EXHIBIT 10.1

 

LEASEHOLD DEED OF TRUST, SECURITY AGREEMENT,

ASSIGNMENT OF RENTS AND LEASES

AND FIXTURE FILING

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DEED OF TRUST, SECURITY AGREEMENT,

ASSIGNMENT OF RENTS

AND FIXTURE FILING

 

TABLE OF CONTENTS

 

          PAGE

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1.    Payment of Indebtedness    8 2.    Covenants of Title    9 3.    Usury   
9 4.    Impositions    10 5.    Tax Deposits    11 6.    Change in Taxes    13
7.    Insurance    14 8.    Insurance/Condemnation Proceeds    16 9.   
Restoration Following Fire and Other Casualty or Condemnation    17 10.   
Disposition of Condemnation or Insurance Proceeds    22 11.    Fire and Other
Casualty; Self-Help    23 12.    Rent Insurance Proceeds    24 13.    Repair;
Alterations; Waste; Environmental    24 14.    Environmental Indemnification   
26 15.    Independence of Security    26 16.    No Other Liens    26 17.   
Management    27 18.    [Intentionally Omitted]    28 19.    Sidewalks,
Municipal Charges    28 20.    Assignment of Rents and Leases    28 21.   
Future Leases    30 22.    Leasehold Provisions; Trustor’s Obligations as Lessor
   31 23.    Leases; Foreclosure    34 24.    Operating Agreement/Easement
Agreements    34 25.    Events of Default    35 26.    Remedies Upon Default   
37 27.    Receiver    41 28.    [Omitted].    42 29.    Prepayment Premiums   
42 30.    Acceleration Interest    42 31.    Late Charge    43 32.    Waiver of
Statutory Rights    43 33.    Security Interest    44 34.    Right of Entry   
45 35.    Estoppel Certificate    45 36.    Annual Statements    45 37.   
Rights Cumulative    47 38.    Subrogation    47 39.    No Waiver    48 40.   
Deed of Trust Extension    48 41.    Indemnification    48 42.    Nonrecourse   
48 43.    Attorneys’ Fees    51 44.    Administrative Fees    52 45.   
Trustee’s Costs and Expenses; Governmental Charges    52 46.    Protection of
Security; Costs and Expenses    52

 

DEED OF TRUST AND SECURITY AGREEMENT – Page i

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47.

   Notices    53

48.

   Release    54

49.

   Applicable Law    55

50.

   Tenancy at Will    55

51.

   Substitution of Trustee    55

52.

   Indemnification of Trustee    55

53.

   Other    55

54.

   Invalidity    55

55.

   Captions    56

56.

   Modifications    56

57.

   Bind and Inure    56

58.

   Replacement of Note    56

59.

   Time of the Essence    56

60.

   Business Day    56

61.

   [Omitted]    57

62.

   Authority of Beneficiary    57

63.

   Waivers of Operating Tenant    57

64.

   Obligor’s Financial Condition    62

 

EXHIBIT A - Legal Description

 

DEED OF TRUST AND SECURITY AGREEMENT – Page ii

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AFTER RECORDING, RETURN TO:

 

Michael Williamson

Buchalter Nemer Fields & Younger

601 South Figueroa Street, Suite 2400

Los Angeles, CA 90017-5704

 

LEASEHOLD DEED OF TRUST, SECURITY AGREEMENT,

ASSIGNMENT OF RENTS AND LEASES

AND FIXTURE FILING

 

STATE OF CALIFORNIA    §      § COUNTY OF RIVERSIDE    §

 

THIS LEASEHOLD DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND
FIXTURE FILING (this “Deed of Trust”) is made as of the 14th day of July, 2005
by HH PALM SPRINGS LLC, a Delaware limited liability company and having its
principal place of business at c/o Highland Hospitality Corporation, 8405
Greensboro Drive, Suite 500, McLean, Virginia 22102 (“Borrower”) and HHC TRS OP
LLC, a Delaware limited liability company, having its principal place of
business at c/o Hospitality Corporation, 8405 Greensboro Drive, Suite 500,
McLean, Virginia 22102 (“Operating Tenant” and, together with Borrower,
collectively referred to herein as “Trustor”), to COMMONWEALTH LAND TITLE
COMPANY, subject to substitution as provided in Section 51 (herein referred to
as “Trustee”), in favor of CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a
Connecticut corporation, having its principal place of business at c/o CIGNA
Realty Investors, 280 Trumbull Street, Hartford, Connecticut 06103, Attention:
Debt Asset Management, H-11G (hereinafter referred to as “Beneficiary”).

 

W I T N E S S E T H:

 

THAT, Trustor is the owner of the leasehold interest in that certain Sublease
(Hotels I – XI) between City of Palm Springs, a municipal corporation (the
“City”), as sublandlord, and Trustor, successor by assignment to AP/APH Palm
Springs, L.P., a Delaware limited partnership (successor in interest to the
Community Redevelopment Agency of the City of Palm Springs, California)
(“AP/APH”), as subtenant, dated December 31, 1984, a memorandum of which was
recorded December 30, 1985 as Instrument No. 293742, of Official Records of
Riverside County, California, as modified by an instrument recorded December 20,
1993 as

 

DEED OF TRUST AND SECURITY AGREEMENT – Page 1

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Instrument No. 504374, of Official Records of Riverside County, California, as
the subtenant’s interest under the lease was assigned to AP/APH by assignment
recorded November 9, 1998 as Instrument No. 487612, of Official Records of
Riverside County, as modified by an amendment November 9, 1998 as Instrument
No. 487613, of Official Records. (as amended, assigned and supplemented, the
“Sublease”).

 

THAT, the Sublease is a sublease of that certain Business Lease No. PSL-315
dated February 28, 1984 between the individuals named therein, as lessor, and
the City, as lessee (as amended and supplemented, the “Master Lease”).

 

THAT, to secure (i) payment to Beneficiary of the principal indebtedness of
Thirty-Seven Million Fifty Thousand and No/100 Dollars ($37,050,000.00),
together with interest thereon (the “Loan”), as evidenced by that certain
Promissory Note of even date herewith in the original principal amount of
Thirty-Seven Million Fifty Thousand and No/100 Dollars ($37,050,000.00) from
Borrower, payable to Beneficiary (the “Note”), and any renewals, extensions or
modifications thereof (including, without limitation, any modification
increasing the Interest Rate (defined in the Note), the principal amount, the
monthly payments or extending the maturity date) with the final payment of the
entire outstanding balance of the Note being due and payable on July 1, 2012, in
and by which Note the Trustor promises to pay the said principal indebtedness
and interest at the rate and in installments as provided in the Note, (ii) the
performance of the covenants herein contained and the payment of any monies
expended by Beneficiary in connection therewith, (iii) the payment of all
obligations and the performance of all covenants of Trustor under any other loan
documents, agreements or instruments between Trustor and Beneficiary given in
connection with or related to this Deed of Trust or the Note and (iv) any and
all additional advances made by Beneficiary to protect or preserve the Security
(hereinafter defined) or the security interest created hereby on the Security,
or for taxes, assessments, or insurance premiums as hereinafter provided or for
performance of any of Trustor’s obligations hereunder or for any other purpose
provided herein (whether or not the original Trustor remains the owner of the
Security at the time of such advances) (all of the aforesaid indebtedness and
obligations being herein called the “Indebtedness”, and all of the documents,
agreements and instruments now or hereafter evidencing or securing the repayment
of, or otherwise pertaining to, the Indebtedness being herein collectively
called the “Loan Documents”), Trustor does hereby mortgage, grant, bargain,
sell, assign, pledge, transfer, and convey unto Trustee and to Trustee’s
successors and assigns, in trust, with power

 

DEED OF TRUST AND SECURITY AGREEMENT – Page 2

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of sale and right of entry and possession forever, all of the following
described land, improvements real and personal property, rents and leases, and
all of its estate, right, title and interest therein and thereto (hereinafter
collectively called the “Security”).

 

The real property described in Exhibit A attached hereto and made a part hereof,
situated, lying and being in the City of Palm Springs, County of Riverside and
State of California (the “Land”);

 

TOGETHER with all buildings and other improvements now or hereafter located on
the Land or any part thereof including but not limited to, all extensions,
betterments, renewals, renovations, substitutes and replacements of, and all
additions and appurtenances to the Security (the “Improvements”);

 

TOGETHER with all of the right, title and interest, if any, of Trustor in and to
the land lying in the bed of any street, road, highway or avenue in front of or
adjoining the Land to the center lines thereof;

 

TOGETHER with (to the extent assignable) all of the right, title and interest,
if any, that Trustor may have in the right to use, in connection with the
operation of the Security, the name “Wyndham” and any other name similar
thereto, and any other licenses, trademarks, service marks or trade names, and
good will associated therewith, used in connection with the Security;

 

TOGETHER with all easements now or hereafter located on or appurtenant to the
Land and/or Improvements or under or above the same or any part thereof,
rights-of-way, licenses, permits, approvals, and privileges, belonging or in any
way appertaining to the Land and/or Improvements including without limitation
(i) any drainage ponds or other like drainage areas not located on the Land
which may be required for water run-off, (ii) any easements necessary to obtain
access from the Land to such drainage areas, or to any other location to which
Trustor has a right to drain water or sewage, (iii) any land required to be
maintained as undeveloped land by the zoning rules and regulations applicable to
the Real Property, and (iv) any easements and agreements which are or may be
established to allow inter alia, parking (whether on-site or off-site),
satisfactory ingress to, egress from and operation of the Real Property, and any
other easement agreement or covenant or benefit as to land use (collectively,
the “Easement Agreements”);

 

DEED OF TRUST AND SECURITY AGREEMENT – Page 3

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TOGETHER with any and all awards heretofore made and hereafter to be made by any
municipal or other governmental authorities to the present and all subsequent
owners of the Security for the taking of all or any portion of the Security by
power of eminent domain, including, without limitation, awards for damage to the
remainder of the Security and any awards for any change or changes of grade of
streets affecting the Security, which said awards are hereby assigned to
Beneficiary, and Beneficiary, at its option, is hereby authorized, directed and
empowered to collect and receive the proceeds of any such awards from the
authorities making the same and to give proper receipts and acquittances
therefore, and, subject to the terms hereof, to apply the same toward the
payment of the Indebtedness, notwithstanding the fact that such amount may not
then be due and payable; and Trustor hereby covenants and agrees to and with
Beneficiary, upon request by Beneficiary, to make, execute and deliver, at
Trustor’s expense, any and all assignments and other instruments sufficient for
the purpose of assigning the aforesaid awards to or for the benefit of
Beneficiary, free, clear and discharged of any and all encumbrances of any kind
or nature whatsoever (all of the foregoing Land, Improvements, rights,
easements, rights-of-way, licenses, privileges, and awards, collectively, the
“Real Property”);

 

TOGETHER with all proceeds, insurance or otherwise, paid for the damage done to
any of the Security and all proceeds of the conversion, voluntarily or
involuntarily, of any of the Security into cash or liquidated claims;

 

TOGETHER with all fixtures, machinery, equipment, furniture, goods, and every
other article of personal property, tangible and intangible, now or hereafter
attached to or used in connection with the Real Property, or placed on any part
thereof and whether or not attached thereto, appertaining or adapted to the use,
management, operation or improvement of the Real Property, insofar as the same
and any reversionary right thereto may now or hereafter be owned or acquired by
Trustor, including, but without limitation all goods, supplies, equipment,
appliances, implements, furniture, furnishings, fixtures, machinery, inventory
and construction materials and all personal property used in the operation of a
hotel on the Real Property, including, without limiting the generality of the
foregoing, all hotel furniture, furnishings and equipment, heating, lighting,
plumbing, ventilating, refrigerating, incinerating, elevator, escalator, air
conditioning and communication plants or systems with appurtenant fixtures;
vacuum

 

DEED OF TRUST AND SECURITY AGREEMENT – Page 4

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cleaning systems; call systems; sprinkler systems and other fire prevention and
extinguishing apparatus and materials; all telephone, computer and other
electronic equipment and appurtenances thereto, including any software owned by
Trustor and necessary for the operation of the Security (except to the extent
the transfer thereof would cause a material breach of any licensing agreement in
connection therewith) but expressly excluding software that is owned by or
licensed to the Manager under the Management Agreement (as such terms are
defined below); and all other machinery, pipes, poles, appliances, equipment,
wiring, fittings, panels and fixtures; and any proceeds therefrom, any
replacements thereof or additions or accessions thereto; curtains, draperies,
hangings, televisions, radios, phonographs and stereo equipment, pianos, organs,
paintings, pictures, frames, sculptures, mirrors, lamps, bric-a-brac, vases,
ornaments, carpets, rugs, beds, springs, mattresses, bedding, pillows, blankets,
comforters, spreads, bed linens, vanities, secretaries, bureaus, chiffonniers,
chests, love seats, benches, night stands, costumers, smoking stands, sand jars,
statuary, china, glassware, table linens, towels, bath mats, shower curtains,
hollowware, flatware, cutlery, cooking, baking, and other kitchen utensils and
apparatus, crockery, kettles, pots, pans, pails, toasters, mixers, trays, racks,
electric irons and apparatus, bathroom furniture and furnishings, hamperettes,
cash registers, typewriters, typewriter stands, adding machines, calculators,
comptometers, multilith machines, addressographs, graphotypes, time stamps, time
recorders, posting machines, bookkeeping machines, checking machines, payroll
machines, computer reservation systems, accounting and other computer software,
and other office and accounting equipment, drills, presses, planers, saws, and
other tools, scales, uniforms, and all other tangible personal property used or
to be used or placed or to be placed in the rooms, halls, lounges, offices,
lobbies, lavatories, basements, cellars, vaults and other portions of said Real
Property or any building or buildings hereafter constructed or erected thereon,
whether herein enumerated or not, and whether or not contained in any such
building, and which are used or useful in the operation and maintenance thereof,
or in the business conducted therein, including the operation of any restaurants
on the Real Property by or on behalf of Trustor, including but not limited to
all restaurant furnishings and equipment, foodstuffs, and beverages, including
(to the extent assignable or transferable) wine and other alcoholic beverages
owned by Trustor, and all replacements and substitutions for all personal
property from time to time be located, placed, installed or used in or upon, or
procured for use, or useful in connection with the operation of the whole, or
any useful part of, the Real Property (the foregoing items of furniture,
furnishings, fixtures and equipment collectively are referred to as “FF&E”);
provided, however, FF&E shall not include any of the foregoing items which are
owned by parties other than Trustor including,

