or Owner’s nominee, all service agreements pertaining to the Hotel; Owner, or Owner’s nominee, agree, or will agree, to accept or assume the obligations of Operator under such agreements arising from and after the date of the assignment.

8.4         Liens . Owner and Operator shall use all commercially reasonable effortsto prevent any liens from being filed against the Hotel which arise from any maintenance, changes, repairs, alterations, improvements, renewals or replacements in or to the Hotel and, if any such liens are filed, Operator shall obtain the release thereof prior to the institution of legal proceedings in connection therewith. The cost of obtaining such release shall be included in Gross Operating Expenses, unless the imposition of the lien results from a default by Operator or Owner, in which event the cost of obtaining such release shall be borne by Operator or Owner, as applicable; provided, however, that if the underlying expense for which the lien was recordedwould have been a Gross Operating Expense if paid before the lien was recorded, such expense shall be included in Gross Operating Expenses, and only any additional costs, such as interest, penalties and attorney’s fees paid or incurred in obtaining the release of the lien, shall be charged to the defaulting party.

8.5         Notice of Unavoidable Interruptions . In the event of any occurrenceconstituting an Unavoidable Interruption, Operator shall promptly notify Owner of such occurrence and shall keep Owner informed as to the extent and impact thereof on the Hotel.

ARTICLE 9   WORKING CAPITAL AND BANK ACCOUNTS, DISTRIBUTION OF
NET OPERATING INCOME

9.1         Working Capital . Owner shall provide initial Working Capital in theamount of $550,000 which will be deposited by Owner in the Operating Account on or before the Effective Date and will provide to Operator for use in the operation of the Hotel any inventories left at the Hotel by the prior operator. To assure that the appropriate amount of Working Capital is maintained for the uninterrupted and efficient operation of the Hotel, Operator may propose to Owner that the level of Working Capital to be maintained in the Operating Account be increased or decreased on an annual basis by Operator, and upon approval by Owner of the change in the amount of Working Capital, either any excess Working Capital shall be distributed to Owner or used as Owner directs or with respect to any increase in the Working Capital approved by Owner, either Owner at its option shall authorize Operator to retain the additional amount from Gross Operating Revenues or fund the additional amount of Working Capital into the Operating Account. Owner will authorize retention of Gross Operating Revenues in the Operating Account as Working Capital in the amount approved by Owner. If the Gross Operating Revenues are not adequate therefor, Operator may deliver a notice to Owner requesting that Owner deposit the funds needed for Working Capital within thirty (30) days after delivery of the request to Owner. All unexpended Working Capital, Inventories and Operating Equipment and Supplies purchased with Working Capital shall remain the property of Owner.

9.2         Operating Account . Operator shall open one or more Operating Accounts,at one or more banks in the city where the Hotel is located designated by Owner, all of which accounts may only be drawn upon by the signatories authorized under this Section 9.2 . Operator shall deposit into the Operating Account as and when received all items of Gross Operating Revenues and all other income and revenues derived from operation of the Hotel. All of such funds, whether or not deposited into such accounts, shall be solely the property of Owner. All funds (exclusive of funds deposited in the Reserve and house banks at the Hotel) received by Operator in the operation of the Hotel, and funds for Working Capital provided by Owner or retained by Operator from Gross Operating Revenues, shall be deposited in the Operating Account. Amounts in the Operating Account may be temporarily withdrawn and invested by Operator in any Permitted Investments, having due regard for the timing of cash needs. From the Operating Account, Operator shall pay all Gross Operating Expenses (other than the excess FF&E if funded by Owner) before any penalty or interest accrues thereon, however, taking into account sound cash management. All interest earned or accrued on amounts invested from theOperating Account shall be added to the Operating Account but shall not constitute Gross Operating Revenues and unless Owner otherwise directs Operator, the interest shall be paid to Owner as part of its monthly distributions pursuant to Section 9.3 . The following shall be the requirements for the signing and authorization of all checks or other documents of withdrawal from the Operating Accounts: (a) withdrawals for payments otherwise permitted or required by this Agreement not exceeding $10,000 shall be signed by two or more authorized signatories of Operator; and (b) withdrawals for payments otherwise permitted or required by this Agreement of more than $10,000 shall be signed by two or more authorized signatories of Operator designated in accordance with policies mutually approved by Owner and Operator, and if over $25,000 must also be approved in advance by Owner. Additionally, representatives of Owner shall have the right to withdraw funds from such accounts provided reasonable notice of such is given to Operator and such withdrawal does not have a material adverse impact on the operations of the Hotel. During any period that Operator is in default under this Agreement, in addition to any other rights and remedies, Owner may suspend in whole or in part the authority of Operator and its authorized signatories to draw upon the Operating Accounts.

9.3         Distribution of Net Operating Income . Operator shall distribute to Ownerwithin seventeen (17) days after the close of business of each Accounting Period the Net Operating Income for such Account Period, less any amount required to restore the Operating Account cash reserves to an amount not less than the Working Capital (provided that there has been sufficient positive cash flow to build the Operating Account balance to such an amount). Owner may from time to time provide Operator with instructions regarding the distribution of cash flow for any purpose, including without limitation, satisfaction of reserve or other cash requirements established by Owner or any lender pursuant to any loan agreement, mortgage note, mortgage or other security instrument related to the Hotel. Operator shall thereupon make distributions only in accordance with such instructions.

9.4        Final Remittance . Upon the expiration or termination of this Agreement,all remaining amounts in (a) the Reserve and (b) the Operating Account, after payment of all Gross Operating Expenses for which bills were received to date and after payment of Operator’s Management Fee, shall be transferred forthwith to Owner by Operator. Except as provided in Section 22.1, Owner shall pay, or cause to be paid, and shall hold Operator harmless from and against all Gross Operating Expenses accrued in accordance with the Uniform System of Accounts and this Agreement and invoices related to Gross Operating Expenses received after Operator has transferred all funds to Owner.

9.5         Lender Requirements . The provisions of this Article 9 and any otherprovisions of this Agreement regarding cash management or the handling of Hotel funds are subject to any requirements regarding cash management and handling of Gross Operating Revenues and other Hotel funds, including but not limited to lock box or similar arrangements, of the holder of any Mortgage, and within ten (10) days after being requested in writing to do so, Operator will join in any commercially reasonable agreement, acknowledgment or consent with respect thereto required by the holder of any Mortgage.

ARTICLE 10   BOOKS, RECORDS AND STATEMENTS

10.1        Books and Records . Operator shall keep full and adequate books of account and other records reflecting the results of operation of the Hotel in accordance with the Uniform System of Accounts and generally accepted accounting principles. The books of account and all other records relating to or reflecting the operation of the Hotel, including accounts receivable, accounts payable, and general ledger, all on an accrual basis in accordance with the Uniform System, files, correspondence, information regarding group bookings, reservation lists, ledgers, bank statements for the Operating Account and Reserve, accounting books and records, electronic data relating to the Hotel, 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 shall be kept at the Hotel and shall be available to Owner and its representatives and its auditors or accountants, at all reasonable times for examination, audit, inspection, transcription and photocopying at Owner’s sole cost and expense. Copies of any or all books and records may be kept at Operator’s offices in Dallas, Texas. All of such books and records pertaining to the Hotel, including, without limitation, books of account, guest records, front office records, centralized books and records and books and records in electronic form, at all times shall be the property of Owner and except for centralized records, shall not be removed from the Hotel by Operator without Owner’s approval and consent. Operator shall, on behalf of Owner, be responsible for the processing of all credit card accounts and other accounts receivable, the preparation and maintenance of all forms and records relating to sales and use taxes, including but not limited to transient and hotel occupancy taxes, with respect to Hotel operations, and the establishment and maintenance of payroll systems for Hotel employees and related personnel records. Upon any termination of this Agreement, Operator shall immediately turn over all of such books and records forthwith to Owner at a location designated by Owner so as to insure the orderly continuance of the operation of the Hotel, but such books and records shall thereafter be available to Operator at allreasonable times for inspection, audit, examination and transcription for a period of seven (7) years. Whether before or after the expiration of this Agreement, Operator shall not use any Hotel guest records or other guest information for any purposes, other than as necessary to perform its obligations under this Agreement, and subject to the rights of the Franchisor under the Franchise Agreement, all guest information shall belong to Owner.

10.2       Financial Reports . Operator shall deliver to Owner reports of all transactions occurring during the Accounting Period. For each Accounting Period, the Accounting Period Report is to be received no later than the 21st day following the close of each Accounting Period and must provide all items and reports as required by Owner in accordance with the example set forth in Exhibit C . The reports shall include a comparison of periodic and year-to-date actual revenues and expenses with the Annual Operating Budget as well as a periodic and year-to-date comparison of such actual revenues and expenses with those of the prior Fiscal Year; a balance sheet as of the last day of the Accounting Period; Operator’s Management Fee; and any expense reimbursement to Operator or its Affiliates; calculation and computation of the distribution of Net Operating Income; a reserve reconciliation showing acquisition and disposal report of FF&E; the Capital Budget and any expenditures year-to-date and all other reports or information as required by Owner. On or before two (2) business days after the delivery of any internal financial and operational reports concerning the Hotel,including but not limited to month end “flash” reports, Operator shall deliver to Owner a copy of the report.

Financial reports must be accompanied by a certificate of Operator’s designated accounting officer certifying that such statement was prepared under such officer’s direction and in such officer’s opinion is true and correct. Within seventy-five (75) days after the end of each Fiscal Year, Operator shall deliver to Owner an annual accounting, which, at Owner’s request, shall be audited and certified by the Independent Public Accountant, showing the results of operation of the Hotel during the Fiscal Year and a computation of Gross Operating Revenues, Gross Operating Expenses, and Net Operating Income, if any, and any other information necessary to make the computations required hereby or which may be requested by Owner, all for such Fiscal Year. The annual accounting for any Fiscal Year shall be controlling over the interim accountings for such year.

