Exhibit 10.4

 

Loan No. 10028087

 

LOAN AGREEMENT

 

Dated as of July 7, 2005

 

between

 

EHP GLENDALE, LLC,

a Delaware limited liability company

doing business in California as

EHP Glendale Hilton, LLC

 

as Borrower

 

and

 

KEYBANK NATIONAL ASSOCIATION,

a national banking association

 

as Lender

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TABLE OF CONTENTS

 

          Page

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ARTICLE 1      DEFINITIONS; PRINCIPLES OF CONSTRUCTION

   1

Section 1.1

   Definitions    1

Section 1.2

   Principles of Construction    19

ARTICLE 2      GENERAL TERMS

   20

Section 2.1

   Loan Commitment; Disbursement to Borrower    20

Section 2.2

   Interest Rate    20

Section 2.3

   Loan Payment    21

Section 2.4

   Prepayments    22

Section 2.5

   Release of Property    24

Section 2.6

   Cash Management    24

Section 2.7

   Defeasance    27

ARTICLE 3      CONDITIONS PRECEDENT

   30

Section 3.1

   Conditions Precedent to Closing    30

ARTICLE 4      REPRESENTATIONS AND WARRANTIES

   34

Section 4.1

   Borrower Representations    34

Section 4.2

   Survival of Representations    42

ARTICLE 5      BORROWER COVENANTS

   42

Section 5.1

   Affirmative Covenants    42

Section 5.2

   Negative Covenants    53

ARTICLE 6      INSURANCE; CASUALTY; CONDEMNATION; REQUIRED REPAIRS

   59

Section 6.1

   Insurance    59

Section 6.2

   Casualty    63

Section 6.3

   Condemnation    63

Section 6.4

   Restoration    64

ARTICLE 7      RESERVE FUNDS

   68

Section 7.1

   Required Repair Funds    68

Section 7.2

   Tax and Insurance Escrow Funds    70

Section 7.3

   FF&E Reserve    71

Section 7.4

   INTENTIONALLY OMITTED     

Section 7.5

   Reserve Funds, Generally    72

ARTICLE 8      DEFAULTS

   73

Section 8.1

   Event of Default    73

Section 8.2

   Remedies    76

ARTICLE 9      SPECIAL PROVISIONS

   78

Section 9.1

   Sale of Note and Securitization    78

 

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Section 9.2      Securitization Indemnification    79 Section 9.4     
Exculpation    82 Section 9.5      Matters Concerning Manager    84 Section
9.6      Servicer    84 ARTICLE 10      MISCELLANEOUS    85 Section 10.1     
Survival    85 Section 10.2      Lender’s Discretion    85 Section 10.3     
Governing Law    85 Section 10.4      Modification, Waiver in Writing    86
Section 10.5      Delay Not a Waiver    86 Section 10.6      Notices    86
Section 10.7      Trial by Jury    87 Section 10.8      Headings    87 Section
10.9      Severability    87 Section 10.10    Preferences    88 Section 10.11   
Waiver of Notice    88 Section 10.12    Remedies of Borrower    88 Section 10.13
   Expenses; Indemnity    88 Section 10.14    Schedules Incorporated    89
Section 10.15    Offsets, Counterclaims and Defenses    90 Section 10.16    No
Joint Venture or Partnership; No Third Party Beneficiaries    90 Section 10.17
   Publicity    90 Section 10.18    Waiver of Marshalling of Assets    90
Section 10.19    Waiver of Offsets/Defenses/Counterclaims    91 Section 10.20   
Conflict; Construction of Documents; Reliance    91 Section 10.21    Brokers and
Financial Advisors    91 Section 10.22    Prior Agreements    91

 

SCHEDULES

 

Schedule I

  –   Leases Schedule II   –   Required Repairs – Deadlines for Completion
Schedule III   –   Organizational Structure Schedule IV   –   Form of Assignment
of Management Contract and Subordination of Management Fees and Cash Management
Agreement and Lockbox Agreement

 

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LOAN AGREEMENT

 

THIS LOAN AGREEMENT, dated as of July 7, 2005 (as amended, restated, replaced,
supplemented or otherwise modified from time to time, this “Agreement”), KEYBANK
NATIONAL ASSOCIATION, a national banking association, having an address at 911
Main Street, Suite 1500, Kansas City, Missouri 64105, its successors and assigns
(“Lender”) and EHP GLENDALE, LLC, a Delaware limited liability company, doing
business in California as EHP Glendale Hilton, LLC, having its principal place
of business at River Center II, 100 East RiverCenter Blvd., Suite 480,
Covington, Kentucky 41011 (“Borrower”).

 

W I T N E S S E T H :

 

WHEREAS, Borrower desires to obtain the Loan (as hereinafter defined) from
Lender; and

 

WHEREAS, Lender is willing to make the Loan to Borrower, subject to and in
accordance with the terms and conditions of this Agreement and the other Loan
Documents (as hereinafter defined); and

 

WHEREAS, Borrower is the owner of the Property (as hereinafter defined) and
Glendale Hotel TRS, Inc., a Maryland corporation, an Affiliate (as hereinafter
defined) of Borrower (“Operating Tenant”) is the operating lessee of the
Property pursuant to the Operating Lease (as hereinafter defined).

 

NOW THEREFORE, in consideration of the making of the Loan by Lender and the
covenants, agreements, representations and warranties set forth in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby
covenant, agree, represent and warrant as follows:

 

ARTICLE 1

DEFINITIONS; PRINCIPLES OF CONSTRUCTION

 

Section 1.1 Definitions. For all purposes of this Agreement, except as otherwise
expressly required or unless the context clearly indicates a contrary intent:

 

“Acquired Property” shall have the meaning set forth in Section 5.1.11(d)(i)
hereof.

 

“Acquired Property Statements” shall have the meaning set forth in Section
5.1.11(d)(i) hereof.

 

“Action” shall have the meaning set forth in Section 10.3(b) hereof.

 

“Additional Insolvency Opinion” shall have the meaning set forth in Section
4.1.30(c) hereof.

 

“Affiliate” shall mean, as to any Person, any other Person that, directly or
indirectly, is in control of, is controlled by or is under common control with
such Person or is a director or officer of such Person or of an Affiliate of
such Person.

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“Affiliated Loans” shall mean a loan made by Lender to an Affiliate of Borrower,
Operating Tenant, or Guarantor.

 

“Affiliated Manager” shall mean any Manager in which Borrower, Principal,
Operating Tenant or Guarantor has, directly or indirectly, any legal, beneficial
or economic interest.

 

“ALTA” shall mean American Land Title Association or any successor thereto.

 

“Alterations Threshold Amount” shall have the meaning set forth in Section
5.1.21 hereof.

 

“Assignment of Leases” shall mean that certain first priority Assignment of
Leases and Rents, dated as of the date hereof, from Borrower, as assignor, to
Lender, as assignee, assigning to Lender all of Borrower’s interest in and to
the Leases and Rents of the Property as security for the Loan, as the same may
be amended, restated, replaced, supplemented or otherwise modified from time to
time.

 

“Assignment of Management Agreement” shall mean that certain Assignment of
Management Agreement, dated as of the date hereof, among Lender, Borrower,
Operating Tenant, and Manager, as the same may be amended, restated, replaced,
supplemented or otherwise modified from time to time as approved by Lender.

 

“Award” shall mean any compensation paid by any Governmental Authority in
connection with a Condemnation.

 

“Bankruptcy Action” shall mean with respect to any Person: (a) such Person
filing a voluntary petition under the Bankruptcy Code or any other Federal or
state bankruptcy or insolvency law; (b) the filing of an involuntary petition
against such Person under the Bankruptcy Code or any other Federal or state
bankruptcy or insolvency law, or soliciting such Person or causing to be
solicited petitioning creditors for any involuntary petition against such
Person; (c) such Person filing an answer consenting to or otherwise acquiescing
in or joining in any involuntary petition filed against it, by any other Person
under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency
law, or soliciting or causing to be solicited petitioning creditors for any
involuntary petition from any Person; (d) such Person consenting to or
acquiescing in or joining in an application for the appointment of a custodian,
receiver, trustee, or examiner for such Person or any portion of the Property;
or (e) such Person making an assignment for the benefit of creditors, or
admitting, in writing or in any legal proceeding, its insolvency or inability to
pay its debts as they become due.

 

“Basic Carrying Costs” shall mean, for any period, the sum of the following
costs: (a) Taxes, (b) Other Charges, and (c) Insurance Premiums.

 

“Borrower” shall have the meaning set forth in the introductory paragraph
hereto, together with its successors and permitted assigns.

 

“Borrower Rents” shall mean all Rents payable to Borrower under the Operating
Lease, and all Rents, receipts, revenues, income (including service charges),
fees, payments and proceeds of sales of every kind received by or on behalf of
Borrower, directly or indirectly, from the ownership of the Property for that
period.

 

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“Business Day” shall mean any day other than a Saturday, Sunday or any other day
on which national banks in New York, New York are not open for business.

 

“Capital Expenditures” shall mean, for any period, the amount expended for items
capitalized under GAAP (including expenditures for building improvements or
major repairs, leasing commissions and tenant improvements).

 

“Cash Management Account” shall have the meaning set forth in Section 2.6.3(a)
hereof.

 

“Cash Management Agreement” shall mean that certain Cash Management Agreement,
dated as of the date hereof, by and between Borrower and Lender, as the same may
be amended, restated, replaced, supplemented or otherwise modified from time to
time as approved by Lender.

 

“Casualty” shall have the meaning set forth in Section 6.2 hereof.

 

“Casualty Consultant” shall have the meaning set forth in Section 6.4(b)(iii)
hereof.

 

“Casualty Retainage” shall have the meaning set forth in Section 6.4(b)(iv)
hereof.

 

“Closing Date” shall mean the date of the funding of the Loan.

 

“Code” shall mean the Internal Revenue Code of 1986, as amended, as it may be
further amended from time to time, and any successor statutes thereto, and
applicable U.S. Department of Treasury regulations issued pursuant thereto in
temporary or final form.

 

“Condemnation” shall mean a temporary or permanent taking by any Governmental
Authority as the result or in lieu or in anticipation of the exercise of the
right of condemnation or eminent domain, of all or any part of the Property, or
any interest therein or right accruing thereto, including any right of access
thereto or any change of grade affecting the Property or any part thereof.

 

“Condemnation Proceeds” shall have the meaning set forth in Section 6.4(b)
hereof.

 

“Covered Disclosure Information” shall have the meaning set forth in Section
9.2(b) hereof.

 

“Debt” shall mean the Outstanding Principal Balance, together with all interest
accrued and unpaid thereon and all other sums (including any Prepayment
Consideration) due to Lender in respect of the Loan under the Note, this
Agreement, the Mortgage or any other Loan Document.

 

“Debt Service” shall mean, with respect to any particular period of time,
scheduled principal and/or interest payments due under this Agreement and the
Note.

 

“Debt Service Coverage Ratio” shall mean a ratio for the applicable period in
which:

 

(a) the numerator is the Net Operating Income (excluding interest on credit
accounts) for the twelve (12) month period immediately preceding the date of
determination; and

 

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(b) the denominator is the amount of interest paid on the Note for the trailing
twelve-(12) month period preceding the date of determination.

 

“Decorative Changes” shall mean any alterations or change to the Improvements
that are made primarily for decorative or cosmetic purposes (e.g. painting,
wallpapering, carpeting, FF&E etc.) that: (a) will not have a Material Adverse
Effect, and (b) do not affect or involve any structural component of any
Improvements, any utility or HVAC system contained in any Improvements or the
exterior of any building constituting a part of any Improvements.

 

“Default” shall mean the occurrence of any event hereunder or under any other
Loan Document that, but for the giving of notice or passage of time, or both,
would be an Event of Default.

 

“Default Prepayment” shall mean a prepayment of any portion of the Outstanding
Principal Balance made after the occurrence of a Default or Event of Default
under any circumstances including a prepayment in connection with (i)
reinstatement of the Mortgage provided by statute under foreclosure proceedings
or exercise of power of sale, (ii) any statutory right of redemption exercised
by Borrower or any other party having a statutory right to redeem or prevent
foreclosure or power of sale, (iii) any sale in foreclosure or under exercise of
a power of sale or otherwise (including pursuant to a credit bid made by Lender
in connection with such sale), (iv) any other collection action by Lender, or
(v) exercise by any Governmental Authority of any civil or criminal forfeiture
action with respect to any collateral for the Loan. Prepayment Consideration
shall be due and payable upon acceleration of the Loan in accordance with the
terms of this Note, and the “Prepayment Date”, for the purpose of computing
Prepayment Consideration, shall be the date of acceleration (automatic or
otherwise) of the Obligations in accordance with the terms of the Loan
Documents. Exchange of any portion of the Obligations or the related Loan
Documents for a different instrument or modification of the terms of the Loan
Documents, including classification and treatment of Lender’s claim (other than
non-impairment under Section 1124 of the United States Bankruptcy Code or any
successor provision) pursuant to a plan of reorganization in bankruptcy shall
also be deemed to be a Default Prepayment hereunder.

 

“Default Rate” shall mean a rate per annum equal to the lesser of (a) the
Maximum Legal Rate, and (b) four percent (4%) above the Interest Rate.

 

“Defeasance” shall have the meaning set forth in Section 2.7.1 hereof.

 

“Defeasance Collateral” shall have the meaning set forth in Section 2.7.1(c)(i)
hereof.

 

“Defeasance Obligor” shall have the meaning set forth in Section 2.7.1(c)(vii)
hereof.

 

“Defeasance Security Agreement” shall have the meaning set forth in Section
2.7.1(c)(ii) hereof.

 

“Deposit Account” shall have the meaning set forth in Section 2.6.1(a) hereof.

 

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“Disclosure Document” shall mean a prospectus, prospectus supplement, private
placement memorandum, offering memorandum, offering circular, term sheet, road
show presentation materials or other offering documents or marketing materials,
in each case in preliminary or final form, used to offer Securities in
connection with a Securitization.

 

“DSCR Failure” shall mean the Debt Service Coverage Ratio is less than 1.35 to
1.0.

 

“Eligibility Requirements” means, with respect to any Person, that such Person
(i) has total assets (in name or under management) in excess of $50,000,000.00
and (ii) is regularly engaged in the business of making investments in or
operating hotels.

 

“Eligible Account” shall mean a separate and identifiable account from all other
funds held by the holding institution that is either (a) an account or accounts
maintained with a federal or state-chartered depository institution or trust
company that complies with the definition of Eligible Institution or (b) a
segregated trust account or accounts maintained with a federal or state
chartered depository institution or trust company acting in its fiduciary
capacity that, in the case of a state chartered depository institution or trust
company, is subject to regulations substantially similar to 12 C.F.R. §9.10(b),
having in either case a combined capital and surplus of at least $50,000,000.00
and subject to supervision or examination by federal and state authority. An
Eligible Account shall not be evidenced by a certificate of deposit, passbook or
other instrument.

 

“Eligible Institution” shall mean a depository institution or trust company, the
short term unsecured debt obligations or commercial paper of which are rated at
least “A-1+” by S&P, “P-1” by Moody’s and “F-1+” by Fitch in the case of
accounts in which funds are held for thirty (30) days or less (or, in the case
of accounts in which funds are held for more than thirty (30) days, the long
term unsecured debt obligations of which are rated at least “AA” by Fitch and
S&P and “Aa2” by Moody’s).

 

“Embargoed Person” shall have the meaning set forth in Section 4.1.35 hereof.

 

“Environmental Indemnity” shall mean that certain Environmental Indemnity
Agreement, dated as of the date hereof, executed by Borrower and Guarantor in
connection with the Loan for the benefit of Lender, as the same may be amended,
restated, replaced, supplemented or otherwise modified from time to time.

 

“Equipment” shall have the meaning set forth in the granting clause of the
Mortgage.

 

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as
amended.

 

“Event of Default” shall have the meaning set forth in Section 8.1(a) hereof.

 

“Excess Cash Flow” shall have the meaning set forth in Section 2.6.3(b) hereof.

 

“Exchange Act” shall have the meaning set forth in Section 9.2(a) hereof.

 

“Exchange Act Filing” shall have the meaning set forth in Section 5.1.11(g)
hereof.

 

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“FF&E” shall mean furniture, fixtures and equipment.

 

“FF&E Reserve Account” shall have the meaning set forth in Section 7.3.1 hereof.

 

“FF&E Reserve Funds” shall have the meaning set forth in Section 7.3.1 hereof.

 

“FF&E Reserve Monthly Deposit” shall have the meaning set forth in Section 7.3.1
hereof.

 

“Fiscal Year” shall mean each twelve- (12) month period commencing on January 1
and ending on December 31 during each year of the term of the Loan.

 

“Fitch” shall mean Fitch IBCA, Inc.

 

“Foreclosure Sale” shall have the meaning set forth in Section 2.4.3 hereof.

 

“Franchise Agreement” shall have the meaning set forth in Section 5.2.12 (a)
hereof.

 

“Franchisor” shall have the meaning set forth in Section 5.2.12 (b) hereof.

 

“GAAP” shall mean generally accepted accounting principles in the United States
of America as of the date of the applicable financial report.

 

“Governing State” shall have the meaning set forth in Section 10.3(a) hereof.

 

“Governmental Authority” shall mean any court, board, agency, commission, office
or other authority of any nature whatsoever for any governmental unit (federal,
state, county, district, municipal, city or otherwise) whether now or hereafter
in existence having jurisdiction over Borrower, Operating Tenant, Lender and/or
the Property.

 

“Gross Income from Operations” shall mean all Operating Tenant Rents; provided,
however, that Gross Income from Operations shall not include: (a) non-recurring
income and non-Property related income (as determined by Lender in its
reasonable discretion), (b) security deposits received from any tenant unless
and until the same are applied to rent or any other of such tenant’s obligations
in accordance with the terms of such tenant’s Lease, (c) any loan proceeds or
proceeds of capital or equity contributions received by Borrower, (d) gratuities
or service charges or other similar receipts that are to be paid over to
Property employees or persons occupying similar positions for performing similar
duties, (e) Insurance Proceeds (other Insurance Proceeds from business or rental
interruption coverage) and Condemnation Proceeds, (f) excise taxes, sales taxes,
use taxes, bed taxes, admission taxes, tourist taxes, gross receipts taxes,
value added taxes, entertainment taxes, or other taxes or similar charges
payable to any Governmental Authority, (g) credit or refunds to guests and
patrons, if the transaction originally was included in Gross Income from
Operations, (h) proceeds from the sale of FF&E no longer required for the
operation of the Property, (i) Rents from month-to-month tenants or tenants that
are included in any Bankruptcy Action, and (j) any Borrower Rents and any other
sums payable to Borrower under the Operating Lease.

 

“Guarantor” shall mean Eagle Hospitality Properties Trust, Inc., a Maryland
corporation.

 

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“Guaranty” shall mean that certain Guaranty Agreement, dated as of the date
hereof, from Guarantor in favor of Lender, as the same may be amended, restated,
replaced, supplemented or otherwise modified from time to time.

 

“Improvements” shall have the meaning set forth in the granting clause of the
Mortgage.

 

“Indebtedness” shall mean, for any Person, on a particular date, the sum
(without duplication) at such date of: (a) all indebtedness or liability of such
Person (including, without limitation, amounts for borrowed money and
indebtedness in the form of mezzanine debt and preferred equity); (b)
obligations evidenced by bonds, debentures, notes, or other similar instruments;
(c) obligations for the deferred purchase price of property or services
(including trade obligations); (d) obligations under letters of credit; (e)
obligations under acceptance facilities; (f) all guaranties, endorsements (other
than for collection or deposit in the ordinary course of business) and other
contingent obligations to purchase, to provide funds for payment, to supply
funds, to invest in any Person or entity, or otherwise to assure a creditor
against loss; and (g) obligations secured by any Liens, whether or not the
obligations have been assumed.

 

“Indemnified Liabilities” shall have the meaning set forth on Section 10.13(b)
hereof.

 

“Indemnified Person” shall have the meaning set forth in Section 9.2(b) hereof.

 

“Indemnifying Person” shall mean each of Borrower and Guarantor.

 

“Independent Director” or “Independent Manager” shall mean a Person who is not
at the time of initial appointment, or at any time while serving as a director
or manager, as applicable, and has not been at any time during the preceding
five (5) years: (a) a stockholder, director (with the exception of serving as an
Independent Director or Independent Manager), officer, employee, partner,
member, attorney or counsel of Principal, Borrower or any Affiliate of either of
them; (b) a customer, supplier or other Person who derives any of its purchases
or revenues from its activities with Principal, Borrower or any Affiliate of
either of them (with the exception of serving as an Independent Director or
Independent Manager); (c) a Person controlling or under common control with any
such stockholder, director, officer, partner, member, customer, supplier or
other Person; or (d) a member of the immediate family of any such stockholder,
director, officer, employee, partner, member, customer, supplier or other
Person. As used in this definition, the term “control” means the possession,
directly or indirectly, of the power to direct or cause the direction of
management, policies or activities of a Person, whether through ownership of
voting securities, by contract or otherwise.

 

“Insolvency Opinion” shall mean that certain non-consolidation opinion letter
dated the date hereof delivered by DLA Piper Rudnick Gray Cary US LLP in
connection with the Loan.

 

“Insurance Premiums” shall have the meaning set forth in Section 6.1(b) hereof.

 

“Insurance Proceeds” shall have the meaning set forth in Section 6.4(b) hereof.

 

“Interest Rate” shall mean five and twenty-one one-hundredths percent (5.21%)
per annum.

 

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“KeyBank” shall mean KeyBank National Association, its successors and assigns.

 

“Lease” shall mean any lease, sublease or subsublease, letting, license,
concession or other agreement (whether written or oral and whether now or
hereafter in effect) pursuant to which any Person is granted a possessory
interest in, or right to use or occupy all or any portion of any space in the
Property and (a) every modification, amendment or other agreement relating to
such lease, sublease, subsublease, or other agreement entered into in connection
with such lease, sublease, subsublease, or other agreement, and (b) every
guarantee of the performance and observance of the covenants, conditions and
agreements to be performed and observed by the other party thereto. The
Operating Lease shall not be considered a “Lease” under and as defined in this
Agreement.

 

“Lease Threshold Amount” shall have the meaning set forth in Section 5.1.20
hereof.

 

“Legal Requirements” shall mean all federal, state, county, municipal and other
governmental statutes, laws, rules, orders, regulations, ordinances, judgments,
decrees and injunctions of Governmental Authorities affecting the Property or
any part thereof, or the construction, use, alteration or operation thereof, or
any part thereof, whether now or hereafter enacted and in force, including,
without limitation, the Americans with Disabilities Act of 1990, and all
permits, licenses and authorizations and regulations relating thereto, and all
covenants, agreements, restrictions and encumbrances contained in any
instruments, either of record or known to Borrower, at any time in force
affecting the Property or any part thereof, including, without limitation, any
which may (a) require repairs, modifications or alterations in or to the
Property or any part thereof, or (b) in any way limit the use and enjoyment
thereof.

 

“Lender” shall have the meaning set forth in the introductory paragraph hereto,
together with its successors and assigns.

 

“Liabilities” shall have the meaning set forth in Section 9.2(b) hereof.

 

“Licenses” shall have the meaning set forth in Section 4.1.22 hereof.

 

“Lien” shall mean any mortgage, deed of trust, lien, pledge, hypothecation,
easement, restrictive covenant, preference, assignment, security interest or any
other encumbrance, charge or transfer of, or any agreement to enter into or
create, any of the foregoing, on or affecting Borrower, the Property or any
portion thereof or any interest therein, or any direct or indirect interest in
Borrower, or Principal, including, without limitation, any conditional sale or
other title retention agreement, any financing lease having substantially the
same economic effect as any of the foregoing, the filing of any financing
statement, and mechanic’s, materialmen’s and other similar liens and
encumbrances.

 

“Loan” shall mean the loan in the original principal amount of FIFTY-THREE
MILLION ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($53,100,000.00), made by Lender
to Borrower pursuant to this Agreement.

 

“Loan Documents” shall mean, collectively, this Agreement, the Note, the
Mortgage, the Assignment of Leases, the Collateral Assignments of Operating
Lease, the Environmental Indemnity, the Assignment of Management Agreement, the
Guaranty, the Cash Management

 

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Agreement, the Lockbox Agreement, the Security Agreement executed by Operating
Tenant (“Security Agreement”), the Lease Subordination Agreement, and all other
documents executed and/or delivered in connection with the Loan.

 

“Lockbox Agreement” shall mean that certain Blocked Account Control Agreement,
dated as of the date hereof, by and among Borrower, Lender and Lockbox Bank, as
the same may be amended, restated, replaced, supplemented or otherwise modified
from time to time.

 

“Lockbox Bank” shall mean U.S. Bank National Association, a national banking
association or any successors or assigns thereof, or any other bank approved by
Lender.

 

“Lockout Release Date” shall mean the date that is one hundred twenty (120) days
prior to the Maturity Date.

 

“Management Agreement” shall mean the Management Agreement dated as of June 23,
2005, entered into by and between Operating Tenant and Manager, as the same may
hereafter be amended, modified or supplemented from time to time upon Lender’s
approval, and pursuant to which Manager is to provide management and other
services with respect to the Property; or, if the context requires, the
Replacement Management Agreement.

 

“Manager” shall mean Hilton Hotels Corporation, a Delaware corporation, or, if
the context requires, a Qualified Manager who is managing the Property in
accordance with the terms and provisions of this Agreement.

 

“Material Adverse Effect” shall mean any action or occurrence that materially
and adversely affects, or might materially and adversely affect, the use,
operation or value of the Property and/or the business operations and/or the
financial condition of a Significant Party.

 

“Material Adverse Event” shall mean, with respect to any Person, any occurrence
that materially and adversely affects, or might materially and adversely affect,
the value of its property or it business, operations, reputation, or prospects.

 

“Maturity Date” shall mean August 1, 2012, or such other date on which the final
payment of the Outstanding Principal Balance of the Note becomes due and payable
as therein or herein provided, whether at such stated maturity date, by
declaration of acceleration, or otherwise.

 

“Maximum Legal Rate” shall mean the maximum nonusurious interest rate, if any,
that at any time or from time to time may be contracted for, taken, reserved,
charged or received on the indebtedness evidenced by the Note and as provided
for herein or the other Loan Documents, under the laws of such state or states
whose laws are held by any court of competent jurisdiction to govern the
interest rate provisions of the Loan.

 

“Moody’s” shall mean Moody’s Investors Service, Inc.

 

“Monthly Interest Payment” shall have the meaning set forth in Section 2.3.1.

 

“Mortgage” shall mean that certain first priority Deed of Trust, Security
Agreement and Fixture Filing, dated the date hereof, executed and delivered by
Borrower as security for the Loan and encumbering the Property, as the same may
be amended, restated, replaced, supplemented or otherwise modified from time to
time.

 

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“Net Cash Flow” shall mean, for any period, the amount obtained by subtracting
Operating Expenses and Capital Expenditures for such period from Gross Income
from Operations for such period.

 

“Net Cash Flow Schedule” shall have the meaning set forth in Section 5.1.11(b)
hereof.

 

“Net Operating Income” shall mean, for any period, the amount obtained by
subtracting Operating Expenses for such period from Gross Income from Operations
for such period.

 

“Net Proceeds” shall have the meaning set forth in Section 6.4(b) hereof.

 

“Net Proceeds Deficiency” shall have the meaning set forth in Section 6.4(b)(vi)
hereof.

 

“Net Proceeds Threshold Amount” shall have the meaning set forth in Section
6.2(a) hereof.

 

“Note” shall mean that certain Promissory Note of even date herewith in the
principal amount of Fifty Three Million One Hundred Thousand and No/100 Dollars
($53,100,000.00), made by Borrower in favor of Lender, as the same may be
amended, restated, replaced, supplemented or otherwise modified from time to
time.

 

“Notice” shall have the meaning set forth in Section 10.6 hereof.

 

“Obligations” shall mean, collectively, Borrower’s obligations for the payment
of the Debt and the performance of the Other Obligations.

 

“Offering Document Date” shall have the meaning set forth in Section
5.1.11(d)(iv) hereof.

 

“Officer’s Certificate” shall mean a certificate delivered to Lender by Borrower
that is signed by an authorized senior officer of the (a) managing member of
Borrower.

 

“Operating Expenses” shall mean, for any period, the total of all expenses,
computed in accordance with GAAP, of whatever kind relating to the operation,
maintenance and/or management of the Property, which expenditures are incurred
on a regular monthly or other periodic basis, including without limitation,
utilities, ordinary repairs and maintenance, insurance, license fees, property
taxes and assessments, advertising expenses, management fees, payroll and
related taxes, computer processing charges, operational equipment or other lease
payments as approved by Lender, and other similar costs, but excluding
depreciation, Debt Service, Capital Expenditures, and contributions to the FF&E
Reserve Funds, the Tax and Insurance Escrow Funds and any other reserves
required under the Loan Documents.

 

“Operating Lease” shall mean that certain Lease Agreement, dated as of June 23,
2005, between Borrower, as lessor, and Operating Tenant, as tenant. The
Operating Lease shall not be considered a “Lease” under and as defined in this
Agreement.

 

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“Operating Tenant” shall mean Glendale Hotel TRS, Inc., a Maryland corporation,
its successors and assigns.

 

“Operating Tenant Rents” shall mean all Rents payable to Operating Tenant under
the Management Agreement, and all Rents, receipts, revenues, income (including
service charges), fees, payments and proceeds of sales of every kind received by
or on behalf of Operating Tenant, directly or indirectly, from the operation of
the Property for that period.

 

“Other Charges” shall mean all ground rents, maintenance charges, impositions
other than Taxes, and any other charges, including, without limitation, vault
charges and license fees for the use of vaults, chutes and similar areas
adjoining the Property, now or hereafter levied or assessed or imposed against
the Property or any part thereof.

 

“Other Obligations” shall mean: (a) the performance of all obligations of
Borrower contained herein; (b) the performance of each obligation of Borrower
contained in any other Loan Document; and (c) the performance of each obligation
of Borrower contained in any renewal, extension, amendment, modification,
consolidation, change of, substitution of, or replacement for, all or any part
of this Agreement, the Note or any other Loan Document.

 

“Outstanding Principal Balance” shall mean, as of any date, the outstanding
principal balance of the Loan.

 

“Payment Certificate” shall mean an Officer’s Certificate certifying that
neither Borrower nor Operating Tenant has any unsecured trade and operational
debt incurred in the ownership and/or operation of the Property that is more
than sixty (60) days past the date incurred.

 

“Payment Date” shall mean the first (1st) day of each calendar month during the
term of the Loan or, if such day is not a Business Day, the immediately
preceding Business Day.

 

“Permitted Encumbrances” shall mean, collectively (a) the Liens and security
interests created by the Loan Documents, (b) all Liens, encumbrances and other
matters disclosed in the Title Insurance Policy, (c) Liens, if any, for Taxes
imposed by any Governmental Authority not yet due or delinquent, and (d) such
other title and survey exceptions as Lender has approved or may approve in
writing in Lender’s sole discretion.

 

“Permitted Investments” shall have the meaning set forth in the Cash Management
Agreement.

 

“Person” shall mean any individual, corporation, partnership, joint venture,
limited liability company, estate, trust, unincorporated association, any
federal, state, county or municipal government or any bureau, department or
agency thereof and any fiduciary acting in such capacity on behalf of any of the
foregoing.

 

“Personal Property” shall have the meaning set forth in the granting clause of
the Mortgage.

 

“Physical Conditions Report” shall mean a report prepared by a company
satisfactory to Lender regarding the physical condition of the Property,
satisfactory in form and substance to

 

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Lender in its sole discretion, which report shall, among other things, (i)
confirm that the Property and its use comply, in all material respects, with all
applicable Legal Requirements (including zoning, subdivision and building codes
and laws), and (ii) include a copy of a final certificate of occupancy with
respect to all Improvements (unless previously delivered to Lender).

 

“Policies” shall have the meaning specified in Section 6.1(b) hereof.

 

“Prepayment Consideration” shall mean the present value, as of the date
Prepayment Consideration becomes due (“Prepayment Date”), of the remaining
scheduled payments of principal and interest from the Prepayment Date through
the Maturity Date (including any balloon payment), which shall be determined by
discounting such payments at the Discount Rate (hereinafter defined) less the
amount of principal being prepaid. The term “Discount Rate” shall mean the rate
that, when compounded monthly, is equivalent to the Treasury Rate (hereinafter
defined) when compounded semi-annually. The term “Treasury Rate” shall mean the
yield calculated by the linear interpolation of the yields, as reported in
Federal Reserve Statistical Release H.15-Selected Interest Rates under the
heading U.S. Government Securities/Treasury Constant Maturities for the week
ending prior to the Prepayment Date, of U.S. Treasury constant maturities with
maturity dates (one longer and one shorter) most nearly approximating the
Maturity Date. (If Release H.15 is no longer published, Lender shall select a
comparable publication to determine the Treasury Rate.).