 

DEED OF TRUST AND SECURITY AGREEMENT – Page 5

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but not limited to, any tenants of the Real Property or the operator under any
management agreement; and all building materials, supplies and other property
delivered to the Real Property for incorporation into the Improvements thereon,
all of which, to the extent permitted by law, are declared to be a part of the
realty and covered by the lien hereof, but said lien shall not cover any
fixture, machinery, equipment or article of personal property which is owned by
a tenant, provided said fixture, machinery, equipment or article of personal
property is not permanently affixed to the realty and may be removed without
material damage thereto and is not a replacement of any item which shall have
been subject to the lien hereof, but said lien shall include any other fixture,
machinery, equipment or article of personal property so incorporated into the
Improvements so as to constitute realty under applicable law, whether or not
owned by the Trustor;

 

TOGETHER with all of Trustor’s books of account and records relating to the
Security, including, without limitation, all information stored on computers and
software to the extent relating thereto;

 

TOGETHER with all (i) contracts, agreements, assignable permits and licenses,
including occupancy permits, business licenses and liquor licenses, warranties
and representations relating to or governing the use, occupancy, operation,
management, hotel group, name or chain affiliation and/or guest reservation
system, repair or service of the Real Property, (ii) all agreements with credit
card issuers, sponsors or administrators, (iii) all rights to payment for the
rental of guest rooms, banquet rooms, retail premises and other facilities on
the Real Property, (iv) all rights to payment from any credit/charge card
organization or entity such as or similar to, and including, without limitation,
the organizations or entities which sponsor and administer the American Express
Card, the Discovery Card, the Visa Card, the Carte Blanche Card, the Diners Club
card and the MasterCard; and (v) all leases, occupancy agreements, registration
and concession agreements, and commitments to provide rooms or facilities in the
future to the extent that they are not solely interests in real estate,
including all amendments, modifications and supplements to any of the foregoing;

 

TOGETHER with all cars, trucks, trailers, construction and earth moving
equipment and other vehicles owned by Trustor covered by a certificate of title
law of any state used in the operation of the Real Property and all tires and
other appurtenances to any of the foregoing;

 

DEED OF TRUST AND SECURITY AGREEMENT – Page 6

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TOGETHER with all contracts for sale and leases in the nature of sales of the
Real Property, or any portion thereof, now and hereafter entered into and all
right, title and interest of Trustor thereunder, including, without limitation,
cash or securities deposited thereunder to secure performance by the lessees or
contract purchasers; all letter of credit rights; all proceeds and revenues
arising from or out of the Real Property or any part thereof including, without
limitation, room revenues, banquet revenues and cancellation payments relating
to the use and enjoyment of the Real Property; all sanitary sewer, drainage,
water and utility service agreements benefiting the Real Property or any part
thereof, together with all accounts, accounts receivable, credit card receipts,
contract rights, reserve accounts required to be established hereunder or under
any management agreement affecting the Real Property; inventory, operating
supplies, general intangibles, documents, instruments and chattel paper and
proceeds of any of the foregoing arising from or in connection with the Real
Property, including all books and records in connection with the operations of
the Real Property; and all rights of Trustor under any leases, covenants,
agreements, restrictions or declarations recorded with respect to, or as an
appurtenance to, the Real Property or any part thereof (all of the tangible and
intangible personal property described in this and the previous five paragraphs
collectively, the “Personal Property”);

 

TOGETHER with all of Trustor’s right, title and interest of in, to and under
that certain Lease Agreement dated as of substantially even date herewith (the
“Operating Lease”), by and between Borrower and Operating Tenant;

 

TOGETHER with all of Trustor’s right, title and interest as lessee in, to and
under any equipment or personal property leases (the “Personalty Leases”) for
the lease of any furniture, equipment and/or other personal property used by
Trustor in the operation of the Improvements or otherwise located on the Real
Property (the “Leased Personalty”).

 

TOGETHER with all of Trustor’s right, title and interest of in, to and under
that certain [Management Agreement dated June      2005], by and between
Crestline Hotels & Resorts, Inc., a Delaware corporation (“Manager”) and
Operating Tenant (the “Management Agreement”);

 

TOGETHER with all of the right, title and interest of Trustor in and to all and
singular the tenements, hereditaments and appurtenances belonging to or in any
way pertaining to the Security; all the estate, right, title and claim
whatsoever of Trustor, either in law or in equity, in

 

DEED OF TRUST AND SECURITY AGREEMENT – Page 7

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and to the Security; and any and all other, further or additional title, estate,
interest or right which may at any time be acquired by Trustor in or to the
Security, and if Trustor shall at any time acquire any further estate or
interest in or to the Security, the lien of this Deed of Trust shall attach,
extend to, cover and be a lien upon such further estate or interest
automatically without further instrument or instruments, and Trustor, upon
request of Beneficiary, shall execute such instrument or instruments as shall
reasonably be requested by Beneficiary to confirm such lien;

 

TO HAVE AND TO HOLD the Security, and each and every part thereof, unto the
Beneficiary and its successors and assigns, for the purposes and uses herein set
forth.

 

UPON THE TERMS AND SUBJECT TO THE CONDITIONS which are hereinafter set forth;

 

PROVIDED, HOWEVER, that if Trustor pays or causes to be fully and irrevocably
paid to Beneficiary all sums secured by this Deed of Trust on the dates and in
the manner provided in the Note and in this Deed of Trust, and observes and
performs all of the terms, conditions and obligations contained in this Deed of
Trust and the Note, then the estate, right, title and interest of the
Beneficiary in and to the Security shall cease, and upon proof being given to
the satisfaction of the Beneficiary that the Indebtedness has been paid or
satisfied according to the terms of the Note, and that all of Trustor’s
obligations under this Deed of Trust have been fully satisfied, and upon payment
of all fees, costs, charges and liabilities chargeable to or incurred by the
Beneficiary pursuant to the Note or otherwise provided for in this Deed of
Trust, the Beneficiary shall, on receipt of a written request therefore from
Trustor, and at Trustor’s sole expense, (a) release and discharge the lien of
this Deed of Trust, (b) cause this Deed of Trust to be canceled and marked
“satisfied” of record, (c) deliver to Trustor the original Note and (d) transfer
and deliver to Trustor, without warranty, any security which is then subject to
the lien of this Deed of Trust and is in Beneficiary’s possession.

 

AND, Trustor hereby further covenants, agrees and warrants as follows:

 

1. Payment of Indebtedness. Trustor will pay the principal indebtedness and
interest thereon in accordance with the provisions of the Note and all
prepayment fees, late charges and fees required thereunder, and all extensions,
renewals, modifications, amendments and replacements thereof, and will keep and
perform all the covenants, promises and agreements, and pay all sums provided in
(i) the Note or any other promissory note or

 

DEED OF TRUST AND SECURITY AGREEMENT – Page 8

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notes at any time hereafter issued to evidence the Indebtedness, (ii) this Deed
of Trust and (iii) any and all other Loan Documents, all in the manner herein or
therein set forth. If, at any time in the future transfers shall occur such that
Trustor shall become more than one party, then each of the entities constituting
a Trustor shall be fully liable for such payment and performance, and such
liability shall be joint and several, subject to all of the terms and provisions
of Section 42 of this Deed of Trust.

 

2. Covenants of Title. Borrower has good and indefeasible leasehold title to the
entire Land, has absolute unencumbered title to the Improvements, the Personal
Property (other than the Leased Personalty) and the Personalty Leases, and has
good right and full power to sell, mortgage and convey the same; the Security is
free and clear of easements, restrictions, liens, leases and encumbrances,
except those easements, restrictions, liens, leases and encumbrances listed on
Schedule B of the policy or policies of title insurance delivered to Beneficiary
as of the recordation of this Deed of Trust (the “Permitted Encumbrances”), to
which this Deed of Trust is expressly subject, or which may hereafter be created
in accordance with the terms hereof; and Borrower will warrant and defend title
to the Security against all claims and demands whatsoever except the Permitted
Encumbrances. Beneficiary shall have the right, at its option and at such time
or times as it, in its sole discretion, shall deem necessary, to take whatever
action it may deem necessary to defend or uphold the lien of this Deed of Trust
or otherwise enforce any of the rights of Beneficiary hereunder or any
obligation secured hereby, including without limitation, the right to institute
appropriate legal proceedings for such purposes.

 

3. Usury. All agreements between Trustor and Beneficiary, whether now existing
or hereafter arising and whether written or oral, are hereby limited so that in
no contingency, whether by reason of acceleration of the maturity of the Note or
otherwise, shall the interest contracted for, charged or received by Beneficiary
exceed the maximum amount permissible under applicable law. If, from any
circumstance whatsoever, interest would otherwise be payable to Beneficiary in
excess of the maximum lawful amount, the interest payable to Beneficiary shall
be reduced to the maximum amount permitted under applicable law; and if from any
circumstance Beneficiary shall ever receive anything of value deemed interest by
applicable law in excess of the maximum lawful amount, an amount equal to any
excessive interest shall be applied to the reduction of the principal of the
Note and not to the payment of interest, or if such excessive interest exceeds
the unpaid balance of principal of the Note such

 

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excess shall be promptly refunded to Trustor. All amounts paid or agreed to be
paid to Beneficiary for the use, forbearance, or detention of the Indebtedness,
whether designated as interest herein or judicially or otherwise interpreted or
deemed to be interest, shall, to the extent permitted by applicable law, be
amortized, prorated, allocated, and spread throughout the full period until
payment in full of the principal (including the period of any renewal or
extension of the Note) so that the interest on the Note for such full period
shall not exceed the maximum amount permitted by applicable law. The terms
“maximum amount permissible under applicable law”, “the maximum lawful amount,”
and similar terms refer to the law in effect on the date of the first
disbursement of the Note; provided that if it subsequently becomes lawful to
charge more interest on the Note, then such terms shall refer to the maximum
interest which may from time to time be lawfully charged. This paragraph shall
control all agreements with respect to the Loan between Trustor and Beneficiary.

 

4. Impositions. Trustor shall pay, or cause to be paid pursuant to the
Management Agreement (or any Replacement Agreement, as defined below), not later
than thirty (30) days before the last day on which the same may be paid without
penalty or interest, all real estate taxes and payments due in lieu of real
estate taxes (collectively, the “Real Estate Taxes”) (unless there shall be in
full force and effect a Tax Escrow Agreement [defined in Section 5 hereinbelow]
with respect to which Trustor shall have performed its obligations), and any
municipal sewer rents, municipal water charges, municipal electric and all other
municipal and governmental assessments, rates, charges, or impositions which are
secured by liens on the Real Property (including the Real Estate Taxes,
collectively hereinafter referred to as “Impositions”) which now or hereafter
are imposed by law upon the Security, whether relating directly to the Security
or to property adjoining or abutting the Security. If any Imposition is not paid
within the time hereinabove specified, Beneficiary shall have the right to pay
the same, together with any penalty and interest thereon, and the amount or
amounts so paid or advanced shall forthwith be payable by Trustor to Beneficiary
and shall be secured by the lien of this Deed of Trust; but Trustor may in good
faith contest, at Trustor’s sole cost and expense, by proper legal proceedings,
the validity or amount of any Imposition, on the condition that Trustor first
shall deposit with or provide evidence to Beneficiary that Manager has escrowed
an amount sufficient to pay such contested Imposition, as security for the
payment of such contested item, an amount equal to the contested item plus all
penalties and interest which would be payable if Trustor is ultimately required
to pay such contested item, and on the further condition that no amount so
contested may remain unpaid for such length of time as shall permit the
Security, or

 

DEED OF TRUST AND SECURITY AGREEMENT – Page 10

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the lien thereon created by the item being contested, to be sold for the
nonpayment thereof, or as shall permit an action, either of foreclosure or
otherwise, to be commenced by the holder of any such lien. Trustor will not
claim any credit on, or make any deduction from the Indebtedness by reason of
the payment of, any Imposition.

 

Trustor hereby assigns to Beneficiary all rights of Trustor now or hereafter
arising in and to the refund of any Imposition and any interest thereon. If
following receipt of any such refund by Beneficiary there exists no Event of
Default hereunder, then Beneficiary shall pay over the same to Trustor promptly;
if there exists an Event of Default hereunder, Beneficiary may apply said refund
in reduction of the Indebtedness in whatever order Beneficiary may elect.

 

5. Tax Deposits. Trustor and Beneficiary have entered into a certain Real Estate
Tax Escrow and Security Agreement of even date herewith (the “Tax Escrow
Agreement”), the terms of which provide for the escrow and payments of money
with respect to Real Estate Taxes imposed on the Real Property under certain
circumstances as described therein. Notwithstanding the provisions of Section 4
hereof, Trustor covenants to perform its obligations under the Tax Escrow
Agreement and Beneficiary has agreed that Trustor may perform its obligations
under this Deed of Trust with respect to the Real Estate Taxes in accordance
with the Tax Escrow Agreement. During any period that Trustor shall be in
default under the Tax Escrow Agreement, or the Tax Escrow Agreement shall be
terminated for any reason, or in the event that the Tax Escrow Agreement becomes
ineffective or otherwise unenforceable, then the balance of the terms and
conditions of this Section 5 shall be applicable and control with respect to the
payment of Real Estate Taxes imposed on the Real Property.

 

On receipt of the Activation Notice (as defined in the Tax Escrow Agreement),
Trustor shall thereafter deposit with Beneficiary, or with an escrow agent
selected by Beneficiary, commencing on the Activation Date (as defined in the
Tax Escrow Agreement) and on the first day of each calendar month thereafter
(each of which dates is hereinafter called the “monthly tax deposit date”) until
the payment in full of the Indebtedness, a sum equal to one-twelfth (1/12) of
the Real Estate Taxes to be levied, charged, assessed or imposed upon or for the
Security within one (1) year after said monthly tax deposit date. If on any
monthly tax deposit date the amount of Real Estate Taxes to be levied, charged,
assessed or imposed within the ensuing one year period shall not be fixed, such
amount for the purpose of computing the deposit to be made by Trustor hereunder,
shall be reasonably estimated by Beneficiary based upon prior payments of Real
Estate Taxes imposed on the Real Property, with appropriate adjustment when such
amount is fixed.