10.3         Audits by Owner . Owner shall have the right or on such more or less frequent basis as Owner shall desire, to perform a complete audit of the Hotel (including inventories) either by Owner’s internal personnel or by a third party auditor retained by Owner. The audit may cover all items of expense and revenue under this Agreement including, but not limited to, Gross Operating Revenues, Gross Operating Expenses, depreciation, and the Management Fee. The cost of one such audit during each Fiscal Year shall be a Gross Operating Expense, provided such cost is reasonable and customary for such audits within the City of San Francisco. If, as a result of such audit, it is ultimately determined that amounts paid or reimbursed to Operator exceeded the amounts required to be paid or reimbursed pursuant to this Agreement, Operator shall within ten (10) after delivery of Owner’s demand, pay to Owner the amount of the excess payment, together with interest thereon from the date paid to Operator until the date payment is made to Owner at the rate set forth in Section 31.15 . In the absence of manifest error, any audit conducted by a qualified third party auditor retained by Owner shall be binding upon the parties, and if the audit shows a difference of more than 3% between the Gross Operating Revenues or Gross Operating Expenses reported by Operator and the Gross Operating Revenues or Gross Operating Expenses determined by the qualified third party auditor, in addition to any other rights and remedies of Owner, Operator shall pay the cost of the audit, and it shall not be entitled to charge the cost as a Gross Operating Expense or recover it as an Operator’s Expense.

ARTICLE 11   OPERATOR’S MANAGEMENT FEES

In respect to the management services hereunder, Operator shall receive or shall be entitled to receive the following management fees (“Management Fee”):

(a)         for each Fiscal Year, Operator shall be entitled to a base management feeof up to two and one half percent (2.5%) of the Gross Operating Revenues for the Fiscal Year. Of that amount, one and three fourths percent (1.75%) of the Gross Operating Revenues for an Accounting Period shall be paid on or before seventeen (17) days after the end of thatAccounting Period, and the balance of three fourths percent (.75%) of the Gross Operating Revenues shall be deferred, subordinated and paid only to the extent that the Partially AdjustedNOI for the Fiscal Year exceeds the amount of the Owner’s Return for that Fiscal Year and Owner has received from distributions of NOI for the Fiscal Year an amount equal to or greater than its Owner’s Return for such Fiscal Year. Provided that as of the end of an Accounting Period the amount that Owner has received during a Fiscal Year from distributions of NOI for that Fiscal Year, less any payments made by Owner during that Fiscal Year for Working Capital or other amounts that are deductible from NOI in determining Partially Adjusted NOI, exceeds the full Owner’s Return for that Fiscal Year, Operator shall be paid, to the extent funds are available for that purpose in the Operating Account as of the end of that Accounting Period, the amount of the unpaid subordinated Management Fee accrued as of the end of that Accounting Period, and if thereafter for such Fiscal Year (including at the end of such Fiscal Year) as a result of payments by Owner that are deductible in determining Partially Adjusted NOI, the net amount received by Owner is less than the full Owner’s Return, Operator shall be required to pay to Owner within ten (10) days the lesser of the subordinated Management Fee received by Operator for that Fiscal Year or the amount of the deficiency in payment of the full Owner’s Return to Owner. If sufficient Partially Adjusted NOI after payment of the Owner’s Return for a Fiscal Year is not available to pay any part of the deferred base management fee, such deferred amount shall be forfeited, shall not be carried forward to any other Fiscal Year, and Operator shall not have any right to payment of such deferred amount; and

(b)         for each Fiscal Year, subject to the limitation on the total Management Feefor a Fiscal Year set forth below, Operator shall be entitled to an incentive management fee equal to (i) five percent (5%) of the first Two Million Dollars ($2,000,000.00) of Fully Adjusted NOI for that Fiscal Year, plus (ii) ten percent (10%) of the next Two Million Dollars ($2,000,000) of Fully Adjusted NOI, plus (iii) fifteen percent (15%) of the amount by which Fully Adjusted NOI for that Fiscal Year exceeds Four Million Dollars ($4,000,000). For any partial Fiscal Year, the dollar amounts in this subparagraph (b) shall be prorated;

provided that the aggregate Management Fee (consisting of the base management fee and incentive management fee) payable for each Fiscal Year shall not exceed four percent (4%) of the Gross Operating Revenues of the Hotel for that Fiscal Year.

ARTICLE 12   INSURANCE

12.1         Insurance . Throughout the Term, to the extent available on commercially reasonable terms, Owner shall provide and maintain the following insurance coverages, unless Owner shall by notice in writing to Operator elect to have Operator provide any such insurance (which election may be made, canceled and remade, from time to time, at Owner’s election):

(a)         special form property damage insurance sufficient to cover thereplacement cost of the Project and each of its component parts, including real and personal property, against direct damage from special form risks (including earthquake and, flood, if applicable, at the direction of Owner). Boiler and machinery insurance, debris removal, demolition, increased cost of construction and electronic data processing shall also be covered at sub-limits established by Owner. Business interruption and extra expense rental loss, as further described in (e) below, shall be included for Owner’s interest (for purposes of such coverage,Gross Operating Expenses shall include ongoing Management Fees as if no loss had occurred payable to Operator only out of insurance proceeds paid on account thereof from which Owner shall continue to pay Operator its Management Fees for the period of coverage). Coverage shall be written with a replacement cost endorsement where applicable or its equivalent for the special form coverage and in aggregate amounts to be specified by Owner for earthquake, flood and other additional coverages. Initially, the deductible amount shall not be more than the lesser of $20,000 for each occurrence or 1% of the total insurable value of the Project for the special form coverage, and the deductibles for earthquake and other additional coverages shall be established by Owner. If Operator is arranging the property insurance, it shall arrange such other or additional insurance in such amounts and against such risks as Owner shall reasonably deem necessary with respect to the buildings, facilities and contents of the Project, including any insurance coverages required by the Franchise Agreement or any Mortgage. The cost of the special form property damage insurance and any other property insurance on the Project shall be allocated between the Hotel, Chinese Cultural Center, spa premises, gift shop premises and parking garage on a fair and equitable basis by Owner;

(b)          Commercial general liability insurance in amounts satisfactory to Owner, but in any event not less than $1,000,000 for each occurrence and $2,000,000 in the aggregate (with a per location aggregate), for personal injury and death and property damage, which shall, among other risks, include coverage against liability arising out of the ownership or operation of motor vehicles, as well as coverage in the said amount against all claims brought in the United States, Canada or United States possessions arising out of alleged (i) bodily injury, (ii) death, (iii) property damage, (iv) assault or battery, (v) false arrest, detention or imprisonment or malicious prosecution, (vi) libel, slander, defamation or violation of the right of privacy, (vii) liquor law or dram shop liability, (viii) product liability, (ix) advertising liability, (x) products and completed operation coverage, and (xi) terrorism coverage, as long as terrorism coverage is reasonably available on terms reasonably acceptable to Owner. The insuring party shall also carry excess liability coverage in an amount not less than $25,000,000;

(c)           Worker’s compensation insurance and employers liability insurance or insurance required by similar employee benefit acts as well as insurance having a minimum per occurrence limit as Operator may deem advisable against all claims which may be brought for personal injury or death of Hotel employees, but in any event not less than $1,000,000 or the amounts prescribed by the law of the State whichever is greater;

(d)           Fidelity bonds, with a blanket limit of $500,000, covering the Hotel’s employees having check signing authority, and comprehensive crime insurance to the extent that Owner deems such to be necessary for the Hotel (including money and securities, loss inside Hotel, loss outside Hotel sublimited at $25,000 each. Depositor’s forgery with a limit of $300,000 and deductible of $5,000 and counterfeit currency with a limit of $5,000 and a $1,000 deductible shall be carried;

(e)         Business interruption insurance and rental loss insurance, as applicable, covering loss of income to Owner arising from Project operations and rental for a minimum period of twelve (12) months resulting from interruption of business caused by the occurrence ofany of the risks insured against under the property insurance (including earthquake, unless otherwise agreed by Owner);

(f)           Bailee coverage applicable to Hotel operations only (broad form including safety deposit box legal liability), with a limit of $25,000 per occurrence and a deductible of $1,000, including innkeeper’s legal and checkroom legal coverages;

(g)          Comprehensive automobile liability insurance at $1,000,000 Combined Single Limit;

(h)           Employment practices liability insurance, including coverage for sexual harassment, wrongful discharge and discrimination; and

(i)            Garagekeepers legal liability insurance applicable to Hotel operations only.

The cost of such insurance shall be charged as a part of Gross Operating Expenses. Operator shall notify Owner and the insurance carrier within twenty-four (24) hours after Operator receives notice of any such loss, damage or injury.

12.2        Modification of Insurance . Owner may elect to increase or decrease the limits of the above insurance coverage and to carry other or additional reasonable and customary insurance. All premiums on any increased limits of, or other or additional, insurance coverage required by Owner under the immediately preceding sentence shall be paid by Operator and shall be included in the Gross Operating Expenses. If any of the required coverages is not available, Owner shall not have any obligation to provide such coverages, and if Owner has previously elected to have Operator provide the coverages, Operator shall inform Owner of the deviation from the requirements and shall continue to provide coverage meeting all of the other requirements of this Article 12 . If Owner has elected to have Operator provide any of the coverages and the unavailability of coverage is due to insurer restrictions, provided that Operator has conducted a process of due diligence to comply with the requirement, the failure to satisfy the insurance requirement in question shall not be a default by Operator under this Agreement.

12.3       Subcontractor’s Insurance . Operator shall require that all majorsubcontractors performing work on the Hotel or Hotel Property carry at their expense Worker’s Compensation, Employer’s Liability and Commercial General Liability in commercially reasonable coverage amounts, and that all major subcontractors performing work on the Hotel have coverage at the subcontractor’s expense in the following minimum amounts:

(a)           Worker’s Compensation - Statutory amount or its equivalent under applicable law.

(b)           Employer’s Liability - $1,000,000 minimum, where required by applicable or equivalent law.

(c)           Commercial General Liability

-or-

(d)          Automobile Liability-$1,000,000 minimum.

A major subcontractor is any subcontractor (i) receiving compensation in excess of $100,000 (subject to adjustment for increases in the CPI between the date hereof and the date of such services) or (ii) performing hazardous services. Operator must obtain Owner’s permission to waive any of the above requirements. Higher amounts may be required if the work to be performed is sufficiently hazardous in nature. Operator shall obtain and keep on file a Certificate of Insurance which shows that the subcontractor is so insured.