 

“Principal” shall mean each of EHP Operating Partnership, L.P., a Maryland
limited partnership, and EHP TRS Holding Co., Inc, a Maryland corporation.

 

“Property” shall mean each parcel of real property, the Improvements thereon and
all personal property owned by Borrower and encumbered by the Mortgage, together
with all rights pertaining to such property and Improvements, as more
particularly described in the granting clause of the Mortgage and referred to
therein as the “Property.”

 

“Provided Information” shall mean any and all financial and other information
provided at any time by, or on behalf of, any Indemnifying Person with respect
to the Property, any Significant Party and/or an Affiliated Manager.

 

“Qualified Manager” shall mean either (a) Manager, or (b) Commonwealth Hotels
Incorporated (“Commonwealth”), provided that Lender reasonably determines that
no Material Adverse Event has occurred with respect to Commonwealth between the
date of this Agreement and the effective date that Commonwealth is to become a
Replacement Manager, or (c) in the reasonable judgment of Lender, a reputable
and experienced management organization (which may be an Affiliate of Borrower)
possessing experience in managing properties similar in size, scope, use and
value as the Property, provided, that, if Lender requests Borrower to do so,
Borrower shall have obtained prior written confirmation from the applicable
Rating Agencies that management of the Property by such Person will not cause a
downgrade, withdrawal or qualification of the then current ratings of the
Securities or any class thereof.

 

“Qualified Transferee” shall mean any Person meeting the Eligibility
Requirements and that is not otherwise an Embargoed Person.

 

“Quarterly DSCR Test” shall have the meaning set forth in Section 2.6.6.

 

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“Rating Agencies” shall mean each of S&P, Moody’s and Fitch, or any other
nationally recognized statistical rating agency that rates the Securities.

 

“Release Date” shall have the meaning set forth in Section 2.7.1(a) hereof.

 

“REMIC Trust” shall mean a “real estate mortgage investment conduit” within the
meaning of Section 860D of the Code that holds the Note.

 

“Rents” shall mean all rents, receipts, revenues, income (including service
charges), fees, payments and proceeds of sales of every kind received by or on
behalf of Borrower or Operating Tenant, directly or indirectly, from operating
the Property for that period and services rendered to, and rentals, percentage
rentals and other fees, payments and charges received from, tenants, subtenants,
licensees, concessionaires and occupants of commercial, hotel, public and retail
space located in or at the Property, calculated on a cash basis, whether in cash
or on credit, including, without limitation, revenues from the rental of rooms,
guest suites, conference and banquet rooms, food and beverage facilities,
telephone services, laundry, vending, television and parking at the Property,
the fair market value of any barter transaction, and other fees and charges
resulting from the operations of the Property by or on behalf of Borrower or
Operating Tenant, and proceeds, if any, from business interruption or other loss
of income insurance (net of the costs of collection thereof) and also including
any non-recurring income and non-Property related income (as determined by
Lender in its reasonable discretion), security deposits received from any tenant
unless and until the same are applied to rent or any other of such tenant’s
obligations in accordance with the terms of such tenant’s Lease, any loan
proceeds or proceeds of capital or equity contributions received by Borrower or
Operating Tenant, gratuities or service charges or other similar receipts that
are to be paid over to Property employees or persons occupying similar positions
for performing similar duties, Insurance Proceeds and Condemnation Proceeds,
proceeds from the sale of FF&E no longer required for the operation of the
Property, and rents from tenants that are included in any Bankruptcy Action or
any month to month tenants.

 

“Replacement Management Agreement” shall mean (a) a management agreement, cash
management agreement and assignment of management contracts with Manager (Hilton
Hotels Corporation) substantially in the same form and substance as the
Management Agreement, Cash Management Agreement and Assignment of Management
Agreement, or (b) (i) a management agreement with a Qualified Manager, which
management agreement shall be reasonably acceptable to Lender in form and
substance (if the Qualified Manager is Commonwealth, such management agreement
shall be in form and substance substantially similar to the management agreement
approved by Lender prior to the date hereof, “Commonwealth Management
Agreement”); provided that Lender, at its option, may require (with respect to
any management agreement other than the Commonwealth Management Agreement) that
Borrower obtain confirmation from the applicable Rating Agencies that such
management agreement will not cause a downgrade, withdrawal or qualification of
the then current rating of the Securities or any class thereof, and (ii) an
assignment of management agreement and subordination of management fees, lockbox
agreement, and cash management agreement in substantially the same forms as
attached hereto as Schedule IV, executed and delivered to Lender by Borrower,
Operating Tenant, and such Qualified Manager at Borrower’s expense.

 

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“Required Repair Account” shall have the meaning set forth in Section 7.1.1
hereof.

 

“Required Repair Funds” shall have the meaning set forth in Section 7.1.1
hereof.

 

“Required Repairs” shall have the meaning set forth in Section 7.1.1 hereof.

 

“Reserve Funds” shall mean, collectively, the Tax and Insurance Escrow Funds,
the FF&E Reserve Funds, the Required Repair Funds, the Mold Remediation Funds,
and any other escrow fund established pursuant to the Loan Documents.

 

“Restoration” shall mean the repair and restoration of the Property after a
Casualty or Condemnation as nearly as possible to the condition the Property was
in immediately prior to such Casualty or Condemnation, with such alterations as
may be reasonably approved by Lender.

 

“Restricted Party” shall mean, collectively (a) Borrower, Principal, Operating
Tenant, Guarantor and any Affiliated Manager and (b) any shareholder, partner,
member, non-member manager, direct or indirect legal or beneficial owner, agent
and employee of, Borrower, Principal, Operating Tenant, Guarantor, any
Affiliated Manager or any non-member manager.

 

“RICO” shall mean Racketeer Influenced and Corrupt Organizations Act.

 

“S&P” shall mean Standard & Poor’s Ratings Group, a division of the McGraw-Hill
Companies.

 

“Sale or Pledge” shall mean a voluntary or involuntary sale, conveyance,
assignment, transfer, encumbrance or pledge of a legal or beneficial interest.

 

“Scheduled Defeasance Payments” shall have the meaning set forth in Section
2.7.1(c)(i) hereof.

 

“Securities” shall have the meaning set forth in Section 9.1 hereof.

 

“Securities Act” shall have the meaning set forth in Section 9.2(a) hereof.

 

“Securitization” shall have the meaning set forth in Section 9.1 hereof.

 

“Securitization Cost Cap” shall mean Twenty Thousand and No/100 Dollars
($20,000.00).

 

“Security Assignment of Operating Lease” shall mean those certain Collateral
Assignments of Operating Lease, dated as of the date hereof, from each of
Borrower and Operating Tenant, as Assignor, to Lender, as Assignee,
collectively, as the same may be amended, restated, replaced, supplemented or
otherwise modified from time to time.

 

“Servicer” shall have the meaning set forth in Section 9.6 hereof.

 

“Servicing Agreement” shall have the meaning set forth in Section 9.6 hereof.

 

“Severed Loan Documents” shall have the meaning set forth in Section 8.2(b)
hereof.

 

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“Significant Party” shall mean each of Borrower, Guarantor, Principal and
Operating Tenant.

 

“Special Purpose Entity” shall mean a corporation, limited partnership or
limited liability company that at all times prior to, on and after the date
hereof:

 

(a) was, is and will be organized solely for the purpose of (i) acquiring,
developing, owning, holding, selling, leasing, transferring, exchanging,
managing and/or operating the Property, entering into this Agreement with
Lender, refinancing the Property in connection with a permitted repayment of the
Loan, and transacting lawful business that is incident, necessary and
appropriate to accomplish the foregoing, (ii) acting as managing member of the
limited liability company that owns the Property, or (iii) acting as the general
partner of the limited partnership that owns the Property, as applicable;

 

(b) has not been, is not, and will not be engaged in any business unrelated to
(i) the acquisition, development, ownership, management and/or operation of the
Property, (ii) acting as a member of the limited liability company that owns the
Property, or (iii) acting as the general partner of the limited partnership that
owns the Property, as applicable;

 

(c) has not had, does not have, and will not have, any assets other than those
related to the Property, the Operating Lease, its membership interest in the
limited liability company that owns the Property, its partnership interest in
the limited partnership that owns the Property, or acts as the general partner
or managing member of any of the foregoing, as applicable;

 

(d) has not engaged, sought or consented to and will not engage in, seek or
consent to, any dissolution, winding up, liquidation, consolidation, merger,
sale of all or substantially all of its assets, transfer of membership or
partnership interests or amendment of its limited partnership agreement,
articles of incorporation, articles of organization or operating agreement (as
applicable) with respect to the matters set forth in this definition;

 

(e) if such entity is a limited partnership, has as its only general partner,
Special Purpose Entities that are corporations, limited partnerships or limited
liability companies;

 

(f) if such entity is a corporation, has had, now has and will have at least two
(2) Independent Directors, and has not caused or allowed, and will not cause or
allow, the board of directors of such entity to take any action requiring the
unanimous affirmative vote of one hundred percent (100%) of the members of its
board of directors unless two (2) Independent Directors shall have participated
in such vote;

 

(g) if such entity is a limited liability company with more than one member, has
had, now has and will have at least one member that is a Special Purpose Entity
that is a corporation that has at least two (2) Independent Directors and that
owns at least one percent (1.0%) of the equity of the limited liability company;

 

(h) if such entity is a limited liability company with only one member, has
been, now is, and will be a limited liability company organized in the State of
Delaware that has (i) as its only member a non-managing member, (ii) at least
two (2) Independent Managers and

 

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has not caused or allowed, and will not cause or allow, the board of managers of
such entity to take any action requiring the unanimous affirmative vote of one
hundred percent (100%) of the managers unless two (2) Independent Managers shall
have participated in such vote, and (iii) at least one (1) springing member that
will become the non-managing member of such entity upon the dissolution of the
existing non-managing member;

 

(i) if such entity is (i) a limited liability company, has had, now has, and
will have articles of organization and/or an operating agreement, as applicable,
(ii) a limited partnership, has had, now has, and will have a limited
partnership agreement, or (iii) a corporation, has had, now has, and will have a
certificate of incorporation that, in each of the foregoing cases, provides that
such entity will not: (A) dissolve, merge, liquidate or consolidate; (B) sell
all or substantially all of its assets or the assets of Borrower (as
applicable); (C) engage in any other business activity or amend its
organizational documents with respect to the matters set forth in this
definition without the consent of Lender; or (D) without the affirmative vote of
two (2) Independent Directors and of all other directors of the corporation
(that is such entity or the general partner, managing or co-managing member of
such entity), file a bankruptcy or insolvency petition or otherwise institute
insolvency proceedings with respect to itself or to any other entity in which it
has a direct or indirect legal or beneficial ownership interest;

 

(j) has been, is and intends to remain solvent and has paid and intends to
continue to pay its debts and liabilities (including, as applicable, shared
personnel and overhead expenses) from its assets as the same have or shall
become due, and has maintained, is maintaining and intends to maintain adequate
capital for the normal obligations reasonably foreseeable in a business of its
size and character and in light of its contemplated business operations;

 

(k) has not failed, and will not fail, to correct any known misunderstanding
regarding the separate identity of such entity;

 

(l) has maintained and will maintain its accounts, books and records separate
from any other Person and has filed and will file its own tax returns, except to
the extent that it has been or is required to file consolidated tax returns by
law;

 

(m) has maintained and will maintain its own records, books, resolutions and
agreements;

 

(n) other than as provided in the Cash Management Agreement, (i) has not
commingled, and will not commingle, its funds or assets with those of any other
Person and (ii) has not participated and will not participate in any cash
management system with any other Person;

 

(o) has held and will hold its assets in its own name;

 

(p) has conducted and will conduct its business in its name or in a name
franchised or licensed to it by an entity other than an Affiliate of Borrower,
except for services rendered under a business management services agreement with
an Affiliate that complies with the terms contained in subsection (cc) below, so
long as the manager, or equivalent thereof, under such business management
services agreement holds itself out as an agent of Borrower;

 

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(q) has maintained and will maintain its financial statements, accounting
records and other entity documents separate from any other Person and has not
permitted, and will not permit, its assets to be listed as assets on the
financial statement of any other entity except as required by GAAP; provided,
however, that any such consolidated financial statement shall contain a note
indicating that its separate assets and liabilities are neither available to pay
the debts of the consolidated entity nor constitute obligations of the
consolidated entity;

 

(r) has paid and will pay its own liabilities and expenses, including the
salaries of its own employees, out of its own funds and assets, and has
maintained and will maintain a sufficient number of employees in light of its
contemplated business operations;

 

(s) has observed and will observe all partnership, corporate or limited
liability company formalities, as applicable;

 

(t) has had no and will have no Indebtedness other than (i) the Loan, (ii)
unsecured trade and operational debt incurred in the ordinary course of business
relating to the ownership and operation of the Property and the routine
administration of Operating Tenant in an amount not to exceed five percent (5%)
of the original principal amount of the Loan in the aggregate, which liabilities
are not more than sixty (60) days past the date incurred, are not evidenced by a
note and are paid when due, and which amounts are normal and reasonable under
the circumstances, (iii) such other liabilities that are permitted pursuant to
this Agreement, and (iv) unsecured indebtedness in connection with a loan(s)
from the member of Borrower and intercompany loans (each such loan, a
“Membership Loan”) that do not exceed the aggregate amount of $2,655,000.00 in
accordance with the terms of Borrower’s operating agreement and the terms of
this Agreement;

 

(u) has not assumed or guaranteed or become obligated for, and will not assume
or guarantee or become obligated for the debts of any other Person and has not
held out and will not hold out its credit as being available to satisfy the
obligations of any other Person, except with respect to that certain guaranty of
Operating Tenant’s obligations under the Operating Lease executed for the
benefit of Franchisor, and as otherwise permitted pursuant to this Agreement;

 

(v) has not acquired and will not acquire obligations or securities of its
partners, members or shareholders or any other Affiliate;

 

(w) has allocated and will allocate, fairly and reasonably, any overhead
expenses that are shared with any Affiliate, including, paying for shared office
space and services performed by any employee of an Affiliate;

 

(x) has maintained and used, now maintains and uses, and will maintain and use,
separate stationery, invoices and checks bearing its name. The stationery,
invoices, and checks utilized by the Special Purpose Entity or utilized to
collect its funds or pay its expenses have borne and shall bear its own name and
have not borne and shall not bear the name of any other entity unless such
entity is clearly designated as being the Special Purpose Entity’s agent;

 

(y) has not pledged and will not pledge its assets for the benefit of any other
Person;

 

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(z) has held itself out and identified itself, and will hold itself out and
identify itself, as a separate and distinct entity under its own name or in a
name franchised or licensed to it by an entity other than an Affiliate of
Borrower and not as a division or part of any other Person, except for services
rendered under a business management services agreement with an Affiliate that
complies with the terms contained in subsection (cc) below, so long as the
manager, or equivalent thereof, under such business management services
agreement holds itself out as an agent of Borrower;

 

(aa) has maintained and will maintain its assets in such a manner that it will
not be costly or difficult to segregate, ascertain or identify its individual
assets from those of any other Person;

 

(bb) has not made and will not make loans to any Person or hold evidence of
indebtedness issued by any other Person or entity (other than cash and
investment-grade securities issued by an entity that is not an Affiliate of or
subject to common ownership with such entity);

 

(cc) has not identified and will not identify its partners, members or
shareholders, or any Affiliate of any of them, as a division or part of it, and
has not identified itself, and shall not identify itself, as a division of any
other Person;

 

(dd) has not entered into or been a party to, and will not enter into or be a
party to, any transaction with its partners, members, shareholders or Affiliates
except (i) in the ordinary course of its business and on terms that are
intrinsically fair, commercially reasonable and are no less favorable to it than
would be obtained in a comparable arm’s-length transaction with an unrelated
third party, and (ii) in connection with this Agreement;

 

(ee) has not had and will not have any obligation to indemnify, and has not
indemnified and will not indemnify its partners, officers, directors or members,
as the case may be, unless such an obligation was and is fully subordinated to
the Obligations and will not constitute a claim against the Obligations in the
event that cash flow in excess of the amount required to pay the Obligations is
insufficient to pay such obligation;

 

(ff) if such entity is a corporation, it has considered and shall consider the
interests of its creditors in connection with all corporate actions;

 

(gg) does not and will not have any of its obligations guaranteed by any
Affiliate except its obligations under the Franchise Agreement; and

 

(hh) has complied and will comply with all of the terms and provisions contained
in its organizational documents. The statement of facts contained in its
organizational documents are true and correct and will remain true and correct.

 

“Special Tax Escrow” shall have the meaning set forth in Section 7.2(a) hereof.

 

“Standard Statements” shall have the meaning set forth in Section 5.1.11(d)(i)
hereof.

 

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“State” shall mean the State or Commonwealth in which the Property or any part
thereof is located.

 

“Survey” shall mean a survey of the Property prepared pursuant to the
requirements contained in Section 4.1.27 hereof.

 

“Sweep Event” shall mean the occurrence of (a) an Event of Default or (b) a DSCR
Failure. A Sweep Event resulting from a DSCR Failure shall be terminated if, for
two (2) consecutive calendar quarters, the Debt Service Coverage Ratio equals or
exceeds 1.35 to 1.0. Borrower shall have a one (1) time right to terminate a
Sweep Event resulting from an Event of Default upon the cure of such Event of
Default.

 

“Target Escrow Balance” shall have the meaning set forth in Section 7.3.1
hereof.

 

“Tax and Insurance Escrow Funds” shall have the meaning set forth in Section 7.2
hereof.

 

“Taxes” shall mean all real estate and personal property taxes, assessments,
water rates or sewer rents, now or hereafter levied or assessed or imposed
against the Property or part thereof, together with all interest and penalties
thereon.

 

“Terrorism Insurance Cap” shall have the meaning set forth in Section 6.1(a)(x)
hereof.

 

“Title Company” shall mean Commonwealth Land Title Company or any successor
title company acceptable to Lender and licensed to issue title insurance in the
State in which the Property is located.

 

“Title Insurance Policy” shall mean an ALTA mortgagee title insurance policy in
a form acceptable to Lender (or, if the Property is in a State that does not
permit the issuance of such ALTA policy, such form as shall be permitted in such
State and acceptable to Lender) issued with respect to the Property and insuring
the lien of the Mortgage encumbering the Property.

 

“Transfer” shall have the meaning set forth in Section 5.2.10(b) hereof.

 

“UCC” or “Uniform Commercial Code” shall mean the Uniform Commercial Code as in
effect in the State in which the Property is located.

 

“U.S. Obligations” shall mean non-redeemable securities evidencing an obligation
to timely pay principal and/or interest in a full and timely manner that are
direct obligations of the United States of America for the payment of which its
full faith and credit is pledged.

 

Section 1.2 Principles of Construction. All references to sections and schedules
are to sections and schedules in or to this Agreement unless otherwise
specified. All uses of the word “including” in this Agreement and in each other
Loan Document shall mean “including, without limitation” unless the context
shall indicate otherwise. Unless otherwise specified, the words “hereof,”
“herein” and “hereunder” and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any particular provision of
this Agreement. Unless otherwise specified, all meanings attributed to defined
terms herein shall be equally applicable to both the singular and plural forms
of the terms so defined.

 

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ARTICLE 2

GENERAL TERMS

 

Section 2.1 Loan Commitment; Disbursement to Borrower.

 

2.1.1 Agreement to Lend and Borrow. Subject to and upon the terms and conditions
set forth herein, Lender hereby agrees to make and Borrower hereby agrees to
borrow the Loan on the Closing Date.

 

2.1.2 Single Disbursement to Borrower. Borrower may request and receive only one
disbursement hereunder in respect of the Loan and any amount borrowed and repaid
hereunder in respect of the Loan may not be reborrowed.

 

2.1.3 The Note, Mortgage and Loan Documents. The Loan shall be evidenced by the
Note and secured by the Mortgage, the Assignment of Leases and the other Loan
Documents.

 

2.1.4 Use of Proceeds. Borrower shall use the proceeds of the Loan to (a)
acquire the Property and/or pay any costs and expenses relating thereto, (b) pay
all past-due Basic Carrying Costs, if any, with respect to the Property, (c) pay
costs and expenses incurred in connection with the closing of the Loan, as
approved by Lender, (d) fund any working capital requirements of the Property,
(e) fund all or a portion of the FF&E Reserve Account and the Special Tax
Escrow, and (f) distribute the balance, if any, to Borrower.

 

Section 2.2 Interest Rate.

 

2.2.1 Interest Generally. Interest on the Outstanding Principal Balance shall
accrue from the Closing Date to but excluding the Maturity Date at the Interest
Rate.

 

2.2.2 Interest Calculation. Interest on the Outstanding Principal Balance shall
be calculated by multiplying (a) the actual number of days elapsed in the period
for which the calculation is being made by (b) a daily rate based on a three
hundred sixty (360) day year by (c) the Outstanding Principal Balance.

 

2.2.3 INTENTIONALLY OMITTED.

 

2.2.4 INTENTIONALLY OMITTED.

 

2.2.5 Default Rate. In the event that, and for so long as, any Event of Default
shall have occurred and be continuing, the Outstanding Principal Balance and, to
the extent permitted by law, all accrued and unpaid interest in respect of the
Loan and any other amounts due pursuant to the Loan Documents, shall accrue
interest at the Default Rate, calculated from the date such payment was due
without regard to any grace or cure periods contained herein.

 

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2.2.6 Usury Savings. This Agreement, the Note and the other Loan Documents are
subject to the express condition that at no time shall Borrower be obligated or
required to pay interest on the principal balance of the Loan at a rate that
could subject Lender to either civil or criminal liability as a result of being
in excess of the Maximum Legal Rate. If, by the terms of this Agreement or the
other Loan Documents, Borrower is at any time required or obligated to pay
interest on the principal balance due hereunder at a rate in excess of the
Maximum Legal Rate, the Interest Rate or the Default Rate, as the case may be,
shall be deemed to be immediately reduced to the Maximum Legal Rate and all
previous payments in excess of the Maximum Legal Rate shall be deemed to have
been payments in reduction of principal and not on account of the interest due
hereunder. All sums paid or agreed to be paid to Lender for the use,
forbearance, or detention of the sums due under the Loan, shall, to the extent
permitted by applicable law, be amortized, prorated, allocated, and spread
throughout the full stated term of the Loan until payment in full so that the
rate or amount of interest on account of the Loan does not exceed the Maximum
Legal Rate of interest from time to time in effect and applicable to the Loan
for so long as the Loan is outstanding.

 

Section 2.3 Loan Payment.

 

2.3.1 Payments Generally. Borrower shall pay to Lender (a) on the Closing Date,
an amount equal to interest only on the Outstanding Principal Balance from the
Closing Date up to but not including the first Payment Date following the
Closing Date, and (b) on September 1, 2005 and on each Payment Date thereafter
up to but not including the Maturity Date, an amount equal to the interest
accrued on the Loan for the preceding calendar month (the “Monthly Interest
Payment”). For purposes of making payments hereunder, if the day on which such
payment is due is not a Business Day, then amounts due on such date shall be due
on the immediately preceding Business Day. With respect to payments of principal
due on the Maturity Date, interest shall be payable at the Interest Rate or the
Default Rate, as the case may be, through and including the day immediately
preceding such Maturity Date. All amounts due pursuant to this Agreement and the
other Loan Documents shall be payable without setoff, counterclaim, defense or
any other deduction whatsoever.

 

2.3.2 Payment on Maturity Date. Borrower shall pay to Lender on the Maturity
Date the Outstanding Principal Balance, all accrued and unpaid interest and all
other amounts due hereunder and under the Note, the Mortgage and the other Loan
Documents.

 

2.3.3 Late Payment Charge. If any principal, interest or any other sums due
under the Loan Documents, excluding the payment of principal due on the Maturity
Date, is not paid by Borrower by the date on which it is due, Borrower shall pay
to Lender upon demand an amount equal to the lesser of (a) three percent (3%) of
such unpaid sum, and (b) the maximum amount permitted by applicable law in order
to defray the expense incurred by Lender in handling and processing such
delinquent payment and to compensate Lender for the loss of the use of such
delinquent payment. Any such amount shall be secured by the Mortgage and the
other Loan Documents to the extent permitted by applicable law. Further, such
amount represents the reasonable estimate of Lender and Borrower of a fair,
average compensation for the loss that may be sustained by Lender due to the
failure of Borrower to make timely payments. Such amount shall be paid without
prejudice to the right of Lender to collect any other amounts provided to be
paid upon an Event of Default, including without limitation interest at the
Default Rate, or to declare a default hereunder, under the Mortgage or under any
of the other Loan Documents.

 

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2.3.4 Method and Place of Payment. Except as otherwise specifically provided
herein, all payments and prepayments under this Agreement and the Note shall be
made to Lender not later than 1:00 P.M. local time at the place then designated
as the place for receipt of payments hereunder on the date when due and shall be
made in lawful money of the United States of America in immediately available
funds at Lender’s office or as otherwise directed by Lender, and any funds
received by Lender after such time shall, for all purposes hereof, be deemed to
have been paid on the next succeeding Business Day. Any prepayments required to
be made hereunder or under the Cash Management Agreement shall be deemed to have
been timely made for the purposes of this Section 2.3.4.

 

Section 2.4 Prepayments.

 

2.4.1 Voluntary Prepayments. Except as otherwise provided herein, the
Outstanding Principal Balance may not be prepaid in whole or in part prior to
the Lockout Release Date. On any date occurring on or after the Lockout Release
Date, and so long as no Event of Default has occurred and is continuing,
Borrower may, at its option and upon thirty (30) days prior written notice to
Lender, prepay the Outstanding Principal Balance in whole but not in part
without payment of Prepayment Consideration or any other prepayment premium,
provided, however that if such prepayment occurs on any date other than a
Payment Date, such Prepayment shall include all interest that would have accrued
on the amount being prepaid after the date of prepayment through and including
the next Payment Date had the Prepayment not been made.

 

2.4.2 Mandatory Prepayments. On the next occurring Payment Date following the
date on which Lender actually receives any Net Proceeds, if Lender is not
obligated to make such Net Proceeds available to Borrower for Restoration,
Borrower shall prepay, or authorize Lender to apply Net Proceeds as a prepayment
of, the Outstanding Principal Balance in an amount equal to one hundred percent
(100%) of such Net Proceeds. So long as no Event of Default has occurred and is
continuing, no Prepayment Consideration shall be due in connection with any
prepayment made pursuant to this Section 2.4.2. Any partial prepayment under
this Section 2.4.2 shall be applied to the last payments of principal due under
the Loan.

 

2.4.3 Default Prepayment. If a Default Prepayment occurs, such Default
Prepayment shall be deemed to be a voluntary prepayment and in such case the
applicable Prepayment Consideration shall be due and payable to Lender in
connection with such Default Prepayment (unless Lender voluntarily and expressly
waives in writing the right to collect such Prepayment Consideration). The
Prepayment Consideration shall be secured by all security and collateral for the
Loan and shall, after it becomes due and payable, be treated as if it were added
to the Outstanding Principal Balance for all purposes including judgment on the
Note, foreclosure (whether through power of sale, judicial proceeding, or
otherwise) (a “Foreclosure Sale”), redemption, and bankruptcy (including
pursuant to Section 506 of the United States Bankruptcy Code or any successor
provision); without limiting the generality of the foregoing, it is understood
and agreed that the Prepayment Consideration may be added to Lender’s bid at any
Foreclosure Sale. If Prepayment Consideration is due hereunder, Lender may
deliver to

 

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Borrower a statement setting forth the amount and determination of the
Prepayment Consideration, and, provided that Lender shall have in good faith
applied the formula described in the definition of “Prepayment Consideration”
herein, Borrower shall not have the right to challenge the calculation or the
method of calculation set forth in any such statement in the absence of manifest
error, which calculation may be made by Lender on any day during the thirty (30)
-day period preceding the date of such prepayment. In addition to Prepayment
Consideration, Borrower shall pay all hedging and breakage costs of any kind and
any other cost or expense incurred by Lender due to any prepayment (including a
Default Prepayment).

 

Borrower acknowledges that: (i) Lender has made the Loan to Borrower in reliance
on, and the Loan has been originated for the purpose of, selling the Loan in the
secondary market to investors who will purchase the Loan or direct or indirect
interests therein in reliance on, the actual receipt over time of the stream of
payments of principal and interest agreed to by Borrower herein; and (ii) Lender
or any subsequent investor in the Loan will incur substantial additional costs
and expenses and damages in the event of a prepayment of the Loan; and (iii) the
Prepayment Consideration is reasonable and is a bargained for consideration and
not a penalty and the terms of the Loan are in various respects more favorable
to Borrower than they would have been absent Borrower’s agreement to pay
Prepayment Consideration as provided herein. Borrower agrees that Lender shall
not, as a condition to receiving the Prepayment Consideration, be obligated to
actually reinvest the amount prepaid in any treasury obligation or in any other
manner whatsoever. Nothing contained herein shall be deemed to be a waiver by
Lender of any right it may have to require specific performance of any
obligation of Borrower hereunder including to make payments hereunder strictly
according to the terms hereof or to furnish Defeasance Collateral.

 

2.4.4. Waiver of Right to Prepay. BORROWER HEREBY EXPRESSLY (1) WAIVES ANY
RIGHTS IT MAY HAVE UNDER CALIFORNIA CIVIL CODE § 2954.10, SHOULD IT BE
DETERMINED TO BE APPLICABLE TO THIS AGREEMENT, THE NOTE OR ANY OTHER LOAN
DOCUMENT, TO PREPAY THE OUTSTANDING PRINCIPAL BALANCE IN WHOLE OR IN PART,
WITHOUT PENALTY, UPON A DECLARATION BY LENDER THAT ALL PRINCIPAL AND INTEREST
HEREUNDER IS IMMEDIATELY DUE AND PAYABLE, EXCEPT IN COMPLIANCE WITH THE TERMS OF
THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS, AND (2) FURTHER AGREES
THAT UPON PREPAYMENT OF THE OUTSTANDING PRINCIPAL BALANCE AT ANY TIME PRIOR TO
THE SALE UNDER FORECLOSURE OF THE MORTGAGE, IN CONNECTION WITH A REINSTATEMENT,
REDEMPTION OR ANY OTHER SIMILAR OR RELATED ACTION, BORROWER OR ANY OTHER PARTY
MAKING ANY SUCH PREPAYMENT

 

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SHALL BE OBLIGATED TO PAY, CONCURRENTLY THEREWITH, THE PREPAYMENT CONSIDERATION.
BY INITIALING THIS PROVISION IN THE SPACE PROVIDED BELOW, BORROWER HEREBY
DECLARES THAT LENDER’S AGREEMENT TO MAKE THE SUBJECT LOAN AT THE INTEREST RATE
AND FOR THE TERMS SET FORTH IN THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
CONSTITUTES ADEQUATE CONSIDERATION, GIVEN INDIVIDUAL WEIGHT BY BORROWER, FOR
THIS WAIVER AND AGREEMENT.

 

Borrower’s Initials:                             

 

Section 2.5 Release of Property. Except as set forth in this Section 2.5, no
repayment or prepayment of all or any portion of the Note shall cause, give rise
to a right to require, or otherwise result in, the release of the Lien of the
Mortgage.

 

2.5.1 Release on Payment in Full. Lender shall, upon the written request and at
the expense of Borrower, upon payment in full of all principal and interest due
on the Loan and all other amounts due and payable under the Loan Documents in
accordance with the terms and provisions of the Note and this Agreement, release
the Lien of the Mortgage.

 

Section 2.6 Cash Management.