 

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The sums deposited by Trustor under this Section 5 shall be held in an interest
bearing account with interest being retained by Beneficiary and free of trust
except to the extent, if any, that applicable law shall otherwise require and
applied in payment of the Real Estate Taxes when due. Trustor or Manager on
behalf of Trustor shall give thirty (30) days’ prior written notice to
Beneficiary in each instance when an Imposition is due, specifying the
Imposition to be paid and the amount thereof, the place of payment and the last
day on which the same may be paid in order to be within the time limit specified
in Section 4 hereof entitled “Impositions”.

 

Notwithstanding the foregoing provision, so long as Trustor holds title to and
controls the Security, Impositions are paid in full when due and there has
occurred no Event of Default, or any state of facts which, with the passage of
time or giving of notice, or both, would constitute an Event of Default under
the Loan Documents, the interest earned by such escrows, less reasonable escrow
costs, will be paid to Trustor on each real estate tax payment date.

 

If for any reason the sums on deposit with Beneficiary as escrow agent under
this Section shall not be sufficient to pay any Real Estate Taxes within the
time specified in Section 4 hereof, then Trustor shall, on the earlier of
(A) three (3) Business Days prior to the date the payment of such Impositions
becomes delinquent or (B) within ten (10) Business Days after notice by
Beneficiary, deposit sufficient sums so that Beneficiary may pay such Real
Estate Taxes in full, together with any penalty and interest thereon.
Beneficiary may change its estimate of Real Estate Taxes for any period, on the
basis of a change in an assessment or tax rate or on the basis of a prior
miscalculation, in which event Trustor shall deposit with Beneficiary as escrow
agent within ten (10) Business Days after demand the amount of any excess of the
deposits which would theretofore have been payable under the revised estimate
over the sums actually deposited.

 

If any Real Estate Taxes shall be levied, charged, assessed or imposed upon or
for the Security, or any portion thereof, and if such Real Estate Taxes shall
also be a levy, charge, assessment or imposition upon or for any other premises
not covered by the lien of this Deed of Trust, then the computation of the
amounts to be deposited under this Section 5 shall be based upon the entire
amount of such Real Estate Taxes and Trustor shall not have the right to
apportion any deposit with respect to such Real Estate Taxes.

 

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Upon an assignment of this Deed of Trust, Beneficiary shall have the right to
arrange to transfer all amounts deposited and still in its possession to the
assignee and Beneficiary shall thereupon be completely released from all
liability with respect to such deposit and Trustor or owner of the Security
shall look solely to the assignee or transferee in reference thereto.

 

Upon the payment in full by Trustor of the entire Indebtedness, any sums then
held by Beneficiary under this Section 5 shall be promptly refunded to Trustor.

 

All amounts deposited shall be held by Beneficiary as additional security for
the sums secured by this Deed of Trust, and Trustor hereby grants to Beneficiary
a security interest in such sums, and upon the occurrence of an Event of Default
hereunder Beneficiary may, in its sole and absolute discretion, apply said
amounts to the payment of the Indebtedness in whatever order Beneficiary may
elect.

 

Immediately upon receipt of such by Trustor, Trustor shall deliver to
Beneficiary copies of all notices, demands, claims, bills, and receipts in
relation to the Impositions.

 

6. Change in Taxes. In the event any tax shall be due or become due and payable
to the United States of America, the State of California or any political
subdivision thereof with respect to the execution and delivery or recordation of
this Deed of Trust or any other Loan Document or the interest of Beneficiary in
the Security except for taxes in the nature of income or franchise taxes,
Trustor shall pay such tax at the time and in the manner required by applicable
law and Trustor shall hold Beneficiary harmless and shall indemnify Beneficiary
against any liability of any nature whatsoever as a result of the imposition of
any such tax. In the event of the enactment, after the date of this instrument,
of any law changing in any way the present law as to the taxation of notes or
debts secured by mortgages, for Federal, State, or local purposes (except for
changes in income or franchise taxes), or the manner of collection of any
Impositions, so as to affect this Deed of Trust or the Note secured hereby, then
Trustor shall upon demand make such payments to Beneficiary and take such other
steps, as may be necessary in Beneficiary’s reasonable judgment, to place
Beneficiary in the same financial position as it was prior to any such
enactment, failing which, or if the Trustor is not permitted by law to make such
payments, the Indebtedness shall, at the option of Beneficiary, immediately
become due and payable at par.

 

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7. Insurance. Borrower (to the extent of Trustor’s obligations set forth in this
Section 7) and Operating Tenant (to the extent of its obligations under the
Operating Lease) shall at all times until the Indebtedness shall be paid in
full, keep the Security insured against loss or damage in an amount sufficient
to prevent Beneficiary or Trustor from becoming a co-insurer under the terms of
the applicable policies, but in any event in an amount not less than 100% of the
then full replacement cost of the Improvements (exclusive of the cost of
excavations, foundations and footings below the lowest basement floor) without
deduction for physical depreciation (which replacement cost shall be reset once
a year at Beneficiary’s option in accordance with then customary insurance
underwriting standards used by reasonable and prudent mortgage lenders for a
property of comparable size, mass, construction, type, location, and use) under
policies of All Risk Replacement Cost Insurance (including nuclear explosion, if
available), and otherwise upon the following terms and conditions:

 

(a) Trustor shall further provide the following insurance in such amounts as
shall be reasonably approved by Beneficiary: flood insurance (if the Security is
situated in an area that is considered a flood risk area by the federal
government agency thereof); boiler and machinery insurance; earthquake
insurance; rent loss insurance in an amount sufficient to cover the total of all
rents (including any expenses payable by tenants) accruing from the Security for
a one year period; commercial general liability insurance in a minimum amount of
One Million Dollars ($1,000,000), and excess or umbrella liability of at least
One Hundred Million Dollars ($100,000,000); such other appropriate insurance as
Beneficiary may require from time to time.

 

(b) Such insurance shall contain no exclusion for acts of terrorism and shall
include: (i) coverage for acts of domestic and international terrorism,
(ii) coverage whether or not a specific act is certified under the Terrorism
Risk Insurance Act of 2002 as an act of terrorism by the U.S. Secretary of the
Treasury, and (iii) coverage amounts, deductibles and limits/sublimits
acceptable to Beneficiary in its sole discretion.

 

(c) During any period of restoration, Trustor shall provide a policy or policies
of builder’s “all risk” insurance in an amount not less than the full insurable
value of the Security.

 

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(d) Trustor will assign and deliver to Beneficiary an original certificate of
the policy or policies of all insurance required to be provided hereunder and
provide copies of the policy or policies described therein to Beneficiary unless
Trustor participates in Manager’s insurance program, in which event Trustor
shall provide a copy of the description of coverages provided by Manager to
Trustor. Each policy of insurance provided by Trustor shall (i) be issued by a
company or companies approved by Beneficiary and rated not less than a Best’s
rating of A-/X, (ii) name Beneficiary as an additional insured or loss payee, as
the case may be, (iii) provide that all proceeds shall be payable to
Beneficiary, (iv) provide that it may not be cancelled or modified except upon
thirty (30) days prior written notice to Beneficiary, (v) provide that no act or
thing done by Trustor shall invalidate the policy as against Beneficiary,
(vi) be endorsed with standard noncontributory mortgagee clauses in favor of and
in form acceptable to Beneficiary, and (vii) otherwise be in such form as shall
be reasonably acceptable to Beneficiary, so that at all times until the payment
in full of the Indebtedness, Beneficiary shall have and hold the said policy and
policies as further collateral for the payment of all Indebtedness.

 

(e) If Trustor shall fail to obtain any such policy or policies required by
Beneficiary, or shall fail to deliver an original certificate evidencing the
same to Beneficiary, then Beneficiary may obtain such insurance and pay the
premium or premiums therefore, in which event Trustor shall, on demand of
Beneficiary, repay such premium or premiums to Beneficiary and such repayment
shall be secured by the lien of this Deed of Trust. If Trustor fails to maintain
the level of insurance required under this Deed of Trust, then Trustor shall
indemnify Beneficiary to the extent that a casualty occurs and insurance
proceeds would have been available had such insurance been maintained.

 

(f) Trustor shall promptly provide to Beneficiary copies of any and all notices
(including notice of non renewal), claims, and demands which Trustor receives
from insurers of the Security.

 

(g) Effective from and after any Event of Default, Trustor hereby assigns to
Beneficiary all rights of Trustor in and to any unearned premiums on any
insurance policy required to be furnished by Trustor.

 

DEED OF TRUST AND SECURITY AGREEMENT – Page 15

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Anything in this Section 7 to the contrary notwithstanding, as long as
(i) Manager is managing the Real Property and Trustor participates in Manager’s
insurance programs, (ii) there then exists no default under the Management
Agreement or Event of Default hereunder, (iii) Manager is making all required
insurance payments as and when due pursuant to the Management Agreement, and
(iv) Trustor provides to Beneficiary acceptable evidence that such insurance is,
at all times, in full force and effect as regards the Real Property, then
Beneficiary acknowledges and agrees that the insurance requirements set forth in
the Management Agreement shall govern and control over any inconsistent
provisions set forth in the provisions of this Section 7.

 

8. Insurance/Condemnation Proceeds. Subject to the terms of the Master Lease and
the Sublease, Trustor hereby assigns to Beneficiary all insurance proceeds or
Condemnation (defined in Section 9 below) awards which Trustor may be entitled
to receive for loss or damage to, or a taking of, the Security. In the event of
loss or damage to, or a taking of, the Security, the proceeds of said insurance
or Condemnation award shall be payable to Beneficiary alone and Trustor hereby
authorizes and directs any affected insurance company or government agency to
make payment of the insurance proceeds or Condemnation awards directly to
Beneficiary. In the event that any such insurance proceeds or Condemnation
awards are paid directly to Trustor, Trustor shall make such proceeds or awards
available to Beneficiary within five (5) Business Days of Trustor’s receipt
thereof. No such loss or damage shall itself reduce the Indebtedness unless
Beneficiary elects to apply the proceeds and such proceeds are actually applied
to the Indebtedness as provided in Section 10 below. Prior to an Event of
Default, Trustor and Beneficiary shall jointly and reasonably agree on the
prompt adjustment and compromise of such loss, to collect and receive such
proceeds or awards and to endorse any check in payment thereof. During an Event
of Default, or in the event of a loss or damage to, or a taking of, the security
in excess of $1,500,000, Beneficiary is authorized to adjust and compromise such
loss without the consent of Trustor, to collect and receive such proceeds or
awards in the name of Beneficiary and Trustor and to endorse Trustor’s name upon
any check in payment thereof. Furthermore, if an insurance claim is no greater
than $250,000 (a “Minor Claim”), Beneficiary agrees that insurance proceeds may
be made available directly to the Trustor provided that no Event of Default is
then in existence and so long as Trustor promptly commences and diligently
pursues to completion any required restoration Work utilizing such insurance
proceeds. Subject to the provisions of Sections 9, 10 and 11 hereof, such
proceeds or awards shall be applied first toward reimbursement of all costs and
expenses of Beneficiary in collecting said proceeds or awards, then toward
payment of the Indebtedness or any portion

 

DEED OF TRUST AND SECURITY AGREEMENT – Page 16

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thereof, whether or not then due and payable, in whatever order Beneficiary may
elect, or Beneficiary may, at its option, make said insurance proceeds or
Condemnation awards available to Trustor in whole or in part toward restoration
of the Security for which such insurance proceeds or Condemnation awards shall
have been paid.

 

In the event of foreclosure of this Deed of Trust or other transfer of title to
the Security and extinguishment, in whole or in part, of the Indebtedness, all
right, title, and interest of Trustor in and to any insurance policy, or
premiums or payments in satisfaction of claims or any other rights thereunder
then in force, shall pass to the purchaser or grantee notwithstanding the amount
of any bid at such foreclosure sale. Nothing contained herein shall prevent the
accrual of interest as provided in the Note on any portion of the principal
balance due under the Note until such time as the insurance proceeds or
Condemnation awards are actually received and applied to reduce the principal
balance outstanding.

 

9. Restoration Following Fire and Other Casualty or Condemnation. In the event
of damage to the Security by reason of fire or other hazard or casualty, Trustor
shall give prompt written notice thereof to Beneficiary, and, so long as
Beneficiary provides its consent that any insurance proceeds can be made
available as provided in Section 10 hereof, shall proceed with reasonable
diligence to perform repair, replacement and/or rebuilding work (hereinafter
referred to as the “Work”) to restore the Security to its condition prior to
such damage in full compliance with all legal requirements; provided, however,
in the event that Beneficiary does not provide its consent that any insurance
proceeds can be made available, nothing contained herein shall prevent Trustor
from using other funds to perform the Work in Trustor’s sole discretion. In the
event of a taking by power of eminent domain or conveyance in lieu thereof (a
“Condemnation”), if restoration is feasible as reasonably determined by
Beneficiary, then Trustor shall proceed with reasonable diligence to perform
such restoration (also referred to herein as the “Work”). Before commencing the
Work, Trustor shall comply with the following requirements:

 

(a) With respect to any Work reasonably expected to exceed One Million Five
Hundred Thousand Dollars ($1,500,000) in cost (“Major Work”), Trustor shall
furnish to Beneficiary complete plans and specifications for the Work, for
Beneficiary’s approval, which approval shall not be unreasonably withheld. Said
plans and specifications shall bear the signed approval thereof by an architect
reasonably satisfactory to Beneficiary and shall be accompanied by the
architect’s signed estimate, bearing the architect’s seal, of the entire cost of
completing the Work, and shall provide that upon completion of the Work, the
Security shall be at least equal in value and general utility to its value and
general utility prior to the damage or Condemnation.