12.4       Form of Policies . All insurance required by Sections 12.1,12.2 and 12.3 shall be in such form (if ISO forms are used, the “Special” form should be used for those coverages for which it is available) and with such companies as shall be reasonably satisfactory to Owner provided that such company shall have a minimum Best rating of A- Class VIII, and shall comply with the requirements of any Mortgage and the Franchise Agreement. Insurance may be provided under blanket policies of insurance on an agreed value basis with no co-insurance. All property insurance (including business interruption, extra expense and rental loss coverages) shall name Owner as insured, and so long as the Hotel is mortgaged pursuant to any Mortgage or otherwise shall be subject to a standard mortgagee clause in favor of the mortgagee or mortgagees. Operator shall not be an insured or loss payee under the property insurance, including business interruption coverage. With respect to the policies maintained under Section 12.1(b), (c) and (e) through (g) and 12.3, Owner and the Owner Indemnified Parties and Operator shall be named as either additional or named insureds, at the option of Owner, and Operator will be named as an additional insured, to the extent commercially feasible. Policies of insurance (to the extent applicable) shall (i) provide that the insurance company will have no right of subrogation against the mortgagee, Owner, Operator or any of their respective affiliated or subsidiary companies or the agents or employees thereof and (ii) provide that the proceeds thereof in the event of loss or damage shall, to the extent payable to any mortgagee, be payable notwithstanding any act of negligence or breach of warranty by Owner or Operator which might otherwise result in the forfeiture or nonpayment of such insurance proceeds. The liability insurance policies shall provide that the insurance will be deemed primary for Operator’s indemnification obligations under this Agreement and that any other insurance available to Owner shall not be called upon by these policies to contribute to Liabilities indemnified by Operator. The insuring party shall deliver to the other party complete certified copies of all of the insurance policies obtained by the insuring party containing coverages required by this Agreement, including but not limited to blanket and master policies, and all amendments,renewals and replacements thereof at least five (5) business days before the Effective Date as to the policies that will be in effect on the Effective Date and within ten (10) days after receipt in the case of any new policies, renewal policies, replacement policies and amendments. If Operator has obtained any of the coverages and Owner elects to obtain any of the required insurance, Operator shall cause the coverage being replaced to be canceled without penalty and with a pro rata refund of any prepaid premiums.

12.5        Certificates . For the purpose of insuring compliance with this Article 12, the insuring party shall furnish to the party certificates of all insurance required to be maintained pursuant to this Article 12 . All such certificates for insurance obtained by Operator shall specify that the policies to which they relate cannot be canceled on less than thirty (30) days’ prior written notice to Owner (with the “endeavor to” and “failure to” language of the certificate omitted)

12.6        Waiver of Subrogation . Owner and Operator each waive any and all rights of recovery against the other (and against the partners, officers, employees and agents of the other party) for loss of or damage to such waiving party or its property or the property of others under its control, to the extent such loss or damage is covered by, or if the responsible party fails to maintain the required insurance hereunder, would have been covered by, the insurance required to be obtained by such waiving party; provided, however, that this waiver does not apply to any rights that any party may have to insurance proceeds from their respective insurance policies at the time of such loss or damage. Each party obtaining any of the insurance described in this Article 12 shall obtain from their insurance carriers a consent to such waiver.

12.7        Lender Requirements . If any Mortgage requires that funds be delivered into an impound account for purposes of payment of insurance premiums, Operator shall comply with the requirements of the Mortgage respecting payment of insurance premiums, including but not limited to the necessary deposits in the impound account for payment of insurance premiums.

ARTICLE 13   REAL AND PERSONAL PROPERTY TAXES; UTILITIES

13.1       Taxes . Operator shall, on behalf of Owner, pay from the Gross Operating Revenues, on or before the dates the same become delinquent, with the right to pay the same in installments to the extent permitted by law, the Hotel’s allocable share (see (i) of the definition of Gross Operating Expenses) all real estate taxes, all personal property taxes and all assessments levied against the Hotel or any of its component parts. Operator shall promptly deliver to Owner all notices of assessments, valuations and similar documents to be filed by Operator or Owner which are received from taxing authorities by Operator. Owner shall have the right to hire property tax consultants or like professionals that reasonably provide economic benefits to Owner and the costs thereof shall be a part of Gross Operating Expenses. Notwithstanding the foregoing obligations of Operator, Owner may, at its sole expense, contest the validity or the amount of any such tax or assessment, provided that such contest does not materially jeopardize Operator’s rights under this Agreement. Operator agrees to cooperate with Owner and execute any documents or pleadings required for such purpose, provided Owner agrees to reimburse Operator for any out-of-pocket costs occasioned to Operator by any such contest. If anyMortgage requires that funds be delivered into an impound account for purposes of payment of real estate taxes and assessments, Operator shall comply with the requirements of the Mortgage respecting payment of real estate taxes and assessments, including but not limited to the necessary deposits in the impound account for payment of real estate taxes and assessments.

13.2        Utilities, Etc . Operator shall pay when due all fuel, gas, light, power, water, sewage, garbage disposal, telephone and other utility bills incurred in connection with the Hotel from the Gross Operating Revenues or Working Capital.

ARTICLE 14   OPERATOR SYSTEM SERVICES

14.1        Operator System Services . Owner and Operator contemplate that certain services, such as advertising, training and computer payroll, can be provided for the Hotel better, more efficiently and more economically on a central, regional or group basis rather than on an individual hotel basis (each such service, an “Operator System Service”).

14.2        Operator System Service Costs . Operator may provide an Operator System Service to the Hotel, and in such event the Hotel’s fair and equitable share of the cost thereof (excluding general administrative, overhead or other indirect expenses, profit or capital expense) shall constitute a Gross Operating Expense, so long as (a) the cost of the Operator System Service shall be allocated on a fair and equitable basis among the Hotel and the other hotels benefiting therefrom; (b) the basis for such allocation shall be explained by Operator in each Annual Operating Budget; (c) both the cost of the Operator System Service and the allocation of a share of that cost to the Hotel and such other hotels shall be subject to audit by Owner pursuant to Section 10.3 of this Agreement; (d) Owner has given its prior written approval of each such service, which may be withheld in its sole and absolute discretion; and (e) the cost of each such service shall be itemized in the Annual Operating Budget which shall contain a separate line item for travel expenses and a separate line item for Operator System Services. A schedule of Operator System Services shall be approved by Owner at the time of the AFP. The schedule shall specify the specific services that will be provided for the Fiscal Year and shall address the pro rata bases for reimbursable expenses by type of expense. Other system reimbursable expenses shall be approved by Owner before expensed. Operator shall, at Owner’s request, provide Owner with sufficient detail to support any charges relating to the line items for Operating System Services and travel expenses allocated to the Hotel. Operator shall identify the person in the corporate office to respond to questions.

ARTICLE 15   DAMAGE OR DESTRUCTION; CONDEMNATION

15.1       Damage or Destruction . If the Hotel or any portion thereof shall be damaged or destroyed at any time or times during the Term by fire, casualty or any other cause, Owner may, at its election, repair, rebuild and replace the Hotel, in which case this Agreement shall remain in effect. If Owner elects to repair, rebuild or replace the Hotel, Owner shall undertake such work without expense to Operator. If Owner does not elect to repair, rebuild or replace the Hotel, and in its damaged condition, the Hotel cannot be operated in accordance with the First-Class Hotel Standard, then either Operator or Owner shall have the right to terminatethis Agreement upon no less than ninety (90) days’ notice to the other party. Operator shall not be entitled to any termination fee or other compensation as a result of the termination.

15.2         Condemnation . If the whole of the Hotel shall be taken or condemned in any eminent domain, condemnation, compulsory acquisition or like proceeding by any competent authority or if such a portion thereof shall be taken or condemned as to make it imprudent or unreasonable, in the sole opinion of Owner, to operate the remaining portion of the Hotel in accordance with the First Class Hotel Standard, then the Term shall terminate as of the date title vests in the condemning authority. Operator shall not be entitled to any termination fee or other compensation as a result of the termination. Operator has no interest in any award paid to Owner. Nothing herein shall limit Operator from filing a separate claim against the condemnor for any loss to its business as a result of such condemnation, unless it would result in a reduction in Owner’s award. If only a part of the Hotel shall be taken or condemned and the taking or condemnation of such part does not, in the opinion of Owner, make it unreasonable or imprudent to operate the remainder in accordance with the First Class Hotel Standard, this Agreement shall not terminate, and so much of any award to Owner shall be made available as shall be reasonably necessary for making alterations or modifications of the Hotel, or any part thereof determined by Owner in its sole discretion, so as to make it a satisfactory architectural unit as a hotel or similar type and class as prior to the taking or condemnation. The balance of the award, after deduction of the sum necessary for such alterations or modifications, shall be retained by Owner, and Operator shall not have interest therein. Operator shall be entitled to make a separate claim against the condemnor (if allowed by law) for loss to its business as a result of such condemnation, provided the claim of Operator does not reduce the award available to Owner.

ARTICLE 16   TERMINATION

16.1       Termination by Owner . This Agreement may be terminated by Owner (i) upon at least sixty (60) days written notice to Operator in Owner’s sole discretion without cause; or (ii) upon foreclosure of any Mortgage, or (iii) upon or following the sale of the Hotel with at least fifteen (15) days written notice by Owner or the purchaser to Operator, provided that the notice is given on or before six (6) months after the date of closing of the sale, or (iv)immediately without notice by Owner for “Cause” as defined in this Agreement.

16.2       Termination by Operator Based upon a Sale of the Hotel . This Agreement may be terminated by Operator in accordance with this Section 16.2, if Owner sells the Hotel to a person (“Prohibited Contract Party”) that Operator is prohibited from doing business by the terms of any other bona fide, arms length contract between Operator and an unaffiliated third party. To exercise this termination right, Operator must deliver notice thereof to Owner on or before fifteen (15) days after Operator is notified of the name of the purchaser, and if Operator timely exercises its right to terminate, then unless earlier terminated under any other provision of this Agreement, this Agreement shall terminate one (1) year after the date of closing of the sale of the Hotel to the purchaser. Owner may deliver the names of prospective purchasers to Operator to determine whether a prospective purchaser is a Prohibited Contract Party, in which case Operator shall notify Owner of whether Operator considers the prospective purchaser to bea Prohibited Contract Party, and if Operator does not so notify Owner on or before fifteen (15) days after Owner’s delivery of the name of a prospective purchaser, Operator shall not have the right to terminate this Agreement based upon a sale to the prospective purchaser or any Affiliate of the prospective purchaser.