 

2.6.1 Borrower Lockbox Account.

 

(a) Borrower shall, and shall cause Operating Tenant to, establish and maintain
a segregated Eligible Account (the “Deposit Account”) with the Lockbox Bank in
trust for the benefit of Lender, which shall be under the sole dominion and
control of Lender. Borrower shall maintain and shall cause Operating Tenant to
maintain the Deposit Account at all times for the term of the Loan. If the
Deposit Account is terminated for any reason, Borrower shall immediately cause a
replacement Deposit Account to be established and maintained with a bank
acceptable to Lender pursuant to a lockbox agreement acceptable to Lender,
subject to the provisions set forth herein and in the Cash Management Agreement.
The Deposit Account shall be entitled “EHP GLENDALE, LLC and GLENDALE HOTEL TRS,
INC., as Pledgors of KeyBank National Association, as Pledgee.” Borrower (i)
hereby grants, and shall cause Operating Tenant to grant, to Lender a first
priority security interest in the Deposit Account and all deposits at any time
contained therein and the proceeds thereof, and (ii) shall take, and shall cause
Operating Tenant to take, all actions necessary to maintain in favor of Lender a
perfected first priority security interest in the Deposit Account, including,
without limitation, authorizing the filing of UCC-1 Financing Statements and
continuations thereof. Borrower shall not, and shall cause Operating Tenant not
to, in any way alter or modify the Deposit Account and shall notify Lender of
the account number thereof. Lender and Servicer shall have the sole right to
make withdrawals from the Deposit Account and all costs and expenses of
establishing and maintaining the Deposit Account shall be paid by Borrower.

 

(b) Borrower shall, and shall cause Operating Tenant to, deposit all amounts
received by Borrower constituting Rents into the Deposit Account within one (1)
Business Day after receipt.

 

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(c) Pursuant to the terms of the Lockbox Agreement, Lockbox Bank shall (i) prior
to a Sweep Event, transfer funds as directed by Borrower (which can be a
standing written order) and (ii) following and during the continuance of a Sweep
Event, transfer to the Cash Management Account, in immediately available funds
by federal wire, all amounts on deposit from time to time in the Deposit
Account.

 

2.6.2 INTENTIONALLY OMITTED.

 

2.6.3 Cash Management Account.

 

(a) Borrower shall, and shall cause Operating Tenant to, establish and maintain
a segregated Eligible Account (the “Cash Management Account”) to be held by
Lender or Servicer in trust for the benefit of Lender, which Cash Management
Account shall be under the sole dominion and control of Lender. The Cash
Management Account shall be entitled “KeyBank Real Estate Capital, as servicer
for KeyBank, N.A., as mortgagee of EHP GLENDALE, LLC AND GLENDALE HOTEL TRS,
INC., Cash Management Account” Borrower hereby (i) grants, and shall cause
Operating Tenant to grant, to Lender a first priority security interest in the
Cash Management Account and all deposits at any time contained therein and the
proceeds thereof, and (ii) shall take, and shall cause Operating Tenant to take,
all actions necessary to maintain in favor of Lender a perfected first priority
security interest in the Cash Management Account, including, without limitation,
authorizing the filing of UCC-1 Financing Statements and continuations thereof.
Borrower shall not, and shall cause Operating Tenant not to, in any way alter or
modify the Cash Management Account and shall notify Lender of the account number
thereof. Lender and Servicer shall have the sole right to make withdrawals from
the Cash Management Account and all costs and expenses for establishing and
maintaining the Cash Management Account shall be paid by Borrower.

 

(b) After Lender provides notice to Lockbox Bank that a Sweep Event has
occurred, Lockbox Bank shall, pursuant to the Lockbox Agreement, transfer all
available funds on deposit in the Deposit Account to the Cash Management Account
not less frequently than every Business Day.

 

(c) After the occurrence and during the continuance of a Sweep Event, on each
Payment Date (or, if such Payment Date is not a Business Day, on the immediately
preceding Business Day) all funds on deposit in the Cash Management Account
shall be applied by Lender (x) to the payment of certain items in accordance
with and in the order set forth in the Cash Management Agreement, or (y) in
connection with a Replacement Management Agreement, to the following items in
the order indicated (unless determined otherwise by Lender):

 

(i) First, payments in respect of the Tax and Insurance Escrow Funds if required
by and in accordance with the terms and conditions of Section 7.2 hereof;

 

(ii) Second, payment of the Monthly Interest Payment;

 

(iii) Third, payments to the FF&E Reserve Funds if required by and in accordance
with the terms and conditions hereof;

 

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(iv) Fourth, payment to Lender of any other amounts then due and payable under
the Loan Documents; and

 

(v) Lastly, and so long as Borrower has delivered a Payment Certificate to
Lender and no Event of Default has occurred and is continuing, payment of any
excess amounts (“Excess Cash Flow”) to Borrower.

 

(d) The insufficiency of funds on deposit in the Cash Management Account shall
not relieve Borrower of the obligation to make any payments as and when due
pursuant to this Agreement and the other Loan Documents and such obligations
shall be separate and independent, and not conditioned on any event or
circumstance whatsoever.

 

(e) All funds on deposit in the Cash Management Account following the occurrence
of an Event of Default may be applied by Lender in such order and priority as
Lender shall determine in its sole discretion.

 

(f) If following a DSCR Failure the Borrower achieves a DSCR above 1.35 to 1.00
for two consecutive (2) consecutive calendar quarters and no Event of Default
has occurred and is continuing, transfers to the Cash Management Account shall
cease and any balance therein shall be transferred as directed by Borrower and
Section 2.6.1(c)(i) shall apply until the occurrence of another Sweep Event.

 

2.6.4 Payments Received Under the Cash Management Agreement. Notwithstanding
anything to the contrary contained in this Agreement and the other Loan
Documents, and provided no Event of Default has occurred and is continuing,
Borrower’s obligations with respect to the monthly payment of Debt Service and
amounts due for the Tax and Insurance Escrow Funds, FF&E Funds, Required Repair
Funds and any other payment reserves established pursuant to this Agreement or
any other Loan Document shall be deemed satisfied to the extent sufficient
amounts are deposited in the Cash Management Account to satisfy such obligations
on the dates each such payment is required, regardless of whether any of such
amounts are so applied by Lender.

 

2.6.5 Application After Event of Default. Notwithstanding anything to the
contrary contained in this Section 2.6, upon the occurrence of an Event of
Default, Lender, at its option, may withdraw the Reserve Funds and any other
funds of Borrower then in the possession of Lender, Servicer or Lockbox Bank and
apply such funds to the items for which the Reserve Funds were established or to
the payment of the Obligations in such order, proportion and priority as Lender
may determine in its sole discretion. Lender’s right to withdraw and apply any
of the foregoing funds shall be in addition to all other rights and remedies
provided to Lender under the Loan Documents.

 

2.6.6 Quarterly DSCR Tests. In order to ascertain whether or not a Sweep Event
has occurred or has terminated, Lender will determine the Debt Service Coverage
Ratio as of the last day of each calendar quarter throughout the Term (each, a
“Quarterly DSCR Test”), beginning December 31, 2005, each of which Quarterly
DSCR Tests and the determinations made with respect thereto shall be based on
the information delivered in accordance with Section 5.1.11 hereof, together
with any other evidence that Lender may reasonably require to

 

26

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substantiate or explain the calculation of Net Operating Income. Notwithstanding
the foregoing, if the information required under Section 5.1.11 hereof is not
delivered, the Debt Service Coverage Ratio shall be determined in Lender’s sole
discretion.

 

Section 2.7 Defeasance.

 

2.7.1 Defeasance Requirements. Provided that as of the Release Date no Event of
Default exists, Borrower may cause the release of the Property from the lien of
the Mortgage and the other Loan Documents (“Defeasance”) on any Payment Date
following the date that is two (2) years and fifteen (15) days after the
“startup day” within the meaning of Section 860G(a)(9) of the Internal Revenue
Code of 1986, as amended (together with any successor statute and the related
Treasury Department Regulations including temporary regulations, the “Code”) of
any REMIC Trust upon Borrower’s satisfaction of the following conditions:

 

(a) Borrower shall provide Lender not less than thirty (30) days’ prior written
notice specifying a Payment Date (such date, or any extended date upon which
Borrower and Lender may mutually agree is referred to herein as the “Release
Date”) on which the Defeasance Collateral (as hereinafter defined) is to be
delivered;

 

(b) On the Release Date Borrower shall pay in full all accrued and unpaid
interest and all other sums due under the Note and under the other Loan
Documents up to the Release Date, including all costs and expenses (including
attorneys’ fees) incurred by Lender or its servicers or other agent(s) or to or
on behalf of any rating agencies or other third parties in connection with such
release and related transactions (including the review of the proposed
Defeasance Collateral and the preparation of the Defeasance Security Agreement
(as hereinafter defined) and related documentation), together with a defeasance
processing fee in an amount equal to one-half of one percent (0.5%) of the then
Outstanding Principal Balance but in no event less than (A) $7,500 or greater
than (B) $20,000; and

 

(c) Borrower shall deliver the following, all of which must be satisfactory to
Lender, at or prior to the release of the Property and substitution of the
Defeasance Collateral:

 

(i) Direct, non-callable and non-redeemable securities evidencing an obligation
to pay principal and interest in a full and timely manner that are direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged (the “Defeasance Collateral”) in amounts sufficient
to pay all scheduled principal and interest payments required under the Note,
which securities provide for payments prior, but as close as possible, to the
Business Day prior to each successive Payment Date occurring after the Release
Date, with each such payment being equal to or greater than the amount of the
corresponding Payment required to be made hereunder for the balance of the term
hereof plus the amount required to be paid on the Maturity Date (the “Scheduled
Defeasance Payments”), each of which shall be duly endorsed by the holder
thereof as directed by Lender or accompanied by a written instrument of transfer
in form and substance satisfactory to Lender (including such instruments as may
be required by the depository institution or other entity holding such
securities or the issuer thereof, as the case may be, to effectuate book-entry
transfers and pledges through the book-entry facilities of such institution) in
order to perfect upon the delivery of the

 

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Defeasance Security Agreement (as hereinafter defined) a valid, first priority
lien and security interest therein in favor of Lender in conformity with all
applicable state and federal laws governing granting of such security interest;

 

(ii) any and all agreements, certificates, opinions, documents or instruments
required by Lender in connection with the Defeasance including (a) a pledge and
security agreement, in form and substance satisfactory to Lender, creating a
first priority security interest in favor of Lender in the Defeasance Collateral
(the “Defeasance Security Agreement”), and (b) any and all agreements,
certificates, opinions, documents, or instruments required by Lender that affect
or relate in any way to the maintenance by any REMIC Trust of its qualification
and status for tax purposes as a REMIC;

 

(iii) a certificate of Borrower certifying that (A) all of the requirements set
forth in this Section 2.7 have been satisfied, (B) the transactions that are
being carried out pursuant to this Section 2.7 (including specifically the
release of the lien of the Mortgage) are being effected to facilitate the
disposition of the Property or any other customary commercial transaction and
not as part of an arrangement to collateralize a REMIC offering with obligations
that are not real estate mortgages, and (C) the amounts of the Defeasance
Collateral comply with all the requirements of this section including the
requirement that the Defeasance Collateral shall generate monthly amounts equal
to or greater than the Scheduled Defeasance Payments required to be paid under
the Note through the Maturity Date;

 

(iv) an opinion of counsel for Borrower, delivered by counsel acceptable to
Lender, stating, among other things but without substantive qualification, that
(1) Lender has a valid, duly perfected, first priority security interest in the
Defeasance Collateral and that the Defeasance Security Agreement is enforceable
against Borrower in accordance with its terms and that the delivery of the
Defeasance collateral to Lender does not constitute a fraudulent or preferential
or other avoidable transfer under applicable bankruptcy and nonbankruptcy law,
(2) neither the Defeasance nor any other transaction that occurs pursuant to the
provisions of this Section 2.7.1 has caused or will cause the Loan (including
for this purpose the Loan Documents) to cease to be a “qualified mortgage”
within the meaning of Section 860G of the Code, either under the provisions of
Treasury Regulation Sections 1.860G-2(a)(8) or 1.860G-2(b) (as such regulations
may be amended or superseded from time to time) or under any other provision of
the Code or otherwise, and (3) the tax qualification and status of any REMIC
Trust or any other entity that holds the Note will not be adversely impaired or
affected as a result of the Defeasance and/or any other transaction that occurs
pursuant to the provisions of this Section 2.7.1. The opinions set forth in
clauses (ii) and (iii) above may, in Lender’s discretion, be rendered by counsel
to Lender at Borrower’s sole cost and expense;

 

(v) a certificate and opinion delivered by an independent certified public
accounting firm acceptable to Lender certifying that the amounts of the
Defeasance Collateral comply with all the requirements of this Section including
the requirement that the Defeasance Collateral shall generate monthly amounts
equal to or greater than the Scheduled Defeasance Payments required to be paid
under the Note through the Maturity Date. Upon Lender’s request, such accounting
firm shall also certify

 

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the change in the yield of the Loan that results from the Defeasance and any
other transactions that occur pursuant to the provisions of this Section 2.7.1,
including supporting computations which shall be made in a manner that is
consistent with the provisions of Treasury Regulation Sections 1.1001-3(e)(1)
and (2);

 

(vi) Upon Lender’s request, written confirmation from the rating agencies that
have rated any of the securities issued by any REMIC Trust to the effect that
the Defeasance will not result in a downgrading, withdrawal or qualification of
the respective ratings in effect immediately prior to such Defeasance for any
rated securities then outstanding or a waiver from any such rating agency
stating that it has declined to review the Defeasance. If required by any rating
agency or Lender, a non-consolidation opinion with respect to the Defeasance
Obligor (as hereinafter defined) in form and substance satisfactory to Lender
and such rating agency; and

 

(vii) Borrower shall (unless otherwise agreed to in writing by Lender), at
Borrower’s expense, assign all of its obligations under this Note, together with
the Defeasance Collateral, to a successor entity (“Defeasance Obligor”)
designated by Lender (which may include an entity that is owned and/or
controlled by Lender) that is a single purpose, bankruptcy remote entity as
determined by Lender in its discretion. The Defeasance Obligor shall execute an
assumption agreement pursuant to which it shall assume Borrower’s obligations
under the Note, the Loan Documents, and the Defeasance Security Agreement. As
conditions to such assignment and assumption, Borrower shall (1) deliver to
Lender an opinion of counsel delivered by counsel acceptable to Lender stating,
among other things, that such assumption agreement has been duly authorized and
is enforceable against Borrower and the Defeasance Obligor in accordance with
its terms, that the Note, the Defeasance Security Agreement and the other Loan
Documents, as so assumed, have been duly authorized and are enforceable against
the Defeasance Obligor in accordance with their respective terms, and that the
delivery of the Defeasance Collateral to the Defeasance Obligor does not
constitute a fraudulent or preferential or other avoidable transfer under
applicable bankruptcy and nonbankruptcy law and that, in the event of Borrower’s
bankruptcy, neither the Defeasance Collateral nor any proceeds thereof will be
property of Borrower’s bankruptcy estate under Section 541 of the Bankruptcy
Code or any similar statute and (2) pay all costs and expenses including
attorneys’ fees incurred by Lender or its servicer or other agent(s) in
connection with such assignment and assumption (including the review of the
proposed transferee and the preparation of the assumption agreement and related
documentation). Upon such assumption, Borrower shall be relieved of its
obligations under the Note, the Defeasance Security Agreement and the other Loan
Documents, other than those obligations that are specifically intended to
survive the payment of the Note and the termination, satisfaction or assignment
of the Note, the Defeasance Security Agreement or the other Loan Documents or
the exercise of Lender’s rights and remedies under any of such documents and
instruments.

 

2.7.2 Defeasance Release. Upon compliance with the requirements of Section
2.7.1, Lender shall release the Property from the lien of the Mortgage and the
other Loan Documents, and the Defeasance Collateral shall secure the Note and
all other obligations under the Loan Documents. Lender shall, at Borrower’s
expense, execute and deliver any agreements

 

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reasonably requested by Borrower to release the lien of the Mortgage from the
Property. Borrower, pursuant to the Defeasance Security Agreement, shall
authorize and direct that the payments received from Defeasance Collateral be
made directly to Lender and applied to satisfy the obligations of Borrower under
the Note. Upon the release of the Property in accordance with this Section
2.7.2, Borrower shall have no further right to prepay the Note. Borrower shall
pay all costs and expenses incurred or to be incurred in connection with the
Defeasance and related transactions, including all charges imposed by any rating
agencies and any revenue, documentary stamp or intangible taxes or any other tax
or charge due in connection with the transfer of the Note or otherwise required
to accomplish the Defeasance and related transactions. If any notice of
defeasance is given pursuant to Section 2.7.1(a), Borrower shall be required to
defease the Loan on the Release Date (unless such notice is revoked by Borrower
prior to the Release Date in which event Borrower shall immediately reimburse
Lender for any and all reasonable costs and expenses incurred by Lender in
connection with Borrower’s giving of such notice and revocation).

 

2.7.3 Appointment. At Borrower’s request, Lender may agree that Lender or
Servicer or other agent, acting on Borrower’s behalf as Borrower’s agent and
attorney-in-fact, shall purchase the Defeasance Collateral that Borrower is
required to deliver to Lender pursuant to Section 2.7.1(c)(i). If such an
agreement is made then Borrower shall deposit with Lender or Lender’s servicer
or other agent, as directed by Lender or Lender’s agent(s), on or prior to the
Release Date a sum of money sufficient to purchase the Defeasance Collateral. By
making such deposit Borrower shall thereby appoint Lender or Servicer or other
agent as Borrower’s agent and attorney-in-fact, with full power of substitution,
for the purpose of purchasing the Defeasance Collateral with the funds so
provided and delivering the Defeasance Collateral to Lender pursuant to Section
2.7.1(c)(i).

 

ARTICLE 3

CONDITIONS PRECEDENT

 

Section 3.1 Conditions Precedent to Closing. The obligation of Lender to make
the Loan hereunder is subject to the fulfillment by Borrower or waiver by Lender
of the following conditions precedent no later than the Closing Date:

 

3.1.1 Representations and Warranties; Compliance with Conditions. The
representations and warranties of Borrower contained in this Agreement and the
other Loan Documents shall be true and correct in all material respects on and
as of the Closing Date with the same effect as if made on and as of such date,
and no Default or Event of Default shall have occurred and be continuing; and
Borrower shall be in compliance in all material respects with all terms and
conditions set forth in this Agreement and in each other Loan Document on its
part to be observed or performed.

 

3.1.2 Loan Agreement and Note. Lender shall have received a copy of this
Agreement and the Note, in each case, duly executed and delivered on behalf of
Borrower.

 

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3.1.3 Delivery of Loan Documents; Title Insurance; Reports; Leases.

 

(a) Mortgage, Assignment of Leases, Other Loan Documents. Lender shall have
received from Borrower fully executed and acknowledged counterparts of the
Mortgage, the Assignment of Leases, and the Collateral Assignments of Operating
Lease, and evidence that counterparts of the Mortgage, Assignment of Leases, and
Collateral Assignments of Operating Lease, have been delivered to the Title
Company for recording, in the reasonable judgment of Lender, so as to
effectively create upon such recording valid and enforceable Liens upon the
Property, of the requisite priority, in favor of Lender (or such trustee as may
be required or desired under local law), subject only to the Permitted
Encumbrances and such other Liens as are permitted pursuant to the Loan
Documents. Lender shall have also received from Borrower fully executed
counterparts of the other Loan Documents.

 

(b) Title Insurance. Lender shall have received a Title Insurance Policy issued
by the Title Company and dated as of the Closing Date, with reinsurance and
direct access agreements acceptable to Lender. Such Title Insurance Policy shall
(i) provide coverage in amounts satisfactory to Lender, (ii) insure Lender that
the Mortgage creates a valid lien on the Property encumbered thereby of the
requisite priority, free and clear of all exceptions from coverage other than
Permitted Encumbrances and standard exceptions and exclusions from coverage (as
modified by the terms of any endorsements), (iii) contain such endorsements and
affirmative coverages as Lender may reasonably request, and (iv) name Lender and
its successors and assigns as the insured. The Title Insurance Policy shall be
assignable, to the extent permitted under applicable state law. Lender also
shall have received evidence that all premiums in respect of such Title
Insurance Policy have been paid.

 

(c) Survey. Lender shall have received a current Survey, certified to the title
company and Lender and their successors and assigns, in form and content
satisfactory to Lender and prepared by a professional and properly licensed land
surveyor satisfactory to Lender in accordance with the Accuracy Standards for
ALTA/ACSM Land Title Surveys as adopted by ALTA, American Congress on Surveying
& Mapping and National Society of Professional Surveyors in 1999. The Survey
shall reflect the same legal description contained in the Title Insurance Policy
and shall include, among other things, a metes and bounds description of the
real property comprising part of the Property reasonably satisfactory to Lender.
The surveyor’s seal shall be affixed to the Survey and the surveyor shall
provide a certification for the Survey in form and substance acceptable to
Lender.

 

(d) Insurance. Lender shall have received valid certificates of insurance for
the Policies required hereunder, satisfactory to Lender in its sole discretion,
and evidence of the payment of all Insurance Premiums payable for the existing
policy period.

 

(e) Environmental Reports. Lender shall have received a Phase I environmental
report (and, if recommended by the Phase I environmental report, a Phase II
environmental report) in respect of the Property, satisfactory in form and
substance to Lender.

 

(f) Zoning. Lender shall have received, at Lender’s option, either (i) (A)
letters or other evidence with respect to the Property from the appropriate
municipal authorities (or other Persons) concerning applicable zoning and
building laws, or (B) an ALTA 3.1 zoning endorsement for the Title Insurance
Policy, or (ii) a zoning opinion letter, in each case in substance reasonably
satisfactory to Lender.

 

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(g) Encumbrances. Borrower shall have taken or caused to be taken such actions
in such a manner so that Lender has a valid and perfected first priority Lien as
of the Closing Date with respect to the Mortgage, subject only to applicable
Permitted Encumbrances and such other Liens as are permitted pursuant to the
Loan Documents, and Lender shall have received satisfactory evidence thereof.

 

3.1.4 Related Documents. Each additional document not specifically referenced
herein, but relating to the transactions contemplated herein, shall be in form
and substance reasonably satisfactory to Lender, and shall have been duly
authorized, executed and delivered by all parties thereto and Lender shall have
received and approved certified copies thereof.

 

3.1.5 Delivery of Organizational Documents. (a) Borrower shall deliver or cause
to be delivered to Lender copies certified by Borrower of all organizational
documentation related to Borrower and/or its formation, structure, existence,
good standing and/or qualification to do business, as Lender may request in its
sole discretion, including, without limitation, good standing certificates,
qualifications to do business in the appropriate jurisdictions, resolutions
authorizing the entering into of the Loan and incumbency certificates as may be
requested by Lender.

 

(b) Borrower shall deliver or cause to be delivered to Lender copies certified
by Borrower of all organizational documentation related to Principal, Operating
Tenant, Guarantor, and other members and/or partners of Borrower, and/or the
formation, structure, existence, good standing and/or qualification to do
business of any of the foregoing, as Lender may request in its sole discretion,
including good standing certificates, qualifications to do business in the
appropriate jurisdictions, authorizing resolutions and incumbency certificates
as may be requested by Lender.

 

3.1.6 Opinions of Borrower’s Counsel. Lender shall have received opinions from
Borrower’s counsel with respect to non-consolidation and the due execution,
authority, enforceability of the Loan Documents and such other matters as Lender
may require, all such opinions in form, scope and substance satisfactory to
Lender and Lender’s counsel in their sole discretion.

 

3.1.7 [INTENTIONALLY OMITTED].

 

3.1.8 Basic Carrying Costs. Borrower shall have paid all Basic Carrying Costs
relating to the Property that are in arrears, including without limitation, (a)
accrued but unpaid Insurance Premiums, (b) currently due Taxes (including any in
arrears) and (c) currently due Other Charges, which amounts shall be funded with
proceeds of the Loan.

 

3.1.9 Completion of Proceedings. All corporate and other proceedings taken or to
be taken in connection with the transactions contemplated by this Agreement and
the other Loan Documents and all documents incidental thereto shall be
satisfactory in form and substance to Lender, and Lender shall have received all
such counterpart originals or certified copies of such documents as Lender may
reasonably request.

 

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3.1.10 Payments. All payments, deposits or escrows required to be made or
established by Borrower under this Agreement, the Note and the other Loan
Documents on or before the Closing Date shall have been paid.

 

3.1.11 Estoppels. Lender shall have received an executed estoppel letter, which
shall be in form and substance satisfactory to Lender, from Operating Tenant.

 

3.1.12 Transaction Costs. Borrower shall have paid or reimbursed Lender for all
title insurance premiums, recording and filing fees, costs of environmental
reports, Physical Conditions Reports, appraisals and other reports, the fees and
costs of Lender’s counsel and all other third party out-of-pocket expenses
reasonably incurred in connection with the origination of the Loan.

 

3.1.13 Material Adverse Change. There shall have been no material adverse change
in the financial condition or business condition of Borrower, Principal,
Operating Tenant, Guarantor or the Property since the date of the most recent
financial statements delivered to Lender. The income and expenses of the
Property, the occupancy thereof, and all other features of the transaction shall
be as represented to Lender without material adverse change. None of Borrower,
Principal, Operating Tenant or Guarantor, or any of their respective constituent
Persons, shall be the subject of any bankruptcy, reorganization, or insolvency
proceeding.

 

3.1.14 Tax Lot. Lender shall have received evidence that the Property
constitutes one (1) or more separate tax lots, which evidence shall be
reasonably satisfactory in form and substance to Lender.

 

3.1.15 Physical Conditions Report. Lender shall have received a Physical
Conditions Report, which report shall be satisfactory in form and substance to
Lender.

 

3.1.16 Management Agreement. Lender shall have received a copy of the Management
Agreement, which shall be satisfactory in form and substance to Lender. The
Management Agreement shall also provide that all of the Manager’s rights under
the Management Agreement are subordinate to the Lien of the Mortgage and the
rights of Lender.

 

3.1.17 Appraisal. Lender shall have received an appraisal of the Property, which
shall be satisfactory in form and substance to Lender.

 

3.1.18 Financial Statements. Lender shall have received a balance sheet with
respect to the Property for the two (2) most recent Fiscal Years, each in form
and substance satisfactory to Lender.

 

3.1.19 Further Documents. Lender or its counsel shall have received such other
and further approvals, opinions, documents and information as Lender or its
counsel may have requested including the Loan Documents in form and substance
satisfactory to Lender and its counsel.

 

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ARTICLE 4

REPRESENTATIONS AND WARRANTIES

 

Section 4.1 Borrower Representations. Borrower represents and warrants as of the
date hereof and as of the Closing Date that:

 

4.1.1 Organization. (a) Borrower has been duly organized and is validly existing
and in good standing with requisite power and authority to own its properties
and to transact the businesses in which it is now engaged. Borrower is duly
qualified to do business and is in good standing in each jurisdiction where it
is required to be so qualified in connection with its properties, businesses and
operations. Borrower possesses all rights, licenses, permits and authorizations,
governmental or otherwise, necessary to entitle it to own its properties and to
transact the businesses in which it is now engaged, and the sole business of
Borrower is the ownership, management and operation of the Property. The
ownership interests of Borrower are as set forth on the organizational chart
attached hereto as Schedule III.

 

(b) Operating Tenant has been duly organized and is validly existing and in good
standing with requisite power and authority to own its properties and to
transact the businesses in which it is now engaged. Operating Tenant is duly
qualified to do business and is in good standing in each jurisdiction where it
is required to be so qualified in connection with its properties, businesses and
operations. Operating Tenant possesses all rights, licenses, permits and
authorizations, governmental or otherwise, necessary to entitle it to own its
properties and to transact the businesses in which it is now engaged, and the
sole business of Operating Tenant is the management and operation of the
Property. The ownership interests of Operating Tenant are as set forth on the
organizational chart attached hereto as Schedule III.

 

4.1.2 Proceedings. Each of Borrower and Operating Tenant has taken all necessary
action to authorize the execution, delivery and performance of this Agreement
and the other Loan Documents. This Agreement and the other Loan Documents have
been duly executed and delivered by or on behalf of Borrower and Operating
Tenant and constitute the legal, valid and binding obligations of Borrower and
Operating Tenant enforceable against Borrower and Operating Tenant in accordance
with their respective terms, subject only to applicable bankruptcy, insolvency
and similar laws affecting rights of creditors generally, and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law).

 

4.1.3 No Conflicts. The execution, delivery and performance of this Agreement
and the other Loan Documents by any Significant Party, as applicable, will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, or result in the creation or imposition of any lien,
charge or encumbrance (other than pursuant to the Loan Documents) upon any of
the property or assets of Borrower or Operating Tenant pursuant to the terms of
any indenture, mortgage, deed of trust, loan agreement, partnership agreement,
management agreement or other agreement or instrument to which Borrower or
Operating Tenant is a party or by which any of Borrower or Operating Tenant’s
property or assets is subject, nor will such action result in any violation of
the provisions of any statute or any order, rule or regulation of any
Governmental Authority having jurisdiction over Borrower or Operating Tenant or
any of Borrower’s or Operating Tenant’s its properties or assets, and any
consent,

 

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approval, authorization, order, registration or qualification of or with any
such Governmental Authority required for the execution, delivery and performance
by any Significant Party, as applicable, of this Agreement or any other Loan
Documents has been obtained and is in full force and effect.

 

4.1.4 Litigation. There are no actions, suits or proceedings at law or in equity
by or before any Governmental Authority or other agency now pending or
threatened against or affecting any Significant Party or the Property, which
actions, suits or proceedings, if determined against such Significant Party or
the Property, are reasonably like to have a Material Adverse Effect.

 

4.1.5 Agreements. Neither Borrower nor Operating Tenant is a party to any
agreement or instrument or subject to any restriction that might materially and
adversely affect Borrower, Operating Tenant or the Property, or Borrower’s
and/or Operating Tenant’s business, properties or assets, operations or
condition, financial or otherwise. Neither Borrower nor Operating Tenant is in
default in any material respect in the performance, observance or fulfillment of
any of the obligations, covenants or conditions contained in any agreement or
instrument to which it is a party or by which Borrower, Operating Tenant, or the
Property is bound. Neither Borrower nor Operating Tenant has any material
financial obligation under any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which Borrower or Operating Tenant
is a party or by which Borrower, Operating Tenant or the Property is otherwise
bound, other than (a) any obligations incurred in the ordinary course of the
operation of the Property as permitted pursuant to clause (s) of the definition
of “Special Purpose Entity” set forth in Section 1.1 hereof or (b) the
obligations under the Loan Documents and the Operating Lease.

 

4.1.6 Title. Borrower has good, marketable and insurable fee simple title to the
Property free and clear of all Liens whatsoever except the Permitted
Encumbrances, such other Liens as are permitted pursuant to the Loan Documents
and the Liens created by the Loan Documents. The Permitted Encumbrances in the
aggregate do not materially and adversely affect the value, operation or use of
the Property (as currently used) or Borrower’s ability to repay the Loan. The
Mortgage, the Assignment of Leases, and the Security Assignment of Operating
Lease, when properly recorded in the appropriate records, together with any
Uniform Commercial Code financing statements required to be filed in connection
therewith, will create (a) a valid, perfected first priority lien on the
Property, subject only to Permitted Encumbrances and the Liens created by the
Loan Documents, and (b) perfected security interests in and to, and perfected
collateral assignments of, all personalty (including the Leases and the
Operating Lease), all in accordance with the terms thereof, in each case subject
only to any applicable Permitted Encumbrances, such other Liens as are permitted
pursuant to the Loan Documents and the Liens created by the Loan Documents.
There are no claims for payment for work, labor or materials affecting the
Property that are or may become a Lien prior to, or of equal priority with, the
Liens created by the Loan Documents.

 

4.1.7 Solvency. Borrower has (a) not entered into the transaction contemplated
by this Agreement or executed the Note, this Agreement or any other Loan
Documents with the actual intent to hinder, delay or defraud any creditor and
(b) received reasonably equivalent value in exchange for its obligations under
such Loan Documents. Giving effect to the Loan, the

 

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fair saleable value of Borrower’s assets exceeds and will, immediately following
the making of the Loan, exceed Borrower’s total liabilities, including, without
limitation, subordinated, unliquidated, disputed and contingent liabilities. The
fair saleable value of Borrower’s assets is and will, immediately following the
making of the Loan, be greater than Borrower’s probable liabilities, including
the maximum amount of its contingent liabilities on its debts as such debts
become absolute and matured. Borrower’s assets do not and, immediately following
the making of the Loan will not, constitute unreasonably small capital to carry
out its business as conducted or as proposed to be conducted. Borrower does not
intend to, and does not believe that it will, incur debts and liabilities
(including contingent liabilities and other commitments) beyond its ability to
pay such debts and liabilities as they mature (taking into account the timing
and amounts of cash to be received by Borrower and the amounts to be payable on
or in respect of the obligations of Borrower). No petition in bankruptcy has
been filed against Borrower or Operating Tenant or any of their respective
constituent Persons, and neither Borrower, Operating Tenant nor any of their
respective, constituent Persons has ever made an assignment for the benefit of
creditors or taken advantage of any insolvency act for the benefit of debtors.
Neither Borrower, Operating Tenant nor any of their respective constituent
Persons are contemplating either the filing of a petition by it under any state
or federal bankruptcy or insolvency laws or the liquidation of all or a major
portion of Borrower or Operating Tenant’s assets or properties, and Borrower has
no knowledge of any Person contemplating the filing of any such petition against
it, Operating Tenant or any of their respective constituent Persons.