 

DEED OF TRUST AND SECURITY AGREEMENT – Page 17

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(b) Trustor shall furnish to Beneficiary certified copies of all permits and
approvals required by law in connection with the commencement and conduct of the
Work.

 

(c) With respect to any Major Work, Trustor shall furnish to Beneficiary, prior
to the commencement of the Work, a surety bond for or guaranty of timely
completion of and payment for the Work, which bond or guaranty shall be in form
reasonably satisfactory to Beneficiary and shall be signed by a surety or
sureties, or guarantor or guarantors, as the case may be, who are reasonably
acceptable to Beneficiary, and in an amount not less than the architect’s
estimate of the entire cost of completing the Work, less the amount of insurance
proceeds or Condemnation award, if any, then held by Beneficiary and which
Beneficiary shall have elected or shall be required to apply toward restoration
of the Security as provided in Section 10 hereof.

 

Trustor shall not commence any of the Work until Trustor shall have complied
with the above requirements, and thereafter Trustor shall perform the Work
diligently and in good faith in accordance with the plans and specifications
referred to in subsection (a) above.

 

If, as provided in Section 10 hereof, Beneficiary shall have elected or is
required to apply any insurance proceeds or Condemnation awards toward repair or
restoration of the Security, then so long as the Work is being diligently
performed by Trustor in accordance with the provisions of this Deed of Trust,
Beneficiary shall disburse such insurance proceeds or Condemnation awards to
Trustor from time to time during the course of the Work in accordance with the
following provisions:

 

A. The Work shall be in the charge of an experienced construction manager
reasonably satisfactory to Beneficiary with the consultation of an architect or
engineer if the scope of the work so requires (provided, the project property
manager shall be acceptable so long as it does not constitute Major Work);

 

B. Each request for payment shall not be made more often than at thirty (30) day
intervals, on ten (10) Business Days (as defined in Section 60 hereinbelow)
prior notice to Beneficiary, and shall be accompanied by a certificate
reasonably satisfactory

 

DEED OF TRUST AND SECURITY AGREEMENT – Page 18

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to Beneficiary, of the architect or engineer, dated not more than ten (10) days
prior to the application for withdrawal of funds, stating:

 

  (i) that all of the Work for which payment is being requested is in place and
has been completed in compliance with the approved plans and specifications and
all applicable legal requirements;

 

  (ii) that the sum then requested to be withdrawn has been paid by Trustor
and/or is justly due to contractors, subcontractors, materialmen, engineers,
architects or other persons (whose names and addresses shall be stated) who have
rendered or furnished certain services or materials for the Work and giving a
brief description of such services and materials and the principal subdivisions
or categories thereof and the respective amounts so paid or due to each of said
persons in respect thereof and stating the progress of the Work up to the date
of said certificate;

 

  (iii) that the sum requested to be withdrawn, plus all sums previously
withdrawn, does not exceed the cost of the Work insofar as actually accomplished
up to the date of such certificate;

 

  (iv) that the remainder of the moneys held by Beneficiary will be sufficient
to pay in full for the completion of the Work; and

 

  (v) that no part of the cost of the services and materials described in the
foregoing paragraph (ii) of this Clause B has been or is being made the basis of
the withdrawal of any funds in any previous or then pending application.

 

Trustor shall also provide Beneficiary with respect to any Major Work such other
evidence as Beneficiary shall reasonably require that: (1) all of the Work for
which payment is being requested is in place and has been completed in
substantial compliance with all applicable legal requirements; (2) that the sum
then requested to be withdrawn, plus all sums previously withdrawn, does not
exceed the cost of the Work insofar as actually accomplished up to the date of
such certificate; (3) that the remainder of the moneys held by Beneficiary will
be sufficient to pay in full for the completion of the

 

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Work; (4) that the Work is anticipated to be completed consistent with all
requirements, including applicable zoning provisions, pertinent to preserve any
and all rights, including, without limitation, with respect to any
non-conforming use; and (5) that, except for the amounts, if any, specified in
the foregoing paragraph (ii) of this Clause B to be due for services or
materials, there is no outstanding indebtedness known, after due inquiry, which
is then due and payable for work, labor, services or materials in connection
with the Work which, if unpaid, might become the basis of a vendor’s,
mechanic’s, laborer’s or materialmen’s statutory or other similar lien upon the
Security or any part thereof.

 

C. Trustor shall deliver to Beneficiary reasonably satisfactory evidence that
the Security and every part thereof, and all materials and all property
described in the certificate furnished pursuant to the foregoing Clause B, are
free and clear of all mortgages, liens, charges or encumbrances, except
(a) encumbrances, if any, securing indebtedness due to persons (whose names and
addresses and the several amounts due them shall be stated) specified in said
certificate furnished pursuant to the foregoing Clause B, which encumbrances
will be discharged upon disbursement of the funds then being requested, and
(b) this Deed of Trust. Beneficiary shall accept as satisfactory evidence under
this Clause C a certificate of a title insurance company acceptable to
Beneficiary or an endorsement to Beneficiary’s existing loan title policy
insuring the lien of this Deed of Trust, dated as of the date of the making of
the disbursement, confirming the foregoing.

 

D. If the Work affects the foundation, or changes in the footprint of the
Improvements, Trustor shall deliver to Beneficiary a survey of the Security
dated as of a date within ten (10) days prior to the making of the advance (or
revised to a date within ten days prior to the advance) showing no encroachments
other than those, if any, acceptable to Beneficiary.

 

E. There exists no Event of Default, or any state of facts existing which, with
the passage of time or the giving of notice, or both, would constitute an Event
of Default.

 

Beneficiary at its option may waive any of the foregoing requirements.

 

Upon compliance by Trustor with the foregoing Clauses A, B, C, D, and E (except
for such requirements, if any, as Beneficiary at its option may have waived),
Trustor

 

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shall, to the extent of the insurance proceeds or Condemnation awards, if any,
which Beneficiary shall have elected or shall be required to apply to
restoration of the Security, pay or cause to be paid to the persons named in the
certificate furnished pursuant to the foregoing Clause B, the respective amounts
stated in said certificate to be due them, less ten percent (10%) retainage
(“Retainage”), and Beneficiary shall pay to Trustor the amounts stated in said
certificate to have been paid by Trustor, less Retainage.

 

If upon completion of the Work there shall be insurance proceeds or Condemnation
awards held by Beneficiary over and above the amounts withdrawn pursuant to the
foregoing provisions, plus Retainage, then Beneficiary, at Beneficiary’s option,
may either retain such proceeds or awards and apply the same in reduction of the
Indebtedness in whatever order Beneficiary may elect (without payment of any
prepayment fee or premium with respect to such insurance proceeds or
Condemnation awards), or Beneficiary may pay over such proceeds or awards to
Trustor.

 

Upon completion of the Work, in addition to the requirements of the foregoing
Clauses A, B, C, D, and E, Trustor shall promptly deliver to Beneficiary:

 

  (1) With respect to Major Work, a written certificate of the construction
manager, architect or engineer that the Work has been fully completed in a good
and workmanlike manner in accordance with the approved plans and specifications
and with respect to any other Work, a certificate from Trustor or its property
manager to the same effect;

 

  (2) A written report and policy of a title insurance company reasonably
acceptable to Beneficiary insuring the Security against mechanics’ and
materialmen’s liens;

 

  (3) A certificate by Trustor reasonably satisfactory to Beneficiary in form
and substance, listing all costs and expenses in connection with the completion
of the Work and the amount paid by Trustor with respect to the Work; and

 

  (4) A temporary certificate of occupancy, if required for occupancy of any of
the Improvements affected by the Work and all other applicable certificates,
licenses, consents and approvals issued by governmental

 

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       agencies or authorities with respect to the Security and by the
appropriate Board of Fire Underwriters or other similar bodies acting in and for
the locality in which the Security is situated, provided that within thirty
(30) days after completion of the Work, Trustor shall obtain and deliver to
Beneficiary a permanent certificate of occupancy for the Security, if a
certificate of occupancy is required for any of the Improvements affected by the
Work.

 

Upon receipt of the foregoing items, Beneficiary shall pay any Retainage held by
Beneficiary to or for the benefit of Trustor.

 

10. Disposition of Condemnation or Insurance Proceeds. Subject to the terms of
the Master Lease and Sublease, and except in the case of a Minor Claim,
Beneficiary, in its absolute discretion, may decide whether and to what extent,
if any, proceeds of insurance or Condemnation awards will be made available to
Trustor for repair or restoration of the Security, but Trustor shall effect such
repair or restoration as provided above whether or not Beneficiary agrees that
any available insurance proceeds and Condemnation awards may be made available
for restoration. Notwithstanding the foregoing, Beneficiary shall make insurance
proceeds or Condemnation awards available to Trustor for repair or restoration
provided the following conditions are satisfied:

 

(a) Not more than thirty percent (30%) of the Real Property is damaged, and, in
the case of a Condemnation, the portion remaining after the taking is still
economically viable in the reasonable opinion of Beneficiary;

 

(b) There has been no monetary Event of Default in the prior twelve (12) months
and there does not then exist an Event of Default or a state of facts which,
with the passage of time or the giving of notice, or both, would constitute an
Event of Default hereunder or under any other Loan Document;

 

(c) Trustor can demonstrate to Beneficiary’s reasonable satisfaction that
Trustor has the financial ability to make all scheduled payments when due under
the Loan Documents during reconstruction, whether from the proceeds of rent
insurance, operation of the Improvements, Trustor’s own funds or otherwise;

 

DEED OF TRUST AND SECURITY AGREEMENT – Page 22

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(d) Such damage or destruction occurs prior to the last two (2) Loan Years (as
such term is defined in the Note);

 

(e) The funds are released under escrow/construction funding arrangements
specified in Section 9 hereof;

 

(f) The repairs and restoration will restore the Improvements to substantially
the size, design and utility as existed immediately prior to the casualty or
Condemnation; and

 

(g) Trustor can demonstrate to Beneficiary’s reasonable satisfaction that
Trustor has the financial ability to complete the repair and restoration,
whether from the proceeds of insurance, Trustor’s own funds, or otherwise.

 

Provided that there then exists no Event of Default, any application of
insurance or Condemnation proceeds required by Beneficiary shall be at par
without payment of any prepayment fee or premium. If Beneficiary has the right
under this Deed of Trust and elects not to make the proceeds available for the
Work, then such proceeds shall be applied to reduce the Indebtedness in whatever
order Beneficiary may elect. Any principal reduction resulting from an early
involuntary prepayment as a result of a Condemnation proceeding or insurance
settlement will cause a re-calculation of debt service payments based upon the
reduced Loan balance, the remaining amortization schedule and the Interest Rate.

 

11. Fire and Other Casualty; Self-Help. If within one hundred twenty (120) days
after the occurrence of any damage to the Security or the condemnation of any
portion of the Security, Trustor shall not have submitted to Beneficiary and
received Beneficiary’s approval of plans and specifications for any Major Work
or shall not have obtained approval of such plans and specifications from all
governmental authorities whose approval is required for such Work, or if Trustor
shall fail to promptly commence such Work, or if thereafter Trustor fails to
perform the Work diligently or is delinquent in the payment to mechanics,
materialmen or others of the costs incurred in connection with the Work, or, if
Trustor shall fail to complete the Work promptly, then, in addition to all other
rights herein set forth, Beneficiary may give written notice thereof to Trustor
and if such failure is not cured within ten (10) Business Days of such written
notice, then Beneficiary, or any lawfully appointed receiver of the Security,
may at its respective option, perform or cause the Work to be performed, and may
take such other steps as it deems

 

DEED OF TRUST AND SECURITY AGREEMENT – Page 23

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advisable to perform or cause to be performed the Work, and may enter upon the
Security for any of the foregoing purposes, and Trustor hereby waives, for
Trustor and all others holding under Trustor, any claim against Beneficiary or
such receiver arising out of anything done by Beneficiary or such receiver
pursuant to this Section 11, and Beneficiary may apply insurance and/or
Condemnation proceeds (without the need to fulfill the requirements of Section 9
hereof) to reimburse Beneficiary, and/or such receiver for all amounts expended
or incurred by them, respectively, in connection with the performance of the
Work, and any excess costs shall be paid by Trustor to Beneficiary upon demand,
with interest at the Default Rate (hereinafter defined), and such payment shall
be secured by the lien of this Deed of Trust.

 

12. Rent Insurance Proceeds. If Trustor shall promptly commence and diligently
perform the Work in accordance with the requirements of Section 11 hereinabove
and there shall be no Event of Default under the Loan Documents, then
Beneficiary shall each month pay to Trustor out of the rent insurance proceeds
held by Beneficiary a sum equal to that amount, if any, of the rent insurance
proceeds paid by the insurer which is allocable to the Rental Loss (as defined
below) for the preceding month and any earlier period of time. Beneficiary , at
its option, may waive any of the foregoing conditions to the payment of rent
insurance proceeds. If Trustor does not fulfill the foregoing conditions
entitling Trustor to monthly disbursements of rent insurance proceeds, then such
rent insurance proceeds may be applied by Beneficiary, at Beneficiary’s option,
to the payment of the Indebtedness in whatever order Beneficiary may elect. As
used in this Section 12, “Rental Loss” shall mean loss of base rent, minimum
rent, percentage rent, additional rent and all other sums that tenants may owe
to Trustor as landlord under leases of the Improvements or Land.

 

13. Repair; Alterations; Waste; Environmental. Trustor shall keep all of the
Security in good and substantial repair subject to normal wear and tear, and
expressly agrees that it will neither permit nor commit any waste upon the
Security, nor do any other act or suffer or permit any act to be done, whereby
the Security will become less valuable or the lien hereof may be impaired and
shall comply in all material respects with all zoning laws (including, without
limitation, preservation of any rights as to any non-conforming use), building
codes, subdivision laws, environmental laws, and other laws, ordinances, rules
and regulations made or promulgated by any government or municipality, or by any
agency thereof or by any other lawful authority, which are now or may hereafter
become applicable to the Security; provided that nothing herein shall preclude
Trustor from contesting any matter in good faith through

 

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appropriate legal means diligently pursued so long as Trustor shall repair or
restore any building now or hereafter under construction on the Security and
complete the same within a reasonable period of time. Trustor agrees not to
initiate or acquiesce in any zoning variance or reclassification, without
Beneficiary’s prior written consent, which consent shall not be unreasonably
withheld, conditioned or delayed so long as it does not impair the value of the
Security. Trustor shall not construct any additional building or buildings or
make any other improvements on the Land, nor alter, remove or demolish any
building or other Improvements on the Land, without the prior written consent of
Beneficiary.