ARTICLE 17   RIGHTS AND OBLIGATIONS FOLLOWING TERMINATION

17.1        Rights and Obligations Following Termination . In addition to the rights and remedies otherwise available to the parties at law or in equity, the following provisions will apply following Termination pursuant to Article 16 or any other provision of this Agreement.

(a)           Operator shall quit, vacate, surrender, and deliver to Owner peacefully and promptly the Hotel and all Licenses and 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;

(b)           Operator shall deliver to Owner any and all of Owner’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 and Reserve, 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 Owner’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;

(c)           Operator shall keep confidential all information concerning the Hotel obtained by Operator or in Operator’s possession, and not use any of the same for its own account, for the account of others or in any other manner that would directly or indirectly compete with the Hotel;

(d)           Operator shall remit to Owner the balance (if any) of the Operating Account and the Reserve, after computation and disbursement to Operator of all accrued and unpaid Management Fees and reimbursable Operator’s Expenses;

(e)           As expeditiously as reasonably possible, prepare and deliver to Owner the financial reports required under this Agreement with respect to the final Accounting Period and Fiscal Year and remit to Owner the amount (if any) shown as owing to Owner in the final financial statements on account of previously overpaid Management Fee, reimbursableOperator’s Costs or other payments due under this Agreement; and

(f)          Operator shall do all acts and execute and deliver all documentsreasonably requested by Owner in connection with the transfer, all without consideration therefor, and otherwise reasonably cooperate with Owner and any successor operator to insure or facilitate orderly continuation of the business of the Hotel;

(g)           The rights and liabilities of the parties having accrued prior to Termination shall continue;

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

(i)            With respect to certain employee benefit matters, each party shall have its respective obligations under Section 22.2 (b) and (c) which shall survive the Termination; and

(j)            The provisions of this Article 17 shall survive Termination.

17.2         Bookings Beyond Expiration of Term . Operator shall diligently discharge all its obligations under this Agreement during the whole of the Term, and in particular shall continue to advertise and promote the Hotel and actively seek and accept bookings notwithstanding that they are to occur after the expiration of the Term. Owner shall be responsible on its own account for all costs, charges and commissions payable for bookings made by Operator in the ordinary course of business of the Hotel which are for dates after the expiration of the Term. Operator shall at all times fully co-operate with and explain all aspects of the business and operation of the Hotel to Owner or any persons authorized by Owner to allow Owner or such persons to successfully and efficiently conduct the business after the expiration of the Term.

ARTICLE 18   EVENTS OF DEFAULT

18.1         Operator Defaults . Each of the following shall constitute an Event of Default by Operator:

(a)           The failure of Operator to pay any sum of money to Owner provided for herein when the same is payable or perform any of its obligations under Section 4.5, Section 4.8, or Articles 7,9 , 10 (except Section 10.2), 12 or 13, if such failure is not cured within ten (10) days after written notice specifying such failure is given by Owner to Operator;

(b)           Operator shall fail to keep, observe or perform any other material covenant, agreement, term or provision of this Agreement to be kept, observed or performed by Operator (with the exception of any such failure constituting an Event of Default under any other subsection of this Section 18.1), and such failure shall continue for a period of thirty (30) days after notice thereof by Owner to the Operator, provided that if such failure is incapable of cure within such thirty (30) day period and if Operator shall promptly, diligently and continuously pursue the cure thereof, then Operator shall have a period of sixty (60) days after notice thereof by Owner to Operator within which to effectuate the cure. If at the end of such sixty (60) day period the cure has not been effectuated notwithstanding Operator’s diligent and continuous attempts to cure, then at the request of Operator made at least ten (10) days before expiration of the 60 day cure period, Owner shall extend the cure for up to an additional thirty (30) days, if in Owner’s reasonable opinion, the default is capable of cure within such additional period as Owner may permit and the extension will not have a materially negative effect on the financial performance of the Hotel;

(c)           An assignment by Operator in violation of the provisions of Article 21 hereof;

(d)           If Operator shall fail to maintain and operate the Hotel in accordance with the standards required under Section 2.1 and such failure shall not be due to a refusal on the part of Owner to approve the AFP submitted by Operator under Section 4.5, or Owner’s failure to provide funds requested pursuant to Section 9.1 and shall continue for a period of thirty (30) days after written notice by Owner to Operator specifying the matters or conditions which constitute the basis for such Event of Default, provided that if such failure is incapable of cure within such thirty (30) day period and if Operator shall promptly, diligently and continuously pursue the cure thereof, then Operator shall have a period of sixty (60) days after notice thereof by Owner to Operator within which to effectuate the cure. If at the end of such sixty (60) day period the cure has not been effectuated notwithstanding Operator’s diligent and continuous attempts to cure, then at the request of Operator made at least ten (10) days before expiration of the 60 day cure period, Owner shall extend the cure for up to an additional thirty (30) days, if in Owner’s reasonable opinion, the default is capable of cure within such additional period as Owner may permit and the extension will not have a materially negative effect on the financial performance of the Hotel;

(e)           If Operator shall apply for or consent to the appointment of a receiver, trustee or liquidator of Operator or of all of a substantial part of its assets, admit in writing its inability to pay its debts as they come due, make a general assignment for the benefit of creditors, take advantage of any insolvency law, or file an answer admitting the material allegations of a petition filed against Operator in any bankruptcy, reorganization or insolvency proceeding, or if an order, judgment or decree shall be entered by any court of competition jurisdiction, on the application of a creditor, adjudicating Operator bankrupt or insolvent or approving a petition seeking reorganization of Operator or appointing a receiver, trustee or liquidator of Operator or all or a substantial part of its assets, and such order, judgment or decree shall continue unstayed and in effect for any period of one hundred twenty (120) consecutive days;

(f)           The filing of a voluntary petition in bankruptcy or insolvency or a petition for liquidation or reorganization under any bankruptcy law by Operator, or Operator shall consent to, acquiesce in, or fail timely to controvert, an involuntary petition in bankruptcy, insolvency or an involuntary petition for liquidation or reorganization filed against it;

(g)           The filing against Operator of a petition seeking adjudication of Operator as insolvent or seeking liquidation or reorganization or appointment of a receiver, trustee or liquidator of all or a substantial part of Operator’s assets, if such petition is not dismissed within ninety (90) days;

(h)           The failure of Operator to deliver to Owner on or before three (3) business days after the date when due any financial report or statement required to be delivered to Owner under Section 10.2, provided that only with respect to the first two (2) such failures in a Fiscal Year, Operator has not cured the failure within three (3) business days after Owner has delivered notice of the failure to Operator;

(i)           The failure of Operator to perform on or before three (3) business daysafter delivery of notice from Owner any of Operator’s obligations under Article 17;

(j)          The failure of Operator to execute and deliver any instrument requested by Owner to effectuate or evidence the subordination of Operator’s rights hereunder to anyMortgage in accordance with Section 30.1 or estoppel certificate under Section 31.7 within the time period provided in the applicable section;

(k)         Any willful misconduct, criminal misconduct, fraud or misappropriationof funds by Operator; or

(l)          Any other matter stated elsewhere in this Agreement to be an Event ofDefault by Operator.

18.2         Owner Defaults . Each of the following shall constitute an Event of Default by Owner:

(a)           The failure of Owner to pay or furnish to Operator any money Owner is required to pay or furnish to Operator in accordance with the terms hereof on the date the same is payable, if such failure is not cured within thirty (30) days after written notice specifying such failure is given by Operator to Owner.

(b)           Owner shall fail to keep, observe or perform any other material covenant, agreement, term or provision of this Agreement to be kept, observed or performed by Owner (with the exception of any such failure constituting an Event of Default under subsection (a), (c), (d), or (e) of this Section 18.2), and such failure shall continue for a period of forty-five (45) days after notice thereof by Operator to Owner, provided that if such failure is incapable of cure within such forty-five (45) day period and if Owner shall promptly, diligently and continuously pursue the cure thereof, then Owner shall have a period of ninety (90) days after notice thereof by Operator to Owner within which to effectuate the cure. If, at the end of such ninety (90) day period the cure has not been effectuated notwithstanding Owner’s diligent and continuous attempts to cure, then at the request of Owner, Operator shall extend the cure period for up to an additional ninety (90) days, if in Operator’s reasonable opinion, the default is capable of cure within such additional period as Owner may permit and the extension will not have a materially negative effect on the financial performance of the Hotel.

(c)           If Owner shall apply for or consent to the appointment of a receiver, trustee or liquidator of Owner of all or a substantial part of its assets, or admit in writing its inability to pay its debts as they come due, make a general assignment for the benefit of creditors, take advantage of any insolvency law, or file an answer admitting the material allegations of a petition filed against Owner in any bankruptcy, reorganization or insolvency proceeding, or if an order, judgment or decree shall be entered by any court of competent jurisdiction, on the application of a creditor, adjudicating Owner a bankrupt or insolvent or approving a petition seeking reorganization of Owner or appointing a receiver, trustee or liquidator of Owner or of all or a substantial part of its assets, and such order, judgment or decree shall continue unstayed and in effect for any period of one hundred (120) consecutive days.

(d)           The filing of a voluntary petition in bankruptcy or insolvency or a petition for liquidation or reorganization under any bankruptcy law by Owner, or Owner shall consent to, acquiesce in, or fail timely to controvert, an involuntary petition in bankruptcy, insolvency or an involuntary petition for liquidation or reorganization filed against it.

(e)           The filing against Owner of a petition seeking adjudication of Owner as insolvent or seeking liquidation or reorganization or appointment of a receiver, trustee or liquidator of all or a substantial part of Owner’s assets, if such petition is not dismissed within ninety (90) days.

ARTICLE 19   TERMINATION UPON EVENT OF DEFAULT; OTHER REMEDIES

Upon the occurrence of an Event of Default, the non-defaulting party may: (i) terminate this Agreement by delivering notice of termination to the defaulting party; and (ii) pursue any and all other remedies available to the non-defaulting party at law or in equity.