 

4.1.8 Full and Accurate Disclosure. No statement of fact made by Borrower in
this Agreement or in any of the other Loan Documents contains any untrue
statement of a material fact or omits to state any material fact necessary to
make statements contained herein or therein not misleading. There is no material
fact presently known to Borrower that has not been disclosed to Lender that
adversely affects, or as far as Borrower can foresee, might adversely affect,
the Property or the business, operations or condition (financial or otherwise)
of Borrower.

 

4.1.9 No Plan Assets. Neither Borrower nor Operating Tenant is an “employee
benefit plan,” as defined in Section 3(3) of ERISA, subject to Title I of ERISA,
and none of the assets of Borrower or Operating Tenant constitutes or will
constitute “plan assets” of one or more such plans within the meaning of 29
C.F.R. Section 2510.3-101. In addition, (a) neither Borrower nor Operating
Tenant is a “governmental plan” within the meaning of Section 3(32) of ERISA,
and (b) transactions by or with Borrower or Operating Tenant are not subject to
any state statute regulating investments of, or fiduciary obligations with
respect to, governmental plans similar to the provisions of Section 406 of ERISA
or Section 4975 of the Code currently in effect that prohibit or otherwise
restrict the transactions contemplated by this Agreement.

 

4.1.10 Compliance. Borrower, Operating Tenant and the Property (including the
use thereof) comply in all material respects with all applicable Legal
Requirements, including, without limitation, building and zoning ordinances and
codes. Neither Borrower nor Operating Tenant is in default or violation of any
order, writ, injunction, decree or demand of any Governmental Authority. There
has not been committed by Borrower, Operating Tenant or any other Person in
occupancy of or involved with the operation or use of the Property any act or
omission affording any Governmental Authority the right of forfeiture as against
the Property or any part thereof or any monies paid in performance of Borrower’s
or Operating Tenant’s obligations under any of the Loan Documents.

 

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4.1.11 Financial Information. All financial data, including, without limitation,
the statements of cash flow and income and operating expense, that have been
delivered to Lender in connection with the Loan (i) fairly and accurately
represent the financial condition of the Significant Parties and the Property as
of the date of such reports, and (iii) to the extent audited by an independent
certified public accounting firm, have been prepared in accordance with GAAP
throughout the periods covered, except as disclosed therein. Except for
Permitted Encumbrances, Borrower does not have any contingent liabilities,
liabilities for taxes, unusual forward or long-term commitments or unrealized or
anticipated losses from any unfavorable commitments that are known to Borrower
and reasonably likely to have a Material Adverse Effect on the Property or the
operation thereof as a hotel, except as referred to or reflected in said
financial statements. Since the date of such financial statements, there has
been no material adverse change in the financial condition, operation or
business of Borrower from that set forth in said financial statements.

 

4.1.12 Condemnation. No Condemnation or other proceeding has been commenced or,
to Borrower’s best knowledge, is threatened or contemplated with respect to all
or any portion of the Property or for the relocation of any roadway providing
access to the Property.

 

4.1.13 Federal Reserve Regulations. No part of the proceeds of the Loan shall be
used for the purpose of purchasing or acquiring any “margin stock” within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System
or for any other purpose that would be inconsistent with such Regulation U or
any other Regulations of such Board of Governors, or for any purposes prohibited
by any Legal Requirements or by the terms and conditions of this Agreement or
the other Loan Documents.

 

4.1.14 Utilities and Public Access. The Property has rights of access to public
ways and is served by water, sewer, sanitary sewer and storm drain facilities
adequate to service the Property for its intended uses. All public utilities
necessary or convenient to the full use and enjoyment of the Property are
located either in the public right-of-way abutting the Property (that are
connected so as to serve the Property without passing over other property) or in
recorded easements serving the Property and such easements are set forth in and
insured by the Title Insurance Policy. All roads necessary for the use of the
Property for its current purpose have been completed and dedicated to public use
and accepted by all Governmental Authorities.

 

4.1.15 Not a Foreign Person. Neither Borrower nor Operating Tenant is a “foreign
person” within the meaning of §1445(f)(3) of the Code.

 

4.1.16 Separate Lots. The Property is comprised of one (1) or more parcels that
constitute a separate tax lot or lots and does not constitute a portion of any
other tax lot not a part of the Property.

 

4.1.17 Assessments. To Borrower’s best knowledge, there are (a) no pending or
proposed special or other assessments for public improvements or otherwise
affecting the Property, and (ii) no contemplated improvements to the Property
that may result in such special or other assessments.

 

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4.1.18 Enforceability. The Loan Documents are not subject to any right of
rescission, set-off, counterclaim or defense by Borrower, Principal, or
Guarantor, including the defense of usury, nor would the operation of any of the
terms of the Loan Documents, or the exercise of any right thereunder, render the
Loan Documents unenforceable (subject to principles of equity and bankruptcy,
insolvency and other laws generally affecting creditors’ rights and the
enforcement of debtors’ obligations), and Borrower, Principal, and Guarantor
have not asserted any right of rescission, set-off, counterclaim or defense with
respect thereto.

 

4.1.19 No Prior Assignment. There are no prior assignments of the Leases or the
Operating Lease or any portion of the Rents due and payable or to become due and
payable that are presently outstanding.

 

4.1.20 Insurance. Borrower has obtained and has delivered to Lender valid
certificates of insurance evidencing the Policies along with evidence
satisfactory to Lender of the payment in full of all premiums required
thereunder. No claims have been made under any such Policies, and no Person,
including Borrower, has done, by act or omission, anything that would impair the
coverage of any such Policies. Borrower shall use commercially reasonable
efforts to obtain and deliver to Lender certified copies of the Policies as soon
as practicable after the date of this Agreement.

 

4.1.21 Use of Property. The Property is used exclusively as a hotel and other
appurtenant and related uses.

 

4.1.22 Certificate of Occupancy; Licenses. All certifications, permits, licenses
and approvals, including without limitation, certificates of completion and
occupancy permits, required for the legal use, occupancy and/or operation of the
Property as a hotel (collectively, the “Licenses”), have been obtained and are
in full force and effect. The use being made of the Property is in conformity
with the certificate of occupancy issued for the Property.

 

4.1.23 Flood Zone. None of the Improvements on the Property are located in an
area identified by the Federal Emergency Management Agency as an area having
special flood hazards or, if so located, the flood insurance required pursuant
to Section 6.1(a)(i) hereof is in full force and effect with respect to the
Property.

 

4.1.24 Physical Condition. The Property, including, without limitation, all
buildings, improvements, parking facilities, sidewalks, storm drainage systems,
roofs, plumbing systems, HVAC systems, fire protection systems, electrical
systems, equipment, elevators, exterior sidings and doors, landscaping,
irrigation systems and all structural components are in good condition, order
and repair in all material respects. There exists no structural or other
material defects or damages in the Property, whether latent or otherwise, and
Borrower has not received notice from any insurance company or bonding company
of any defects or inadequacies in the Property, or any part thereof that would
adversely affect the insurability of the same or cause the imposition of
extraordinary premiums or charges thereon or of any termination or threatened
termination of any policy of insurance or bond.

 

4.1.25 Boundaries. All of the Improvements that were included in determining the
appraised value of the Property lie wholly within the boundaries and building
restriction lines

 

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of the Property, and no improvements on adjoining properties encroach upon the
Property, and no easements or other encumbrances upon the Property encroach upon
any of the Improvements, so as to affect the value or marketability of the
Property except those that are insured against by the Title Insurance Policy.

 

4.1.26 Leases. The Property is not subject to any Leases other than the Leases
described in Schedule I attached hereto and made a part hereof. Borrower is the
owner and lessor of landlord’s interest in the Leases. No Person has any
possessory interest in the Property or right to occupy the same except under and
pursuant to the provisions of the Leases and the Operating Lease. The current
Leases and the Operating Lease are in full force and effect and there are no
defaults thereunder by either party and there are no conditions that, with the
passage of time or the giving of notice, or both, would constitute defaults
thereunder. The copies of the Leases and the Operating Lease delivered to Lender
are true and complete, and there are no oral agreements with Borrower or
Operating Tenant with respect thereto. No Rent (including security deposits) has
been paid more than one (1) month in advance of its due date. All work to be
performed by the landlord/lessor under each Lease and the Operating Lease has
been performed as required in such Lease and has been accepted by the applicable
tenant, and any payments, free rent, partial rent, rebate of rent or other
payments, credits, allowances or abatements required to be given by the
landlord/lessor to any tenant has already been received by such tenant. There
has been no prior sale, transfer or assignment, hypothecation or pledge of any
Lease or the Operating Lease or of the Rents received therein that is still in
effect. No tenant listed on Schedule I has assigned its Lease or sublet all or
any portion of the premises demised thereby, no such tenant or Operating Tenant
holds its leased premises under assignment or sublease, nor does anyone except
such tenant or Operating Tenant and its employees occupy such leased premises.
No tenant under any Lease or the Operating Lease has a right or option pursuant
to such Lease or otherwise to purchase all or any part of the Property of which
the leased premises are a part. No tenant under any Lease or the Operating Lease
has any right or option for additional space in the Improvements. To the best of
Borrower’s knowledge, Operating Tenant is a Taxable REIT Subsidiary as defined
in Section 856(l) of the Code.

 

4.1.27 Survey. The Survey for the Property delivered to Lender in connection
with this Agreement has been prepared in accordance with the provisions of
Section 3.1.3(c) hereof, and does not fail to reflect any material matter
affecting the Property or the title thereto.

 

4.1.28 Principal Place of Business; State of Organization. Borrower is organized
under the laws of the State of Delaware and Borrower’s principal place of
business as of the date hereof is the address set forth in the introductory
paragraph of this Agreement. Operating Tenant is organized under the laws of the
State of Maryland.

 

4.1.29 Filing and Recording Taxes. All transfer taxes, deed stamps, intangible
taxes or other amounts in the nature of transfer taxes required to be paid by
any Person under applicable Legal Requirements currently in effect in connection
with the transfer of the Property to Borrower have been paid. All mortgage,
mortgage recording, stamp, intangible or other similar tax required to be paid
by any Person under applicable Legal Requirements currently in effect in
connection with the execution, delivery, recordation, filing, registration,
perfection or enforcement of any of the Loan Documents, including, without
limitation, the Mortgage, have been paid or are being paid simultaneously
herewith, and the Mortgage and the other Loan

 

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Documents have been validly executed and delivered and are enforceable in
accordance with their respective terms by Lender (or any subsequent holder
thereof), subject to principles of equity and bankruptcy, insolvency and other
laws generally applicable to creditors’ rights and the enforcement of debtors’
obligations.

 

4.1.30 Special Purpose Entity/Separateness.

 

(a) Until the Debt has been paid in full, Borrower hereby represents, warrants
and covenants that (i) Borrower is, shall be and shall continue to be a Delaware
limited liability company that is a Special Purpose Entity, and (ii) Operating
Tenant is, shall be and shall continue to be a Maryland corporation that is a
Special Purpose Entity.

 

(b) The representations, warranties and covenants set forth in Section 4.1.30(a)
shall survive for so long as any amount remains payable to Lender under this
Agreement or any other Loan Document.

 

(c) All of the assumptions made in the Insolvency Opinion, including, any
exhibits attached thereto, are true and correct in all respects material to the
opinions set forth therein and any assumptions made in any subsequent
non-consolidation opinion required to be delivered in connection with the Loan
Documents (an “Additional Insolvency Opinion”), including any exhibits attached
thereto, will have been and will be true and correct in all respects. Borrower
has complied and shall comply with, and each of Operating Tenant and Principal
has complied and Borrower will cause Operating Tenant and Principal to comply
with, all of the assumptions made with respect to Borrower, Operating Tenant and
Principal in the Insolvency Opinion. Borrower shall, and shall cause Operating
Tenant and Principal, to have complied with and will comply with all of the
assumptions made with respect to Borrower, Operating Tenant and Principal in any
Additional Insolvency Opinion. Each entity other than Borrower, Operating Tenant
and Principal with respect to which an assumption shall be made in any
Additional Insolvency Opinion shall have complied and shall comply with all of
the assumptions made with respect to it in any Additional Insolvency Opinion.

 

4.1.31 Management Agreement. The Management Agreement is in full force and
effect and there is no default thereunder by any party thereto and no event has
occurred that, with the passage of time and/or the giving of notice would
constitute a default thereunder. The Manager is an eligible independent
contractor with the meaning of §856(d)(a) of the Code.

 

4.1.32 Illegal Activity. No portion of the Property has been or will be
purchased with proceeds of any illegal activity.

 

4.1.33 No Change in Facts or Circumstances; Disclosure. All information
submitted by Borrower to Lender including rent rolls, reports, certificates and
other documents submitted in connection with the Loan or in satisfaction of the
terms thereof and all statements of fact made by Borrower in this Agreement or
in any other Loan Document, are accurate, complete and correct in all material
respects. There has been no material adverse change in any condition, fact,
circumstance or event that would make any such information inaccurate,
incomplete or otherwise misleading in any material respect or that otherwise
would have a Material Adverse Effect. Borrower has disclosed to Lender all
material facts and has not failed to disclose any material fact that could cause
any Provided Information or representation or warranty made herein to be
materially misleading.

 

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4.1.34 Investment Company Act. Neither Borrower nor Operating Tenant is (a) an
“investment company” or a company “controlled” by an “investment company,”
within the meaning of the Investment Company Act of 1940, as amended; (b) a
“holding company” or a “subsidiary company” of a “holding company” or an
“affiliate” of either a “holding company” or a “subsidiary company” within the
meaning of the Public Utility Holding Company Act of 1935, as amended; or (c)
subject to any other federal or state law or regulation that purports to
restrict or regulate its ability to borrow money.

 

4.1.35 Embargoed Person. At all times throughout the term of the Loan, including
after giving effect to any Transfers permitted pursuant to the Loan Documents,
(a) none of the funds or other assets of Borrower, Principal or Operating Tenant
shall constitute property of, or shall be beneficially owned, directly or
indirectly, by any Person subject to trade restrictions under United States law
including the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 et
seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any
Executive Orders or regulations promulgated under any such United States laws,
with the result that the investment in Borrower, Principal or Operating Tenant,
as applicable (whether directly or indirectly), is or would be prohibited by law
(each, an “Embargoed Person”) or the Loan made by Lender is or would be in
violation of law; (b) no Embargoed Person shall have any interest of any nature
whatsoever in Borrower, Principal or Operating Tenant, as applicable, with the
result that the investment in Borrower, Principal, or Operating Tenant, as
applicable (whether directly or indirectly), is or would be prohibited by law or
the Loan is or would be in violation of law; and (c) none of the funds of
Borrower, Principal, Operating Tenant or Guarantor, as applicable, shall be
derived from any unlawful activity by Borrower, Principal or Operating Tenant
with the result that the investment in Borrower, Principal or Operating Tenant,
as applicable (whether directly or indirectly), is or would be prohibited by law
or the Loan is or would be in violation of law.

 

4.1.36 Cash Management Account.

 

(a) This Agreement, together with the other Loan Documents, creates a valid and
continuing security interest (as defined in the Uniform Commercial Code of each
of the States of California, Delaware and Maryland) in the Deposit Account and
Cash Management Account in favor of Lender, which security interest is prior to
all other Liens, other than Permitted Encumbrances, and is enforceable as such
against creditors of and purchasers from Borrower. Other than in connection with
the Loan Documents and except for Permitted Encumbrances, neither Borrower nor
Operating Tenant has sold or otherwise conveyed the Deposit Account and Cash
Management Account;

 

(b) [Intentionally Omitted]

 

(c) Each of the Deposit Account and Cash Management Account constitute “deposit
accounts” within the meaning of the Uniform Commercial Code of the States of
California, Delaware and Maryland;

 

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(c) Pursuant and subject to the terms hereof, the Lockbox Bank has agreed to
comply with all instructions originated by Lender and Borrower, as applicable,
without further consent by Borrower or Operating Tenant, as applicable,
directing disposition of the Deposit Account and all sums at any time held,
deposited or invested therein, together with any interest or other earnings
thereon, and all proceeds thereof (including proceeds of sales and other
dispositions), whether accounts, general intangibles, chattel paper, deposit
accounts, instruments, documents or securities; and

 

(f) The Borrower Lockbox Account and Cash Management Account are not in the name
of any Person other than Borrower, as pledgor, or Lender, as pledgee.

 

Section 4.2 Survival of Representations. Borrower agrees that all of the
representations and warranties of Borrower set forth in Section 4.1 hereof and
elsewhere in this Agreement and in the other Loan Documents shall survive for so
long as any amount remains owing to Lender under this Agreement or any of the
other Loan Documents by Borrower. All representations, warranties, covenants and
agreements made in this Agreement or in the other Loan Documents by Borrower
shall be deemed to have been relied upon by Lender notwithstanding any
investigation heretofore or hereafter made by Lender or on its behalf.

 

ARTICLE 5

BORROWER COVENANTS

 

Section 5.1 Affirmative Covenants. From the date hereof and until payment and
performance in full of all obligations of Borrower under the Loan Documents or
the earlier release of the Lien of the Mortgage (and all related obligations) in
accordance with the terms of this Agreement and the other Loan Documents,
Borrower hereby covenants and agrees with Lender that:

 

5.1.1 Existence; Compliance with Legal Requirements. Borrower shall, and shall
cause Operating Tenant to, do or cause to be done all things necessary to
preserve, renew and keep in full force and effect its existence, rights,
licenses, permits and franchises and comply with all Legal Requirements
applicable to Borrower, Operating Tenant and the Property. There shall never be
committed by Borrower, and Borrower shall not permit Operating Tenant or any
other Person in occupancy of or involved with the operation or use of the
Property to commit, any act or omission affording the federal government or any
state or local government the right of forfeiture against the Property or any
part thereof or any monies paid in performance of Borrower’s obligations under
any of the Loan Documents. Borrower hereby covenants and agrees not to, and
shall cause Operating Tenant not to, commit, permit or suffer to exist any act
or omission affording such right of forfeiture. Borrower shall, and shall cause
Operating Tenant to, at all times maintain, preserve and protect all franchises
and trade names, preserve all the remainder of its property used or useful in
the conduct of its business, and shall keep the Property in good working order
and repair, and from time to time make, or cause to be made, all reasonably
necessary repairs, renewals, replacements, betterments and improvements thereto,
all as more fully provided in the Mortgage. Borrower shall, and shall cause
Operating Tenant to, keep the Property insured at all times by financially sound
and reputable insurers, to such extent and against such risks, and maintain
liability and such other insurance, as is more fully provided in this Agreement.
After prior notice to Lender, Borrower, at its own expense, may contest by

 

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appropriate legal proceeding promptly initiated and conducted in good faith and
with due diligence, the validity of any Legal Requirement, the applicability of
any Legal Requirement to Borrower, Operating Tenant or the Property or any
alleged violation of any Legal Requirement, provided, that: (a) no Default or
Event of Default has occurred and remains uncured; (b) Borrower or Operating
Tenant is permitted to do so under the provisions of any mortgage or deed of
trust superior in lien to the Mortgage; (c) such proceeding shall be permitted
under and be conducted in accordance with the provisions of any instrument to
which Borrower or Operating Tenant is subject and shall not constitute a default
thereunder and such proceeding shall be conducted in accordance with all
applicable statutes, laws and ordinances; (d) neither the Property nor any part
thereof or interest therein will be in danger of being sold, forfeited,
terminated, cancelled or lost; (e) Borrower shall, and shall cause Operating
Tenant to, upon final determination thereof, promptly comply with any such Legal
Requirement determined to be valid or applicable or cure any violation of any
Legal Requirement; (f) such proceeding shall suspend the enforcement of the
contested Legal Requirement against Borrower, Operating Tenant and/or the
Property; and (g) Borrower shall furnish such security as may be required in the
proceeding, or as may be requested by Lender, to insure compliance with such
Legal Requirement, together with all interest and penalties payable in
connection therewith. Lender may apply any such security, as necessary to cause
compliance with such Legal Requirement at any time when, in the reasonable
judgment of Lender, the validity, applicability or violation of such Legal
Requirement is finally established or the Property (or any part thereof or
interest therein) shall be in imminent danger of being sold, forfeited,
terminated, cancelled or lost.

 

5.1.2 Taxes and Other Charges. Borrower shall pay all Taxes and Other Charges
now or hereafter levied or assessed or imposed against the Property, or any part
thereof, prior to delinquency; provided, however, Borrower’s obligation to
directly pay Taxes shall be suspended for so long as the reserves for same are
adequately maintained pursuant to Section 7.2 hereof.. Borrower shall deliver to
Lender receipts for payment or other evidence satisfactory to Lender that the
Taxes and Other Charges have been so paid or are not then delinquent no later
than ten (10) days prior to the date on which the Taxes and/or Other Charges
would otherwise be delinquent if not paid. Borrower shall furnish to Lender
receipts for the payment of the Taxes and the Other Charges prior to the date
the same shall become delinquent provided, however, Borrower is not required to
furnish such receipts for payment of Taxes in the event that such Taxes have
been paid by Lender pursuant to Section 7.2 hereof. Borrower shall not suffer
and shall promptly cause to be paid and discharged any Lien or charge whatsoever
that may be or become a Lien or charge against the Property and that is
prohibited in accordance with Section 5.2.2 hereof, and shall pay for all
utility services provided to the Property prior to delinquency. After prior
notice to Lender, Borrower, at its own expense, may contest by appropriate legal
proceeding, promptly initiated and conducted in good faith and with due
diligence, the amount or validity or application in whole or in part of any
Taxes, Other Charges or other Liens, provided, that: (a) no Default or Event of
Default has occurred and remains uncured; (b) Borrower is permitted to contest
same under the provisions of any mortgage or deed of trust superior in lien to
the Mortgage; (c) such proceeding shall be permitted under and be conducted in
accordance with the provisions of any other instrument to which Borrower is
subject and shall not constitute a default thereunder and such proceeding shall
be conducted in accordance with all applicable statutes, laws and ordinances;
(d) neither the Property nor any part thereof or interest therein will be in
danger of being sold, forfeited, terminated, cancelled or lost; (e) Borrower
shall promptly upon final determination thereof pay the amount of any such Taxes
or Other Charges, together

 

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with all costs, interest and penalties that may be payable in connection
therewith; (f) such proceeding shall suspend the collection of such contested
Taxes or Other Charges from the Property; and (g) Borrower shall furnish such
security as may be required in the proceeding, or as may be requested by Lender,
to insure the payment of any such Taxes or Other Charges, together with all
interest and penalties thereon. Lender may pay over any such cash deposit or
part thereof held by Lender to the claimant entitled thereto at any time when,
in the judgment of Lender, the entitlement of such claimant is established or
the Property (or any part thereof or interest therein) shall be in imminent
danger of being sold, forfeited, terminated, cancelled or lost or there shall be
any danger of the Lien of the Mortgage being primed by any related Lien.

 

5.1.3 Litigation. Borrower shall give prompt notice to Lender of any litigation
or governmental proceedings pending or threatened in writing against Borrower,
Principal, Operating Tenant and/or Guarantor that might materially adversely
affect Borrower’s, Principal’s, Operating Tenant’s or Guarantor’s condition
(financial or otherwise) or business or the Property.

 

5.1.4 Access to Property. Borrower shall, and shall cause Operating Tenant to,
permit agents, representatives and employees of Lender to inspect the Property
or any part thereof at reasonable hours upon reasonable advance notice (that may
be given verbally).

 

5.1.5 Notice of Default. Borrower shall, and shall cause Operating Tenant to,
promptly advise Lender of any material adverse change in Borrower’s,
Principal’s, Operating Tenant’s or Guarantor’s condition, financial or
otherwise, or of the occurrence of any Default or Event of Default of which
Borrower or Operating Tenant has knowledge.

 

5.1.6 Cooperate in Legal Proceedings. Borrower shall, and shall cause Operating
Tenant to, cooperate fully with Lender with respect to any proceedings before
any court, board or other Governmental Authority that may in any way affect the
rights of Lender hereunder or any rights obtained by Lender under any of the
other Loan Documents and, in connection therewith, permit Lender, at its
election, to participate in any such proceedings.

 

5.1.7 Perform Loan Documents. Borrower shall, and shall cause Operating Tenant
to, observe, perform and satisfy all the terms, provisions, covenants and
conditions of, and shall pay when due all costs, fees and expenses to the extent
required under the Loan Documents executed and delivered by, or applicable to,
Borrower and/or Operating Tenant. Payment of the costs and expenses associated
with any of the foregoing shall be in accordance with the terms and provisions
of this Agreement including the provisions of Section 10.13 hereof.

 

5.1.8 Award and Insurance Benefits. Borrower shall, and shall cause Operating
Tenant to, cooperate with Lender in obtaining for Lender the benefits of any
Awards or Insurance Proceeds lawfully or equitably payable in connection with
the Property, and Lender shall be reimbursed for any expenses reasonably
incurred in connection therewith (including reasonable attorneys’ fees and
disbursements, and the payment by Borrower of the expense of an appraisal on
behalf of Lender in case of Casualty or Condemnation affecting the Property or
any part thereof) out of such Insurance Proceeds.

 

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5.1.9 Further Assurances. Borrower shall, and shall cause Operating Tenant to,
at Borrower’s and/or Operating Tenant’s sole cost and expense:

 

(a) furnish to Lender all instruments, documents, boundary surveys, footing or
foundation surveys, certificates, plans and specifications, appraisals, title
and other insurance reports and agreements, and each and every other document,
certificate, agreement and instrument required to be furnished by Borrower
pursuant to the terms of the Loan Documents or that are reasonably requested by
Lender in connection therewith;

 

(b) execute and deliver to Lender such documents, instruments, certificates,
assignments and other writings, and do such other acts necessary or desirable,
to evidence, preserve and/or protect the collateral at any time securing or
intended to secure the obligations of Borrower under the Loan Documents, as
Lender may reasonably require; and

 

(c) do and execute all and such further lawful and reasonable acts, conveyances
and assurances for the better and more effective carrying out of the intents and
purposes of this Agreement and the other Loan Documents, as Lender shall
reasonably require from time to time.

 

5.1.10 Mortgage Taxes. Borrower represents that it has paid all state, county
and municipal recording and all other taxes imposed upon the execution and
recordation of the Mortgage.

 

5.1.11 Financial Reporting.

 

(a) Borrower shall keep and maintain or shall cause to be kept and maintained on
a Fiscal Year basis, in accordance with GAAP (or such other accounting basis
acceptable to Lender), proper and accurate books, records and accounts
reflecting all of the financial affairs of Borrower and all items of income and
expense in connection with the operation of the Property. Lender shall have the
right from time to time at all times during normal business hours upon
reasonable notice (which may be verbal) to examine such books, records and
accounts at the office of Borrower or the Manager (if Manager is Hilton Hotels
Corporation) or any other Person maintaining such books, records and accounts
and to make such copies or extracts thereof as Lender shall desire. After the
occurrence of a Sweep Event, Borrower shall pay any costs and expenses incurred
by Lender to examine Borrower’s accounting records with respect to the Property,
as Lender shall determine to be necessary or appropriate in the protection of
Lender’s interest.

 

(b) Borrower shall furnish to Lender annually, within one hundred twenty (120)
days following the end of each Fiscal Year of Borrower, a complete copy of the
Property’s and Guarantor’s (which may be consolidated) annual financial
statements audited by a “Big Four” accounting firm or other independent
certified public accountant acceptable to Lender in accordance with GAAP (or
such other accounting basis acceptable to Lender) covering the Property for such
Fiscal Year and containing statements of profit and loss for Borrower,
Guarantor, and the Property and a balance sheet for the Property and Guarantor.
Such statements shall set forth the financial condition and the results of
operations for the Property for such Fiscal Year, and shall include, but not be
limited to, amounts representing annual Net Cash Flow, Net

 

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Operating Income, Gross Income from Operations and Operating Expenses. The
Property’s and Guarantor’s annual financial statements shall be accompanied by
(i) an unqualified opinion of a “Big Four” accounting firm or other independent
certified public accountant reasonably acceptable to Lender, (ii) a schedule
audited by such independent certified public accountant reconciling Net
Operating Income to Net Cash Flow (the “Net Cash Flow Schedule”), which shall
itemize all adjustments made to Net Operating Income to arrive at Net Cash Flow
deemed material by such independent certified public accountant, and (iii) an
Officer’s Certificate certifying that (x) the Capital Expenditures for such year
and (y) each annual financial statement presents fairly the financial condition
and the results of operations of Borrower, Guarantor and the Property being
reported upon and that such financial statements have been prepared in
accordance with GAAP and as of the date thereof whether there exists an event or
circumstance which constitutes a Default or Event of Default under the Loan
Documents executed and delivered by, or applicable to, Borrower or Guarantor,
and if such Default or an Event of Default exists, the nature thereof, the
period of time it has existed and the action then being taken to remedy the
same.

 

(c) (y) For the first twelve (12) months after the date of this Agreement,
Borrower shall deliver, or cause to be delivered, all of the following with
respect to the previous calendar month within thirty (30) days after the close
of each calendar month, such period to be extended as necessary so long as
Borrower is diligently attempting to obtain such items from Manager and (z)
beginning thirteen (13) months after the date of this Agreement, Borrower shall
deliver, or cause to be delivered, all of the following with respect to the
previous fiscal quarter within forty-five (45) days after the close of each
fiscal quarter, accompanied in each instance by an Officer’s Certificate stating
that such items are true, correct, accurate, and complete and fairly present the
financial condition and results of the operations of Borrower and the Property
(subject to normal year-end adjustments) as applicable: (i) monthly (or
quarterly, as applicable) and year-to-date operating statements (including
Capital Expenditures) prepared for each calendar month (or quarter, as
applicable), noting Net Operating Income, Gross Income from Operations, and
Operating Expenses (not including any contributions to the FF&E Reserve Funds),
and, upon Lender’s request, other information necessary and sufficient to fairly
represent the financial position and results of operation of the Property during
such period, and containing a comparison of budgeted income and expenses, all in
form satisfactory to Lender; and (ii) a calculation reflecting the annual Debt
Service Coverage Ratio for the immediately preceding twelve (12) month period as
of the last day of each calendar quarter, as applicable. In addition, such
Officer’s Certificate shall also state that the representations and warranties
of Borrower set forth in Section 4.1.30 are true and correct as of the date of
such certificate and that there are no trade payables outstanding for more than
sixty (60) days.

 

(d) If requested by Lender, Borrower shall provide Lender, promptly upon
request, with the following financial statements if, at the time a Disclosure
Document is being prepared for a Securitization, it is expected that the
principal amount of the Loan together with any Affiliated Loans at the time of
Securitization may, or if the principal amount of the Loan together with any
Affiliated Loans at any time during which the Loan and any Affiliated Loans are
included in a Securitization does, equal or exceed 20% of the aggregate
principal amount of all mortgage loans included or expected to be included, as
applicable, in the Securitization:

 

(i) A balance sheet with respect to the Property for the two most recent fiscal
years, meeting the requirements of Section 210.3-01 of Regulation S-X of

 

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the Securities Act and statements of income and statements of cash flows with
respect to the Property for the three most recent fiscal years, meeting the
requirements of Section 210.3-02 of Regulation S-X, and, to the extent that such
balance sheet is more than 135 days old as of the date of the document in which
such financial statements are included, interim financial statements of the
Property meeting the requirements of Section 210.3-01 and 210.3-02 of Regulation
S-X (all of such financial statements, collectively, the “Standard Statements”);
provided, however, if the Property is not a hotel, nursing home, or other
property that would be deemed to constitute a business and not real estate under
Regulation S-X or other legal requirements and has been acquired by Borrower
from an unaffiliated third party (such Property, “Acquired Property”), as to
which the other conditions set forth in Section 210.3-14 of Regulation S-X for
provision of financial statements in accordance with such Section have been met,
in lieu of the Standard Statements otherwise required by this Section, Borrower
shall instead provide the financial statements required by such Section 210.3-14
of Regulation S-X (“Acquired Property Statements”).