 

Trustor shall comply with the Americans with Disabilities Act of 1990, as
amended, including, without limitation, any regulations, rulings and orders
promulgated pursuant thereto in connection with any Work, any repair to the
Security or any tenant improvements to be performed by Trustor.

 

If Trustor fails to observe any of the provisions of this Section, or suffers or
permits any Event of Default to exist under this Section, Beneficiary or a
lawfully appointed receiver of the Security at its option, from time to time,
may perform, or cause to be performed, any and all repairs and such other work
as it deems necessary to bring the Security into compliance with the provisions
of this Section and may enter upon the Security for any of the foregoing
purposes, and Trustor hereby waives any claim against Beneficiary and/or such
receiver, arising out of such entry or out of any other act carried out pursuant
to this Section. Trustor shall upon notice repay to Beneficiary and such
receiver, with interest at the Default Rate, all amounts expended or incurred by
them, respectively, in connection with any action taken pursuant to this
Section, and such repayment shall be secured by the lien of this Deed of Trust.

 

Trustor represents and warrants that there are currently at least the number of
paved and designated parking spaces (including adequate, properly-sized,
delineated and assigned handicap parking spaces) available on of the Real
Property as are shown on the survey delivered to Beneficiary. Trustor covenants
and agrees that throughout the Term (as defined in Section 1 of the Note) it
shall continue to make available, sufficient parking spaces on the Real Property
to comply with all leases, all applicable government regulations and the
Easement Agreements.

 

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14. Environmental Indemnification. Reference is made to that certain
Environmental Indemnification Agreement of even date herewith executed by
Trustor and Highland Hospitality, L.P., a Delaware limited partnership
(collectively, the “Indemnitors”) (the “Environmental Indemnification
Agreement”), and by this reference is incorporated herein in its entirety and
made a part hereof. This Deed of Trust also secures the performance of all
obligations due to Beneficiary by Indemnitors under the Environmental
Indemnification Agreement. A release of this Deed of Trust shall not be
construed as or be deemed to constitute a termination of the Environmental
Indemnification Agreement, which instead shall continue in existence and
terminate by its own terms.

 

15. Independence of Security. Trustor shall not by act or omission permit any
building or other improvement on any premises not subject to the lien of this
Deed of Trust to rely on the Security or any part thereof or any interest
therein to fulfill any municipal or governmental requirement, and Trustor hereby
assigns to Beneficiary any and all rights to give consent for all or any portion
of the Security or any interest therein to be so used. Similarly, no part of the
Security shall rely on any premises not subject to the lien of this Deed of
Trust or any interest therein to fulfill any governmental or municipal
requirement. Trustor shall not by act or omission impair the integrity of the
Real Property as one or more complete subdivided parcels of land bearing the
same zoning classification, and as one or more complete tax parcels separate and
apart from all other premises. Any act or omission by Trustor, which would
result in a violation of any of the provisions of this Section, shall be void.

 

16. No Other Liens. Trustor shall not consent, agree to, or permit any mortgage
lien, or security interest upon or affecting the Security or any part thereof
except (a) as granted or permitted in this Deed of Trust and any other lien or
security interest granted to Beneficiary and (b) under any Personalty Leases (to
the extent they are deemed to constitute financing agreements), subject to
Trustor’s right to contest involuntary liens as hereinafter provided.

 

Trustor will promptly pay and discharge any and all amounts which are now or
hereafter become liens against the Security whether or not superior to the lien
hereof or to any assignment of rents and leases given to Beneficiary; provided,
however, in the case of an involuntary lien Trustor may contest in good faith
contest, at Trustor’s sole cost and expense, by proper legal proceedings, the
validity or amount of any involuntary lien, on the condition that if such
involuntary lien exceeds $100,000, Trustor first shall deposit with Beneficiary,
as security for the payment of such contested item, an amount equal to the
contested item plus all penalties

 

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and interest which would be payable if Trustor is ultimately required to pay
such contested item, and on the further condition that no amount so contested
may remain unpaid for such length of time as shall permit the Security, or the
lien thereon created by the item being contested, to be sold for the nonpayment
thereof, or as shall permit an action, either of foreclosure or otherwise, to be
commenced by the holder of any such lien. Trustor will not claim any credit on,
or make any deduction from the Indebtedness by reason of the payment of, any
lien.

 

The covenants of this Section shall survive any foreclosure and sale of the
Security and any conveyance thereof by deed in lieu of foreclosure with respect
to any such liens in existence as of the date of transfer of title.

 

17. Management.

 

(a) During the term of the Loan, Trustor shall at all times retain a
professional management company satisfactory to Beneficiary to operate and
manage the Security pursuant to a management agreement reasonably satisfactory
to Beneficiary. If the Management Agreement is terminated for any reason during
the term of the Loan, Beneficiary will have the right to declare the entire
indebtedness immediately due and payable unless Trustor enters into a
replacement management agreement (the “Replacement Agreement”) on terms and
conditions reasonably acceptable to Beneficiary with a substitute manager
reasonably acceptable to Beneficiary within 30 days following termination of the
Management Agreement. As a condition to Beneficiary’s approval of any
replacement manager, the manager shall consent to an assignment of management
agreement substantially similar in form and substance as to the Assignment and
Subordination of Management Agreement and Consent of Manager (the “Assignment of
Management Agreement”) dated of even date herewith by and among Trustor, Manager
and Beneficiary. Pursuant to the Assignment of Management Agreement, the rights
of Manager, as manager, under the Management Agreement are expressly made
subordinate to Beneficiary’s rights under this Deed of Trust and the other Loan
Documents, all as more particularly set forth in the Assignment of Management
Agreement.

 

(b) Trustor shall furnish to Beneficiary, within five (5) Business Days after
receipt thereof, or after the mailing or service thereof by Trustor, as the case
may be, a copy of each notice of default Trustor gives to, or receives from any
person, based upon the occurrence, or alleged occurrence, of any default or
defaults in the performance of any covenant, condition, promise or obligation
under the Management Agreement.

 

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18. [Intentionally Omitted]

 

19. Sidewalks, Municipal Charges. Trustor will promptly pay and discharge any
and all license fees and similar charges, with penalties and interest thereon,
which may be imposed by the municipality in which the Security is situated, for
the use of vaults, chutes, areas and other space beyond the lot line and under
or abutting the public sidewalks in front of or adjoining the Security, and
Trustor will promptly cure any violation of law and comply with any order of
such municipality respecting the repair, replacement or condition of the
sidewalk or curb in front of or adjoining the Security, and in default thereof
Beneficiary may, upon five (5) Business Days’ notice to Trustor, pay any and all
such license fees or similar charges, with penalties and interest thereon, and
the charges of the municipality for such repair or replacement, and any amount
so paid or advanced by Beneficiary and all costs and expenses incurred in
connection therewith (including, without limitation, Attorneys’ Fees (defined in
Section 43 hereinbelow)), with interest thereon at the Default Rate, shall be a
demand obligation of Trustor to Beneficiary, and, to the extent permitted by
law, shall be added to the Indebtedness and shall be secured by the lien of this
Deed of Trust.

 

20. Assignment of Rents and Leases. Trustor hereby presently, irrevocably,
absolutely, and unconditionally grants, transfers, assigns and sets over unto
Beneficiary all of its right, title and interest in and to all present and
future leases, license agreements, concession agreements, lease termination
agreements and other occupancy agreements of any nature, oral or written, of the
Land and of space in the Improvements together with all modifications,
supplements, extensions, renewals and replacements thereof now existing or
hereafter made, and also together with the rights to sue for, collect and
receive all rents, prepaid rents, additional rents, royalties, security
deposits, damages payable upon default by tenant, or other sums in any of said
leases provided to the lessor thereunder, profits, income (including revenues
from the letting of hotel rooms), license fees, concession fees, lease
termination fees and issues of the Security (collectively, the “Rents”), to be
applied by Beneficiary in payment of the Indebtedness, and also together with
any and all guaranties of the obligations of the tenants thereunder and the
rights of Trustor to receive, hold and apply all bonds and security in all of
said leases provided to be furnished to the lessor thereunder, and also together
with the rights of Trustor to enforce any and all of the agreements, terms,
covenants and conditions in all of

 

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said leases provided and to give notices thereunder. Beneficiary grants to
Trustor a revocable license to collect the Rents as they become due and to
enforce such leases and agreements, so long as no Event of Default exists
hereunder. Beneficiary may receive and collect the Rents personally or through a
receiver upon the occurrence and during the continuance of an Event of Default
so long as any such Event of Default shall exist and during the pendency of any
foreclosure proceeding and during any redemption period. Trustor agrees to
consent to a receiver if this is believed reasonably necessary or desirable by
Beneficiary to enforce its rights under this Section.

 

Trustor shall not otherwise assign or pledge, or contract, expressly or by
implication, to assign or pledge, any lease of the Land or space in the
Improvements or the rights to sue for, collect and receive any Rents, or the
rights to receive, hold and apply any bonds and security in any of said leases
provided to be furnished to the lessor thereunder, or the rights to enforce any
of the agreements, terms, covenants or conditions of said leases or to give
notices thereunder, unless in each instance the written consent thereto of
Beneficiary be first obtained.

 

Nothing in this Deed of Trust shall be construed to obligate Beneficiary,
expressly or by implication, to perform any of the covenants of Trustor as
lessor under any of the leases hereinabove assigned or to pay any sum of money
or damages therein provided to be paid by the lessor.

 

If Beneficiary shall from time to time suffer or permit Trustor to sue for,
collect or receive any Rents, or to receive, hold or apply any bonds or security
under said leases, or to enforce any of the agreements, terms, covenants or
conditions thereunder or to give notices thereunder, neither such sufferance nor
permission shall constitute a waiver or relinquishment by Beneficiary of the
rights hereunder and hereby assigned to Beneficiary with respect to any
subsequent Rents, or with respect to any subsequent receipt, holding or
application of bonds or security or any subsequent enforcement of such
agreements, terms, covenants or conditions or any subsequent notices.

 

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21. Future Leases. Trustor will not hereafter make any lease to any tenant, or
materially amend, modify, terminate, renew or extend any lease (other than a
renewal to which a tenant is entitled under the terms of an existing lease or
contained in a lease that is subsequently approved by Beneficiary), affecting
more than 2,000 rentable square feet within the Improvements (a “Material
Lease”), including without limitation the Operating Lease (other than minor
non-material amendments or modifications which do not materially and adversely
impact Beneficiary’s rights in the Security), unless Beneficiary shall first
consent in writing to the form and substance of said Material Lease or
amendment, modification, renewal or extension thereof, which consent shall not
be unreasonably withheld, conditioned or delayed. For purposes of this Section,
reductions in rent, shortening of the term of a lease, increases in Trustor’s
obligations under a lease and any release of a significant tenant obligation
under a lease shall be deemed “material.”

 

Other than the leases in effect on the date hereof (“Existing Leases”) as
disclosed to and approved by Beneficiary, all leases must be subordinate to the
lien of this Deed of Trust unless Beneficiary otherwise specifies. Other than
the Existing Leases, each lease must contain a provision that, upon notice to
tenant by Beneficiary, the lease shall become superior, in whole or in part, to
the lien of this Deed of Trust. Without limiting the foregoing, Beneficiary
hereby reserves the right to subordinate this Deed of Trust to any lease
subsequently made by recording with the Riverside County Recorder’s Office in
which this Deed of Trust is recorded a declaration to that effect, executed by
Beneficiary, which declaration once so recorded shall be binding upon the tenant
under such lease and such tenant’s successors and assigns.

 

Trustor will furnish to Beneficiary a true and complete copy of each Material
Lease, or any amendment, modification, extension, or renewal of a Material Lease
hereafter made by Trustor with respect to space in the Security, within ten
(10) Business Days after

 

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delivery of each such lease, amendment, modification, extension, or renewal by
the parties thereto. Trustor shall also furnish to Beneficiary an original
mortgagee subordination and attornment agreement executed by each tenant under a
Material Lease and an original estoppel, addressed to Beneficiary, from each
tenant under a Material Lease in form and substance reasonably satisfactory to
Beneficiary.

 

Trustor will from time to time upon demand of Beneficiary, confirm in writing
the assignment to Beneficiary of any or all leases of the Land and space in the
Improvements, and such written confirmation shall be in such form as Beneficiary
shall reasonably require and as shall be necessary to make the same recordable.

 

22. Leasehold Provisions; Trustor’s Obligations as Lessor.

 

(a) Trustor shall, at Trustor’s cost and expense, promptly and fully perform
each and every material covenant, condition, promise and obligation on the part
of the lessor to be performed pursuant to the terms of each and every lease or
letting, written or oral, now or hereafter made with respect to the Security or
any part or parts thereof, and shall not suffer or permit there to exist any
default in such performance on the part of such lessor or permit any event to
occur which would give the tenant under any such lease the right to terminate
the same or to offset rent.

 

(b) Trustor shall give Beneficiary immediate notice of any monetary or material
non-monetary default under any lease (including without limitation the Operating
Lease) or of the receipt by Trustor of any notice of default from the lessee or
its successors or assigns under a lease. Trustor shall furnish to Beneficiary
immediately any and all information which Beneficiary may request concerning the
performance and observance of all covenants, agreements and conditions contained
in a Material Lease by the lessor thereunder to be kept, observed and performed
and concerning the compliance with all terms and conditions of such Material
Leases. Trustor hereby authorizes Beneficiary or its representatives to make
investigations and examinations concerning such performance, observance and
compliance, and Trustor, upon request, shall promptly deposit with Beneficiary
any and all documentary evidence relating to

 

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such performance, observance and compliance and copies of any and all notices,
communications, plans, specifications or other instruments or documents received
or given by Trustor in any way relating to or affecting Material Leases which
may concern or affect the estate of the lessor or the lessee in or under such
leases or in the leased premises thereby demised.