ARTICLE 20   NOTICES

All notices, elections, acceptances, demands, consents and reports (collectively “notice”) provided for in this Agreement shall be in writing and shall be given to the other party at the address set forth below or at such other address as any of the parties hereto may hereafter specify in writing.

Such notice or other communication may be given by Federal Express or other nationally recognized overnight carrier or by electronic facsimile in which case notice shall be deemed given upon confirmed delivery. Notice may be mailed by United States registered or certified mail, return receipt requested, postage prepaid, deposited in a United States post office or a depository for the receipt of mail regularly maintained by the post office. If mailed, then such notice or other communication shall be deemed to have been received by the addressee on the fifth (5 ^th ) day following the date of such mailing. Such notices, demands, consents and reports may also be delivered by hand, in which case it shall be deemed received upon delivery. Notices shall not be effective unless delivered by one of the means described above.

ARTICLE 21   ASSIGNMENT

21.1         Assignment by Operator . Operator may not assign its interest under this Agreement or any of its rights hereunder or assign or delegate its duties hereunder to any entity or person without the prior consent of Owner, which consent Owner may withhold in its sole and absolute discretion. Any assignment by Operator without Owner’s prior consent shall be null and void. Each of the following shall be deemed to be an assignment of this Agreement by Operator requiring Owner’s consent, as above provided: (a) the direct or indirect transfer of ten percent (10%) or more of the voting stock, general partnership interests or other equity interests in Operator, whether in a single transaction or series of transactions, (b) any material change in the individuals having operating responsibility for Operator, and (c) any other change in control of Operator; provided, however, that in the case of (a) or (b), if after the transfer or change, Steven Van will continue to own at least fifty five percent (55%) of the economic and voting interests in Operator and be the general partner, managing member or hold an equivalent position with complete control of Operator, the transfer described in (a) or change described in (b), as applicable, shall not be deemed to be an assignment of this Agreement by Operator. Any permitted assignment shall not relieve the assigning party of its liabilities and obligations under this Agreement. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

21.2       Assignment by Owner . Owner shall have the right to assign or grant a security interest in this Agreement to a Mortgagee as security for its loan to Owner. Also, Owner shall have the right to sell, convey or otherwise transfer the Hotel or its interest in thisAgreement in its entirety, and unless this Agreement shall be terminated upon any such sale, conveyance or transfer, the new owner of the Hotel or the assignee of Owner’s rights under this Agreement, as the case may be, shall (unless the context otherwise requires) be considered to be the “Owner” for all purposes under this Agreement. Upon any permitted assignment of this Agreement and assumption by the assignee in writing delivered to Operator of Owner’s future obligations under this Agreement, Owner shall be relieved of any liabilities and obligations arising under this Agreement from and after the date of the assignment.

ARTICLE 22   INDEMNITY

22.1         By Operator . To the extent that Owner shall not be fully covered by insurance and to the maximum extent permitted by law, Operator will indemnify, hold harmless and protect Owner, its partners and Affiliates, and their respective partners, members, shareholders, officers, directors, employees, managers, contractors and agents, including but not limited to Evon Corporation, Portsmouth Square, Inc., and Chelsea Development Company (all of the persons indemnified under this Section 22.1 are referred to collectively as the “Owner Indemnified Parties”) from and against any and all claims, liabilities, losses, damages, costs and expenses including attorneys fees, court costs and litigation expenses (collectively, “Liabilities”) caused by, arising out of, or incurred in connection with (a) acts or omissions of (i) Operator, and (ii) agents or any other person for which Operator is legally responsible, constituting willful misconduct, violation of any Legal Requirements or breach of this Agreement, or (b) gross negligence of any corporate office personnel of Operator.

22.2        By Owner

(a)           To the extent that Operator shall not be fully covered by insurance, and except as provided in subparagraphs (b) and (c) below, Owner shall indemnify, hold harmless and protect Operator and its directors, officers, employees and agents from and against any and all Liabilities arising out of, or incurred in connection with the management and operation of the Hotel, except those that Operator is required to indemnify against under Section 22.1. Notwithstanding anything to the contrary contained in this Agreement, the following subparagraphs (b) and (c) shall cover liability arising out of the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Multiemployer Pension Plan Amendments Acts of 1980 (“MEPPA”), respectively, as from time to time amended.

(b)         Employee Benefits: Employees, if any, of the Hotel who are not represented by a collective bargaining representative shall participate in the incentive programs and in the profit sharing and/or other employee retirement, disability, health, welfare or other benefit plan or plans now or hereafter made available by Operator to similarly situated employees of other Operator operated hotels, in accordance with their respective terms. Operator shall 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 Operator operated hotels, which basis shall be consistent with the customary methods used by similar managementcompanies in the hospitality industry. Operator’s rights under this Subsection (b) 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 Operator operated hotels.

Upon termination of this Agreement, the sale of the Hotel or other similar event, Operator shall cooperate with Owner with respect to disposition of such plan or plans (or plan assets) in a mutually satisfactory manner, all in compliance with then applicable regulatory requirements, with the objective of making the total contributions and expenses charged to Owner with respect to such plan or plans equal to the actual costs of providing benefits to employees at the Hotel during the Term hereof.

Operator does not now sponsor or maintain a defined benefit pension plan for any of its employees, and Operator shall not adopt any type of defined benefit pension plan for employees at the Hotel without Owner’s prior written consent, which may be withheld in its sole and absolute discretion.

(c)         Multiemployer Plans: Operator and Owner agree that with respect to anywithdrawal liability arising under any “multiemployer plan” (as defined in Section 3(37) of ERISA), the obligations of the parties shall be determined as follows:

(i)           Any multiemployer plan withdrawal liability arising with respect to employees at the Hotel shall be the responsibility of Owner, and Owner 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 employees at the Hotel. Owner shall not have any liability or responsibility for withdrawal liability arising after the sale or other disposition of the Hotel or after the termination of this Agreement, whether by lapse of time or otherwise, except to the extent that such liability arises in connection with and is a direct result of such sale, disposition, termination or other similar event. To the extent permitted under then applicable laws and regulations, Operator shall cooperate with Owner 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 (c), the term “withdrawal liability” shall mean the actual amount assessed by and payable to a multiemployer pension fund upon a complete or partial withdrawal of the Hotel or Hotel employees from such fund. Operator shall cooperate with Owner in challenging a plan’s assessment of such liability, provided that all costs of litigation, arbitration or other procedures shall be paid by Owner (including any bonds that must be posted). If Operator has employees at other locations whoparticipate in the same multiemployer plan as employees at the Hotel, Owner shall be charged with and be responsible for multiemployer plan withdrawal liability arising solely with respect to the participation of Hotel employees in such plan. Operator shall indemnify, hold harmless and protect each of the Owner Indemnified Parties from and against any and all claims, liabilities,losses, damages, costs and expenses, including but not limited to attorney’s fees, court costs and litigation expenses, caused by, arising out of, or incurred in connection with, Operator’s and its employees participating in multiemployer plans (“Withdrawal Liability”) to the extent thatWithdrawal Liabilities arise from or relate to the participation in multiemployer plans of Operator employees who are not employees of the Hotel.

In entering into this Agreement, Operator and Owner acknowledge that neither Owner nor Operator has made any representation to the other regarding projected earnings, the possibility of future success or any other similar matter respecting the Hotel, and that Operator and Owner understand that no guarantee is made to the other as to any specific amount of income to be received by Operator or Owner or as to the future financial success of the Hotel. Without limiting the generality of the foregoing, Operator acknowledges that while various plans for expansion, renovation and improvement of the Hotel have been discussed, Owner has not provided any assurances to Operator than any such plans will be undertaken, and Operator will not have any rights or remedies against Owner under this Agreement or otherwise if Owner does not undertake any such expansion, renovation or improvement of the Hotel.

ARTICLE 24   REPRESENTATIONS OF OPERATOR

In order to induce Owner to enter into this Agreement, Operator does hereby make the following representations and warranties:

(a)           the execution of this Agreement is permitted by the operative agreement of Operator and this Agreement has been duly authorized, executed and delivered and constitutes the legal, valid and binding obligation of Operator enforceable in accordance with the terms hereof;

(b)           to the best knowledge of Operator, there is no claim, litigation, proceeding or governmental investigation pending, or, as far as is known to Operator, threatened, against or relating to Operator, the properties or business of Operator or the transactions contemplated by this Agreement which does, or may reasonably be expected to, materially and adversely affect the ability of Operator to enter into this Agreement or to carry out its obligations hereunder, and to the best knowledge of Operator, there is no basis for any such claim, litigation, proceedings or governmental investigation, except as has been fully disclosed in writing to Owner; and

(c)           neither the consummation of the transactions contemplated by this Agreement on the part of Operator or be performed, nor the fulfillment of the terms, conditions and provisions of this Agreement, conflicts with or will result in the breach of any of the terms, conditions or provisions of, or constitute a default under, any agreement, indenture, instrument or undertaking to which Operator is a party or by which it is bound.

ARTICLE 25   REPRESENTATIONS OF OWNER

In order to induce Operator to enter into this Agreement, Owner does hereby make the following representations and warranties:

(a)           that Owner is the owner of the Hotel and Property;

(b)           the execution of this Agreement is permitted by the operative agreement of Owner and this Agreement has been duly authorized, executed and delivered and constitutes the legal, valid and binding obligation of Owner enforceable in accordance with the terms hereof;

(c)           there is no claim, litigation, proceeding or governmental investigation pending, or as far as is known to Owner, threatened, against or relating to Owner, the properties or business of Owner or the transactions contemplated by this Agreement which does, or may reasonably be expected to, materially and adversely affect the ability of Owner to enter into this Agreement or to carry out its obligations hereunder, and there is no basis for any such claim, litigation, proceedings or governmental investigation, except as has been fully disclosed in writing to Operator; and

(d)           neither the consummation of the transactions contemplated by this Agreement on the part of Owner to be performed nor the fulfillment of the terms, conditions and provisions of this Agreement, conflicts with or will result in the breach of any of the terms, conditions or provisions of, or constitute a default under, any agreement, indenture, instrument or undertaking to which Owner is a party or by which it is bound.