 

(ii) Not later than forty-five (45) days after the end of each fiscal quarter
following the date hereof, a balance sheet of the Property as of the end of such
fiscal quarter, meeting the requirements of Section 210.3-01 of Regulation S-X,
and statements of income and statements of cash flows of the Property for the
period commencing following the last day of the most recent fiscal year and
ending on the date of such balance sheet and for the corresponding period of the
most recent fiscal year, meeting the requirements of Section 210.3-02 of
Regulation S-X (provided, that if for such corresponding period of the most
recent fiscal year Acquired Property Statements were permitted to be provided
hereunder pursuant to subsection (i) above, Borrower shall instead provide
Acquired Property Statements for such corresponding period).

 

(iii) Not later than one hundred twenty (120) days after the end of each fiscal
year following the date hereof, a balance sheet of the Property as of the end of
such fiscal year, meeting the requirements of Section 210.3-01 of Regulation
S-X, and statements of income and statements of cash flows of the Property for
such fiscal year, meeting the requirements of Section 210.3-02 of Regulation
S-X.

 

(iv) Within thirty (30) days after notice from Lender in connection with the
Securitization of this Loan, such additional financial statements, such that, as
of the date (each, an “Offering Document Date”) of each Disclosure Document,
Borrower shall have provided Lender with all financial statements as described
in subsection (d)(i) above; provided, that the fiscal year and interim periods
for which such financial statements shall be provided shall be determined as of
such Offering Document Date.

 

(e) If requested by Lender, Borrower shall provide to Lender, promptly upon
request, summaries of the financial statements referred to in Section 5.1.11(d)
hereof if, at the time a Disclosure Document is being prepared for a
Securitization, it is expected that the principal amount of the Loan and any
Affiliated Loans at the time of Securitization may, or if the principal amount
of the Loan and any Affiliated Loans at any time during which the Loan and any
Affiliated Loans are included in a Securitization does, equal or exceed 10% (but
is less than 20%) of the aggregate principal amount of all mortgage loans
included or expected to be

 

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included, as applicable, in a Securitization. Such summaries shall meet the
requirements for “summarized financial information,” as defined in Section
210.1-02(bb) of Regulation S-X, or such other requirements as may be determined
to be necessary or appropriate by Lender.

 

(f) All financial statements provided by Borrower hereunder pursuant to Section
5.1.11(d) and (e) hereof shall be prepared in accordance with GAAP, and shall
meet the requirements of Regulation S-X and other applicable legal requirements.
All financial statements referred to in Sections 5.1.11(d)(i) and 5.1.11(d)(iii)
above shall be audited by independent accountants of Borrower acceptable to
Lender in accordance with Regulation S-X and all other applicable legal
requirements, shall be accompanied by the manually executed report of the
independent accountants thereon, which report shall meet the requirements of
Regulation S-X and all other applicable legal requirements, and shall be further
accompanied by a manually executed written consent of the independent
accountants, in form and substance acceptable to Lender, to the inclusion of
such financial statements in any Disclosure Document and any Exchange Act Filing
and to the use of the name of such independent accountants and the reference to
such independent accountants as “experts” in any Disclosure Document and
Exchange Act Filing, all of which shall be provided at the same time as the
related financial statements are required to be provided. All financial
statements (audited or unaudited) provided by Borrower under Section 5.1.11(d)
and (e) shall be accompanied by an Officer’s Certificate, which certification
shall state that such financial statements meet the requirements set forth in
the first sentence of this Section 5.1.11(f). Notwithstanding any provision
herein to the contrary, it is acknowledged that Borrower will not be required to
provide audited financial statements for fiscal year 2004.

 

(g) If requested by Lender, Borrower shall provide Lender, promptly upon
request, with any other or additional financial statements, or financial,
statistical or operating information, as Lender shall determine to be required
pursuant to Regulation S-X or any amendment, modification or replacement thereto
or other legal requirements in connection with any Disclosure Document or any
filing under or pursuant to the Exchange Act in connection with or relating to a
Securitization (hereinafter, an “Exchange Act Filing”) or as shall otherwise be
reasonably requested by Lender.

 

(h) If Lender determines, in connection with a Securitization, that the
financial statements required in order to comply with Regulation S-X or other
legal requirements are other than as provided herein, then notwithstanding the
provisions of Section 5.1.11(d), (e) and (f) hereof, Lender may request, and
Borrower shall promptly provide, such combination of Acquired Property Statement
and/or Standard Statements or such other financial statements as Lender
determines to be necessary or appropriate for such compliance.

 

(i) Any reports, statements or other information required to be delivered under
this Agreement shall be delivered (i) in paper form, (ii) on a diskette, and
(iii) if requested by Lender and within the capabilities of Borrower’s data
systems without change or modification thereto, in electronic form and prepared
using a Microsoft Word for Windows or WordPerfect for Windows files (which files
may be prepared using a spreadsheet program and saved as word processing files).
Borrower agrees that Lender may disclose information regarding the Property and
Borrower that is provided to Lender pursuant to this Section 5.1.11 in
connection with the Securitization to such parties requesting such information
in connection with such Securitization.

 

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(j) Upon the occurrence and during the continuance of a Sweep Event, so long as
Hilton Hotels Corporation is the Manager, Borrower shall (i) deliver to Lender
immediately upon receipt from Manager the Operating Budget and the Capital
Renewals Budget (each as defined in the Management Agreement), and any proposed
modifications thereto, (ii) not approve or object to the Operating Budget or
Capital Renewals Budget without Lender’s prior approval, and (iii) not approve
or object to any proposed modification to the approved Operating Budget and
Capital Renewals Budget without Lender’s prior approval. Borrower shall
reimburse Lender promptly upon Lender’s request for any costs and expenses
incurred by Lender in connection with such review of the Operating Budget and
Capital Renewals Budget.

 

(k) In addition to and notwithstanding the foregoing, upon request by Lender,
which upon the occurrence of and during the continuance of a Sweep Event may be
on a quarterly basis, so long as Hilton Hotels Corporation is the Manager,
Borrower shall cause Manager to permit Lender or its agents to enter upon the
Property, inspect and examine the financial books and records of the Property,
and compare such books and records to the Operating Budget and Capital Renewals
Budget, so long as such inspections are without any material disruption to the
operation and business of the Property. Borrower shall reimburse Lender promptly
upon Lender’s request for any costs and expenses incurred by Lender in
connection with such review of the books and records of the Property.

 

5.1.12 Business and Operations. Borrower shall, and shall cause Operating Tenant
to, continue to engage in the businesses presently conducted by it as and to the
extent the same are necessary for the ownership, maintenance, management and
operation of the Property. Borrower shall, and shall cause Operating Tenant to,
qualify to do business and shall remain in good standing under the laws of each
jurisdiction as and to the extent the same are required for the ownership,
maintenance, management and operation of the Property.

 

5.1.13 Title to the Property. Borrower shall, and shall cause Operating Tenant
to, warrant and defend (a) the title to the Property and every part thereof,
subject only to Liens permitted hereunder (including Permitted Encumbrances),
and (b) the validity and priority of the Lien of the Mortgage, the Assignment of
Leases, and the Security Assignment of Operating Lease, subject only to Liens
permitted hereunder (including Permitted Encumbrances), in each case against the
claims of all Persons whomsoever. Borrower shall reimburse Lender for any
losses, costs, damages or expenses (including reasonable attorneys’ fees and
court costs) incurred by Lender if an interest in the Property, other than as
permitted hereunder, is claimed by another Person.

 

5.1.14 Costs of Enforcement. In the event (a) that the Mortgage is foreclosed in
whole or in part or that the Mortgage is put into the hands of an attorney for
collection, suit, action or foreclosure, (b) of the foreclosure of any mortgage
prior to or subsequent to the Mortgage in which proceeding Lender is made a
party, or (c) of the bankruptcy, insolvency, rehabilitation or other similar
proceeding in respect of Borrower or any of its constituent Persons or an
assignment by Borrower or any of its constituent Persons for the benefit of its
creditors, Borrower, on behalf of itself and its successors and assigns, agrees
that it/they shall be chargeable with and shall pay all costs of collection and
defense, including attorneys’ fees and costs, incurred by Lender or Borrower in
connection therewith and in connection with any appellate proceeding or
post-judgment action involved therein, together with all required service or use
taxes.

 

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5.1.15 Estoppel Statement.

 

(a) After request by Lender from time to time, Borrower shall within ten (10)
days furnish Lender with a statement, duly acknowledged and certified, setting
forth (i) the original principal amount of the Loan, (ii) the Outstanding
Principal Balance, (iii) the Interest Rate of the Loan, (iv) the date
installments of interest and/or principal were last paid, (v) any offsets or
defenses to the performance of the Obligations, if any, and (vi) that the Note,
this Agreement, the Mortgage and the other Loan Documents are valid, legal and
binding obligations of Borrower and have not been modified or if modified,
giving particulars of such modification.

 

(b) Borrower shall cause Operating Tenant to deliver to Lender upon request from
time to time and subject to the terms of the Leases, tenant estoppel
certificates from each commercial tenant leasing space at the Property in form
and substance reasonably satisfactory to Lender; provided, that, Borrower and/or
Operating Tenant shall not be required to deliver such certificates more
frequently than two (2) times in any calendar year.

 

(c) Borrower shall deliver to Lender upon request from time to time, an estoppel
certificate from Operating Tenant with respect to the Operating Lease in form
and substance reasonably satisfactory to Lender; provided, that, Borrower and/or
Operating Tenant shall not be required to deliver such certificate more
frequently than two (2) times in any calendar year.

 

5.1.16 Loan Proceeds. Borrower shall use the proceeds of the Loan received by it
on the Closing Date only for the purposes set forth in Section 2.1.4 hereof.

 

5.1.17 Performance by Borrower and Operating Tenant. Borrower shall, and shall
cause Operating Tenant to, in a timely manner observe, perform and fulfill each
and every covenant, term and provision of each Loan Document executed and
delivered by, or applicable to, Borrower and/or Operating Tenant and shall not
enter into or otherwise suffer or permit any amendment, waiver, supplement,
termination or other modification of any Loan Document executed and delivered
by, or applicable to, Borrower and/or Operating Tenant without the prior consent
of Lender.

 

5.1.18 Confirmation of Representations. Borrower shall, and shall cause
Operating Tenant to, deliver, in connection with any Securitization, (a) one or
more Officer’s Certificates certifying as to the accuracy of all representations
made by Borrower in the Loan Documents as of the date of the closing of such
Securitization in all relevant jurisdictions, and (b) certificates of the
relevant Governmental Authorities in all relevant jurisdictions indicating the
good standing and qualification of Borrower, Operating Tenant and Principal as
of the date of the Securitization, the costs of which shall be included in the
Securitization Cost Cap.

 

5.1.19 No Joint Assessment. Borrower shall not, and shall cause Operating Tenant
to not, suffer, permit or initiate the joint assessment of the Property (a) with
any other real property constituting a tax lot separate from the Property, and
(b) that constitutes real property with any portion of the Property that may be
deemed to constitute personal property, or any other procedure whereby the lien
of any taxes that may be levied against such personal property shall be assessed
or levied or charged to such real property portion of the Property.

 

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5.1.20 Leasing Matters. Any Leases with respect to the Property executed after
the date hereof, for more than 5,000 square feet (“Lease Threshold Amount”)
shall be approved by Lender, which approval shall not be unreasonably withheld,
conditioned or delayed. Upon request, Borrower shall furnish Lender with
executed copies of all Leases. All renewals of Leases and all proposed Leases
shall provide for rental rates comparable to existing local market rates. All
proposed Leases shall be on commercially reasonable terms and shall not contain
any terms that would materially affect Lender’s rights under the Loan Documents.
All Leases executed after the date hereof shall provide that they are
subordinate to the Mortgage and that the lessee agrees to attorn to Lender or
any purchaser at a sale by foreclosure or power of sale. Borrower shall, and
shall cause Operating Tenant to, (a) observe and perform the obligations imposed
upon the lessor under the Leases in a commercially reasonable manner; (b)
enforce and may amend or terminate the terms, covenants and conditions contained
in the Leases upon the part of the lessee thereunder to be observed or performed
in a commercially reasonable manner and in a manner not to impair the value of
the Property involved except that no termination by Borrower or Operating Tenant
or acceptance of surrender by a tenant of any Leases shall be permitted unless
by reason of a tenant default and then only in a commercially reasonable manner
to preserve and protect the Property; provided, however, that no such
termination or surrender of any Lease covering more than the Lease Threshold
Amount shall be permitted without the consent of Lender; (c) not collect any of
the rents more than one (1) month in advance (other than security deposits); (d)
not execute any other assignment of lessor’s interest in the Leases or the Rents
(except as contemplated by the Loan Documents); (e) not alter, modify or change
the terms of any Lease in excess of the Lease Threshold Amount in a manner
inconsistent with the provisions of the Loan Documents; and (f) execute and
deliver at the request of Lender all such further assurances, confirmations and
assignments in connection with the Leases as Lender shall from time to time
reasonably require. Notwithstanding anything to the contrary contained herein,
Borrower shall not, and shall cause Operating Tenant to not, enter into a lease
of all or substantially all of the Property without Lender’s prior consent.

 

5.1.21 Alterations. Borrower shall, and shall cause Operating Tenant to, obtain
Lender’s prior consent to any alterations to any Improvements, which consent
shall not be unreasonably withheld. Notwithstanding the foregoing, Lender’s
consent shall not be required in connection with: (X) any alterations to the
Improvements (excluding Decorative Changes) that will not have a Material
Adverse Effect, provided, that, such alterations (a) are made in connection with
the tenant improvement work performed pursuant to the terms of any Lease
executed on or before the date hereof and (b) do not adversely affect any
structural component of any Improvements, any utility or HVAC system contained
in any Improvements or the exterior of any building constituting a part of any
Improvements and (c) the aggregate cost thereof does not exceed One Million and
00/100 Dollars ($1,000,000.00) (the “Alterations Threshold Amount”), or (c) are
performed in connection with Restoration after the occurrence of a Casualty in
accordance with the terms and provisions of this Agreement; or (Y) so long as a
DSCR Failure has not occurred, any Decorative Changes. If the total unpaid
amounts due and payable with respect to alterations to the Improvements at the
Property shall at any time exceed the Alterations Threshold Amount, Borrower
shall promptly deliver to Lender as security for the payment of such amounts and
as additional security for Borrower’s obligations under the Loan Documents

 

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any of the following: (i) cash, (ii) U.S. Obligations, (iii) other securities
having a rating acceptable to Lender and that the applicable Rating Agencies
have confirmed in writing will not, in and of itself, result in a downgrade,
withdrawal or qualification of the initial, or, if higher, then current ratings
assigned to any Securities or any class thereof in connection with any
Securitization, or (iv) a completion and performance bond or an irrevocable
letter of credit (payable on sight draft only) issued by a financial institution
(A) having a rating by S&P of not less than “A-1+” if the term of such bond or
letter of credit is no longer than three (3) months or, if such term is in
excess of three (3) months, issued by a financial institution having a rating
that is acceptable to Lender, and (B) that the applicable Rating Agencies have
confirmed in writing will not, in and of itself, result in a downgrade,
withdrawal or qualification of the initial, or, if higher, then current ratings
assigned to any Securities or any class thereof in connection with any
Securitization. Such security shall be in an amount equal to the excess of the
total unpaid amounts with respect to alterations to the Improvements on the
Property (other than such amounts to be paid or reimbursed by tenants under the
Leases) over the Alterations Threshold Amount and Lender may apply such security
from time to time at the option of Lender to pay for such alterations.

 

5.1.22 Operation of Property.

 

(a) Borrower shall cause the Property to be operated, in all material respects,
in accordance with the Operating Lease and the Management Agreement or
Replacement Management Agreement, as applicable. If the Management Agreement
expires or is terminated (without limiting any obligation of Borrower to obtain
Lender’s consent to any termination or modification of the Management Agreement
in accordance with the terms and provisions of this Agreement), Borrower shall
promptly enter into a Replacement Management Agreement with Manager or another
Qualified Manager, as applicable.

 

(b) Borrower shall, and shall cause Operating Tenant to: (i) promptly perform
and/or observe in all material respects all of the covenants and agreements
required to be performed and observed by Borrower and/or Operating Tenant under
the Management Agreement and do all things necessary to preserve and to keep
unimpaired its material rights thereunder; (ii) promptly notify Lender of any
material default under the Management Agreement of which it is aware; (iii)
promptly deliver to Lender a copy of each financial statement, business plan,
capital expenditures plan, material notice, material report and estimate
received by it under the Management Agreement; and (iv) enforce the performance
and observance of all of the covenants and agreements required to be performed
and/or observed by Manager under the Management Agreement, in a commercially
reasonable manner.

 

(c) Borrower shall, and shall cause Operating Tenant to: (i) promptly perform
and/or observe in all material respects all of the covenants and agreements
required to be performed and observed by Borrower and/or Operating Tenant under
the Operating Lease and do all things necessary to preserve and to keep
unimpaired its material rights thereunder; (ii) promptly notify Lender of any
material default under the Operating Lease of which it is aware; (iii) promptly
deliver to Lender a copy of each notice received by it under the Operating
Lease; and (iv) enforce the performance and observance of all of the covenants
and agreements required to be performed and/or observed by Borrower and
Operating Tenant under the Operating Lease, in a commercially reasonable manner.

 

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Section 5.2 Negative Covenants. From the date hereof until payment and
performance in full of all obligations of Borrower under the Loan Documents or
the earlier release of the Lien of the Mortgage in accordance with the terms of
this Agreement and the other Loan Documents, Borrower covenants and agrees with
Lender that it shall not do, nor, if applicable, shall it permit Operating
Tenant to do, directly or indirectly, any of the following:

 

5.2.1 Operation of Property.

 

(a) Borrower shall not, and shall cause Operating Tenant to not, without
Lender’s prior consent (which consent shall not be unreasonably withheld: (i)
subject to Section 9.5 hereof, surrender, terminate or cancel the Management
Agreement; provided, that Borrower (or Operating Tenant on Borrower’s behalf)
may, without Lender’s consent, replace the Manager so long as the replacement
manager is a Qualified Manager pursuant to a Replacement Management Agreement,
so long as Borrower reimburses Lender for any costs and expenses (including
attorneys fees) incurred in connection with the preparation and negotiation of
the Replacement Management Agreement; (ii) reduce or consent to the reduction of
the term of the Management Agreement; (iii) increase or consent to the increase
of the amount of any charges or fees under the Management Agreement; or (iv)
otherwise modify, change, supplement, alter or amend, or waive or release any of
its rights and remedies under, the Management Agreement in any material respect.

 

(b) Following the occurrence and during the continuance of an Event of Default,
Borrower shall not, and shall cause Operating Tenant to not, exercise any
rights, make any decisions, grant any approvals or otherwise take any action
under the Management Agreement without the prior consent of Lender, which
consent may be withheld in Lender’s sole discretion.

 

(c) Borrower shall not, and shall cause Operating Tenant to not, without
Lender’s prior consent, (i) surrender, terminate or cancel the Operating Lease,
or (ii) reduce or consent to the reduction of the term of the Operating Lease;
(iii) increase or consent to the increase of the amount of any charges or fees
under the Operating Lease; or (iv) otherwise modify, change, supplement, alter
or amend, or waive or release any of its material rights and remedies under, the
Operating Lease in any material respect.

 

5.2.2 Liens. Borrower shall not, and shall not cause Operating Tenant to not,
create, incur, assume or suffer to exist any Lien on any portion of the Property
or permit any such action to be taken, except:

 

(i) Permitted Encumbrances;

 

(ii) Liens created by or permitted pursuant to the Loan Documents; and

 

(iii) Liens for Taxes or Other Charges not yet due.

 

5.2.3 Dissolution. Borrower shall not, and shall cause Operating Tenant to not
(a) engage in any dissolution, liquidation, consolidation or merger with or into
any other business entity, (b) engage in any business activity not related to
the ownership and operation of the

 

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Property, (c) transfer, lease or sell, in one transaction or any combination of
transactions, the assets or all or substantially all of the properties or assets
of Borrower or Operating Tenant except to the extent permitted by the Loan
Documents, (d) modify, amend, waive or terminate its organizational documents or
its qualification and good standing in any jurisdiction, or (e) cause Principal,
or Operating Tenant to (i) dissolve, wind up or liquidate or take any action, or
omit to take any action, as a result of which Principal, or Operating Tenant
would be dissolved, wound up or liquidated in whole or in part, or (ii) amend,
modify, waive or terminate the certificate of incorporation or bylaws of
Principal, or Operating Tenant, in each case, without obtaining the prior
consent of Lender.

 

5.2.4 Change in Business. Borrower shall not, and shall cause Operating Tenant
to not, enter into any line of business other than the ownership and operation
of the Property, or make any material change in the scope or nature of its
business objectives, purposes or operations, or undertake or participate in
activities other than the continuance of its present business.

 

5.2.5 Debt Cancellation. Borrower shall not, and shall cause Operating Tenant to
not, cancel or otherwise forgive or release any claim or debt (other than
termination of Leases in accordance herewith) owed to Borrower or Operating
Tenant by any Person, except for adequate consideration and in the ordinary
course of Borrower’s and Operating Tenant’s business.

 

5.2.6 Zoning. Borrower shall not, and shall cause Operating Tenant to not,
initiate or consent to any zoning reclassification of any portion of the
Property or seek any variance under any existing zoning ordinance, or use or
permit the use of any portion of the Property in any manner that could result in
such use becoming a non-conforming use under any zoning ordinance or any other
applicable land use law, rule or regulation, in each case, without the prior
consent of Lender.

 

5.2.7 No Joint Assessment. Borrower shall not, and shall cause Operating Tenant
to not, suffer, permit or initiate the joint assessment of all or any portion of
the Property with (a) any other real property constituting a tax lot separate
from the Property, or (b) any portion of the Property that may be deemed to
constitute personal property, or any other procedure whereby the Lien of any
taxes that may be levied against such personal property shall be assessed or
levied or charged to the Property.

 

5.2.8 Principal Place of Business and Organization. (a) Borrower shall not
change its principal place of business set forth in the introductory paragraph
of this Agreement without first giving Lender at least thirty (30) days prior
notice. Borrower shall not change the place of its organization as set forth in
Section 4.1.28 without the consent of Lender, which consent shall not be
unreasonably withheld. Upon Lender’s request, Borrower shall authorize the
filing of additional financing statements, security agreements and other
instruments that may be necessary to effectively evidence or perfect Lender’s
security interest in the Property as a result of such change of principal place
of business or place of organization.

 

(b) Borrower shall not permit Operating Tenant to change its principal place of
business set forth in the Operating Lease without first giving Lender at least
thirty (30) days prior notice. Borrower shall not permit Operating Tenant to
change the place of its organization

 

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as set forth in Section 4.1.28 without the consent of Lender, which consent
shall not be unreasonably withheld. Upon Lender’s request, Borrower shall cause
Operating Tenant to authorize the filing of additional financing statements,
security agreements and other instruments which may be necessary to effectively
evidence or perfect Lender’s security interest in the Property as a result of
such change of principal place of business or place of organization.

 

5.2.9 ERISA.

 

(a) Borrower shall not, and shall cause Operating Tenant to not, engage in any
transaction that would cause any obligation, or action taken or to be taken,
hereunder (or the exercise by Lender of any of its rights under the Note, this
Agreement or the other Loan Documents) to be a non-exempt (under a statutory or
administrative class exemption) prohibited transaction under ERISA.

 

(b) Borrower further covenants and agrees to, and shall cause Operating Tenant
to, deliver to Lender such certifications or other evidence from time to time
throughout the term of the Loan, as requested by Lender in its sole discretion,
that (i) neither Borrower nor Operating Tenant is an “employee benefit plan” as
defined in Section 3(3) of ERISA that is subject to Title I of ERISA, or a
“governmental plan” within the meaning of Section 3(32) of ERISA; (ii) neither
Borrower nor Operating Tenant is subject to any state statute regulating
investments of, or fiduciary obligations with respect to, governmental plans;
and (iii) one or more of the following circumstances is true:

 

(A) Equity interests in Borrower or Operating Tenant are publicly offered
securities, within the meaning of 29 C.F.R. §2510.3-101(b)(2);

 

(B) Less than twenty-five percent (25%) of each outstanding class of equity
interests in Borrower or Operating Tenant is held by “benefit plan investors”
within the meaning of 29 C.F.R. §2510.3-101(f)(2); or

 

(C) Borrower or Operating Tenant qualifies as an “operating company” or a “real
estate operating company” within the meaning of 29 C.F.R. §2510.3-101(c) or (e).

 

5.2.10 Transfers.

 

(a) Borrower acknowledges that Lender has examined and relied on the experience
of Borrower and its general partners, members, principals and (if Borrower is a
trust) beneficial owners, as applicable, in owning and operating properties such
as the Property in agreeing to make the Loan, and will continue to rely on
Borrower’s ownership of the Property as a means of maintaining the value of the
Property as security for repayment of the Debt and the performance of the Other
Obligations. Borrower acknowledges that Lender has a valid interest in
maintaining the value of the Property so as to ensure that, should Borrower
default in the repayment of the Debt or the performance of the Other
Obligations, Lender can recover the Debt by a sale of the Property.

 

(b) Without the prior consent of Lender and except to the extent otherwise set
forth in this Section 5.2.10, Borrower shall not, and shall not permit any
Restricted Party to, (i)

 

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sell, convey, mortgage, grant, bargain, encumber, pledge, assign, grant options
with respect to, or otherwise transfer or dispose of (directly or indirectly,
voluntarily or involuntarily, by operation of law or otherwise, and whether or
not for consideration or of record) the Property or any part thereof or any
legal or beneficial interest therein, or (ii) permit a Sale or Pledge of an
interest in the Property or in any Restricted Party (collectively, a
“Transfer”), other than (x) pursuant to Leases of space in the Improvements to
tenants in accordance with the provisions of Section 5.1.20 hereof, and (y) the
disposition of Equipment and other Personal Property pursuant to the replacement
thereof or otherwise in the ordinary course of the operation of the Property.

 

(c) A Transfer shall include, but not be limited to, (i) an installment sales
agreement wherein Borrower agrees to sell the Property, or any part thereof, for
a price to be paid in installments; (ii) an agreement by Borrower leasing all or
substantially all of the Property for other than actual occupancy by a space
tenant thereunder, or a sale, assignment or other transfer of, or the grant of a
security interest in, Borrower’s right, title and interest in and to any Leases
or any Rents; (iii) if a Restricted Party is a corporation, any merger,
consolidation or Sale or Pledge of such corporation’s stock or the creation or
issuance of new stock; (iv) if a Restricted Party is a limited or general
partnership or joint venture, any merger or consolidation or the change,
removal, resignation or addition of a general partner or the Sale or Pledge of
the partnership interest of any general partner or any profits or proceeds
relating to such partnership interest, or the Sale or Pledge of limited
partnership interests or any profits or proceeds relating to such limited
partnership interest or the creation or issuance of new limited partnership
interests; (v) if a Restricted Party is a limited liability company, any merger
or consolidation or the change, removal, resignation or addition of a managing
member or non-member manager (or if no managing member, any member) or the Sale
or Pledge of the membership interest of a managing member (or if no managing
member, any member) or any profits or proceeds relating to such membership
interest, or the Sale or Pledge of non-managing membership interests or the
creation or issuance of new non-managing membership interests; (vi) if a
Restricted Party is a trust or nominee trust, any merger, consolidation or the
Sale or Pledge of the legal or beneficial interest in a Restricted Party or the
creation or issuance of new legal or beneficial interests; or (vii) the removal
or the resignation of the managing agent (including, without limitation, an
Affiliated Manager) other than in accordance with Section 5.1.22 hereof.

 

(d) Notwithstanding the provisions of this Section 5.2.10, the following
transfers shall not be deemed to be a Transfer: (i) the sale or transfer, in one
or a series of transactions, of not more than forty-nine percent (49%) of the
equity interests in a Restricted Party; provided, however, no such sales or
transfers shall result in the change of voting control in the Restricted Party,
and as a condition to each such sale or transfer, Lender shall receive not less
than thirty (30) days prior notice of such proposed sale or transfer and (ii)
the sale or transfer, in one or a series of transactions, of not more than
forty-nine percent (49%) of the limited partnership interests or non-managing
membership interests (as the case may be) in a Restricted Party; provided,
however, no such sales or transfers shall result in the change of voting control
in the Restricted Party, and as a condition to each such sale or transfer,
Lender shall receive not less than thirty (30) days prior notice of such
proposed sale or transfer, and (iii) the sale, transfer or issuance of stock in
Guarantor, provided such stock is listed on the New York Stock Exchange or such
other nationally recognized stock exchange. In addition, at all times, Guarantor
(or any successor-in-interest permitted under subsection (d)(iii) above) must
continue to control Borrower and own, directly or indirectly, at least a
ninety-five percent (95%) interest in Borrower.

 

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(e) At Lender’s election, in its sole discretion, Lender will not unreasonably
withhold its consent to a Transfer (other than a Transfer made in accordance
with the foregoing Section 5.2.10(d)) upon (i) a modification of the terms
hereof, the Note, the Mortgage or the other Loan Documents; (ii) an assumption
of this Agreement, the Note, the Mortgage and the other Loan Documents as so
modified by the proposed transferee, subject to the provisions of Section 9.4
hereof; (iii) payment of all of fees and expenses incurred in connection with
such Transfer including, without limitation, the cost of any third party
reports, legal fees and expenses, Rating Agency fees and expenses or required
legal opinions; (iv) the payment of a non-refundable $5,000 application fee and
an assumption fee equal to (A) $100,000 for the first such assumption, and (B)
one-half percent (.5%) of the Outstanding Principal Balance for each subsequent
assumption; (v) the delivery of a nonconsolidation opinion reflecting the
proposed Transfer satisfactory in form and substance to Lender; (vi) the
proposed transferee’s continued compliance with the representations and
covenants set forth in Section 4.1.30 and Section 5.2.9 hereof; (vii) the
delivery of evidence satisfactory to Lender that the single purpose nature and
bankruptcy remoteness of Borrower, its shareholders, partners or members, as the
case may be, following such Transfers are in accordance with the then current
standards of Lender and the Rating Agencies; (viii) prior to any release of the
Guarantor, a substitute guarantor reasonably acceptable to Lender shall have
assumed the Guaranty executed by Guarantor or executed a replacement guaranty
reasonably satisfactory to Lender; (ix) if required by Lender, confirmation in
writing from the Rating Agencies to the effect that such Transfer will not
result in a re-qualification, reduction or withdrawal of the then current rating
assigned to the Securities or any class thereof in any applicable
Securitization; and (x) prior to the consummation of a Securitization, the
proposed transferee is a Qualified Transferee. Lender shall not be required to
demonstrate any actual impairment of its security or any increased risk of
default hereunder in order to declare the Obligations immediately due and
payable upon a Transfer without Lender’s consent. This provision shall apply to
every Transfer regardless of whether voluntary or not, or whether or not Lender
has consented to any previous Transfer.

 

5.2.11 Membership Loans. Lender acknowledges that Borrower may obtain Membership
Loans (as defined above in the definition of “Special Purpose Entity”) provided
the following conditions are satisfied in connection with each Membership Loan:
(i) the principal amount of the Membership Loan, when added to the principal
amount of each other outstanding Membership Loan does not exceed the amount of
$2,655,000.00; (ii) each Membership Loan is unsecured; (iii) the terms of each
Membership Loan are in accordance with the operating agreement approved by
Lender; (iv) the promissory note and other documents evidencing each Membership
Loan are approved by Lender in its reasonable discretion; and (v) the holder of
each Membership Loan executes a subordination agreement acceptable to Lender
upon Lender’s request.

 

5.2.12 Franchise Provisions.

 

(a) Borrower shall obtain the approval of Lender, which approval shall not be
unreasonably withheld or delayed by Lender, before entering into any franchise
agreement (the “Franchise Agreement”) with any Franchisor that provides for, or
permits, the operation of the

 

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Property under such Franchisor’s brand or “flag.” Any Franchise Agreement must
include, among other things, rights in the Franchisor’s reservation system and a
term of not less than the remaining Term. Borrower shall deliver to Lender any
such Franchise Agreement for Lender’s review and approval. Lender expressly
acknowledges and agrees that Hilton Inns, Inc. is an acceptable Franchisor and
that certain Franchise License Agreement, dated as of June 23, 2005 as amended
between Hilton Inns, Inc. and Operating Tenant relating to the Property is an
acceptable Franchise Agreement.