 

(c) In the event of any failure by Trustor to keep, observe or perform any
material covenant, agreement or condition contained in the leases or to comply
with the terms and conditions of the leases, any performance, observance or
compliance by Beneficiary pursuant to this Deed of Trust on behalf of Trustor
shall not remove or waive, as between Trustor and Beneficiary, the corresponding
Event of Default under the terms of this Deed of Trust.

 

(d) (1) The Sublease is unmodified and in full force and effect, (2) all rent
and other charges therein have been paid to the extent they are payable to the
date hereof, (3) Trustor enjoys the quiet and peaceful possession of the Real
Property, (4) to the best of its knowledge, Trustor is not in default under any
of the terms thereof and there are no circumstances which with the passage of
time or the giving of notice or both, would constitute an event of default
thereunder, (5) to the best of Trustor’s knowledge, the lessor thereunder is not
in default under any of the terms or provisions thereof on the part of the
lessor to be observed or performed;

 

(e) Trustor shall promptly pay, when due and payable, the rent and other charges
payable pursuant to the Sublease, and will timely perform and observe all of the
other terms, covenants and conditions required to be performed and observed by
Trustor as lessee under the Sublease;

 

(f) Trustor shall notify Beneficiary in writing of any default by Trustor in the
performance or observance of any terms, covenants or conditions on the part of
Trustor to be performed or observed under the Sublease within five (5) Business
Days after Trustor obtains knowledge of such default;

 

(g) Trustor shall, immediately upon receipt thereof, deliver a copy of each
default notice given to Trustor by the lessor pursuant to the Sublease and
promptly notify Lender in writing of any default by the lessor in the
performance or observance of any of the terms, covenants or conditions on the
part of the lessor to be performed or observed thereunder;

 

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(h) Unless required under the terms of the Sublease, Trustor shall not, without
the prior written consent of Lender (which may be granted or withheld in
Lender’s sole and absolute discretion) terminate, modify or surrender the
Sublease, and any such attempted termination, modification or surrender without
Lender’s written consent shall be void; and

 

(i) Trustor shall, within thirty (30) Business Days after written request from
Lender, use its best efforts to obtain from the Sublessor and deliver to Lender
a certificate setting forth the name of the tenant under the Sublease and
stating that the Sublease is in full force and effect, is unmodified or, if the
Sublease has been modified, the date of each modification (together with copies
of each such modification), that no notice of termination thereof has been
served on Trustor, stating that no default or event which with notice or lapse
of time (or both) would become a default is existing under the Sublease (or if
any such default or event is existing, specifying the nature of such default or
event), stating the date to which rent has been paid, and containing such other
statements and representations as may be reasonably requested by Lender.

 

(j) So long as the Loan remains unpaid or unperformed, the fee title to and the
leasehold estate in the Premises subject to the Sublease shall not merge but
shall always be kept separate and distinct notwithstanding the union of such
estates in the lessor or Trustor, or in a third party, by purchase or otherwise.
If Trustor acquires the fee title or any other estate, title or interest in the
Premises, or any part thereof, the lien of this Trust Deed shall attach to,
cover and be a lien upon such acquired estate, title or interest and the same
shall thereupon be and become a part of the Real Property secured by this Deed
of Trust with the same force and effect as if specifically encumbered herein.
Trustor agrees to execute all instruments and documents that Lender may
reasonably require to ratify, confirm and further evidence the lien of this
Trust Deed on the acquired estate, title or interest. Furthermore, Trustor
hereby appoints Lender as its true and lawful attorney-in-fact to execute and
deliver, following an Event of Default, all such instruments and documents in
the name and on behalf of Trustor. This power, being coupled with an interest,
shall be irrevocable as long as any portion of the Loan remains unpaid.

 

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(k) If the Sublease shall be terminated prior to the natural expiration of its
term due to default by Trustor or any tenant thereunder, and if, pursuant to the
provisions of such Sublease, Lender or its designee shall acquire from the
lessor a new lease of the Premises, Trustor shall have no right, title or
interest in or to such new lease or the leasehold estate created thereby, or
renewal privileges therein contained.

 

(l) Notwithstanding anything to the contrary contained herein, this Deed of
Trust shall not constitute an assignment of any lease within the meaning of any
provision thereof prohibiting its assignment and Lender shall have no liability
or obligation thereunder by reason of its acceptance of this Deed of Trust.
Lender shall be liable for the obligations of the tenant arising out of the
Sublease for only that period of time for which Lender is in possession of the
premises demised thereunder or has acquired, by foreclosure or otherwise, and is
holding all of Trustor’s right, title and interest therein.

 

23. Leases; Foreclosure. Any proceedings or other steps taken by Beneficiary to
foreclose this Deed of Trust, or otherwise to protect the interests of
Beneficiary hereunder, shall not operate to terminate the rights of any present
or future tenant of space in the Improvements, notwithstanding that said rights
may be subject and subordinate to the lien of this Deed of Trust, unless
Beneficiary specifically elects otherwise in the case of any particular tenant.
The failure to make any such tenant a defendant in any such foreclosure
proceeding and to foreclose such tenant’s rights will not be asserted by Trustor
or any other defendant in such foreclosure proceeding as a defense to any
proceeding instituted by Beneficiary to foreclose this Deed of Trust or
otherwise protect the interests of Beneficiary hereunder.

 

24. Operating Agreement/Easement Agreements. Trustor hereby represents and
warrants to Beneficiary that there exist no agreements affecting the development
or operation of the Security, other than the Leases, the Management Agreement,
that certain Wyndham Hotel Franchise Agreement, dated July 12, 2005, between WHC
Franchise Corporation, a Delaware corporation, as Franchisor, and Operating
Tenant, as Franchisee, service contracts and Personalty Leases entered into in
the ordinary course of the operation of the Security and the covenants and
restrictions included in the Permitted Encumbrances. Trustor shall, at Trustor’s
cost and expense, promptly and fully perform each and every covenant, condition,
promise and obligation of the owner of the Security under the Easement
Agreements and shall make all payments therein and thereby required to be made
by the owner of the Security. Trustor shall not cancel, transfer, amend in any
material respect, or assign the Easement Agreements

 

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without the prior written consent of Beneficiary which consent shall not be
unreasonably withheld, conditioned or delayed, and Trustor shall not consent to
the cancellation, transfer, amendment in any material respect, or assignment of
the Easement Agreements by any other party thereto, without the prior written
consent of Beneficiary which consent shall not be unreasonably withheld,
conditioned or delayed.

 

25. Events of Default. Each of the following shall constitute an “Event of
Default” hereunder and shall entitle the Beneficiary to exercise its remedies
hereunder and under any of the other Loan Documents or as otherwise provided by
law:

 

(a) Any payment of any installment of principal or interest under the Note is
not received by Beneficiary by 5:00 p.m. (Hartford, Connecticut time) within
five (5) Business Days following the date when such payment was due or any
escrow payment under the Tax Escrow Agreement or Section 5 hereof is not
received by escrow holder or Beneficiary, as applicable by 5:00 p.m. (Hartford,
Connecticut time) within five (5) Business Days following the monthly tax
deposit date;

 

(b) Failure of Trustor in the observance or performance of any other monetary or
non-monetary covenant, promise or agreement provided in this Deed of Trust or in
any other Loan Document (a “failure to perform”), for thirty (30) days after the
giving of notice by Beneficiary to Trustor specifying the nature of the failure
to perform; provided, however, that if the nature of such failure to perform is
such that the same is not susceptible of cure within such thirty (30) day
period, such failure to perform shall not be deemed an Event of Default so long
Trustor shall within such period commence to cure such failure to perform and
thereafter diligently prosecute the cure to completion, but in no event more
than one hundred twenty (120) days in the aggregate from the date of the
original notice of failure to perform. Notwithstanding anything contained herein
to the contrary, the notice and cure period provided under this clause (b) shall
not be applicable to and shall not be in addition to any specific notice and
cure or performance period provided under any other provision of this Deed of
Trust, and the specific notice and cure or performance period provided for in
such provision shall control, and a failure by Trustor to cure a default under
such provision within the applicable cure period shall be an Event of Default
under this Deed of Trust;

 

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(c) Any representation, warranty, or statement of Trustor contained herein or in
any of the Loan Documents, including without limitation the Environmental
Indemnification Agreement, or in any writing delivered to Beneficiary on or
before the execution and delivery of the Loan Documents, proves to be untrue in
any material respect as of the date when made;

 

(d) Trustor or the general partner of Trustor shall (i) have an order for relief
entered in a proceeding under Title 11, United States Code, whether such order
shall result from a voluntary or involuntary petition, (ii) seek or consent to
the appointment of a receiver or trustee for itself or for any of the Security,
(iii) file a petition or initiate a proceeding under the bankruptcy, insolvency,
receivership, or similar laws of the United States, any state or any other
jurisdiction, (iv) make a general assignment for the benefit of creditors, or
(v) be unable to pay its debts as they mature;

 

(e) A court shall enter an order, judgment or decree appointing, without the
consent of Trustor, a receiver or trustee for it or for any of the Security or
approving a petition filed against Trustor which seeks relief under the
bankruptcy or other similar laws of the United States, any state or any other
jurisdiction, and such order, judgment or decree shall remain in force,
undischarged or unstayed, sixty (60) days after it is entered;

 

(f) Without the prior written consent of Beneficiary, except with respect to
Permitted Transfers (as hereinafter defined), (i) the Security or any portion
thereof or interest therein shall be mortgaged, encumbered, sold, assigned or
otherwise transferred by Trustor or by operation of law (excluding condemnation
and worn-out or obsolete Personal Property that is replaced with Personal
Property substantially similar thereto in quality and quantity), (ii) if Trustor
is a partnership, joint venture, limited liability company, syndicate or other
group, all or any portion of the interest of any partner or member thereof is
pledged or otherwise encumbered or is sold or otherwise transferred, or
(iii) any interest in any entity that owns or Controls Trustor is pledged or
otherwise encumbered or is sold or otherwise transferred. As used herein,
“Controls” shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract, or otherwise.
The term “Person” means with respect to this Deed of Trust any natural person,
general partnership, limited partnership, limited liability

 

DEED OF TRUST AND SECURITY AGREEMENT – Page 36

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company, trust, estate, association, corporation, custodian, nominee or any
other individual or entity in its own or any representative capacity. As used
herein “Permitted Transfers” means the pledge or transfer of (1) any limited
partnership interests or units in Highland Hospitality, L.P. and (2) the
membership interests in Trustor, provided, that after such any such pledge or
transfer, Highland Hospitality, L.P., Highland Hospitality Corporation or their
Affiliates continue to own not less than fifty-one percent (51%) of (A) the
partnership interests or units in Highland Hospitality, L.P. and (B) the
membership interests in Trustor, as applicable.

 

26. Remedies Upon Default. Immediately upon the occurrence of any Event of
Default, Beneficiary shall have the option, in addition to and not in lieu of or
substitution for all other rights and remedies provided in this Deed of Trust or
any other Loan Document or provided by law or in equity, and is hereby
authorized and empowered by Trustor, to do any or all of the following:

 

(a) Declare without notice the entire unpaid amount of the Indebtedness
immediately due and payable, by commencing an action to foreclose this Deed of
Trust as a mortgage, and/or by delivery to Trustee of a written declaration of
default and demand for sale and of written notice of default and of election to
cause to be sold the Security, which notice Trustee shall cause to be duly filed
for record in case of foreclosure by exercise of the power of sale herein.
Should Beneficiary elect to foreclose by exercise of the power of sale herein,
Beneficiary shall also deposit with Trustee this Deed of Trust and the Note and
such receipts and evidence of expenditures made and secured hereby as Trustee
may require, and notice of sale having been given as then required by law and
after lapse of such time as may then be required by law after recordation of
such notice of default, Trustee, without demand on Trustor, shall sell the
Security at the time and place of sale fixed by it in such notice of sale as
Beneficiary may direct, either as a whole or in separate parcels, as Beneficiary
may determine, at public auction to the highest bidder for cash in lawful money
of the United States, payable at time of sale. Beneficiary shall have the right
to direct the order in which separate parcels shall be sold and Trustor shall
have no right to direct the order in which separate parcels are sold. Trustee
may postpone sale of all or any portion of the Security by public announcement
at such time and place of sale, and from time to time thereafter may postpone
such sale by public announcement at the time fixed by the

 

DEED OF TRUST AND SECURITY AGREEMENT – Page 37

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preceding postponement. Trustee shall deliver to such purchaser its deed
conveying the Security, or any portion thereof, so sold, but without any
covenant or warranty, express or implied. The recitals in such deed of any
matters or facts shall be conclusive proof of the truthfulness thereof. Any
person, including Trustor, Trustee or Beneficiary, may purchase at such sale.

 

(b) Proceed against the Personal Property in accordance with Beneficiary’s
rights and remedies with respect to the Personal Property, including the right
to sell the Personal Property either together with the Real Property or
separately and without regard to the remainder of the Security in accordance
with Beneficiary’s rights and remedies provided by the California Uniform
Commercial Code as well as other rights and remedies available at law or in
equity.

 

(c) Cause to be brought down to date a title examination and tax histories of
the Security, procure title insurance or title reports or, if necessary, procure
new abstracts and tax histories.

 

(d) Procure an updated or entirely new environmental audit of the Security
including building, soil, ground water and subsurface investigations; have the
Improvements inspected by an engineer or other qualified inspector and procure a
building inspection report; procure an MAI or other appraisal of the Security or
any portion thereof; enter upon the Security at any time and from time to time
to accomplish the foregoing and to show the Security to potential purchasers and
potential bidders at foreclosure sale; make available to potential purchasers
and potential bidders all information obtained pursuant to the foregoing and any
other information in the possession of Beneficiary regarding the Security.