ARTICLE 26   ARBITRATION

26.1          Disputes to be Resolved by Arbitration . Any dispute, claim or controversy arising out of or relating to this Agreement or the breach, termination, enforcement, interpretation or validity thereof; or the relationship of the parties, including the determination of the scope or applicability of this Agreement to arbitrate, shall be determined by arbitration in San Francisco, California, before a sole arbitrator, in accordance with the laws of the State of California for agreements made in and to be performed in that State. Except as hereinafter provided to the contrary, the arbitration shall be administered by the Judicial Arbitration and Mediation Service (JAMS) pursuant to its Comprehensive Arbitration Rules and Procedures. Judgment on the arbitrator’s award may be entered in any court having jurisdiction. The arbitrator shall, in the award, allocate all of the costs of the arbitration (and the mediation, if applicable), including the fees of the arbitrator and the reasonable attorneys’ fees of the prevailing party, against the party who did not prevail. The arbitrator shall have, unless the parties mutually agree otherwise, substantial experience in matters related to the hospitality industry.

26.2          Procedural Matters . The arbitrator shall schedule a pre-hearing conference to resolve procedural matters, arrange for the exchange of information, obtain stipulations, and narrow the issues. The parties will submit proposed discovery schedules to the arbitrator at thepre-hearing conference. The scope and duration of discovery will be within the sole discretion of the arbitrator. The arbitrator shall have the discretion to order a pre-hearing exchange of information by the parties, including, without limitation, production of requested documents, exchange of summaries of testimony of proposed witnesses, and examination by deposition of parties and third-party witnesses. This discretion shall be exercised in favor of discovery reasonable under the circumstances. Either party may be represented in the arbitration by counsel or other authorized representative. In rendering a decision, the arbitrator shall determine the rights and obligations of the parties according to the substantive and procedural laws of California and the terms and provisions of this Agreement, and the arbitrator shall have no power to render a decision contrary to the terms of this Agreement or contrary to the statutory and decisional law of California. The arbitrator’s decision shall be based on the evidence introduced at the hearing, including all logical and reasonable inferences therefrom. The decision must be based on, and accompanied by, a written statement of decision explaining, in reasonable detail, the factual and legal basis for the decision as to each of the principal controverted issues. The validity and enforceability of the arbitrator’s decision is to be determined exclusively by the California courts pursuant to the provisions of this Agreement.

ARTICLE 27  TERMINATION OF THE FRANCHISE AGREEMENT

Owner reserves and shall have sole discretion, at any time to terminate the Franchise Agreement. While Owner may consult with Operator regarding any new franchise or license for the Hotel, the decision of whether to enter into a new franchise or license, the selection of the new franchisor and brand and the terms of the new Franchise Agreement shall be solely those of Owner. Owner will notify Operator promptly following the selection of a new franchisor and brand for the Hotel, and except as hereinafter provided, Operator may elect to terminate this Agreement, effective on the date of the actual change in the franchise if a new franchise is being entered into for the Hotel or ninety (90) days after termination of the existing Franchise Agreement if Owner has notified Operator that it will not enter into a new Franchise Agreement for the Hotel. Operator shall not be entitled to a termination fee or other compensation as a result of termination of this Agreement pursuant to this Article 27.

ARTICLE 28   NON-COMPETITION

28.1         Geographic Limitation . Neither Operator nor any Affiliate, successor or assignee of Operator shall develop, syndicate, own, invest, lease, operate, manage, franchise or license (or grant such rights to third parties), provide hotel related services or otherwiseparticipate either directly, indirectly or by any means in any other hotel within the Geographic Zone of the Hotel as designated on Exhibit D for a period beginning on the date of thisAgreement and ending four (4) months after the termination of this Agreement. Without limiting the rights and remedies of the parties under any provision of this Agreement, Owner shall be entitled, in the case of any breach (actual or threatened) of the covenants of this Section by Operator or any of its Affiliates, to injunctive relief and to any other right or remedy available at law or in equity. Operator acknowledges that compliance by Operator and its Affiliates with the restrictions imposed by this Section is necessary in connection with the fulfillment by Operatorof its duties as Owner’s agent and that Owner would not have entered into this Agreement in the absence of such restrictions.

28.2         Exhibit Halls, Convention Center . If Operator shall manage or operate any exhibit hall or convention center not located on the Property, but located within the Geographic Zone during the Term, there shall be no commingling of funds and no expenses related to the exhibit hall or convention center may be shared with or charged to the Hotel without the prior written approval of Owner, which may be withheld in its sole and absolute discretion.

ARTICLE 29   EXCULPATION

29.1         Limitation on Recourse . Notwithstanding any other provision of this Agreement to the contrary, the liability of Owner arising out of or in connection with this Agreement and the transactions and obligations contemplated hereby shall at all times be limited to the interest of Owner in the Hotel, and in any litigation or any other dispute, neither Operator nor any other party shall seek or have recourse to any other asset of Owner or to Owner’spartners, members, associates, agents, executives or Affiliates. Without limiting the foregoing, neither Owner nor any party associated with Owner shall have any liability in excess of Owner’s interest in the Hotel for any act by Owner, including liability for the gross negligence, willful misconduct (either prior to or during term of or after the expiration or earlier termination of this Agreement) or breach of this Agreement by Owner.

29.2       Limitations on Funding Commitment . Notwithstanding any other provision of this Agreement to the contrary, but except as otherwise provided in this Section 29.2, Owner shall not be obligated at any time to pay, or advance or make available any funds to pay, any expenses of the Hotel, other than from the Gross Operating Revenues, and the failure to make any payment or fulfill any obligation because of insufficient Gross Operating Revenues shall not be considered a breach or default of this Agreement by Owner. If, however, Owner fails to make any payments for any Gross Operating Expenses incurred in accordance with this Agreement within thirty (30) days after delivery of written demand for any such payment made by Operator to Owner based upon the lack of funds in the Operating Account to pay such Gross Operating Expenses, and as a result of Owner’s failure to make the requested payment for Gross Operating Expenses, Operator cannot pay Gross Operating Expenses as they become due and reasonably fulfill its obligations under this Agreement with respect to the safe operation of the Hotel in accordance with the First-Class Hotel Standard, then while such circumstances continue to exist, Operator may terminate this Agreement upon fifteen (15) days’ advance written notice to Owner, and if such circumstances continue to exist for a period of ninety (90) days or more and Operator has not elected to terminate this Agreement, then while such circumstances continue to exist, Owner may terminate this Agreement upon at least sixty-five (65) days advance notice to Operator. Upon any such termination under this Section 29.2, but subject to the limitations on recourse contained in Section 29.1, Owner agrees to pay into the Operating Account any amount necessary to pay Gross Operating Expenses incurred prior to the date of termination for which funds are not available in the Operating Account, and Owner’s payment obligation under this sentence shall survive the termination of this Agreement; provided, however, that such obligationof Owner with respect to amounts necessary to pay salaries, benefits and payroll expenses of Hotel Employees incurred through the date of termination (including any WARN Act liability) shall not be subject to the limitation contained in Section 29.1.

ARTICLE 30   MORTGAGES

30.1        Right to Mortgage . Owner shall have the right to mortgage or encumber its interest in the Hotel, including the personal property located therein or used in the operation of the Hotel in any amount and on such other terms determined by Owner in its sole and absolute discretion without the approval of Operator, and to amend, modify and refinance any such encumbrance in its sole and absolute discretion and without Operator’s approval. Operator acknowledges that this Agreement is a contract for services which does not create any interest of Operator in the Hotel or a lien or encumbrance on the Hotel of any kind and does not run with the land. Nonetheless, Operator agrees upon the request of Owner or any existing or prospective Mortgagee of Owner or ground lessor to execute and deliver within five (5) business days after receipt by Operator a subordination agreement with any such Mortgagee or ground lessor confirming that Operator has no interest in the Hotel and that any such interest it may have is subordinate to the lien of the Mortgage held by such Mortgagee or the interest of such ground lessor, as applicable. Additionally, if requested by any such Mortgagee or ground lessor, Operator agrees to enter into an agreement with such Mortgagee or ground lessor on terms reasonably required by such Mortgagee in which Operator agrees to perform its obligations under this Agreement for the benefit of any successor owner or ground lessor, as the case may be, on the terms and conditions of this Agreement, if the Mortgage is foreclosed, title is transferred in lieu of foreclosure, or the ground lease is terminated. Such agreement may alternatively be included in any subordination agreement, but in any event, Operator agrees to execute and deliver such agreement within five (5) business days after receipt of any such agreement for execution.

30.2         Notice of Mortgage . If Owner, at its discretion, shall encumber its interest in the Hotel by a Mortgage or shall enter into a ground lease, Owner may furnish Operator with the post office address where notices may be served upon the Mortgagee or ground lessor, in which case:

(a)           Simultaneously with the giving of any notice of default or termination to Owner, Operator will send a copy of such notice by registered or certified mail to the Mortgagee or ground lessor, as the case may be; and

(b)           Operator will not exercise its right of termination hereunder with respect to any default by Owner if, within any applicable cure period for such default, the Mortgagee or ground lessor, as the case may be, gives Operator written notice of its intention to cure such default and cures such default within the applicable cure period.

30.3        Modifications Required by Mortgagee . Operator will not unreasonably refuse to consent to any requested modifications or amendments to this Agreement if required by a proposed Mortgagee or ground lessor as a condition to making a mortgage loan to Owner on its interests in Hotel or entering into a ground lease, as the case may be, so long as such modification or amendment does not diminish the fees or reimbursements becoming due to Operator hereunder, and does not otherwise materially and adversely affect Operator’s rights and interests under this Agreement.

30.4        Mortgagee Requirements . Operator acknowledges and agrees that Owner and Operator’s rights and obligations hereunder shall be subject to the requirements of any Mortgagee or other lender regarding the Hotel, and to the extent that any Mortgagee or other lender imposes restrictions on the Hotel or obligations upon Owner which are greater than those set forth in this Agreement, the terms and conditions of the loan documents with such Mortgagee or other lender shall control, and, upon written notice from Owner as to the requirements thereof, Operator agrees to comply with those obligations thereunder which are within the scope of Operator’s duties under this Agreement and to execute an amendment to this Agreement reflecting any such additional obligations or duties required thereby.