 

(b) If Borrower shall enter into any Franchise Agreement, Lender shall receive
within thirty (30) days following the execution of such Franchise Agreement a
comfort letter from the franchisor identified in the Franchise Agreement (the
“Franchisor”) in which Franchisor shall agree (i) that Lender shall have the
right, but not the obligation, to cure any defaults under the Franchise
Agreement; (ii) to give Lender written notice of, and a reasonable time to cure,
any default of Borrower under the Franchise Agreement; (iii) not to assert
against Lender any defaults that by their nature are personal to Borrower and
are not curable by Lender; (iv) to allow Lender to change managers of the
Property; (v) that, if Lender or its affiliate shall acquire title to the
Property, Lender or its affiliate shall have an option to succeed to the
interest of Borrower under the Franchise Agreement (or to be granted a new
Franchise agreement on the same terms as the Franchise Agreement) without
payment of any fees to Franchisor (other than nominal, processing fees); (vi)
that the Franchise Agreement shall remain in effect during any foreclosure
proceedings by Lender provided Lender cures all monetary defaults under the
Franchise Agreement; (vii) not to modify, cancel, surrender or otherwise
terminate the Franchise Agreement during the term without the consent of Lender;
and (viii) that if Lender or its affiliate succeeds to Borrower’s interest under
the Franchise Agreement, Lender may assign its rights therein to any entity
which acquires the Property from Lender or its affiliate (subject to
Franchisor’s reasonable approval). The foregoing to the contrary
notwithstanding, Lender will not unreasonably withhold approval of Franchisor’s
standard form of “comfort letter” addressing those matters set forth above.

 

(c) Borrower shall not, and Borrower shall not permit Operating Tenant or any
Affiliate to, modify, cancel, surrender or otherwise terminate the Franchise
Agreement during the Term without the consent of Lender. Borrower shall promptly
deliver to Lender copies of any notices of default sent or received by or on
behalf of Borrower, Operating Tenant or any of its Affiliates under the
Franchise Agreement.

 

5.2.13 Notice of Default. Any notice received by Borrower or Operating Tenant
from the Glendale Redevelopment Agency regarding a default under the Easement or
the Grant Deed (each as defined below) shall be delivered to Lender within 5
days upon receipt thereof; and Lender and any officer or agent thereof, may (but
is not required to) cure any such default. For purposes herein, Lender is hereby
irrevocably granted and appointed with full power of substitution, as Borrower’s
true and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of Borrower and in the name of Borrower or in its own name,
from time to time in Lender’s discretion, for the purpose of curing any such
default and continuing the operations at the Property in accordance with this
Agreement, and to take any and all appropriate action and to execute any and all
documents and instruments which may be necessary or desirable to accomplish the
purposes of this Agreement. This power of attorney is a power coupled with an
interest and shall be irrevocable.

 

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ARTICLE 6

INSURANCE; CASUALTY; CONDEMNATION; REQUIRED REPAIRS

 

Section 6.1 Insurance.

 

(a) Borrower shall obtain and maintain, or cause to be maintained, insurance for
Borrower and the Property providing at least the following coverages:

 

(i) comprehensive all risk insurance on the Improvements and the Personal
Property, including contingent liability from Operation of Building Laws,
Demolition Costs and Increased Cost of Construction Endorsements, in each case
(A) in an amount equal to one hundred percent (100%) of the “Full Replacement
Cost,” which for purposes of this Agreement shall mean actual replacement value
(exclusive of costs of excavations, foundations, underground utilities and
footings) with a waiver of depreciation, but the amount shall in no event be
less than the Outstanding Principal Balance; (B) containing an agreed amount
endorsement with respect to the Improvements and Personal Property waiving all
co-insurance provisions; (C) providing for no deductible in excess of Fifty
Thousand and No/100 Dollars ($50,000) for all such insurance coverage; and (D)
containing an “Ordinance or Law Coverage” or “Enforcement” endorsement if any of
the Improvements or the use of the Property shall at any time constitute legal
non-conforming structures or uses. In addition, Borrower shall obtain: (x) if
any portion of the Improvements is currently or at any time in the future
located in a federally designated “special flood hazard area,” flood hazard
insurance in an amount equal to the lesser of (1) the Outstanding Principal
Balance or (2) the maximum amount of such insurance available under the National
Flood Insurance Act of 1968, the Flood Disaster Protection Act of 1973 or the
National Flood Insurance Reform Act of 1994, as each may be amended or such
greater amount as Lender shall require; (y) earthquake insurance in amounts and
in form and substance satisfactory to Lender in the event the Property is
located in an area with a high degree of seismic activity and (z) coastal
windstorm insurance in amounts and in form and substance satisfactory to Lender
in the event the Property is located in any coastal region, provided that the
insurance pursuant to clauses (x), (y) and (z) hereof shall be (1) on terms
consistent with the comprehensive all risk insurance policy required under this
subsection (i) and (2) subject to deductibles not to exceed five percent (5%) of
Net Operating Income;

 

(ii) commercial general liability insurance, including a broad form
comprehensive general liability endorsement and coverages against claims for
personal injury, bodily injury, death or property damage occurring upon, in or
about the Property, such insurance (A) to be on the so-called “occurrence” form
with a combined limit of not less than Three Million and No/100 Dollars
($3,000,000) in the aggregate and One Million and No/100 Dollars ($1,000,000)
per occurrence (and, if on a blanket policy, containing an “Aggregate Per
Location” endorsement); (B) to continue at not less than the aforesaid limit
until required to be changed by Lender in writing by reason of changed economic
conditions making such protection inadequate; and (C) to cover at least the
following hazards: (1) premises and operations; (2) products and completed
operations on an “if any” basis; (3) independent contractors; (4) blanket
contractual liability for all legal contracts; and (5) contractual liability
covering the indemnities contained in Article 8 of the Mortgage to the extent
the same is available;

 

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(iii) rental loss and/or business income interruption insurance (A) with loss
payable to Lender; (B) covering all risks required to be covered by the
insurance provided for in subsection (i) above; (C) containing an extended
period of indemnity endorsement that provides that after the physical loss to
the Improvements and Personal Property has been repaired, the continued loss of
income will be insured until such income either returns to the same level it was
at prior to the loss, or the expiration of six (6) months from the date that the
Property is repaired or replaced and operations are resumed, whichever first
occurs, and notwithstanding that the policy may expire prior to the end of such
period; and (D) in an amount equal to one hundred percent (100%) of the
projected Gross Income from Operations for a period of eighteen (18) months from
the date of such Casualty (assuming such Casualty had not occurred) and
notwithstanding that the policy may expire at the end of such period. The amount
of such business income insurance shall be determined prior to the date hereof
and at least once each year thereafter based on Borrower’s reasonable estimate
of the Gross Income from Operations for the succeeding eighteen- (18) month
period. Nothing set forth in this Agreement shall be deemed to relieve Borrower
of its obligations to pay the obligations secured by the Loan Documents on the
respective dates of payment provided for in the Note and the other Loan
Documents except to the extent such amounts are actually paid out of the
proceeds of such business income insurance;

 

(iv) at all times during which structural construction, repairs or alterations
are being made with respect to the Improvements, and only if the Property
coverage form does not otherwise apply, (A) owner’s contingent or protective
liability insurance covering claims not covered by or under the terms or
provisions of the above mentioned commercial general liability insurance policy;
and (B) the insurance provided for in subsection (i) above written in a
so-called builder’s risk completed value form (1) on a non-reporting basis, (2)
against all risks insured against pursuant to subsection (i) above, (3)
including permission to occupy the Property, and (4) with an agreed amount
endorsement waiving co-insurance provisions;

 

(v) if the Property includes commercial property, worker’s compensation
insurance with respect to any employees of Borrower, as required by any
Governmental Authority or Legal Requirement;

 

(vi) comprehensive boiler and machinery insurance, if applicable, in amounts as
shall be reasonably required by Lender on terms consistent with the commercial
property insurance policy required under subsection (i) above;

 

(vii) umbrella liability insurance in an amount not less than Twenty Million and
No/100 Dollars ($20,000,000.00) per occurrence on terms consistent with the
commercial general liability insurance policy required under subsection (ii)
above;

 

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(viii) motor vehicle liability coverage for all owned and non-owned vehicles,
including rented and leased vehicles containing minimum limits per occurrence,
including umbrella coverage, of One Million and No/100 Dollars ($1,000,000.00);

 

(ix) INTENTIONALLY OMITTED;

 

(x) the commercial property and business income insurance required under
Sections 6.1(a)(i) and (iii) above shall cover perils of foreign terrorism and
acts of foreign terrorism and Borrower shall maintain commercial property and
business income insurance for loss resulting from perils and acts of foreign
terrorism on terms (including amounts, except as provided for below) consistent
with those required under Sections 6.1(a)(i) and (iii) above at all times during
the term of the Loan; provided, that, Borrower shall not be required to maintain
foreign terrorism coverage for amounts in excess of the amount of coverage that,
Lender reasonably determines, could be obtained upon the payment of an annual
premium in an amount (the “Terrorism Insurance Cap”) equal to the lesser of: (X)
$67,000.00; and (Y) two and one-half (2.5) times the lowest bid received by
Borrower from an insurance company satisfying the requirements of Section 6.1(b)
for a Stand Alone Terrorism Insurance Policy (herein defined) in the amount of
$90,000,000.00 for this Property, provided that Borrower provides Lender with a
written copy of such bid within sixty (60) days of the date hereof, failing
which, the Terrorism Insurance Cap shall equal $67,000.00. As used herein, a
“Stand Alone Terrorism Insurance Policy” shall mean a policy of insurance issued
on a “stand alone” basis covering the same risks and perils and otherwise upon
the terms (excluding amounts) as would be covered if such foreign terrorism
insurance was provided through the commercial property and business income
insurance required under Sections 6.1(a)(i) and (iii) above; and

 

(xi) upon sixty (60) days’ notice, such other reasonable insurance and in such
reasonable amounts as Lender from time to time may reasonably request against
such other insurable hazards that at the time are commonly insured against for
properties similar to the Property located in or around the region in which the
Property is located.

 

(b) All insurance provided for in Section 6.1(a) shall be obtained under valid
and enforceable policies (collectively, the “Policies” or in the singular, the
“Policy”), and shall be subject to the approval of Lender as to insurance
companies, amounts, deductibles, loss payees and insureds. The Policies shall be
issued by financially sound and responsible insurance companies authorized to do
business in the State and having a claims paying ability rating of “A” or
better; provided, that, if any insurance required pursuant to this Section
6.1(a) shall be issued by a syndicate of insurers, the preceding claims paying
ability rating shall be deemed satisfied if (i) the first layer position is held
by an insurance company having a claims paying ability rating of “A” by S&P or
better; (ii) the first layer position is a size reasonably acceptable to Lender;
(iii) if there are between two (2) and four (4) members of the syndicate, at
least seventy-five percent (75%) of the insurance provided by the syndicate is
maintained by insurance companies having a claims paying ability rating of “A”
or better and the balance of the insurance provided by the syndicate is
maintained with insurance companies having a claims paying ability rating of at
least “BBB” by S&P and, if applicable, “Baa2” by Moody’s (iv) if there are five
(5) or more members of the syndicate, at least sixty percent (60%) of the
insurance provided by the syndicate is

 

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maintained by insurance companies having a claims paying ability rating of “A”
by S&P or better and the balance of the insurance provided by the syndicate is
maintained with insurance companies leaving a Claims paying ability rating of at
least “BBB” by S&P and, if applicable, “Baa2” by Moody’s; and (v) all members of
any such syndicate are responsible companies licensed to do business in the
State. The Policies described in Section 6.1(a) (other than those strictly
limited to liability protection) shall designate Lender as loss payee. Not less
than ten (10) days prior to the expiration dates of the Policies theretofore
furnished to Lender, certificates of insurance evidencing the Policies
accompanied by evidence satisfactory to Lender of payment of the premiums due
thereunder (the “Insurance Premiums”), shall be delivered by Borrower to Lender.

 

(c) Any blanket insurance Policy shall specifically allocate to the Property the
amount of coverage from time to time required hereunder and shall otherwise
provide the same protection as would a separate Policy insuring only the
Property in compliance with the provisions of Section 6.1(a).

 

(d) All Policies provided for or contemplated by Section 6.1(a), except for the
Policy referenced in Section 6.1(a)(v), shall name Borrower as the insured and
Lender (and its affiliates) as the additional insured, as its interests may
appear, and in the case of property damage, boiler and machinery, flood and
earthquake insurance, shall contain a so-called New York standard
non-contributing mortgagee clause in favor of Lender providing that the loss
thereunder shall be payable to Lender.

 

(e) All Policies provided for in Section 6.1 shall contain clauses or
endorsements to the effect that:

 

(i) no act or negligence of Borrower, or anyone acting for Borrower, or of any
tenant or other occupant, or failure to comply with the provisions of any Policy
that might otherwise result in a forfeiture of the insurance or any part
thereof, shall in any way affect the validity or enforceability of the insurance
insofar as Lender is concerned;

 

(ii) the Policies shall not be materially changed (other than to increase the
coverage provided thereby) or canceled without at least thirty (30) days’ notice
(or ten (10) days’ notice with respect to non-payment) to Lender and any other
party named therein as an additional insured;

 

(iii) the issuers thereof shall give notice to Lender if the Policies have not
been renewed fifteen (15) days prior to its expiration; and

 

(iv) Lender shall not be liable for any Insurance Premiums thereon or subject to
any assessments thereunder.

 

(f) If at any time Lender is not in receipt of written evidence that all
Policies are in full force and effect, Lender shall give notice (which notice
may be oral) thereof to Borrower and Borrower shall within one (1) Business Day
of such notice, deliver such written evidence as Lender shall reasonably require
that all policies are in full force and effect. If Borrower does not provide
Lender with such evidence that all Policies are in full force and effect within
one (1) Business Day of Lender’s notice, Lender shall have the right, without
further

 

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notice to Borrower, to take such action as Lender deems necessary to protect its
interest in the Property, including, without limitation, the obtaining of such
insurance coverage as Lender in its sole discretion deems appropriate. All
premiums incurred by Lender in connection with such action or in obtaining such
insurance and keeping it in effect shall be paid by Borrower to Lender upon
demand and, until paid, shall be secured by the Mortgage and shall bear interest
at the Default Rate.

 

Section 6.2 Casualty. If the Property shall be damaged or destroyed, in whole or
in part, by fire or other casualty (a “Casualty”), Borrower shall (a) give
prompt notice of such damage to Lender, and (b) promptly commence and diligently
prosecute the completion of the Restoration so that the Property resembles, as
nearly as possible, the condition the Property was in immediately prior to such
Casualty, with such alterations as may be reasonably approved by Lender and
otherwise in accordance with Section 6.4. Borrower shall pay all costs of such
Restoration whether or not such costs are covered by insurance. Lender may, but
shall not be obligated to make proof of loss if not made promptly by Borrower.
In addition, Lender may participate in any settlement discussions with any
insurance companies with respect to any Casualty in which the Net Proceeds or
the costs of completing the Restoration are equal to or greater than One Million
Five Hundred Thousand and No/100 Dollars ($1,500,000.00) (“Net Proceeds
Threshold Amount”) and Borrower shall deliver to Lender all instruments required
by Lender to permit such participation.

 

Section 6.3 Condemnation. Borrower shall promptly give Lender notice of the
actual or threatened commencement of any proceeding in respect of Condemnation
and shall deliver to Lender copies of any and all papers served in connection
with such proceedings. Lender may participate in any such proceedings, and
Borrower shall from time to time deliver to Lender all instruments requested by
Lender to permit such participation. Borrower shall, at its expense, diligently
prosecute any such proceedings, and shall consult with Lender, its attorneys and
experts, and cooperate with them in the carrying on or defense of any such
proceedings. Notwithstanding any taking by any public or quasi-public authority
through Condemnation or otherwise (including any transfer made in lieu of or in
anticipation of the exercise of such taking), Borrower shall continue to perform
the Obligations at the time and in the manner provided in this Agreement and the
other Loan Documents and the Outstanding Principal Balance shall not be reduced
until any Award shall have been actually received and applied by Lender, after
the deduction of expenses of collection, to the reduction or discharge of the
Obligations. Lender shall not be limited to the interest paid on the Award by
the applicable Governmental Authority but shall be entitled to receive out of
the Award interest at the rate or rates provided herein or in the Note. If the
Property or any portion thereof is taken by a Governmental Authority, Borrower
shall promptly commence and diligently prosecute Restoration and otherwise
comply with the provisions of Section 6.4. If the Property is sold, through
foreclosure or otherwise, prior to the receipt by Lender of the Award, Lender
shall have the right, whether or not a deficiency judgment on the Note shall
have been sought, recovered or denied, to receive the Award, or a portion
thereof sufficient to pay the Debt. Any implied covenant in this Agreement
restricting the right of Lender to make such an election is waived by Borrower.
In addition, Borrower hereby waives the provisions of any law prohibiting Lender
from making such an election, including, without limitation, the provisions of
California Code of Civil Procedure commencing with Section 1265.210 (as
amended).

 

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Section 6.4 Restoration. The following provisions shall apply in connection with
the Restoration:

 

(a) If the Net Proceeds shall be less than the Net Proceeds Threshold Amount and
the costs of completing the Restoration shall be less than the Net Proceeds
Threshold Amount, the Net Proceeds shall be disbursed by Lender to Borrower upon
receipt, provided that all of the conditions set forth in Section 6.4(b)(i) are
met and Borrower delivers to Lender a written undertaking to expeditiously
commence and to satisfactorily complete with due diligence the Restoration in
accordance with the terms of this Agreement.

 

(b) If the Net Proceeds are equal to or greater than the Net Proceeds Threshold
Amount or the costs of completing the Restoration is equal to or greater than
the Net Proceeds Threshold Amount, the Net Proceeds shall be held by Lender and
Lender shall make the Net Proceeds available for the Restoration in accordance
with the provisions of this Section 6.4. The term “Net Proceeds” for purposes of
this Section 6.4 shall mean: (i) the net amount of all insurance proceeds
received by Lender pursuant to Section 6.1 (a)(i), (iv), (vi), (ix) and (x) as a
result of such damage or destruction, after deduction of its reasonable costs
and expenses (including reasonable counsel fees), if any, in collecting same
(“Insurance Proceeds”), or (ii) the net amount of the Award, after deduction of
Lender’s reasonable costs and expenses (including reasonable counsel costs and
fees), if any, in collecting same (“Condemnation Proceeds”), whichever the case
may be.

 

(i) The Net Proceeds shall be made available to Borrower for Restoration upon
the approval of Lender in its sole discretion that the following conditions are
met:

 

(A) no Event of Default shall have occurred and be continuing;

 

(B) (1) in the event the Net Proceeds are Insurance Proceeds, less than
twenty-five percent (25%) of the total floor area of the Improvements on the
Property has been damaged, destroyed or rendered unusable as a result of such
Casualty, or (2) in the event the Net Proceeds are Condemnation Proceeds, less
than ten percent (10%) of the land constituting the Property is taken, and such
land is located along the perimeter or periphery of the Property, and no
material portion of the Improvements is located on such land;

 

(C) Borrower shall commence Restoration as soon as reasonably practicable (but
in no event later than sixty (60) days after such Casualty or Condemnation,
whichever the case may be, occurs) and shall diligently pursue the same to
satisfactory completion;

 

(D) Lender shall be satisfied that any operating deficits, including all
scheduled payments of principal and interest under the Note that will be
incurred with respect to the Property as a result of the occurrence of any such
Casualty or Condemnation, whichever the case may be, will be covered out of (1)
the Net Proceeds, (2) the insurance coverage referred to in Section 6.1(a)(iii),
if applicable, or (3) by other funds of Borrower;

 

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(E) Lender shall be satisfied that Restoration will be completed on or before
the earliest to occur of (1) six (6) months prior to the Maturity Date, (2) such
time as may be required under applicable Legal Requirements, or (3) the
expiration of the insurance coverage referred to in Section 6.1(a)(iii);

 

(F) the Property and the use thereof after Restoration will be in compliance
with and permitted under all applicable Legal Requirements;

 

(G) Restoration shall be done and completed by Borrower in an expeditious and
diligent fashion and in compliance with all applicable Legal Requirements;

 

(H) such Casualty or Condemnation, as applicable, does not result in the loss of
access to the Property or the related Improvements;

 

(I) upon completion of the Restoration, the projected Net Operating Income for
the following twelve (12) month period as reasonably estimated by Lender, shall
be sufficient to achieve a Debt Service Coverage Ratio of at least 1.15 to 1.00.

 

(J) Borrower shall deliver, or cause to be delivered, to Lender a signed
detailed budget approved in writing by Borrower’s architect or engineer stating
the entire cost of completing the Restoration; and

 

(K) the Net Proceeds together with any cash or cash equivalent deposited by
Borrower with Lender are sufficient in Lender’s reasonable discretion to cover
the cost of Restoration.

 

(ii) The Net Proceeds shall be paid directly to Lender for deposit in an
interest-bearing account and, until disbursed in accordance with the provisions
of this Section 6.4(b), shall constitute additional security for the Debt and
the Other Obligations. The Net Proceeds shall be disbursed by Lender to, or as
directed by, Borrower from time to time during the course of Restoration, upon
receipt of evidence satisfactory to Lender that (A) all materials installed and
work and labor performed (except to the extent that they are to be paid for out
of the requested disbursement) in connection with Restoration have been paid for
in full, and (B) there exist no notices of pendency, stop orders, mechanic’s or
materialman’s liens or notices of intention to file same, or any other liens or
encumbrances of any nature whatsoever on the Property that have not either been
fully bonded to the satisfaction of Lender and discharged of record or in the
alternative fully insured to the satisfaction of Lender by the Title Company.

 

(iii) All plans and specifications required in connection with the Restoration
shall be subject to prior review and reasonable acceptance in all respects by
Lender and by an independent consulting engineer selected by Lender (the
“Casualty Consultant”). In connection with the delivery of the plans and
specifications to Lender and/or Casualty Consultant by Borrower, if Borrower
marks such delivery with a legend marked in not less than fourteen (14) point
bold face type, underlined, in all capital letters “ATTACHED PLANS AND
SPECIFICATIONS DEEMED APPROVED IF NO

 

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RESPONSE WITHIN FIFTEEN (15) BUSINESS DAYS,” and Lender and/or the Casualty
Consultant fails to respond to the delivery of such plans and specifications
within such fifteen (15) Business Day period, Lender shall be deemed to have
approved such Plans and Specifications. Lender shall have the use of the plans
and specifications and all permits, licenses and approvals required or obtained
in connection with the Restoration. The identity of the contractors,
subcontractors and materialmen engaged in the Restoration, as well as the
contracts under which they have been engaged, shall be subject to prior review
and reasonable acceptance by Lender and the Casualty Consultant. All reasonable
costs and expenses incurred by Lender in connection with making the Net Proceeds
available for Restoration including, without limitation, reasonable counsel fees
and disbursements and the reasonable fees of the Casualty Consultant’s, shall be
paid by Borrower.

 

(iv) In no event shall Lender be obligated to make disbursements of the Net
Proceeds in excess of an amount equal to the costs actually incurred from time
to time for work in place as part of the Restoration, as certified by the
Casualty Consultant, minus the Casualty Retainage. The term “Casualty Retainage”
shall mean, as to each contractor, subcontractor or materialman engaged in the
Restoration, an amount equal to ten percent (10%) of the costs actually incurred
for work in place as part of the Restoration, as certified by the Casualty
Consultant, until Restoration has been completed. The Casualty Retainage shall
in no event, and notwithstanding anything to the contrary set forth above in
this Section 6.4(b), be less than the amount actually held back by Borrower from
contractors, subcontractors and materialmen engaged in the Restoration. The
Casualty Retainage shall not be released until the Casualty Consultant certifies
to Lender that Restoration has been completed in accordance with the provisions
of this Section 6.4(b) and that all approvals necessary for the re-occupancy and
use of the Property have been obtained from all appropriate Governmental
Authorities, and Lender receives evidence reasonably satisfactory to Lender that
the costs of Restoration have been paid in full or will be paid in full out of
the Casualty Retainage; provided, however, that Lender shall release the portion
of the Casualty Retainage being held with respect to any contractor,
subcontractor or materialman engaged in the Restoration as of the date upon
which the Casualty Consultant certifies to Lender that the contractor,
subcontractor or materialman has satisfactorily completed all work and has
supplied all materials in accordance with the provisions of the contractor’s,
subcontractor’s or materialman’s contract, the contractor, subcontractor or
materialman delivers the lien waivers and evidence of payment in full of all
sums due to the contractor, subcontractor or materialman as may be reasonably
requested by Lender or by the Title Company, and, provided that the State in
which the Property is located is a jurisdiction in which the priority of the
Lien of the Mortgage will not be affected by intervening mechanic’s liens, the
Lender receives an update to the Title Insurance Policy indicating the continued
priority of the Lien of the Mortgage. If required by Lender, the release of any
such portion of the Casualty Retainage shall be approved by the surety company,
if any, that has issued a payment or performance bond with respect to the
contractor, subcontractor or materialman.

 

(v) Lender shall not be obligated to make disbursements of the Net Proceeds more
frequently than once every calendar month.

 

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(vi) If at any time the Net Proceeds or the undisbursed balance thereof shall
not, in the opinion of Lender in consultation with the Casualty Consultant, be
sufficient to pay in full the balance of the costs that are estimated by the
Casualty Consultant to be incurred in connection with the completion of the
Restoration, Borrower shall deposit the deficiency (the “Net Proceeds
Deficiency”) with Lender before any further disbursement of the Net Proceeds
shall be made. The Net Proceeds Deficiency deposited with Lender shall be held
by Lender and shall be disbursed for costs actually incurred in connection with
the Restoration on the same conditions applicable to the disbursement of the Net
Proceeds, and until so disbursed pursuant to this Section 6.4(b) shall
constitute additional security for the Debt and the Other Obligations.

 

(vii) The excess, if any, of the Net Proceeds and the remaining balance, if any,
of the Net Proceeds Deficiency deposited with Lender after the Casualty
Consultant certifies to Lender that Restoration has been completed in accordance
with the provisions of this Section 6.4(b), and the receipt by Lender of
evidence satisfactory to Lender that all costs incurred in connection with the
Restoration have been paid in full, shall be remitted by Lender to Borrower,
provided no Event of Default shall have occurred and shall be continuing.

 

(c) All Net Proceeds not required (i) to be made available for Restoration, or
(ii) to be returned to Borrower as excess Net Proceeds pursuant to Section
6.4(b)(vii) may be retained and applied by Lender in accordance with Section
2.4.2 hereof toward the payment of the Outstanding Principal Balance whether or
not then due and payable in such order, priority and proportions as Lender in
its sole discretion shall deem proper, or, in the sole discretion of Lender, the
same may be paid, either in whole or in part, to Borrower for such purposes as
Lender shall approve, in its sole discretion.

 

BORROWER HEREBY ACKNOWLEDGES AND AGREES THAT IT IS AWARE OF AND UNDERSTANDS
SCHOOLCRAFT V. ROSS (81 CAL. APP. 3D 75 (1981)) AND ITS PROGENY AS WELL AS
CALIFORNIA CIVIL CODE SECTION 2924.7 AND FINANCIAL CODE SECTIONS 1227.3 AND
7462, THAT PERMIT LENDER TO REQUIRE INSURANCE BUT OBLIGATE LENDER TO ALLOW
BORROWER TO USE CASUALTY INSURANCE PROCEEDS FOR THE PURPOSE OF REPAIRING OR
RESTORING THE REAL PROPERTY PLEDGED AS SECURITY FOR THE BORROWER’S OBLIGATIONS
TO LENDER UNLESS LENDER’S SECURITY HAS BEEN IMPAIRED. BORROWER HEREBY
ACKNOWLEDGES AND AGREES THAT, IN THE EVENT OF A CASUALTY TO THE PROPERTY, IF
BORROWER FAILS TO REPAIR OR RESTORE THE PROPERTY IN A MANNER CONSISTENT WITH
THIS SECTION 6.4(c), REGARDLESS OF WHETHER SUCH FAILURE IS THE RESULT OF ANY
VOLUNTARY ACTION OR INACTION BY BORROWER, OR ANY ACT OR DETERMINATION OF ANY
GOVERNMENTAL AUTHORITY (WHETHER PURSUANT TO ANY ZONING, LAND USE OR OTHER
ORDINANCE, CODE, REGULATION OR REQUIREMENT OR OTHERWISE), SUCH FAILURE IS AND
SHALL BE DEEMED A SUBSTANTIAL IMPAIRMENT OF THE PROPERTY ENTITLING LENDER TO
APPLY THE NET INSURANCE PROCEEDS TO THE INDEBTEDNESS IN SUCH ORDER AND MANNER AS
LENDER MAY ELECT, WHETHER OR NOT DUE AND PAYABLE, WITH ANY EXCESS PAID TO
BORROWER. BY INITIALING THIS PROVISION IN THE SPACE PROVIDED BELOW, BORROWER

 

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HEREBY ACKNOWLEDGES AND AGREES THAT THE TERMS OF THIS PROVISION HAVE BEEN
SPECIFICALLY BARGAINED FOR AND ARE A MATERIAL INDUCEMENT FOR LENDER TO MAKE THE
LOAN AND WITHOUT WHICH LENDER WOULD NOT MAKE THE LOAN.

 

Borrower’s Initials:                     

 

(d) In the event of foreclosure of the Mortgage, or other transfer of title to
the Property in extinguishment in whole or in part of the Debt, all right, title
and interest of Borrower in and to the Policies that are not blanket Policies
then in force concerning the Property and all proceeds payable thereunder shall
thereupon vest in the purchaser at such foreclosure or Lender or other
transferee in the event of such other transfer of title.

 

ARTICLE 7

RESERVE FUNDS

 

Section 7.1 Required Repair Funds.

 

7.1.1 Deposits. Borrower shall perform the repairs at the Property as more
particularly set forth on Schedule II hereto and in the Property Condition
Assessment prepared by Jones, Hill, McFarland & Ellis and dated June 16, 2005
(such repairs hereinafter collectively referred to as “Required Repairs”).
Borrower shall complete the Required Repairs on or before the required deadline
for each repair as set forth on Schedule II hereto. It shall be an Event of
Default under this Agreement if (a) Borrower does not complete the Required
Repairs by the required deadline for each repair as set forth on Schedule II, or
(b) Borrower does not satisfy each condition contained in Section 7.1.2 hereof.
Upon the occurrence of such an Event of Default, Lender, at its option, may
withdraw all Required Repair Funds from the Required Repair Account and Lender
may apply such funds either to completion of the Required Repairs or toward
reduction of the Outstanding Principal Balance in such order, proportion and
priority as Lender may determine in its sole discretion. Lender’s right to
withdraw and apply Required Repair Funds shall be in addition to all other
rights and remedies provided to Lender under this Agreement and the other Loan
Documents. On the Closing Date, Borrower shall deposit with Lender $348,950.00
to perform Required Repairs. Amounts so deposited with Lender shall be held by
Lender in accordance with Section 7.5 hereof. Amounts so deposited shall
hereinafter be referred to as Borrower’s “Required Repair Funds” and the account
in which such amounts are held shall hereinafter be referred to as Borrower’s
“Required Repair Account.”

 

7.1.2 Release of Required Repair Funds. (a) Lender shall disburse to Borrower
the Required Repair Funds from the Required Repair Account from time to time,
but not more frequently than once in any thirty (30) day period, upon
satisfaction by Borrower of each of the following conditions with respect to
each disbursement: (i) Borrower shall submit a written request for payment to
Lender (with a copy to the Title Company) at least thirty (30) days prior to the
date on which Borrower requests such payment be made, which request specifies
the Required Repairs to be paid, (ii) on the date such request is received by
Lender and on the date such payment is to be made, no Default or Event of
Default shall exist and remain uncured, (iii) Lender and the Title Company shall
have received an Officer’s Certificate (A) stating that all

 

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Required Repairs to be funded by the requested disbursement have been completed
in a good and workmanlike manner and in accordance with all applicable federal,
state and local laws, rules and regulations, such Officer’s Certificate to be
accompanied by a copy of any license, permit or other approval by any
Governmental Authority required to commence and/or complete the Required
Repairs, (B) identifying each Person that supplied materials or labor in
connection with the Required Repairs to be funded by the requested disbursement,
and (C) stating that each such Person has been paid in full or will be paid in
full upon such disbursement for work completed and/or materials furnished to
date, such Officer’s Certificate to be accompanied by lien waivers or other
evidence of payment satisfactory to Lender and the Title Company, and (iv)
Lender shall have received such other evidence as Lender shall reasonably
request that the Required Repairs to be funded by the requested disbursement
have been completed and are paid for or will be paid upon such disbursement to
Borrower. Lender shall not be required to make disbursements from the Required
Repair Account unless such requested disbursement is in an amount greater than
$5,000 (or a lesser amount if the total amount in the Required Repair Account is
less than $5,000, in which case only one disbursement of the amount remaining in
the account shall be made) and such disbursement shall be made only upon
satisfaction of each condition contained in this Section 7.1.2.