 

(e) Either by itself or by its agent to be appointed by it for that purpose or
by a receiver appointed by a court of competent jurisdiction, as a matter of
strict right, without notice and without regard to the adequacy or value of any
security for the Indebtedness or the solvency of any party bound for its
payment, to take possession of the Security and, whether or not Beneficiary has
taken possession of the Security, to operate the Security, Trustor hereby
waiving any right Trustor might have to object to or oppose any such possession,
and, to collect and apply the Rents, including those past due and unpaid, in
such order and manner as Beneficiary or such receiver in its sole

 

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discretion shall consider advisable, to or upon the following, in such order and
amounts as Beneficiary shall elect: the expenses of receivership, if any; the
proper costs of upkeep, maintenance, repair and/or operation of the Security;
the repayment of any sums theretofore or thereafter advanced pursuant to the
terms of this Deed of Trust; the interest then due or next to become due upon
the Indebtedness; the taxes and assessments upon the Security then due or next
to become due; and/or the unpaid principal of such Indebtedness. The collection
and/or receipt of Rents from the Security by Beneficiary, its agent or receiver,
after declaration of default and election to cause the Security to be sold under
and pursuant to the terms of this Deed of Trust, shall not affect or impair such
default or declaration of default or election to cause the Security to be sold
or any sale proceedings predicated thereon, but such proceedings may be
conducted and sale effected notwithstanding the receipt and/or collection of any
such Rents. Any such Rents in the possession of Beneficiary, its agent or
receiver, at the time of sale and not theretofore applied as herein provided,
shall be applied in the same manner and for the same purposes as the proceeds of
the sale. Beneficiary’s rights hereunder include its rights under California
Civil Procedure Code Section 564, as such Section may be amended from time to
time. Except for damage caused by Beneficiary’s gross negligence or willful
misconduct, Trustor hereby waives any claim Trustor may have against Beneficiary
for mismanagement of the Security during Beneficiary’s operation of the Security
under this subparagraph or as mortgagee in actual possession under applicable
statutes.

 

(f) Beneficiary may, at its option without waiving any Event of Default, pay,
perform or observe the same, and all payments made or costs or expenses incurred
by Beneficiary in connection therewith shall be secured hereby and shall be,
without demand, immediately repaid by Trustor to Beneficiary with interest
thereon at the Default Rate hereunder. Beneficiary shall be the sole judge of
the necessity for any such actions and of the amounts to be paid. Beneficiary is
hereby empowered to enter and to authorize others to enter upon the Security or
any part thereof for the purpose of performing or observing any such defaulted
term, covenant or condition without hereby becoming liable to Trustor or any
person in possession holding under Trustor.

 

(g) Apply against the Indebtedness in such order, as Beneficiary shall determine
any funds held for the benefit of Trustor in escrow by Beneficiary or by any
third-party escrow agent under any of the Loan Documents, including, without
limitation, any funds held under the escrow established pursuant to Section 5 of
this Deed of Trust.

 

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(h) Upon any foreclosure sale, Beneficiary may bid for and purchase the Security
and shall be entitled to apply all or any part of the Indebtedness as a credit
to the purchase price. In the event of any sale of the Security by foreclosure,
through judicial proceedings, by advertisement, by power of sale, or otherwise,
the proceeds of any such sale which are applied in accordance with this Deed of
Trust shall be applied in the following order to: (i) all expenses incurred for
the collection of the Indebtedness and the foreclosure of this Deed of Trust,
including reasonable compensation to Trustee and Beneficiary, their agents and
attorneys; (ii) all sums expended or incurred by Beneficiary and/or Trustee
directly or indirectly in carrying out the terms, covenants and agreements of
the Note or notes evidencing the Indebtedness, of this Deed of Trust and any
other Loan Documents, together with interest thereon as therein provided;
(iii) all late payment charges, prepayment fees, advances and other amounts due
under any of the Loan Documents; (iv) all accrued and unpaid interest upon the
Indebtedness; (v) the unpaid principal amount of the Indebtedness; and (vi) the
surplus, if any, to the person or persons legally entitled thereto.

 

In the event of any acceleration of the Indebtedness pursuant to the first
paragraph of this Section, Trustor shall pay to Beneficiary together with the
principal indebtedness and interest thereon an amount equal to the prepayment
fee provided for in the Note and such fee shall be included as part of the
Indebtedness.

 

(i) Beneficiary may, to the extent permitted under the Civil Procedure Code
Section 726.5, as such Section may be amended from time to time, waive the
security of this Deed of Trust as to any parcel of real property which is
“environmentally impaired” or is an “affected parcel” (as such terms are defined
in Civil Procedure Code Section 726.5) and as to any Personal Property attached
to such parcel, and thereafter exercise against Trustor, to the extent permitted
under Civil Procedure Code Section 726.5, the rights and remedies of an
unsecured creditor, including without limitation, reduction of Beneficiary’s
claim to judgment, and any other rights remedies permitted by law.

 

In the event Beneficiary elects, in accordance with this Section 26(i), to waive
all or part of the security of this Deed of Trust pursuant to Civil Procedure
Code Section 726.5 and

 

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proceed against Trustor on an unsecured basis, the valuation of the Real
Property, the determination of the environmentally impaired status of such
security and any cause of action for a money judgment shall, at the request of
Beneficiary, be referred to a referee in accordance with the Civil Procedure
Code Sections 638 et seq. Such referee shall be an M.A.I. appraiser selected by
Beneficiary and approved by Trustor, which approval shall not be unreasonably
withheld or delayed. The decision of such referee shall be binding upon both
Trustor and Beneficiary, and judgment upon the award rendered by such referee
shall be entered in the court in which such proceeding was commenced in
accordance with the Civil Procedure Code Sections 644 and 645.

 

(j) Beneficiary may, in accordance with the Civil Procedure Code Section 736, as
such section may be amended from time to time, bring an action against Trustor
for breach of any “environmental provision” (as such term in defined in the
Civil Procedure Code Section 736) made by Trustor herein or in any other Loan
Document, for the recovery of damages and/or the enforcement of any such
“environmental provision”.

 

Neither Trustee nor Beneficiary shall be under any obligation to make any of the
payments or do any of the acts referred to in this Section and any of the
actions referred to in this Section may be taken by Beneficiary irrespective of
whether any notice of default or election to sell has been given hereunder and
without regard to the adequacy of the security for the indebtedness evidenced by
the Note.

 

Failure to exercise any option to accelerate in the event of a default or other
circumstance permitting the exercise of such option, shall not constitute a
waiver of the default or of the right to exercise such option at a later time,
or a waiver of the right to exercise such option in the event of any other
default or circumstance specified above.

 

27. Receiver. If an Event of Default shall have occurred, Beneficiary, to the
maximum extent permitted by law, shall be entitled, as a matter of right, to the
appointment of a

 

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receiver of the Security, without notice or demand, and without regard to the
adequacy of the security for the Indebtedness or the solvency of Trustor.
Trustor hereby irrevocably consents to such appointment and waives notice of any
application therefor. Any such receiver or receivers shall have all the usual
powers and duties of receivers in like or similar cases and all the powers and
duties of Beneficiary in case of entry and shall continue as such and exercise
all such powers until the date of confirmation of sale of the Security, unless
such receivership is sooner terminated. If an Event of Default shall have
occurred, Beneficiary shall also be entitled to become a mortgagee in possession
with all the powers, rights and remedies that a duly appointed receiver would
have.

 

28. [Omitted].

 

29. Prepayment Premiums. Immediately upon the first insertion of any
advertisement or notice of any such sale, there shall become due and owing by
Trustor all expenses incident to such advertisement or notice, all court costs
and all expenses incident to any foreclosure proceedings brought under this Deed
of Trust or otherwise in connection with such sale, plus interest thereon at the
Default Rate, and no party shall be required to receive only the aggregate
Indebtedness then secured hereby unless it is accompanied by a tender of payment
of such expenses, costs, and interest. In partial consideration for Beneficiary
agreeing to make the Loan to Trustor, Trustor agrees that upon the occurrence of
an Event of Default and acceleration of the Indebtedness secured hereby, any
tender of payment by or on behalf of Trustor of the amount necessary to satisfy
all of such Indebtedness made at any time before or at any foreclosure sale
shall constitute an evasion of the payment terms of the Note and hereunder, and
shall be deemed to be a voluntary prepayment, and such payment, to the extent
permitted by law, shall be accompanied by the prepayment fee, or the default
prepayment fee (as appropriate), as provided in the Note, and Beneficiary shall
not be obligated to accept any such tender of payment unless such tender of
payment includes such prepayment fee, or such default prepayment fee (as
applicable).

 

30. Acceleration Interest. In addition to any late payment charge which may be
due under the Note, Trustor shall pay interest on all sums due hereunder at a
rate (the “Default Rate”) equal to the lesser of (i) the Interest Rate plus
three percent (3%) per annum, or (ii) the maximum rate permitted by law, from
and after the first to occur of the following events: (A) Beneficiary sends
notice to Trustor that it elects to cause the acceleration of the Indebtedness;
(B) a petition under Title 11, United States Code, shall be filed by or against

 

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Trustor or if Trustor shall seek or consent to the appointment of a receiver or
trustee for itself or for any of the Security, file a petition seeking relief
under the bankruptcy or other similar laws of the United States, any state or
any other jurisdiction, make a general assignment for the benefit of creditors,
or be unable to pay its debts as they become due; (C) a court shall enter an
order, judgment or decree appointing, with or without the consent of Trustor, a
receiver or trustee for it or for any of the Security or approving a petition
filed against Trustor which seeks relief under the bankruptcy or other similar
laws of the United States, any state or any other jurisdiction, and any such
order, judgment or decree shall remain in force, undischarged or unstayed, sixty
(60) days after it is entered; or (D) if all sums due hereunder are not paid on
the Maturity Date (as defined in the Note).

 

31. Late Charge. In the event any sums of principal, interest and applicable
escrow amounts due under the Note, this Deed of Trust or any other Loan
Document, are not paid by Trustor when due, without regard to any cure or grace
period, Trustor shall pay to Beneficiary for the month during which such payment
is not made when due and for each month or fraction thereof that such sum
remains unpaid, a late charge equal to the lesser of three percent (3%) of such
installment or the maximum amount allowed by law, as the reasonable estimate by
Beneficiary and Trustor of a fair average compensation for the loss that may be
sustained by Beneficiary due to the failure of Trustor to make timely payments,
and such amount shall be secured hereby, provided that such late charge shall
not apply to the payment of the entire outstanding Indebtedness due on the
Maturity Date. Such late charge shall be paid without prejudice to the right of
Beneficiary to collect any other amounts provided to be paid or to declare an
Event of Default under this Deed of Trust or any other Loan Document.

 

32. Waiver of Statutory Rights.

 

(a) Trustor agrees, to the fullest extent permitted by law, that in an Event of
Default on the part of Trustor hereunder, neither Trustor nor anyone claiming
through or under Trustor will set up, claim, or seek to take advantage of any
moratorium, reinstatement, forbearance, appraisement, valuation, stay, extension
or exemption laws now or hereafter in force, in order to prevent or hinder the
enforcement or foreclosure of this Deed of Trust, or the sale of the Security,
or the delivery of possession thereof immediately after such sale to the
purchaser at such sale, and Trustor, for itself and all who may at any time
claim through or under it, hereby waives to the fullest extent that it may
lawfully do so, the benefit of all such laws, and any and all rights to have the
assets

 

DEED OF TRUST AND SECURITY AGREEMENT – Page 43

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subject to the security interest of this Deed of Trust marshaled upon any
foreclosure or sale under the power granted herein and agrees that Beneficiary
or any court having jurisdiction to foreclose such lien may sell the Security in
part or in its entirety.

 

(b) TO THE EXTENT NOT PROHIBITED BY LAW, TRUSTOR AND BENEFICIARY HEREBY
KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS DEED OF TRUST OR ANY OTHER LOAN DOCUMENTS, OR
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (ORAL OR WRITTEN) OR
ACTIONS OF TRUSTOR OR BENEFICIARY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR
BENEFICIARY MAKING THE LOAN SECURED HEREBY.

 

33. Security Interest. This Deed of Trust shall, as to any equipment and other
Personal Property covered hereby, be deemed to constitute a security agreement,
and Trustor, as debtor, hereby grants to Beneficiary, as secured party, a
security interest therein pursuant to the Uniform Commercial Code of the State
of California. Trustor agrees, upon request of Beneficiary, to furnish an
inventory of Personal Property (including the FF&E) owned by Trustor and subject
to this Deed of Trust and, upon request by Beneficiary, to execute any
supplements to this Deed of Trust, any separate security agreement, any
financing statements and any continuation statements in order to include
specifically said inventory of Personal Property or otherwise to perfect the
security interest granted hereby. Upon any Event of Default, Beneficiary shall
have all of the rights and remedies provided in said Code or otherwise provided
by law or by this Deed of Trust, including but not limited to the right to
require Trustor to assemble such Personal Property and make it available to
Beneficiary at a place to be designated by Beneficiary which is reasonably
convenient to both parties, the right to take possession of the Personal
Property with or without demand and with or without process of law and the right
to sell and dispose of the same and distribute the proceeds according to law.
The parties hereto agree that any requirement of reasonable notice shall be met
if Beneficiary sends such notice to Trustor at least ten (10) days prior to the
date of sale, disposition or other event giving rise to the required notice, and
that the proceeds of any disposition of any such Personal Property may be
applied by Beneficiary first to the reasonable expenses in connection therewith,
including reasonable Attorneys’ Fees and legal expenses incurred, and then to

 

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payment of the Indebtedness. With respect to the Personal Property that has
become so attached to the Real Property that an interest therein arises under
the real property law of the State of California, this Deed of Trust shall also
constitute a financing statement and a fixture filing under the California
Uniform Commercial Code. Trustor is the record owner of the Real Property and
the addresses of Trustor and Beneficiary are as set forth on the first page of
this Deed of Trust. Trustor represents and warrants that it is a “registered
organization” organized under the laws of the State of Delaware Trustor
covenants that it will not alter such registration without the prior written
consent of Beneficiary. Trustor further represents and warrants that its name is
exactly as set forth in the signature page of this Deed of Trust. Trustor also
covenants that its name shall not be altered without the prior written consent
of Beneficiary. Trustor hereby acknowledges and agrees that this Deed of Trust
is an authenticated record, and authorizes the filing of financing statements by
Beneficiary without the execution thereof by Trustor.