30.5        Mortgagee Information Requests . If any Mortgagee of Owner or ground lessor shall request in writing copies of any and all financial or other information which Operator, pursuant to the terms and provisions of this Agreement, is obligated to deliver to Owner, Operator shall deliver same to the Mortgagee or ground lessor as often as the Mortgagee or ground lessor may reasonably request. Operator shall allow, upon request of Owner, any person designated in writing by the Mortgagee or the ground lessor to examine, audit, inspect and copy all Hotel records.

ARTICLE 31   MISCELLANEOUS

31.1        Disputes . Whenever any issue or dispute under this Agreement is to be resolved by the Independent Public Accountant such issue or dispute shall be resolved by application of generally accepted accounting principles consistently applied and the Uniform System of Accounts.

31.2        Further Assurances . Owner and Operator shall execute and deliver all other appropriate supplement agreements and other instruments, and take any other action necessary to make this Agreement fully and legally effective, binding and enforceable as between them and as against third parties.

31.3        Waiver . The waiver of any of the terms and conditions of this Agreement on any occasion or occasions shall not be deemed a waiver of such terms and conditions on any future occasion.

31.4        Successors and Assigns . Subject to and limited by Article 21, this Agreement shall be binding upon and inure to the benefit of Owner, its successors and permitted assigns, and shall be binding upon and inure to the benefit of Operator, its successors and permitted assigns.

31.5        Governing Law . This Agreement shall be construed, both as to its validity and as to the performance of the parties, in accordance with the laws of the State of California.

31.6        Amendments . This Agreement may not be modified, amended, surrendered or changed, except by a written document signed by Owner and Operator agreeing to be bound thereby.

31.7        Estoppel Certificates . Owner and Operator agree, at any time and from time to time, as requested by the other party, upon not less than ten (10) days’ prior written notice, to execute and deliver to the other a statement certifying that this Agreement is unmodified and in full force and effect (or if there have been modifications, that the same are in full force and effect as modified and stating the modifications), certifying the dates to which required payments have been paid, and stating whether or not, to the best knowledge of the signer, the other party is in default in performance of any of its obligations under this Agreement, and if so, specifying each such default of which the signer may have knowledge, it being intended that such statement delivered pursuant hereto may be relied upon by others with whom the party requesting such certificate may be dealing.

31.8        Effect of Approval of Plans and Specifications . Owner and Operator agree that in each instance in this Agreement or elsewhere wherein Operator is required to give its approval of plans, specifications, budgets and/or financing, no such approval shall imply or be deemed to constitute an opinion by Operator, nor impose upon Operator any responsibility for the design or construction of additions to or improvements of the Hotel, including but not limited to structural integrity or life/safety requirements or adequacy of budgets and/or financing. The scope of Operator’s review and approval of plans and specifications is limited solely to the adequacy and relationship of spaces and aesthetics of the Hotel in order to comply in all material respects with the First Class Hotel Standard.

31.9        Consent and Approval .

(a)           Except as herein otherwise provided, whenever in this Agreement the consent or approval of Operator or Owner is required, such consent or approval shall not be unreasonably withheld, conditioned or delayed. With respect to those matters where consent or approval is not to be unreasonably withheld, conditioned or delayed, if Operator or Owner does not notify the other party in writing of its disapproval or withholding of its consent within ten (10) days (or any different period set forth in this Agreement with respect to any particular approval or consent) after it is requested by the other party in a notice making reference to the 10 day response period and the effect of not responding, such other party shall be deemed to have approved or consented, as applicable. Except for the deemed consent or approval of Operator or Owner, such consent or approval shall also be in writing only and shall be executed only by an authorized officer or agent of the party granting such consent or approval.

(b)           In those cases where consent or approval of Owner may be withheld by Owner in its sole discretion or sole and absolute discretion, such consent or approval shall not be binding upon Owner unless it is in writing executed by a person authorized to bind Owner in such matters, and Owner’s failure to respond within any applicable period specified for its response shall be deemed to be Owner’s disapproval or withholding of consent, as applicable.

31.10      Partial Invalidity . If any one or more of the phrases, sentences, clauses or paragraphs contained in this Agreement shall be declared invalid by the final and unappealable order, decree or judgment of any court, this Agreement shall be construed as if such phrases, sentences, clauses or paragraphs had not been inserted, unless such construction would substantially destroy the benefit of the bargain of this Agreement to either of the parties hereto.

31.11      Entire Agreement . This Agreement constitutes the entire agreement between the parties relating to the subject matter hereof; superseding all prior agreements or undertakings, oral or written.

31.12      Time is of the Essence . Time is of the essence in this Agreement.

31.13      Interpretation . No provision of this Agreement shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured or dictated such provision.

31.14      Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and need not be signed by more than one of the parties hereto and all of which shall constitute one and the same agreement.

31.15      Interest . If either party (the “defaulting party”) shall fail to pay, when due, to the other party (the “non-defaulting party”) any sum payable to the latter hereunder, then unless the defaulting party shall make the payment to the other party within ten (10) days after written demand therefor, the defaulting party shall, without notice to or demand upon it, be liable to the non-defaulting party for the payment of such sum together with interest thereon at the rate of (i) “Prime” plus 2% per annum or (ii) the maximum rate of interest allowed by law, whichever shall be less, from the date when such sum shall become due to the date of actual payment. For the purposes of this Agreement, “Prime” shall mean the rate per annum published from time to time by the Wall Street Journal as the “prime rate.”

31.16      Modifications Required by Franchisor . Operator will not unreasonably refuse to consent to any requested modifications or amendments to this Agreement if required by a proposed Franchisor as a condition to granting a franchise or entering into a Franchise Agreement for the Hotel, so long as such modification or amendment does not diminish the fees or reimbursements becoming due to Operator hereunder, and does not otherwise materially and adversely affect Operator’s rights and interests under this Agreement.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]

IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first above written, in duplicate.

EXHIBIT 10.12

CENTURY WEST PROPERTIES, INC.

MANAGEMENT AGREEMENT

In consideration of the covenants herein, InterGroup Corporation, hereinafter called "Owner"), and CENTURY WEST PROPERTIES, INC., (hereinafter called "Agent"), agree as follows:

1.          The OWNER hereby employs the AGENT, as an independent contractor and not as an employee of OWNER, exclusively to rent and manage the properties set forth on the attached ‘Property List’ upon the terms and conditions hereinafter set forth, for a period of 12 months beginning on the 1 ^st day of August, 2005, and ending on the ^31st day of July , 2006, and thereafter for monthly periods from time to time, unless on or before 30 days prior to the date last mentioned above or on or before 30 days prior to the expiration of any such renewal period, either party hereto shall notify the other in writing that it elects to terminate this Agreement, in which case this Agreement shall be thereby terminated on said last mentioned date. In the event that Owner shall elect to terminate this agreement prior to the expiration of the initial 12 month term, Agent shall be entitled to a cancellation fee of one month management fee on any properties so terminated, with the exception of those properties listed on the Property List as ‘currently for sale’. Notwithstanding the foregoing, this Agreement may be terminated at any time, by either party as a result of the other party’s: (a) breach of this agreement; (b) breach of fiduciary duty; (c) bankruptcy or (d) fraud, deceit, gross negligence, reckless or intentional misconduct, or knowing violation of law.

2.          THE AGENT AGREES:

2.1          To accept the management of the Premises, to the extent, for the period, and upon the terms herein provided and agrees to furnish the services of its organization for the rental operation and management of the Premises.

2.2          To render a monthly statement of receipts, disbursements, and Budget Variance to Owner by the 15 ^th day of the following month. The budget will be submitted to Owner for review and approval on an annual basis. Agent shall be responsible for all property accounting functions with the exception of depreciation entries. Monthly reports will be on an accrual basis and will include income statement, balance sheet, general ledger, check register, and budget variance. Agent shall remit each month the net proceeds (provided AGENT is not required to make any mortgage, escrow, or tax payment on the first day of the following month). In case the disbursements and charges shall be in excess of the receipts, the OWNER agrees to pay such excess promptly, but nothing herein contained shall obligate the AGENT to advance its own funds on behalf of the OWNER.

2.3          To indemnify, defend and save the OWNER harmless from all suits in connection with the Premises and from liability for damage to property and injuries to or death of any employee or other person whomsoever arising out of or in any way related to the gross negligence or willful acts or omissions of AGENT or of any employee of AGENT, and to carry at its own expense Employee Dishonesty Insurance Coverage with policy limits of One Hundred Thousand Dollars ($100,000.00), and to furnish to the OWNER certificates evidencing the existence of such insurance.

3.          THE OWNER AGREES:

To give the AGENT the following authority and powers (all or any of which may be exercised in the name of the OWNER) and agrees to assume all expenses in connection therewith:

3.1          To advertise the Premises or any part thereof; to display signs thereon and to rent the same; to cause references of prospective tenants to be investigated; to sign leases for terms not in excess of 12 months and to renew and/or cancel the existing leases and prepare and execute the new leases without an additional charge to the OWNER; provided, however, that the AGENT may collect credit report fees from prospective tenants and need not account for such charges to the OWNER; to terminate tenancies and to sign and serve such notices as are deemed needful by the AGENT; to institute and prosecute actions to oust tenants and to recover possession of the Premises; to sue for and recover rent; and, when expedient, to settle, compromise, and release such actions or suits, or reinstate such tenancies. OWNER shall reimburse AGENT for all expenses of litigation including attorneys' fees, filing fees, and court costs which AGENT does not recover from tenants. AGENT may select the attorney of its choice to handle such litigation, subject to OWNER’S approval, which approval shall not be unreasonably withheld.

3.2          To hire, discharge, and pay all engineers, janitors, and other employees; to make or cause to be made all ordinary repairs and replacements necessary to preserve the Premises in its present condition and for the operating efficiency thereof and all alterations required to comply with lease requirements, and to do decorating on the Premises; to negotiate contracts for nonrecurring items not exceeding $1,000.00 and to enter into agreements for all necessary repairs, maintenance, minor alterations, and utility services; and to purchase supplies and pay all bills. All contracts shall include a reasonable completion date. AGENT shall secure the approval of the OWNER for any alterations or expenditures in excess of $1,000.00 for any one item, or eight hours labor for any one incident, except monthly or recurring operating charges and emergency repairs in excess of the maximum, if, in the opinion of the AGENT, such repairs are necessary to protect from damage or to maintain services to the tenants as called for by their tenancy.