 

(b) Nothing in this Section 7.1.2 shall (i) make Lender responsible for
performing or completing any Required Repairs; (ii) require Lender to expend
funds in addition to the Required Repairs Funds to complete any Required
Repairs; (iii) obligate Lender to proceed with any Required Repairs; or (iv)
obligate Lender to demand from Borrower additional sums to complete any Required
Repairs.

 

(c) Borrower shall permit Lender and Lender’s agents and representatives
(including Lender’s engineer, architect or inspector) or third parties to enter
onto the Property during normal business hours (subject to the rights of tenants
under their Leases) to inspect the progress of any Required Repairs and all
materials being used in connection therewith and to examine all plans and shop
drawings relating to such Required Repairs. Borrower shall cause all contractors
and subcontractors to cooperate with Lender or Lender’s representatives or such
other Persons described above in connection with inspections described in this
Section 7.1.2(c).

 

(d) If a disbursement will exceed $25,000.00, Lender may require an inspection
of the Property at Borrower’s expense prior to making a disbursement of Required
Repairs Funds in order to verify completion of the Required Repairs for which
reimbursement is sought. Lender may require that such inspection be conducted by
an appropriate independent qualified professional selected by Lender and may
require a certificate of completion by an independent qualified professional
architect acceptable to Lender prior to the disbursement of Required Repairs
Funds. Borrower shall pay the expense of the inspection as required hereunder,
whether such inspection is conducted by Lender or by an independent qualified
professional architect.

 

(e) In addition to any insurance required under the Loan Documents, Borrower
shall provide or cause to be provided worker’s compensation insurance, builder’s
risk, and public liability insurance and other insurance to the extent required
under applicable law in connection with the Required Repairs. All such policies
shall be in form and amount reasonably satisfactory to Lender.

 

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7.1.3 Balance in Required Repair Account. The insufficiency of any balance in
the Required Repair Account shall not relieve Borrower from its obligation to
perform the Required Repairs in a good and workmanlike manner and in accordance
with all Legal Requirements. If the repairs set forth on Schedule II are
completed and there are excess funds in the Required Repair Account, such excess
funds shall be returned to Borrower.

 

Section 7.2 Tax and Insurance Escrow Funds.

 

(a) Borrower shall pay to Lender, concurrently with the Monthly Payment due
under the Note, deposits in an amount equal to one-twelfth (1/12) of the amount
of the annual Taxes that will next become due and payable on the Property
(“Special Tax Escrow”). The provisions of Section 7.2(c) hereof with respect to
escrow for Taxes shall not be applicable until and unless Lender elects to apply
such provisions following (i) a default or failure by Borrower to pay Taxes when
due or provide evidence of such payment as required in this Agreement or (ii)
the occurrence of a Sweep Event.

 

(b) So long as Borrower maintains blanket policies of insurance in accordance
with Section 6.1 hereof, the provisions of Section 7.2(c) hereof with regard to
Insurance Premiums shall not be effective until and unless Lender elects to
apply such provisions following (i) the issuance by any insurer or its agent of
any notice of cancellation, termination, or lapse of any insurance coverage
required under Section 6.1 hereof, (ii) any cancellation, termination, or lapse
of any insurance coverage required under Section 6.1 hereof whether or not any
notice is issued, or (iii) Lender having not received from Borrower evidence of
insurance coverages as required by and in accordance with the terms of Section
6.1 hereof.

 

(c) Except as otherwise provided in Sections 7.2(a) and (b) hereof, Borrower
shall pay to Lender on each Payment Date (a) one-twelfth of the Taxes that
Lender estimates will be payable during the next ensuing twelve (12) months in
order to accumulate with Lender sufficient funds to pay all such Taxes at least
thirty (30) days prior to their respective due dates, and (b) one-twelfth of the
Insurance Premiums that Lender estimates will be payable for the renewal of the
coverage afforded by the Policies upon the expiration thereof in order to
accumulate with Lender sufficient funds to pay all such Insurance Premiums at
least thirty (30) days prior to the expiration of the Policies (the foregoing
amounts deposited with Lender on the date hereof and in clauses (a) and (b)
above are hereinafter called the “Tax and Insurance Escrow Funds”). The Tax and
Insurance Escrow Funds and the payment of the monthly Debt Service shall be
added together and shall be paid as an aggregate sum by Borrower to Lender.
Unless an Event of Default occurs and is continuing, Lender shall apply the Tax
and Insurance Escrow Funds to payments of Taxes and Insurance Premiums required
to be made by Borrower pursuant to Section 5.1.2 hereof and under the Mortgage.
In making any payment relating to the Tax and Insurance Escrow Funds, Lender may
do so according to any bill, statement or estimate procured from the appropriate
public office (with respect to Taxes) or insurer or agent (with respect to
Insurance Premiums), without inquiry into the accuracy of such bill, statement
or estimate or into the validity of any tax, assessment, sale, forfeiture, tax
lien or title or claim thereof. If the amount of the Tax and Insurance Escrow
Funds shall exceed the amounts due for Taxes and Insurance Premiums pursuant to
Section 5.1.2 hereof, Lender shall, in its sole discretion, return any excess to
Borrower or credit such excess against future payments to be made to the Tax and
Insurance Escrow Funds. Any amount remaining in the Tax and Insurance

 

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Escrow Funds after the Debt has been paid in full shall be returned to Borrower.
In allocating such excess, Lender may deal with the Person shown on the records
of Lender to be the owner of the Property. If at any time Lender reasonably
determines that the Tax and Insurance Escrow Funds are not or will not be
sufficient to pay Taxes and Insurance Premiums by the dates set forth in (a) and
(b) above, Lender shall notify Borrower of such determination and Borrower shall
increase its monthly payments to Lender by the amount that Lender estimates is
sufficient to make up the deficiency at least thirty (30) days prior to the due
date of the Taxes and/or thirty (30) days prior to expiration of the Policies,
as the case may be.

 

Section 7.3 FF&E Reserve.

 

7.3.1 FF&E Reserve Funds. Following a DSCR Failure and for so long as a DSCR
Failure continues, Borrower shall pay to Lender on each Payment Date, for
deposit in an FF&E Reserve Account (“FF&E Reserve Account”), the sum of
$70,833.00 (the “FF&E Reserve Monthly Deposit”) for the repair and replacement
of the FF&E until the amount in the FF&E Reserve Account equals $2,550,000.00
(“Target Escrow Balance”), provided, however, that if the Target Escrow Balance
is achieved but funds are subsequently disbursed so that the balance in the FF&E
Reserve Account is less than the Target Escrow Balance, Borrower shall be
required to resume paying the FF&E Reserve Monthly Deposit on each Payment Date
until the Target Escrow Balance has again been achieved. Amounts deposited in
the FF&E Reserve Account shall hereinafter be referred to as the “FF&E Reserve
Funds”. Lender may reassess its estimate of the amount necessary for the FF&E
Reserve Funds from time to time, and may increase the monthly amounts required
to be deposited into the FF&E Reserve Account upon thirty (30) days notice to
Borrower if Lender determines in its reasonable discretion that an increase is
necessary to maintain the proper maintenance and operation of the Property.

 

7.3.2 Disbursements from FF&E Reserve Account. Lender shall (except after the
occurrence of a Default) make disbursements from the FF&E Reserve Account as
requested by Borrower, and approved by Lender in its sole discretion, no more
frequently than once in any thirty (30) day period and of no less than $5,000.00
per disbursement, upon delivery by Borrower of Lender’s standard form of draw
request accompanied by copies of paid invoices for the amounts requested and, if
required by Lender for requests in excess of $100,000.00 for a single item, lien
waivers and releases from all parties furnishing materials and/or services in
connection with the requested payment. Lender may require an inspection of the
Property at Borrower’s expense prior to making a monthly disbursement in order
to verify completion of replacements and repairs of items in excess of
$100,000.00 for which reimbursement is sought. Following the occurrence of a
Default, Lender shall make disbursements from the FF&E Reserve Account as
requested by Borrower only for repairs and replacements of FF&E which (i) are of
an emergency nature as determined by Lender in its sole discretion or (ii) or
were approved by Lender prior to the occurrence of the Default.

 

7.3.3 Balance in the FF&E Account. The insufficiency of any balance in the FF&E
Reserve Account shall not relieve Borrower from its obligation to fulfill all
preservation and maintenance covenants in the Loan Documents.

 

Section 7.4 Mold Remediation Reserve. On or before June 30, 2006 (the “Mold
Remediation Date”) Borrower shall complete each of the following (collectively,
the “Mold

 

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Remediation”) in accordance with all Legal Requirements and the recommendations
contained within the Phase I and Industrial Hygiene Observation Report issued by
Jones, Hill, McFarland & Ellis and Professional Service Industries, Inc., dated
May 18, 2005, and June 23, 2005, respectively (collectively, “Phase I”): (i)
reseal all window seats and window components as needed to properly deter the
entrance of moisture; (ii) clean all visible mold and replace all wallpaper in
the area of the windows that have been impacted by mold; (iii) inspect guest
rooms 415 and 1711 to determine if there is a plumbing leak, and if so, to
complete the necessary repairs; (iv) install water proof covering in the
bathroom shower area walls in each guest room; and (v) install sprinkler guards
on overhead sprinklers in each guest room closet.

 

On the Closing Date, Borrower shall deposit with Lender $56,250.00 (“Mold
Remediation Funds”) to perform the Mold Remediation. Amounts so deposited with
Lender shall be held by Lender in accordance with the terms hereof and disbursed
upon timely satisfaction of the following (collectively, the “Mold Remediation
Disbursement Requirements”) on or before the Mold Remediation Date: (i) no Event
of Default shall have occurred and no event shall have occurred that with the
passage of time or delivery of notice would be deemed an Event of Default; (ii)
Borrower shall have delivered to Lender evidence satisfactory to Lender
indicating that the Mold Remediation has been completed in a workmanlike manner
and in accordance with all Legal Requirements, which evidence shall include a
letter or certificate issued by the entity that issued the Phase I or another
environmental consultant acceptable to Lender in its discretion; and (iii)
Borrower shall have submitted to Lender copies of all bills, invoices, work
orders, purchase orders, checks, and all other documentation explaining the work
performed, the cost of the material and labor therefor, and evidence of full
payment.

 

If the Mold Remediation Disbursement Requirements are not timely satisfied, the
Mold Remediation Funds may in Lender’s discretion (i) be held by Lender for the
term of the Loan as additional security for the Obligations or (ii) applied by
Lender to complete the Mold Remediation.

 

Upon the occurrence of an Event of Default hereunder, Lender, at its option, may
withdraw all Mold Remediation Funds from the account in which the Required
Repair Funds are held (“Mold Remediation Account”) and Lender may apply such
funds either to completion of the Mold Remediation or toward reduction of the
Outstanding Principal Balance in such order, proportion and priority as Lender
may determine in its sole discretion. Lender’s right to withdraw and apply the
Mold Remediation Funds shall be in addition to all other rights and remedies
provided to Lender under this Agreement and the other Loan Documents.

 

Section 7.5 Reserve Funds, Generally.

 

(a) Borrower grants to Lender a first-priority perfected security interest in
all of the Reserve Funds and any and all monies now or hereafter deposited in
each Reserve Fund as additional security for the Obligations. Until expended or
applied in accordance herewith, the Reserve Funds shall constitute additional
security for payment of the Obligations. Upon the occurrence of an Event of
Default, Lender may, in addition to any and all other rights and remedies
available to Lender, apply any sums then present in any or all of the Reserve
Funds to the reduction of the Outstanding Principal Balance in any order in its
sole discretion. The Reserve Funds shall not constitute trust funds and may be
commingled with other monies held by Lender.

 

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(b) Borrower shall not, without obtaining the prior consent of Lender, further
pledge, assign or grant any security interest in any Reserve Fund or the monies
deposited therein or permit any lien or encumbrance to attach thereto, or any
levy to be made thereon, or any UCC-1 Financing Statements, except those naming
Lender as the secured party, to be filed with respect thereto.

 

(c) The Reserve Funds shall be held in an Eligible Account and shall bear
interest at a money market rate selected by Lender. All interest or other
earnings on a Reserve Fund shall be added to and become a part of such Reserve
Fund and shall be disbursed in the same manner as other monies deposited in such
Reserve Fund, except that all interest or other earnings on the Tax and
Insurance Escrow Funds shall be retained by Lender. Borrower shall have the
right to direct Lender to invest sums on deposit in the Eligible Account in
Permitted Investments provided (a) such investments are then regularly offered
by Lender for accounts of this size, category and type, (b) such investments are
permitted by applicable federal, state and local rules, regulations and laws,
(c) the maturity date of the Permitted Investment is not later than the date on
which the applicable Reserve Funds are required for payment of an obligation for
which such Reserve Fund was created, and (d) no Event of Default shall have
occurred and be continuing. Borrower shall be responsible for payment of any
federal, state or local income or other tax applicable to the interest or income
earned on the Reserve Funds. No other investments of the sums on deposit in the
Reserve Funds shall be permitted except as set forth in this Section 7.4.
Borrower shall bear all reasonable costs associated with the investment of the
sums in the account in Permitted Investments. Such costs shall be deducted from
the income or earnings on such investment, if any, and to the extent such income
or earnings shall not be sufficient to pay such costs, such costs shall be paid
by Borrower promptly on demand by Lender. Lender shall have no liability for the
rate of return earned or losses incurred on the investment of the sums in
Permitted Investments.

 

(d) Borrower shall indemnify Lender and hold Lender harmless from and against
any and all actions, suits, claims, demands, liabilities, losses, damages,
obligations and costs and expenses (including litigation costs and reasonable
attorneys fees and expenses) arising from or in any way connected with the
Reserve Funds or the performance of the obligations for which the Reserve Funds
were established. Borrower shall assign to Lender all rights and claims Borrower
may have against all Persons supplying labor, materials or other services that
are to be paid from or secured by the Reserve Funds; provided, however, that
Lender may not pursue any such right or claim unless an Event of Default has
occurred and remains uncured.

 

ARTICLE 8

DEFAULTS

 

Section 8.1 Event of Default.

 

(a) Each of the following events shall constitute an event of default hereunder
(an “Event of Default”):

 

(i) if any portion of the Debt is not paid when due;

 

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(ii) if any Other Obligation is not performed in accordance with the terms and
conditions of this Agreement and the other Loan Documents;

 

(iii) if any of the Taxes are not paid when the same are due and payable or the
Other Charges are not paid prior to delinquency;

 

(iv) if the Policies are not kept in full force and effect, or if certified
copies of the Policies are not delivered to Lender upon request;

 

(v) if any Transfer is made in violation of the terms of this Agreement or any
other Loan Document;

 

(vi) if any representation or warranty made by, or on behalf of, Borrower or any
other Significant Party herein or in any other Loan Document, or in any report,
certificate, Financial Statement or other instrument, agreement or document
furnished to Lender shall have been false or misleading in any material respect
as of the date the representation or warranty was made;

 

(vii) if any Significant Party shall make an assignment for the benefit of
creditors;

 

(viii) if a receiver, liquidator or trustee shall be appointed for any
Significant Party, or if any Significant Party shall be adjudicated a bankrupt
or insolvent, or if any petition for bankruptcy, reorganization or arrangement
pursuant to federal bankruptcy law, or any similar federal or state law, shall
be filed by or against, consented to, or acquiesced in by, any Significant
Party, or if any proceeding for the dissolution or liquidation of any
Significant Party shall be instituted; provided, however, if such appointment,
adjudication, petition or proceeding was involuntary and not consented to by
such Significant Party, upon the same not being discharged, stayed or dismissed
within sixty (60) days;

 

(ix) if Borrower attempts to assign its rights under this Agreement or any of
the other Loan Documents or any interest herein or therein in contravention of
the Loan Documents;

 

(x) if Borrower breaches any of its respective negative covenants contained in
Section 5.2 (which breach is not cured after ten (10) days notice from Lender)
or any covenant contained in Section 4.1.30 or Section 5.1.11 hereof;

 

(xi) with respect to any term, covenant or provision set forth herein that
specifically contains a notice requirement or grace period, if Borrower shall be
in default under such term, covenant or condition after the giving of such
notice or the expiration of such grace period;

 

(xii) if any of the assumptions contained in the Insolvency Opinion delivered to
Lender in connection with the Loan, or in the Additional Insolvency Opinion
delivered subsequent to the closing of the Loan, is or shall become untrue in
any material respect;

 

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(xiii) if a material default has occurred and continues beyond any applicable
cure period under the Management Agreement (or any Replacement Management
Agreement) and if such default permits the Manager thereunder to terminate or
cancel the Management Agreement (or any Replacement Management Agreement);

 

(xiv) if a material default by Operating Tenant and/or Borrower has occurred and
continues beyond any applicable cure period under the Operating Lease;

 

(xv) if Borrower shall continue to be in default under any of the other terms,
covenants or conditions of this Agreement not specified in subsections (i) to
(xiv) above, for ten (10) days after notice to Borrower from Lender, in the case
of any Default that can be cured by the payment of a sum of money, or for thirty
(30) days after notice from Lender in the case of any other default; provided,
however, that if such non-monetary default is susceptible of cure but cannot
reasonably be cured within such thirty (30) day period and provided further that
Borrower shall have commenced to cure such default within such thirty (30) day
period and thereafter diligently and expeditiously proceeds to cure the same,
such thirty (30) day period shall be extended for such time as is reasonably
necessary for Borrower in the exercise of due diligence to cure such default,
such additional period not to exceed sixty (60) days;

 

(xvi) [INTENTIONALLY OMITTED];

 

(xvii) if (a) at any time Borrower shall fail to cause all Borrower Rents to be
paid directly to the Deposit Account as provided herein and in the Cash
Management Agreement and the Lockbox Agreement, or (b) Borrower and/or Operating
Tenant shall fail to cause all Operating Tenant Rents to be paid directly to the
Deposit Account as provided herein and in the Cash Management Agreement and the
Lockbox Agreement;

 

(xviii) if there shall be default under any of the other Loan Documents beyond
any applicable cure periods contained in such documents, whether as to Borrower
or the Property, or if any other such event shall occur or condition shall
exist, if the effect of such event or condition is to accelerate the maturity of
any portion of the Debt or to permit Lender to accelerate the maturity of all or
any portion of the Debt;

 

(xvix) if Borrower or Operating Tenant ceases to operate a hotel on the Property
or terminates such business for any reason whatsoever;

 

(xvx) if a Notice of Default (as defined in the Grant Deed) is issued by the
Glendale Redevelopment Agency in accordance with the terms of the Grant Deed
from Glendale Redevelopment Agency recorded July 17, 1990, as Instrument No.
90-1246378 (“Grant Deed”).

 

(b) Upon the occurrence of an Event of Default (other than an Event of Default
described in clauses (vi), (vii) or (viii) above) and at any time thereafter, in
addition to

 

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any other rights or remedies available to it pursuant to this Agreement and the
other Loan Documents or at law or in equity, Lender may take such action,
without notice or demand, that Lender deems advisable to protect and enforce its
rights against Borrower and in and to the Property, including, without
limitation, declaring the Obligations to be immediately due and payable, and
Lender may enforce or avail itself of any or all rights or remedies provided in
the Loan Documents against Borrower and the Property, including, without
limitation, all rights or remedies available at law or in equity; and upon any
Event of Default described in clauses (vi), (vii) or (viii) above, the Debt and
all Other Obligations hereunder and under the other Loan Documents shall
immediately and automatically become due and payable, without notice or demand,
and Borrower hereby expressly waives any such notice or demand, anything
contained herein or in any other Loan Document to the contrary notwithstanding.

 

Section 8.2 Remedies.

 

(a) Upon the occurrence of an Event of Default, all or any one or more of the
rights, powers, privileges and other remedies available to Lender against
Borrower under this Agreement or any of the other Loan Document executed and
delivered by, or applicable to, Borrower or at law or in equity may be exercised
by Lender at any time and from time to time, whether or not all or any of the
Debt shall be declared due and payable, and whether or not Lender shall have
commenced any foreclosure proceeding or other action for the enforcement of its
rights and remedies under any of the Loan Documents. Any such actions taken by
Lender shall be cumulative and concurrent and may be pursued independently,
singularly, successively, together or otherwise, at such time and in such order
as Lender may determine in its sole discretion, to the fullest extent permitted
by law, without impairing or otherwise affecting the other rights and remedies
of Lender permitted by law, equity or contract or as set forth herein or in the
other Loan Documents. Without limiting the generality of the foregoing, Borrower
agrees that if an Event of Default is continuing (i) Lender shall not be subject
to any “one action” or “election of remedies” law or rule, and (ii) all liens
and other rights, remedies or privileges provided to Lender shall remain in full
force and effect until Lender has exhausted all of its remedies against the
Property and the Mortgage has been foreclosed, sold and/or otherwise realized
upon in satisfaction of the Debt or the Obligations have been paid in full.

 

(b) Lender shall have the right from time to time to sever the Note and the
other Loan Documents into one or more separate notes, mortgages and other
security documents (the “Severed Loan Documents”) in such denominations as
Lender shall determine in its sole discretion for purposes of evidencing and
enforcing its rights and remedies provided hereunder. Borrower shall execute and
deliver to Lender from time to time, promptly after the request of Lender, a
severance agreement and such other documents as Lender shall request in order to
effect the severance described in the preceding sentence, all in form and
substance reasonably satisfactory to Lender. Borrower hereby absolutely and
irrevocably appoints Lender as its true and lawful attorney, coupled with an
interest, in its name and stead to make and execute all documents necessary or
desirable to effect the aforesaid severance, Borrower ratifying all that its
said attorney shall do by virtue thereof; provided, however, Lender shall not
make or execute any such documents under such power until three (3) days after
notice has been given to Borrower by Lender of Lender’s intent to exercise its
rights under such power. Except as may be required in connection with a
Securitization pursuant to Section 9.1 hereof, (i) Borrower shall not be
obligated to pay any costs or expenses incurred in connection with the
preparation, execution,

 

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recording or filing of the Severed Loan Documents, and (ii) the Severed Loan
Documents shall not contain any representations, warranties or covenants not
contained in the Loan Documents and any such representations and warranties
contained in the Severed Loan Documents shall be given by Borrower only as of
the Closing Date.

 

(c) Lender shall have the right from time to time to partially foreclose the
Mortgage in any manner and for any amounts secured by the Mortgage then due and
payable as determined by Lender in its sole discretion, including the following
circumstances: (i) in the event Borrower defaults beyond any applicable grace
period in the payment of one or more scheduled payments of principal and/or
interest, Lender may foreclose the Mortgage to recover such delinquent payments,
or (ii) in the event Lender elects to accelerate less than the entire
Outstanding Principal Balance, Lender may foreclose the Mortgage to recover so
much of the Debt as Lender may accelerate and such other sums secured by the
Mortgage as Lender may elect. Notwithstanding one or more partial foreclosures,
the Property shall remain subject to the Mortgage to secure payment of sums
secured by the Mortgage and not previously recovered.

 

(d) Any amounts recovered from the Property or any other collateral for the Loan
after an Event of Default may be applied by Lender toward the payment of any
interest and/or principal of the Loan and/or any other amounts due under the
Loan Documents in such order, priority and proportions as Lender in its sole
discretion shall determine.

 

(e) Without limiting the generality of the foregoing or otherwise impairing or
affecting the other rights and remedies of Lender permitted by law, equity or
contract or as set forth herein or in the other Loan Documents, Borrower agrees
that if an Event of Default has occurred and is continuing, Lender shall have
the right to immediately draw down in full upon any letter of credit delivered
by, or on behalf of Borrower pursuant to the terms of this Agreement or any of
the other Loan Documents, and apply the proceeds of such draw towards the
payment of any interest and/or principal of the Loan and/or any other amounts
due under the Loan Documents in such order, priority and proportions as Lender
in its sole discretion shall determine.

 

(f) Remedies Cumulative; Waivers. The rights, powers and remedies of Lender
under this Agreement shall be cumulative and not exclusive of any other right,
power or remedy that Lender may have against Borrower pursuant to this Agreement
or the other Loan Documents, or existing at law or in equity or otherwise.
Lender’s rights, powers and remedies may be pursued singularly, concurrently or
otherwise at such time and in such order as Lender may determine in Lender’s
sole discretion. No delay or omission to exercise any remedy, right or power
accruing upon an Event of Default shall impair any such remedy, right or power
or shall be construed as a waiver thereof, but any such remedy, right or power
may be exercised from time to time and as often as may be deemed expedient. A
waiver of one Default or Event of Default with respect to Borrower shall not be
construed to be a waiver of any subsequent Default or Event of Default by
Borrower or to impair any remedy, right or power consequent thereon.

 

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ARTICLE 9

SPECIAL PROVISIONS

 

Section 9.1 Sale of Note and Securitization. Borrower acknowledges and agrees
that Lender may sell all or any portion of the Loan and the Loan Documents, or
issue one or more participations therein, or consummate one or more private or
public securitizations of rated single- or multi-class securities (the
“Securities”) secured by or evidencing ownership interests in all or any portion
of the Loan and the Loan Documents or a pool of assets that include the Loan and
the Loan Documents (such sales, participations and/or securitizations,
collectively, a “Securitization”). At the request of Lender, and to the extent
not already required to be provided by Borrower under this Agreement, Borrower
shall use reasonable efforts to provide information not in the possession of
Lender or that may be reasonably required by Lender in order to satisfy the
market standards to which Lender customarily adheres or that may be reasonably
required by prospective investors and/or the Rating Agencies in connection with
any such Securitization including, without limitation, to:

 

(a) provide additional and/or updated Provided Information, together with
appropriate verification and/or consents related to the Provided Information
through letters of auditors or opinions of counsel of independent attorneys
reasonably acceptable to Lender and the Rating Agencies;

 

(b) assist in preparing descriptive materials for presentations to any or all of
the Rating Agencies, and work with, and if requested, supervise, third-party
service providers engaged by Borrower, Principal and their respective affiliates
to obtain, collect, and deliver information requested or required by Lender or
the Rating Agencies;

 

(c) if required by the Rating Agencies, deliver (i) updated opinions of counsel
as to non-consolidation, due execution and enforceability with respect to the
Property, Borrower, Principal and their respective Affiliates and the Loan
Documents, and (ii) revised organizational documents for Borrower, which counsel
opinions and organizational documents shall be reasonably satisfactory to Lender
and the Rating Agencies;

 

(d) if required by any Rating Agency, use commercially reasonable efforts to
deliver such additional tenant estoppel letters, subordination agreements or
other agreements from parties to agreements that affect the Property, which
estoppel letters, subordination agreements or other agreements shall be
reasonably satisfactory to Lender and the Rating Agencies;

 

(e) make such representations and warranties as of the closing date of the
Securitization with respect to the Property, Borrower, Principal and the Loan
Documents as may be reasonably requested by Lender or the Rating Agencies and
consistent with the facts covered by such representations and warranties as they
exist on the date thereof, including the representations and warranties made in
the Loan Documents;

 

(f) execute such amendments to the Loan Documents as may be requested by Lender
or the Rating Agencies to effect the Securitization and/or deliver one or more
new component notes to replace the original note or modify the original note to
reflect multiple

 

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components of the Loan (and such new notes or modified note shall have the same
initial weighted average coupon of the original note, but such new notes or
modified note may not change the weighted interest rate or amortization of the
Loan), and modify the Cash Management Agreement with respect to the newly
created components such that the pricing and marketability of the Securities and
the size of each class of Securities and the rating assigned to each such class
by the Rating Agencies shall provide the most favorable rating levels and
achieve the optimum rating levels for the Loan;

 

(g) if requested by Lender, review any information regarding the Property,
Borrower, Principal, the Manager and the Loan that is contained in a preliminary
or final private placement memorandum, prospectus, prospectus supplement
(including any amendment or supplement to either thereof), or other disclosure
document to be used by Lender or any affiliate thereof; and

 

(h) supply to Lender such documentation, financial statements and reports
concerning Borrower, Principal, Guarantor, the Loan and/or the Property in form
and substance required in order to comply with any applicable securities laws.

 

All reasonable third party costs and expenses incurred by Borrower or Lender in
connection with Borrower’s complying with requests made under this Section 9.1
(including, without limitation, the fees and expenses of the Rating Agencies)
shall be paid by Borrower, not to exceed the Securitization Cost Cap.

 

Section 9.2 Securitization Indemnification.

 

(a) Borrower understands that certain of the Provided Information may be
included in Disclosure Documents in connection with the Securitization and may
also be included in filings with the Securities and Exchange Commission pursuant
to the Securities Act of 1933, as amended (the “Securities Act”), or the
Securities and Exchange Act of 1934, as amended (the “Exchange Act”), or
provided or made available to investors or prospective investors in the
Securities, the Rating Agencies, and service providers relating to the
Securitization. In the event that the Disclosure Document is required to be
revised prior to the sale of all Securities, Borrower shall cooperate with the
holder of the Note in updating the Disclosure Document by providing all current
information necessary to keep the Disclosure Document accurate and complete in
all material respects.

 

(b) The Indemnifying Persons agree to provide, in connection with the
Securitization, an indemnification agreement (i) certifying that (A) the
Indemnifying Persons have carefully examined the Disclosure Documents,
including, without limitation, the sections entitled “Risk Factors,” “Special
Considerations,” “Description of the Mortgages,” “Description of the Mortgage
Loans and Mortgaged Property,” “The Manager,” “The Borrower” and “Certain Legal
Aspects of the Mortgage Loan,” and (B) such sections and such other information
in the Disclosure Documents (to the extent such information relates to or
includes any Provided Information or any information regarding the Property,
Borrower, Manager and/or the Loan) (collectively with the Provided Information,
the “Covered Disclosure Information”) do not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements made, in the light of the circumstances under which they were made,
not

 

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misleading, (ii) jointly and severally indemnifying Lender, KeyBank (whether or
not it is Lender), any Affiliate of KeyBank that has filed any registration
statement relating to the Securitization or has acted as the sponsor or
depositor in connection with the Securitization, any Affiliate of KeyBank that
acts as an underwriter, placement agent or initial purchaser of Securities
issued in the Securitization, any other co-underwriters, co-placement agents or
co-initial purchasers of Securities issued in the Securitization, and each of
their respective officers, directors, partners, employees, representatives,
agents and Affiliates and each Person or entity who controls any such Person
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act (collectively, the “Indemnified Persons”), for any losses, claims,
damages, liabilities, costs or expenses (including without limitation legal fees
and expenses for enforcement of these obligations (collectively, the
“Liabilities”)) to which any such Indemnified Person may become subject insofar
as the Liabilities arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Covered
Disclosure Information or arise out of or are based upon the omission or alleged
omission to state in the Covered Disclosure Information a material fact required
to be stated therein or necessary in order to make the statements in the Covered
Disclosure Information, in light of the circumstances under which they were
made, not misleading and (iii) agreeing to reimburse each Indemnified Person for
any legal or other expenses incurred by such Indemnified Person, as they are
incurred, in connection with investigating or defending the Liabilities. This
indemnity agreement shall be in addition to any liability that Borrower may
otherwise have. Moreover, the indemnification provided for in clauses (ii) and
(iii) above shall be effective whether or not an indemnification agreement
described in clause (i) above is provided.

 

(c) In connection with filings under the Exchange Act, the Indemnifying Persons
jointly and severally agree to indemnify (i) the Indemnified Persons for
Liabilities to which any such Indemnified Person may become subject insofar as
the Liabilities arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact in the Covered Disclosure Information, or
the omission or alleged omission to state in the Covered Disclosure Information
a material fact required to be stated therein or necessary in order to make the
statements in the Covered Disclosure Information, in light of the circumstances
under which they were made, not misleading and (ii) reimburse each Indemnified
Person for any legal or other expenses incurred by such Indemnified Persons, as
they are incurred, in connection with defending or investigating the
Liabilities.

 

(d) Promptly after receipt by an Indemnified Person of notice of any claim or
the commencement of any action, the Indemnified Person shall, if a claim in
respect thereof is to be made against any Indemnifying Person, notify such
Indemnifying Person in writing of the claim or the commencement of that action;
provided, however, that the failure to notify such Indemnifying Person shall not
relieve it from any liability that it may have under the indemnification
provisions of this Section 9.2 except to the extent that it has been materially
prejudiced by such failure and, provided further that the failure to notify such
Indemnifying Person shall not relieve it from any liability that it may have to
an Indemnified Person otherwise than under the provisions of this Section 9.2.
If any such claim or action shall be brought against an Indemnified Person, and
it shall notify any Indemnifying Person thereof, such Indemnifying Person shall
be entitled to participate therein and, to the extent that it wishes, assume the
defense thereof with counsel reasonably satisfactory to the Indemnified Person.
After notice from any Indemnifying Person to the Indemnified Person of its
election to assume the defense of such

 

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claim or action, such Indemnifying Person shall not be liable to the Indemnified
Person for any legal or other expenses subsequently incurred by the Indemnified
Person in connection with the defense thereof except as provided in the
following sentence; provided, however, if the defendants in any such action
include both an Indemnifying Person, on the one hand, and one or more
Indemnified Persons on the other hand, and an Indemnified Person shall have
reasonably concluded that there are any legal defenses available to it and/or
other Indemnified Persons that are different or in addition to those available
to the Indemnifying Person, the Indemnified Person or Persons shall have the
right to select separate counsel to assert such legal defenses and to otherwise
participate in the defense of such action on behalf of such Indemnified Person
or Persons. The Indemnified Person shall instruct its counsel to maintain
reasonably detailed billing records for fees and disbursements for which such
Indemnified Person is seeking reimbursement hereunder and shall submit copies of
such detailed billing records to substantiate that such counsel’s fees and
disbursements are solely related to the defense of a claim for which the
Indemnifying Person is required hereunder to indemnify such Indemnified Person.
No Indemnifying Person shall be liable for the expenses of more than one (1)
such separate counsel unless any Indemnified Person shall have reasonably
concluded that there may be legal defenses available to it that are different
from or additional to those available to any Indemnifying Person.

 

(e) Without the prior consent of KeyBank (which consent shall not be
unreasonably withheld), no Indemnifying Person shall settle or compromise or
consent to the entry of any judgment in any pending or threatened claim, action,
suit or proceeding in respect of which indemnification may be sought hereunder
(whether or not any Indemnified Person is an actual or potential party to such
claim, action, suit or proceeding) unless the Indemnifying Person shall have
given KeyBank reasonable prior notice thereof and shall have obtained an
unconditional release of each Indemnified Person hereunder from all liability
arising out of such claim, action, suit or proceeding. As long as an
Indemnifying Person has complied with its obligations to defend and indemnify
hereunder, such Indemnifying Person shall not be liable for any settlement made
by any Indemnified Person without the consent of such Indemnifying Person (which
consent shall not be unreasonably withheld).

 

(f) The Indemnifying Persons agree that if any indemnification or reimbursement
sought pursuant to this Section 9.2 is finally judicially determined to be
unavailable for any reason or is insufficient to hold any Indemnified Person
harmless (with respect only to the Liabilities that are the subject of this
Section 9.2), then the Indemnifying Persons, on the one hand, and such
Indemnified Person, on the other hand, shall contribute to the Liabilities for
which such indemnification or reimbursement is held unavailable or is
insufficient: (x) in such proportion as is appropriate to reflect the relative
benefits to the Indemnifying Persons, on the one hand, and such Indemnified
Person, on the other hand, from the transactions to which such indemnification
or reimbursement relates; or (y) if the allocation provided by clause (x) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (x) but also the
relative faults of the Indemnifying Persons, on the one hand, and all
Indemnified Persons, on the other hand, as well as any other equitable
considerations. Notwithstanding the provisions of this Section 9.2, (A) no party
found liable for a fraudulent misrepresentation shall be entitled to
contribution from any other party who is not also found liable for such
fraudulent misrepresentation, and (B) the Indemnifying Persons agree that in no
event shall the amount to be contributed by the Indemnified Persons collectively
pursuant to this paragraph exceed the amount of the fees (by underwriting
discount or otherwise) actually received by the Indemnified Persons in
connection with the closing of the Loan or the Securitization.

 

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(g) The Indemnifying Persons agree that the indemnification, contribution and
reimbursement obligations set forth in this Section 9.2 shall apply whether or
not any Indemnified Person is a formal party to any lawsuits, claims or other
proceedings. The Indemnifying Persons further agree that the Indemnified Persons
are intended third party beneficiaries under this Section 9.2.

 

(h) The rights, liabilities and obligations of the Indemnified Persons and the
Indemnifying Persons under this Section 9.2 shall survive the termination of
this Agreement and the satisfaction and discharge of the Obligations.

 

(i) Notwithstanding anything to the contrary contained herein, Borrower shall
have no obligation to act as depositor with respect to the Loan or an issuer or
registrant with respect to the Securities issued in any Securitization.

 

Section 9.3 Several Liability of Operating Tenant. Notwithstanding anything
herein to the contrary, the personal liability of Operating Tenant under this
Agreement shall be several rather than joint and several; provided however, such
several personal liability shall not (i) be interpreted to derogate from
Operating Tenant’s grant of a security interest in the Rents, Leases or any
other Collateral (as defined in the Security Agreement) to secure the
obligations of Borrower, or (ii) impair the exercise by Lender of its rights and
remedies hereunder or under any other Loan Document with respect to all of the
security for the Loan.

 

Section 9.4 Exculpation. Subject to the qualifications below, Lender shall not
enforce the liability and obligation of Borrower to perform and observe the
obligations contained in the Note, this Agreement, the Mortgage or the other
Loan Documents by any action or proceeding wherein a money judgment shall be
sought against Borrower, except that Lender may bring a foreclosure action, an
action for specific performance or any other appropriate action or proceeding to
enable Lender to enforce and realize upon its interest under the Note, this
Agreement, the Mortgage and the other Loan Documents, or in the Property, the
Rents, or any other collateral given to Lender pursuant to the Loan Documents;
provided, however, that, except as specifically provided herein, any judgment in
any such action or proceeding shall be enforceable against Borrower only to the
extent of Borrower’s interest in the Property, in the Rents and in any other
collateral given to Lender, and Lender, by accepting the Note, this Agreement,
the Mortgage and the other Loan Documents, agrees that it shall not sue for,
seek or demand any deficiency judgment against Borrower in any such action or
proceeding under, or by reason of, or in connection with, the Note, this
Agreement, the Mortgage or the other Loan Documents. The provisions of this
Section shall not, however, (a) constitute a waiver, release or impairment of
any obligation evidenced or secured by any of the Loan Documents; (b) impair the
right of Lender to name Borrower as a party defendant in any action or suit for
foreclosure and sale under the Mortgage; (c) affect the validity or
enforceability of or any Guaranty made in connection with the Loan or any of the
rights and remedies of Lender thereunder; (d) impair the right of Lender to
obtain the appointment of a receiver; (e) impair the enforcement of the
Assignment of Leases or the Security Assignment of Operating Lease; (f)
constitute a prohibition against Lender to seek a deficiency judgment against
Borrower in order to fully realize the

 

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security granted by the Mortgage or to commence any other appropriate action or
proceeding in order for Lender to exercise its remedies against the Property; or
(g) constitute a waiver of the right of Lender to enforce the liability and
obligation of Borrower, by money judgment or otherwise, to the extent of any
loss, damage, cost, expense, liability, claim or other obligation incurred by
Lender (including attorneys’ fees and costs reasonably incurred) arising out of
or in connection with the following:

 

(i) fraud or intentional misrepresentation by any Significant Party in
connection with the Loan, including by reason of any claim under RICO;

 

(ii) the gross negligence or willful misconduct of Borrower or Operating Tenant;

 

(iii) the breach of any representation, warranty, covenant or indemnification
provision in the Environmental Indemnity Agreement or in the Mortgage concerning
environmental laws, hazardous substances or asbestos and any indemnification of
Lender with respect thereto in either document;

 

(iv) the wrongful removal or destruction of any portion of the Property by
Borrower, Operating Tenant or any party acting on behalf of Borrower and/or
Operating Tenant after an Event of Default;

 

(v) any Legal Requirement (including RICO) mandating the forfeiture by Borrower
of the Property, or any portion thereof, because of the conduct or purported
conduct of criminal activity by Borrower or any Significant Party in connection
therewith;

 

(vi) any material misrepresentation, miscertification or breach of warranty by
Borrower or Operating Tenant with respect to any representation, warranty or
certification contained in this Agreement or any other Loan Document or in any
document executed in connection therewith, pursuant to any of the Loan Documents
or otherwise to induce Lender to make the Loan, or any advance thereof, or to
release monies from any account held by Lender (including any reserve or escrow)
or to take other action with respect to the Collateral (as defined in the
Mortgage);

 

(vii) the misappropriation or conversion by or on behalf of Borrower or
Operating Tenant of (A) any Insurance Proceeds paid by reason of any Casualty,
(B) any Awards received in connection with a Condemnation, (C) any Rents
following an Event of Default, or (D) any Rents paid more than one (1) month in
advance;

 

(viii) failure to pay charges for labor or materials or other charges which
become Liens on of the Property which were prior to the Lien of the Mortgage;

 

(ix) any security deposits, advance deposits or any other deposits collected
with respect to the Property which are not delivered to Lender upon a
foreclosure of the Property or action in lieu thereof, except to the extent any
such security deposits were applied in accordance with the terms and conditions
of any of the Leases prior to the occurrence of the Event of Default that gave
rise to such foreclosure or action in lieu thereof; and

 

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(x) if any Significant Party fails to provide financial information in
accordance with Section 5.1.11 hereof

 

Notwithstanding anything to the contrary in this Agreement, the Note or any of
the Loan Documents, (A) Lender shall not be deemed to have waived any right
which Lender may have under Section 506(a), 506(b), 1111(b) or any other
provisions of the U.S. Bankruptcy Code to file a claim for the full amount of
the Debt secured by the Mortgage or to require that all collateral shall
continue to secure all of the Obligations in accordance with the Loan Documents,
and (B) the Debt shall be fully recourse to Borrower (i) in the event of: (a)
Borrower and/or Operating Tenant filing a voluntary petition under the
Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (b)
Borrower and/or Operating Tenant, or any Person acting on behalf of Borrower
and/or Operating Tenant, soliciting or causing to be solicited petitioning
creditors for any involuntary petition against Borrower and/or Operating Tenant
from any Person; (c) Borrower and/or Operating Tenant filing an answer
consenting to or otherwise acquiescing in or joining in any involuntary petition
filed against it, by any other Person under the Bankruptcy Code or any other
Federal or state bankruptcy or insolvency law, or soliciting or causing to be
solicited petitioning creditors for any involuntary petition from any Person;
(d) Borrower and/or Operating Tenant consenting to or acquiescing in or joining
in an application for the appointment of a custodian, receiver, trustee, or
examiner for Borrower, Operating Tenant or any portion of the Property; (e)
Borrower and/or Operating Tenant making an assignment for the benefit of
creditors, or admitting, in writing or in any legal proceeding, its insolvency
or inability to pay its debts as they become due; (ii) if Borrower and/or
Operating Tenant fails to maintain its status as a Single Purpose Entity; (iii)
if Borrower and/or Operating Tenant fails to obtain Lender’s prior consent to
any Indebtedness or voluntary Lien encumbering the Property as required by this
Agreement or the Mortgage; or (iv) if any Restricted Party fails to obtain
Lender’s prior consent to any Transfer as required by this Agreement or the
Mortgage.

 

Section 9.5 Matters Concerning Manager. If (a) the Manager shall become bankrupt
or insolvent, (b) a material default occurs under the Management Agreement
beyond any applicable grace and cure periods, or (c) if an Event of Default or
Sweep Event shall have occurred (provided however, this subsection (c) shall
only apply if Hilton Hotels Corporation is Manager), Borrower shall, immediately
upon the request of Lender, terminate the Management Agreement and replace the
Manager with a manager approved by Lender on terms and conditions satisfactory
to Lender, it being understood and agreed that the management fee for such
replacement manager shall not exceed then prevailing market rates.

 

Section 9.6 Servicer. At the option of Lender, the Loan may be serviced by a
servicer/trustee (the “Servicer”) selected by Lender and Lender may delegate all
or any portion of its responsibilities under this Agreement and the other Loan
Documents to the Servicer pursuant to a servicing agreement (the “Servicing
Agreement”) between Lender and Servicer. Borrower shall be responsible for any
reasonable set-up fees or any other initial costs relating to or arising under
the Servicing Agreement; provided, however, that Borrower shall not be
responsible for payment of the monthly servicing fee due to the Servicer under
the Servicing Agreement.

 

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ARTICLE 10

MISCELLANEOUS

 

Section 10.1 Survival. This Agreement and all covenants, agreements,
representations and warranties made herein and in the certificates delivered
pursuant hereto shall survive the making by Lender of the Loan and the execution
and delivery to Lender of the Note, and shall continue in full force and effect
so long as all or any of the Obligations are outstanding and unpaid unless a
longer period is expressly set forth herein or in the other Loan Documents.
Whenever in this Agreement any of the parties hereto is referred to, such
reference shall be deemed to include the legal representatives, successors and
assigns of such party. All covenants, promises and agreements in this Agreement,
by or on behalf of Borrower, shall inure to the benefit of the legal
representatives, successors and assigns of Lender.

 

Section 10.2 Lender’s Discretion. Whenever pursuant to this Agreement, Lender
exercises any right given to it to approve or disapprove, or any arrangement or
term is to be satisfactory to Lender, the decision of Lender to approve or
disapprove or to decide whether arrangements or terms are satisfactory or not
satisfactory shall (except as is otherwise specifically herein provided) be in
the sole discretion of Lender and shall be final and conclusive. Whenever this
Agreement expressly provides that Lender may not withhold its consent or its
approval of an arrangement or term, such provisions shall also be deemed to
prohibit Lender from delaying or conditioning such consent or approval.

 

Section 10.3 Governing Law.

 

(a) EXCEPT AS OTHERWISE STATED THEREIN, THIS AGREEMENT, THE NOTE AND THE OTHER
LOAN DOCUMENTS AND THE OBLIGATIONS ARISING HEREUNDER AND THEREUNDER SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
CALIFORNIA WITHOUT REGARD TO THE CONFLICTS OF LAW OR CHOICE OF LAW PROVISIONS
THEREOF (“GOVERNING STATE”) AND ANY APPLICABLE LAW OF THE UNITED STATES OF
AMERICA.

 

(b) BORROWER HEREBY CONSENTS TO PERSONAL JURISDICTION IN THE GOVERNING STATE.
VENUE OF ANY ACTION BROUGHT TO ENFORCE THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT
OR ANY ACTION RELATING TO THE LOAN OR THE DEBT OR THE RELATIONSHIPS CREATED BY
OR UNDER THE LOAN DOCUMENTS (“ACTION”) SHALL, AT THE ELECTION OF LENDER, BE IN
(AND IF ANY ACTION IS ORIGINALLY BROUGHT IN ANOTHER VENUE, THE ACTION SHALL AT
THE ELECTION OF LENDER BE TRANSFERRED TO) A STATE OR FEDERAL COURT OF
APPROPRIATE JURISDICTION LOCATED IN THE GOVERNING STATE. BORROWER HEREBY
CONSENTS AND SUBMITS TO THE PERSONAL JURISDICTION OF THE STATE COURTS OF THE
GOVERNING STATE AND OF FEDERAL COURTS LOCATED IN THE GOVERNING STATE IN
CONNECTION WITH ANY ACTION AND HEREBY WAIVES ANY AND ALL PERSONAL RIGHTS UNDER
THE LAWS OF ANY OTHER STATE TO OBJECT TO JURISDICTION WITHIN SUCH STATE FOR
PURPOSES OF ANY ACTION. BORROWER HEREBY WAIVES AND AGREES NOT TO ASSERT, AS

 

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A DEFENSE TO ANY ACTION OR A MOTION TO TRANSFER VENUE OF ANY ACTION, (I) ANY
CLAIM THAT IT IS NOT SUBJECT TO SUCH JURISDICTION, (II) ANY CLAIM THAT ANY
ACTION MAY NOT BE BROUGHT AGAINST IT OR IS NOT MAINTAINABLE IN THOSE COURTS OR
THAT THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY NOT BE ENFORCED IN OR
BY THOSE COURTS, OR THAT IT IS EXEMPT OR IMMUNE FROM EXECUTION, (III) THAT THE
ACTION IS BROUGHT IN AN INCONVENIENT FORUM, OR (IV) THAT THE VENUE FOR THE
ACTION IS IN ANY WAY IMPROPER.

 

Section 10.4 Modification, Waiver in Writing. No modification, amendment,
extension, discharge, termination or waiver of any provision of this Agreement,
or of the Note, or of any other Loan Document, or consent to any departure by
Borrower therefrom, shall in any event be effective unless the same shall be in
a writing signed by the party against whom enforcement is sought, and then such
waiver or consent shall be effective only in the specific instance, and for the
purpose, for which given. Except as otherwise expressly provided herein, no
notice to, or demand on Borrower, shall entitle Borrower to any other or future
notice or demand in the same, similar or other circumstances.

 

Section 10.5 Delay Not a Waiver. Neither any failure nor any delay on the part
of Lender in insisting upon strict performance of any term, condition, covenant
or agreement, or exercising any right, power, remedy or privilege hereunder, or
under the Note or under any other Loan Document, or under any other instrument
given as security therefor, shall operate as or constitute a waiver thereof, nor
shall a single or partial exercise thereof preclude any other future exercise,
or the exercise of any other right, power, remedy or privilege. In particular,
and not by way of limitation, by accepting payment after the due date of any
amount payable under this Agreement, the Note or any other Loan Document, Lender
shall not be deemed to have waived any right either to require prompt payment
when due of all other amounts due under this Agreement, the Note or the other
Loan Documents, or to declare a default for failure to effect prompt payment of
any such other amount.

 

Section 10.6 Notices. All notices, consents, approvals and requests required or
permitted hereunder or under any other Loan Document (each, a “Notice”), shall
be given in writing and shall be effective for all purposes if hand delivered or
sent by (a) certified or registered United States mail, postage prepaid, return
receipt requested or (b) expedited prepaid delivery service, either commercial
or United States Postal Service, with proof of attempted delivery, and by
telecopier (with answer back acknowledged), addressed as follows (or at such
other address and Person as shall be designated from time to time by any party
hereto, as the case may be, in a Notice to the other parties hereto in the
manner provided for in this Section 10.6):

 

If to Lender:

   KeyBank National Association      911 Main Street, Suite 1500      Kansas
City, Missouri 64105      Attention: Asset Administrator      Facsimile No.
(816) 221-8848

 

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with a copy to:    Polsinelli Shalton Welte Suelthaus PC      700 W. 47th
Street, Suite 1000      Kansas City, Missouri 64112      Attention: Daniel J.
Flanigan      Facsimile No. (816) 753-1536 If to Borrower:    c/o Eagle
Hospitality Properties Trust, Inc.      RiverCenter II - 100 E Rivercenter Blvd
     Suite 480      Covington, KY 41011      Attn: Raymond Martz      Fax:
859-581-4650 With a copy to:    DLA Piper Rudnick Gray Cary US LLP      203
North LaSalle Street, Suite 1900      Chicago, Illinois 60601      Attention: C.
Olivia Keating      Facsimile No. (312) 236-7516

 

A Notice shall be deemed to have been given: in the case of hand delivery or
delivery by a reputable overnight courier, at the time of delivery; in the case
of registered or certified mail, when delivered or the first attempted delivery
on a Business Day; in the case of expedited prepaid delivery and telecopy, upon
the first attempted delivery on a Business Day; or in the case of telecopy, upon
sender’s receipt of a machine-generated confirmation of successful transmission
after advice by telephone to recipient that a telecopy Notice is forthcoming.

 

Section 10.7 Trial by Jury. BORROWER AND LENDER EACH HEREBY AGREES NOT TO ELECT
A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO
TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER
EXIST WITH REGARD TO THE LOAN DOCUMENTS OR ANY CLAIM, COUNTERCLAIM OR OTHER
ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS
GIVEN KNOWINGLY AND VOLUNTARILY BY BORROWER AND LENDER AND IS INTENDED TO
ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A
TRIAL BY JURY WOULD OTHERWISE ACCRUE. EACH OF BORROWER AND LENDER IS HEREBY
AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE
EVIDENCE OF THIS WAIVER.

 

Section 10.8 Headings. The Article and/or Section headings and the Table of
Contents in this Agreement are included herein for convenience of reference only
and shall not constitute a part of this Agreement for any other purpose.

 

Section 10.9 Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.

 

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Section 10.10 Preferences. Lender shall have the continuing and exclusive right
to apply or reverse and reapply any and all payments by Borrower to any portion
of the Obligations of Borrower hereunder. To the extent Borrower makes a payment
or payments to Lender, which payment or proceeds or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then, to
the extent of such payment or proceeds received, the Obligations hereunder or
part thereof intended to be satisfied shall be revived and continue in full
force and effect, as if such payment or proceeds had not been received by
Lender.

 

Section 10.11 Waiver of Notice. Borrower hereby expressly waives, and shall not
be entitled to, any notices of any nature whatsoever from Lender except with
respect to matters for which this Agreement or the other Loan Documents
specifically and expressly provide for the giving of notice by Lender to
Borrower and except with respect to matters for which Borrower is not, pursuant
to applicable Legal Requirements, permitted to waive the giving of notice.

 

Section 10.12 Remedies of Borrower. In the event that a claim or adjudication is
made that Lender or its agents have acted unreasonably or unreasonably delayed
acting in any case where by law or under this Agreement or the other Loan
Documents, Lender or such agent, as the case may be, has an obligation to act
reasonably or promptly, Borrower agrees that neither Lender nor its agents shall
be liable for any monetary damages, and Borrower’s sole remedies shall be
limited to commencing an action seeking injunctive relief or declaratory
judgment. The parties hereto agree that any action or proceeding to determine
whether Lender has acted reasonably shall be determined by an action seeking
declaratory judgment.

 

Section 10.13 Expenses; Indemnity.

 

(a) Borrower covenants and agrees to pay or, if Borrower fails to pay, to
reimburse, Lender within five (5) days after receipt of notice from Lender for
all reasonable third-party, out-of-pocket costs and expenses (including
reasonable attorneys’ fees and disbursements) incurred by Lender in connection
with (i) the preparation, negotiation, execution and delivery of this Agreement
and the other Loan Documents and the consummation of the transactions
contemplated hereby and thereby and all the costs of furnishing all opinions by
counsel for Borrower (including without limitation any opinions requested by
Lender as to any legal matters arising under this Agreement or the other Loan
Documents with respect to the Property); (ii) Borrower’s ongoing performance of
and compliance with Borrower’s respective agreements and covenants contained in
this Agreement and the other Loan Documents on its part to be performed or
complied with after the Closing Date, including, without limitation, confirming
compliance with environmental and insurance requirements; (iii) Lender’s ongoing
performance and compliance with all agreements and conditions contained in this
Agreement and the other Loan Documents on its part to be performed or complied
with after the Closing Date; (iv) the negotiation, preparation, execution,
delivery and administration of any consents, amendments, waivers or other
modifications to this Agreement and the other Loan Documents and any other
documents or matters requested by Lender; (v) securing Borrower’s compliance

 

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with any requests made pursuant to the provisions of this Agreement; (vi) the
filing and recording fees and expenses, title insurance and reasonable fees and
expenses of counsel for providing to Lender all required legal opinions, and
other similar expenses incurred in creating and perfecting the Liens in favor of
Lender pursuant to this Agreement and the other Loan Documents; (vii) enforcing
or preserving any rights, either in response to third party claims or in
prosecuting or defending any action or proceeding or other litigation, in each
case against, under or affecting Borrower, this Agreement, the other Loan
Documents, the Property, or any other security given for the Loan; and (viii)
enforcing any obligations of or collecting any payments due from Borrower under
this Agreement, the other Loan Documents or with respect to the Property or in
connection with any refinancing or restructuring of the credit arrangements
provided under this Agreement in the nature of a “work-out” or of any insolvency
or bankruptcy proceedings; provided, however, that Borrower shall not be liable
for the payment of any such costs and expenses to the extent the same arise by
reason of the gross negligence, illegal acts, fraud or willful misconduct of
Lender. Any cost and expenses due and payable to Lender may be paid, at Lender’s
option, from any amounts in the Deposit Account.

 

(b) Borrower shall indemnify, defend and hold harmless Lender from and against
any and all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, expenses and disbursements of any kind or
nature whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel for Lender in connection with any investigative,
administrative or judicial proceeding commenced or threatened, whether or not
Lender shall be designated a party thereto), that may be imposed on, incurred
by, or asserted against Lender in any manner relating to or arising out of (i)
any breach by Borrower of its obligations under, or any material
misrepresentation by Borrower contained in, this Agreement or the other Loan
Documents, or (ii) the use or intended use of the proceeds of the Loan
(collectively, the “Indemnified Liabilities”); provided, however, that Borrower
shall not have any obligation to Lender hereunder to the extent that such
Indemnified Liabilities arise from the gross negligence, illegal acts, fraud or
willful misconduct of Lender. To the extent that the undertaking to indemnify,
defend and hold harmless set forth in the preceding sentence may be
unenforceable because it violates any law or public policy, Borrower shall pay
the maximum portion that it is permitted to pay and satisfy under applicable law
to the payment and satisfaction of all Indemnified Liabilities incurred by
Lender.

 

(c) Subject to the Securitization Cost Cap, Borrower covenants and agrees to pay
for or, if Borrower fails to pay, to reimburse Lender for, any fees and expenses
incurred by any Rating Agency in connection with any Rating Agency review of the
Loan, the Loan Documents or any transaction contemplated thereby or any consent,
approval, waiver or confirmation obtained from such Rating Agency pursuant to
the terms and conditions of this Agreement or any other Loan Document and Lender
shall be entitled to require payment of such fees and expenses as a condition
precedent to the obtaining of any such consent, approval, waiver or
confirmation.

 

Section 10.14 Schedules Incorporated. The Schedules annexed hereto are hereby
incorporated herein as a part of this Agreement with the same effect as if set
forth in the body hereof.

 

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Section 10.15 Offsets, Counterclaims and Defenses. Any assignee of Lender’s
interest in and to this Agreement, the Note and the other Loan Documents shall
take the same free and clear of all offsets, counterclaims or defenses that are
unrelated to such documents that Borrower may otherwise have against any
assignor of such documents, and no such unrelated counterclaim or defense shall
be interposed or asserted by Borrower in any action or proceeding brought by any
such assignee upon such documents and any such right to interpose or assert any
such unrelated offset, counterclaim or defense in any such action or proceeding
is hereby expressly waived by Borrower.

 

Section 10.16 No Joint Venture or Partnership; No Third Party Beneficiaries.

 

(a) Borrower and Lender intend that the relationships created hereunder and
under the other Loan Documents be solely that of borrower and lender. Nothing
herein or therein is intended to create a joint venture, partnership,
tenancy-in-common, or joint tenancy relationship between Borrower and Lender nor
to grant Lender any interest in the Property other than that of mortgagee,
beneficiary or lender.

 

(b) This Agreement and the other Loan Documents are solely for the benefit of
Lender and Borrower and nothing contained in this Agreement or the other Loan
Documents shall be deemed to confer upon anyone other than Lender and Borrower
any right to insist upon or to enforce the performance or observance of any of
the obligations contained herein or therein. All conditions to the obligations
of Lender to make the Loan hereunder are imposed solely and exclusively for the
benefit of Lender and no other Person shall have standing to require
satisfaction of such conditions in accordance with their terms or be entitled to
assume that Lender will refuse to make the Loan (or any disbursement of Reserve
Funds) in the absence of strict compliance with any or all thereof and no other
Person shall under any circumstances be deemed to be a beneficiary of such
conditions, any or all of which may be freely waived in whole or in part by
Lender if, in Lender’s sole discretion, Lender deems it advisable or desirable
to do so.

 

Section 10.17 Publicity. Except as may be otherwise required by the requirements
of the New York Stock Exchange and/or any other securities laws, all news
releases, publicity or advertising by Borrower or their Affiliates through any
media intended to reach the general public that refers to the Loan Documents or
the financing evidenced by the Loan Documents, to Lender, KeyBank, or any of
their Affiliates shall be subject to the prior approval of Lender.

 

Section 10.18 Waiver of Marshalling of Assets. To the fullest extent permitted
by law, Borrower, for itself and its successors and assigns, waives all rights
to a marshalling of the assets of Borrower, Borrower’s members and others with
interests in Borrower, and of the Property, or to a sale in inverse order of
alienation in the event of foreclosure of the Mortgage, and agrees not to assert
any right under any laws pertaining to the marshalling of assets, the sale in
inverse order of alienation, homestead exemption, the administration of estates
of decedents, or any other matters whatsoever to defeat, reduce or affect the
right of Lender under the Loan Documents to a sale of the Property for the
collection of the Debt without any prior or different resort for collection or
of the right of Lender to the payment of the Debt out of the net proceeds of the
Property in preference to every other claimant whatsoever.

 

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Section 10.19 Waiver of Offsets/Defenses/Counterclaims. Borrower hereby waives
the right to assert a counterclaim, other than a compulsory counterclaim, in any
action or proceeding brought against it by Lender or its agents or otherwise to
offset any Obligations under the Loan Documents. No failure by Lender to perform
any of its obligations hereunder shall be a valid defense to, or result in any
offset against, any payments that Borrower is obligated to make under any of the
Loan Documents.

 

Section 10.20 Conflict; Construction of Documents; Reliance. In the event of any
conflict between the provisions of this Agreement and any of the other Loan
Documents, the provisions of this Agreement shall control. The parties hereto
acknowledge that they were represented by competent counsel in connection with
the negotiation, drafting and execution of the Loan Documents and that such Loan
Documents shall not be subject to the principle of construing their meaning
against the party that drafted same. Borrower acknowledges that, with respect to
the Loan, Borrower shall rely solely on its own judgment and advisors in
entering into the Loan without relying in any manner on any statements,
representations or recommendations of Lender or any parent, subsidiary or
Affiliate of Lender. Lender shall not be subject to any limitation whatsoever in
the exercise of any rights or remedies available to it under any of the Loan
Documents or any other agreements or instruments that govern the Loan by virtue
of the ownership by it or any parent, subsidiary or Affiliate of Lender of any
equity interest any of them may acquire in Borrower, and Borrower hereby
irrevocably waives the right to raise any defense or take any action on the
basis of the foregoing with respect to Lender’s exercise of any such rights or
remedies. Borrower acknowledges that Lender engages in the business of real
estate financings and other real estate transactions and investments that may be
viewed as adverse to or competitive with the business of Borrower or its
Affiliates.

 

Section 10.21 Brokers and Financial Advisors. Borrower hereby represents that it
has dealt with no financial advisors, brokers, underwriters, placement agents,
agents or finders in connection with the transactions contemplated by this
Agreement. Borrower hereby agrees to indemnify, defend and hold Lender harmless
from and against any and all claims, liabilities, costs and expenses of any kind
(including Lender’s attorneys’ fees and expenses) in any way relating to or
arising from a claim by any Person that such Person acted on behalf of Borrower
or Lender in connection with the transactions contemplated herein. The
provisions of this Section 10.21 shall survive the expiration and termination of
this Agreement and the payment of the Debt.

 

Section 10.22 Prior Agreements. This Agreement and the other Loan Documents
contain the entire agreement of the parties hereto and thereto in respect of the
transactions contemplated hereby and thereby, and all prior agreements among or
between such parties, whether oral or written, between Borrower and Lender are
superseded by the terms of this Agreement and the other Loan Documents.

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their duly authorized representatives, all as of the day and year
first above written.

 

EHP GLENDALE, LLC, a Delaware limited liability company, doing business in
California as EHP Glendale Hilton, LLC     By:   EHP Operating Partnership,
L.P.,         a Maryland limited partnership, its sole member         By:  
Eagle Hospitality Properties Trust, Inc.,             a Maryland corporation,
its general partner             By:  

/s/ Raymond Martz

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            Name:   Raymond Martz             Title:   Chief Financial Officer
KEYBANK NATIONAL ASSOCIATION, a national banking association By:  

  /s/ Authorized Signatory

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Name:  

  Authorized Signatory

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Title:  

 

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SCHEDULE I

 

(Leases)

 

[OMITTED]

 

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SCHEDULE II

 

(Required Repairs)

 

[OMITTED]

 

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SCHEDULE III

 

(Organizational Structure)

 

[OMITTED]

 

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SCHEDULE IV

 

(Form of Assignment of Management Agreement and Subordination of Management
Fees,

Lockbox Agreement and Cash Management Agreement)

 

[OMITTED]

 

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