3.3          To collect rents and/or assessments and other items due or to become due and give receipts therefor and to deposit all funds collected hereunder in the AGENT's custodial account.

3.4          To handle tenants' security deposits and to comply, on the OWNER's behalf, with applicable state or local laws concerning the AGENT's responsibility for security deposits and interest thereon, if any.

3.5          To execute and file all returns and other instruments and do and perform all acts required of the OWNER as an employer with respect to the Premises under the Federal Insurance Contributions Acts, the Federal Unemployment Tax Act, and Subtitle C of the Internal Revenue Code of 1954 with respect to wages paid by the AGENT on behalf of the OWNER and under any similar federal and state law now or hereafter in force (and in connection therewith the OWNER agrees upon request to promptly execute and deliver to the AGENT all necessary powers of attorney, notice of appointment, and the like).

3.6          To prepare and cause to be filed all documentation for the Premises required under the City of Los Angeles Rent Stabilization Ordinance.

3.7          The AGENT shall not be required to advance any monies for the care or management of said property, and the OWNER agrees to advance all monies necessary therefor. If the AGENT shall elect to advance any money in connection with property, the OWNER agrees to reimburse the AGENT forthwith and hereby authorizes the AGENT to deduct such advances from any monies due the OWNER. The AGENT shall, upon instruction from the OWNER, impound reserves each month for the payment of real estate taxes, insurance, or any other special expenditure.

4.          THE OWNER FURTHER AGREES:

4.1           To indemnify, defend, and save the AGENT harmless from all suits in connection with the Premises and from liability for damage to property and injuries to or death of any employee or other person whomsoever, and to carry at his (its) own expense public liability insurance naming the OWNER and AGENT and adequate to protect their interests and in form, substance, and amounts reasonably satisfactory to the AGENT, and to furnish to the AGENT certificates evidencing the existence of such insurance. Unless the OWNER shall provide such insurance and furnish such certificate within 30 days from the date of the Agreement, the AGENT may, but shall not be obligated to, place said insurance and charge the cost thereof to the account of the OWNER. All such insurance policies shall provide that the AGENT shall receive thirty (30) days' written notice prior to cancellation of the policy. OWNER shall neither indemnify nor hold AGENT harmless from or against any liability caused by the gross negligence or willful act or omission of AGENT or of any employee of AGENT.

4.2          To pay all expenses incurred by the AGENT, including, but not limited to, reasonable attorneys' fees and AGENT's costs in connection with any claim, proceeding, or suit involving alleged violation by the AGENT or the OWNER, or both, of any law pertaining to fair employment, fair credit reporting, environmental protection, rent control, taxes, or fair housing, including, but not limited to any law prohibiting, or making illegal, discrimination on the basis of race, sex, creed, color, religion national origin, or mental or physical handicap, provided, however, that the OWNER shall not be responsible to the AGENT for any such expenses in the event the AGENT is finally adjudicated to have personally, and not in a representative capacity, violated any such law. Counsel engaged by AGENT shall represent OWNER and AGENT to the extent possible, and if their interests are or become adverse, OWNER shall be notified in writing to obtain counsel to represent OWNER alone. Nothing contained herein shall obligate the AGENT to employ counsel to represent the OWNER in any such proceeding or suit: however, should AGENT elect to employ counsel to represent OWNER, OWNER shall have the right to consent to such employment. The OWNER also agrees to pay reasonable expenses (or an apportioned amount of such expenses where other employers of AGENT also benefit from the expenditure) incurred by the AGENT in obtaining legal advice regarding compliance with any law affecting the premises or activities related thereto.

4.3          To indemnify, defend, and save the AGENT harmless from all claims, investigations, and suits, or from actions or failures to act of the OWNER, with respect to any alleged or actual violation of state or federal labor laws, it being expressly agreed and understood that as between the OWNER and the AGENT, all persons employed in connection with the Premises are employees of the OWNER, not the AGENT. Notwithstanding the foregoing, AGENT shall at all times comply with the requirements of all Federal, State and Local labor laws, statutes and regulations in the performance of AGENT’s duties hereunder.

5.          THE OWNER AGREES TO PAY THE AGENT EACH MONTH:

5.1          FOR MANAGEMENT (a): For Properties with Resident Management: Four percent (4.0%) of the monthly gross receipts from the operation of the Premises during the period this Agreement remains in full force and effect. Gross receipts are all amounts received from the operation of the Premises including rents, parking fees, storage fees, laundry income, and fees. (b) For Properties without Resident Management: Four and one-half percent (4.5%) of same.

5.2          FOR AN ON SITE MANAGER: The actual cost of providing an on site manager as is or may be required by federal or state law, or in the opinion of the AGENT, is necessary to carry on the activities or the operation of the Premises. The prior approval of OWNER shall be required for the hiring of an on site manager, and the prior approval of OWNER shall be required to remove or terminate any on site manager.           

5.3          FOR LEASING: The actual cost or proportionate share of the actual cost AGENT incurs to hire, train and equip personnel to lease apartments, including, but not limited to: advertising, signage, commissions;

5.4          FOR MAINTENANCE: The actual cost incurred to provide personnel when needed to do routine and customary maintenance to the property. Major improvements (i.e. roofing, re-piping, major landscaping, building painting, soft story retrofit, etc.) in excess of $3,000 will be performed by qualified contractors and billed at lowest responsible price plus 5% for AGENT’s overhead and supervision. Major remodels, in which the scope of work includes conceptual development, interior/exterior design, and color and material specifications in addition to project supervision, shall include an overhead/supervision charge of 10% of the direct remodel costs.

5.5          FOR OTHER SERVICES: To provide other occasional or emergency services as may be required for the operation of the property that would be too costly or impractical to contract to others.

6.          IT IS MUTUALLY AGREED THAT:

6.1          The OWNER expressly withholds from the AGENT any power or authority to make any structural changes in any building or to make any other major alterations or additions in or to any such building or equipment therein, or to incur any expense chargeable to the OWNER other that expenses related to exercising the express powers above vested in the AGENT without the prior written direction of the OWNER, except such emergency repairs as may be required because of danger to life or property or which are immediately necessary for the preservation and safety of the Premises or the safety of the tenants and occupants thereof or are required to avoid the suspension of any necessary service to the Premises.

6.2          The AGENT does not assume and is given no responsibility for compliance of any construction on the Premises or any equipment therein with the requirements of any statute, ordinance, law, or regulation of any governmental body or of any public authority or official thereof having jurisdiction, except to notify the OWNER promptly or forward to the OWNER promptly any complaints, warnings, notices, or summonses received by it relating to such matters. The OWNER represents that to the best of his (its) knowledge the Premises and such equipment comply with all such requirements and authorizes the AGENT to disclose the ownership of the Premises to any such officials and agrees to indemnify and hold harmless the AGENT, its representatives, servants, and employees, of and from all loss, cost, expense, and liability whatsoever which may be imposed on them or any of them by reason of any present or future violation or alleged violation of such laws, ordinances, statutes, or regulations.

6.3          In the event it is alleged or charged that any building on the Premises or any equipment therein or any act or failure to act by the OWNER with respect to the Premises or the sale, rental, or other disposition thereof fails to comply with, or is in violation of, any of the requirements of any constitutional provision, statute, ordinance, law, or regulation of any governmental body or any order or ruling of any public authority or official thereof having or claiming to have jurisdiction thereover, and the AGENT, in its sole and absolute discretion, considers that the action or position of the OWNER or registered managing agent with respect thereto may result in damage or liability to the AGENT, the AGENT shall have the right to cancel this Agreement at any time by written notice to the OWNER of its election so to do, which cancellation shall be effective upon the service of such notice. Such notice may be served personally or by registered mail, on or to the person named to receive the AGENT's monthly statement at the address designated for such person as provided in Paragraph 2.2 above, and if served by mail shall be deemed to have been served when deposited in the mails. Such cancellation shall not release the indemnities of the OWNER set forth in Paragraphs 4 and 6.2 above and shall not terminate any liability or obligation of the OWNER to the AGENT for any payment, reimbursement, or other sum of money then due and payable to the AGENT hereunder.

7.          The OWNER shall pay or reimburse the AGENT for any sums of money due it under this Agreement for services for actions prior to termination, notwithstanding any termination of this Agreement. All provisions of this Agreement that require the OWNER to have insured or to defend, reimburse, or indemnify the AGENT (including, but not limited to, Paragraphs 4.1, 4.2, and 4.3) shall survive any termination and, if AGENT is or becomes involved in any proceeding or litigation by reason of having been the OWNER's AGENT, such provisions shall apply as if this Agreement were still in effect. The parties understand and agree that the AGENT may withhold funds for thirty (30) days after the end of the month in which this Agreement is terminated to pay bills previously incurred but not yet invoiced and to close accounts.

8.          MISCELLANEOUS

8.1          This Agreement embodies the entire understanding of the parties, and supersedes all and any prior written or oral agreement regarding the subject matter hereof. This agreement may not be modified or amended except by a writing signed by both parties hereto.

8.2          This Agreement shall be binding upon the successors and assigns of the AGENT, and heirs, administrators, executors, successors and assigns of the OWNER.

8.3          In any action, proceeding or arbitration between OWNER and AGENT arising out of this Agreement, the prevailing party shall be entitled to reasonable attorney’s fees and costs from the non-prevailing party.

8.3          OWNER and AGENT each agrees to execute and deliver such additional documents and instruments and to perform such additional acts as may be necessary or appropriate to effectuate, carry out and perform all of the terms, provisions, and conditions of this Agreement and the transactions contemplated hereby.

8.4          Except as otherwise provided in this Agreement, any and all notices or other communications required or permitted by this Agreement or by law to be served on, given to, or delivered to OWNER or AGENT shall be in writing and shall be deemed duly served, given, or delivered when personally delivered to that party. In lieu of such personal delivery, written notice may be delivered by nationally recognized overnight courier service or by certified United States Mail, postage prepaid, addressed to such party as follows:

In the case of courier or mail, notice shall be deemed duly served or delivered as of the date of the first attempted delivery at the address and in the manner provided herein.

AGREED TO THIS DATE: August 1, 2005

OWNER: The InterGroup Corporation, et. al.

By: /s/ John V. Winfield                                 

AGENT: Century West Properties, Inc.

By: /s/ Kevin McCabe