 

34. Right of Entry. Beneficiary and Beneficiary’s representatives may at all
times during normal business hours and with reasonable notice to Trustor and
Manager enter upon the Security and inspect the same, or cause it to be
inspected by agents, employees or independent contractors of Beneficiary, and
show the same to others, but Beneficiary shall not be obligated to make any such
entry or inspection. Notwithstanding the immediately preceding sentence,
Beneficiary shall give reasonable prior notice to Trustor of Beneficiary’s
intent to exercise its rights under this Section so long as no Event of Default
has occurred and is continuing. Beneficiary’s rights hereunder shall include its
rights under California Civil Code Section 2929.5 as such Section may be amended
from time to time.

 

35. Estoppel Certificate. Trustor, within fifteen (15) days after written
request from Beneficiary, will furnish a signed statement in writing, duly
acknowledged, of the amount then due or outstanding hereunder and whether or not
any offsets or defenses exist against the Indebtedness, and if so, specifying
such offsets and defenses. Upon request by Beneficiary, Trustor shall exercise
any right it may have to request an estoppel certificate from any or all of the
tenants on the Security within ten (10) days following Beneficiary’s request.

 

36. Annual Statements. Trustor will furnish Beneficiary with the following
financial statements and information, all of which reports will be in hard copy
and electronic format:

 

(a) within forty-five (45) days after the end of each calendar quarter, an
unaudited balance sheet and a statement of revenues and expenses for such
quarter and year-to-date;

 

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(b) within ninety (90) days after the end of each calendar year, (a) a reviewed
balance sheet and (b) a statement of revenues and expenses for the Real Property
and Trustor, certified as true and correct by the chief financial officer of the
general partner of Trustor;

 

(c) Within ninety (90) days after the end of each calendar year, annual capital
expenditure summaries for the Real Property; and

 

(d) Such other financial information as Beneficiary may reasonably request in
writing.

 

In addition to the regularly scheduled reports required above, Trustor agrees to
provide Beneficiary within five (5) Business Days after a written request
therefor, a balance sheet and year-to-date operating statements for the Real
Property certified by the chief financial officer of the general partner of
Trustor. Trustor also agrees to reasonably cooperate with Beneficiary and
Beneficiary’s loan servicer in providing information and access to the Real
Property in connection with the annual inspection of the Real Property, or such
other inspections as Beneficiary may reasonably require.

 

Notwithstanding the provisions of subsections (a) and (b) above, Beneficiary
agrees that subsection (b) above shall be waived by Beneficiary, provided that
Beneficiary shall retain the right, in its sole discretion and any time and from
time to reinstate the requirements of subsection (b) by written notice to
Trustor, effective upon receipt by Trustor of such notice.

 

Trustor acknowledges that Beneficiary may sell, transfer or assign the Loan, or
any interest therein (whether by sale of the entire Loan, the issuance of
participation certificates in private unrated transactions, or in connection
with a securitization of the Loan individually or as part of a pool of loans in
a public or private rated transaction, or otherwise). In connection therewith,
Trustor agrees that Beneficiary shall be entitled to disclose, as Beneficiary
may deem necessary or desirable, to any and all investors, purchasers,
transferees, servicers, participants, investors, rating agencies or
organizations maintaining databases on the underwriting and performance of
commercial mortgage loans, all documents and information which Beneficiary has
or may hereafter acquire relating to the Loan, whether furnished by Trustor or
any guarantor or indemnitor.

 

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If Trustor omits to prepare and deliver promptly any report required by this
Section, and such failure continues for thirty (30) days after written notice
thereof, Beneficiary may elect, in addition to exercising any remedy for an
Event of Default as provided for in this Deed of Trust, to make an audit of all
books and records of Trustor and its beneficial owners (but excluding Highland
Hospitality Corporation), including their bank accounts, which in any way
pertain to the Security, and to prepare the statement or statements which
Trustor failed to procure and deliver. Such audit shall be made and such
statements shall be prepared by an independent certified public accountant to be
selected by Beneficiary. Trustor shall pay all expenses of the audit and other
services, which expenses shall be secured hereby as part of the Indebtedness and
shall be immediately due and payable with interest thereon at the Default Rate.

 

Beneficiary shall afford any information received pursuant to this Section 36
the same degree of confidentiality that Beneficiary affords similar information
proprietary to Beneficiary; provided, however, that Beneficiary does not in any
way warrant or represent that such information received from Trustor will remain
confidential, and, provided further, that Beneficiary shall have the
unconditional right to disclose, as necessary, any such information in the event
Beneficiary sells, transfers, conveys, or assigns this Deed of Trust or any
portion of the Indebtedness.

 

37. Rights Cumulative. Each right and remedy of Beneficiary under this Deed of
Trust, the Note and the other Loan Documents, shall be in addition to every
other right and remedy of Beneficiary and such rights and remedies may be
enforced separately, successively and in any combination and order.

 

38. Subrogation. To the extent that proceeds of the Indebtedness are used to pay
any outstanding lien, charge or encumbrance affecting the Security, and such
proceeds have been advanced by Beneficiary at Trustor’s request, Beneficiary
shall be subrogated to all rights, interest and liens owned or held by any owner
or holder of such outstanding liens, charges and encumbrances, irrespective of
whether such liens, charges or encumbrances are released of record; provided,
however, that the terms and provisions hereof shall govern the rights and
remedies of Beneficiary and shall supersede the terms, provisions, rights, and
remedies under the lien or liens to which Beneficiary is subrogated hereunder.

 

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39. No Waiver. Any failure by Beneficiary to insist upon the strict performance
by Trustor of any of the terms and provisions hereof shall not be deemed to be a
waiver of any of the terms and provisions hereof, and Beneficiary,
notwithstanding any such failure, shall have the right thereafter to insist upon
the strict performance by Trustor of any and all of the terms and provisions
hereof to be performed by Trustor.

 

40. Deed of Trust Extension. The lien hereof shall remain in full force and
effect during any postponement or extension of the time of payment of the
Indebtedness, or of any part thereof, and any number of extensions or
modifications hereof, or any additional notes taken by Beneficiary, shall not
affect the lien hereof or the liability of Trustor or of any subsequent obligor
to pay the Indebtedness unless and until such lien or liability be expressly
released in writing by Beneficiary.

 

41. Indemnification. Trustor shall indemnify and hold Beneficiary harmless from
and against all obligations, liabilities, losses, costs, expenses, fines,
penalties or damages (including Attorneys’ Fees) which Beneficiary may incur by
reason of this Deed of Trust or with regard to the Security prior to such time
as Beneficiary takes actual physical possession of and manages and operates the
Real Property after an Event of Default, except for such claims that are caused
by the gross negligence or willful misconduct of Beneficiary or the escrow
holder under any escrow agreements; provided, however, that such obligation to
indemnify and hold Beneficiary harmless shall not apply to the extent that such
obligations, liabilities, losses, costs, expenses, fines, penalties or damages
arise after (i) any transfer of the Real Property by foreclosure under this Deed
of Trust or by a deed-in-lieu thereof, (ii) the repayment of the Loan in full,
and/or (iii) the release of the lien of the Deed of Trust from the Real
Property. Trustor shall defend Beneficiary against any claim or litigation
involving Beneficiary for the same, and should Beneficiary incur such
obligation, liability, loss, cost, expense, fine, penalty or damage, then
Trustor shall reimburse Beneficiary upon demand. Any amount payable to
Beneficiary under this provision shall be secured hereby and, if not paid within
five (5) days following demand therefor, shall bear interest at the Default
Rate.

 

42. Nonrecourse. Except as provided in this Section 42 and in Section 17 of the
Note, notwithstanding anything else to the contrary contained herein or in any
of the other Loan

 

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Documents, no judgment for the repayment of the indebtedness evidenced by the
Note or in any action to foreclose this Deed of Trust or to collect any amount
payable under the Note or the other Loan Documents or for the performance or
discharge of any covenants, obligations or undertakings of Trustor will be
satisfied out of the personal assets of Trustor or of any holders of beneficial
interest in Trustor. Beneficiary’s sole recourse for such judgment(s) shall be
against the Real Property and other collateral as provided pursuant to this Deed
of Trust and any of the other Loan Documents. The foregoing limitation on
liability shall not apply, and Trustor shall be personally liable, for all
damages and losses incurred by Beneficiary and any equitable relief as a court
may award for the following acts or omissions, to the extent described:

 

    

Act or Omission

--------------------------------------------------------------------------------

       

Liability

--------------------------------------------------------------------------------

(i)    Trustor misapplies any Condemnation (defined in Section 9 of this Deed of
Trust) awards or insurance proceeds attributable to the Real Property,        
To the extent of such misapplication; (ii)    Trustor misapplies any security
deposits or reserves attributable to the Real Property,         To the extent of
such misapplication; (iii)    Trustor collects rents in advance in violation of
any covenant under the Loan Documents,         To the extent of such rents
collected in advance; (iv)    Trustor commits any fraud, misrepresentation or
waste,         To the extent of any remedies available at law or in equity; (v)
   Gross revenues from the Real Property are sufficient to pay any portion of
the indebtedness, operating and maintenance expenses, insurance premiums
deposits into a reserve or escrow account, or other sums required by the Loan
Documents, and Trustor fails to make such payments or deposits when due,        
To the extent of any funds diverted from such payments or expenses (during the
twelve (12) months prior to Beneficiary’s notice of acceleration through the
date Beneficiary takes title to the Real Property); (vi)    Trustor enters into
any separate guarantee and/or indemnification agreement(s) and/or master
lease(s) in favor of Beneficiary, in addition to the Environmental
Indemnification Agreement, which Trustor has concurrently entered into,        
As provided in such guarantee, indemnification or master lease;

 

DEED OF TRUST AND SECURITY AGREEMENT – Page 49

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Act or Omission

--------------------------------------------------------------------------------

       

Liability

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(vii)    Trustor fails to pay Real Estate Taxes and other Impositions which are
a lien against the Real Property during the period of Trustor’s ownership,     
   To the extent of any unpaid Real Estate Taxes and other Impositions, and any
additional interest, penalties or other charges assessed as a result of such
non-payment; provided, however, to the extent Trustor makes escrow deposits for
Real Estate Taxes under the Tax Escrow Agreement or Section 5 hereof, Trustor
shall have no liability for nonpayment of such Real Estate Taxes, to the extent
of such escrowed funds; (viii)    Trustor fails to maintain the levels,
coverages and maximum deductibles of insurance required under the Loan
Documents, to the extent that a casualty or liability occurs or arises and
insurance proceeds would have been available had such insurance been maintained,
        In the amount of the loss incurred as the result of such uninsured
casualty or uninsured liability.

 

(a) There shall be no limitation, on Trustor’s personal liability under, nor on
the exercise of any of Beneficiary’s rights (i) under, any indemnity from
Trustor to Beneficiary, including without limitation the Environmental
Indemnity, except as may be expressly set forth in the terms of such indemnity;
and (ii) in accordance with the Civil Procedure Code Section 736 to recover any
costs, expenses or liabilities (including attorneys fees) which Beneficiary is
permitted to recover under Civil Procedure Code Section 736 for breach of any
“environmental provision” (as defined in the Civil Procedure Code Section 736)
contained in this Deed of Trust or any other of the Loan Documents relating to
the Security or any portion of the Security.

 

(b) Beneficiary shall be permitted to bring an action against Trustor personally
and to execute against and recover out of any property of Trustor, for all sums
due pursuant to the Loan Documents to the extent permitted by the terms of the
Civil Procedure Code Section 726.5 as a result of any parcel of the Security
being

 

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“environmentally impaired” or an “affected parcel” as such terms are defined in
the Civil Procedure Code Section 726.5 and to have the rights and remedies of an
unsecured Beneficiary to the extent permitted thereunder. If Beneficiary
exercises the rights and remedies of an unsecured creditor in accordance with
this clause (b), Trustor promises to pay to Beneficiary, on demand by
Beneficiary following such exercise, all amounts owed to Beneficiary under any
Loan Document, and Trustor agrees that it will be personally liable for the
payment of all such sums. Trustor and Beneficiary acknowledge that pursuant to
Civil Procedure Code Section 726.5, Beneficiary’s rights under this clause
(b) are limited to instances in which Trustor or any affiliate, agent, cotenant,
partner, or joint venturer of Trustor either (i) caused, contributed to,
permitted, or acquiesced in the release (as defined in Civil Procedure Code
Section 726.5) or threatened release of toxic or hazardous waste or waste
products or (ii) had actual knowledge or notice of such release or threatened
release prior to the execution and delivery of this Deed of Trust and failed to
disclose such release or threatened release to Beneficiary in writing after
Beneficiary’s written request for information concerning the environmental
condition of the Security, unless Beneficiary otherwise obtained actual
knowledge of such release or threatened release prior to the execution and
delivery of this Deed of Trust.

 

43. Attorneys’ Fees. Any reference to “Attorney Fees”, “Attorneys’ Fees”, or
“Attorney’s Fees” in this document includes but is not limited to both the
reasonable fees, charges and costs incurred by Beneficiary or Trustee through
Beneficiary’s or Trustee’s retention of outside legal counsel and the allocable
reasonable fees, costs and charges for services rendered by Beneficiary’s
in-house counsel. Any reference to “Attorney Fees”, “Attorneys’ Fees”, or
“Attorney’s Fees” shall also include but not be limited to those reasonable
attorneys or legal fees, costs and charges incurred by Beneficiary or Trustee in
the collection of any Indebtedness, the enforcement of any obligations
hereunder, the protection of the Security, the appointment of a receiver as
permitted hereunder, the foreclosure of this Deed of Trust, the sale of the
Security, any action by Beneficiary pursuant to Code Section 726.5, the defense
of actions arising hereunder and the collection, protection or setoff of any
claim the Beneficiary may have in a proceeding under Title 11, United States
Code, or any state bankruptcy or insolvency statute. Attorneys’ Fees provided
for hereunder shall accrue whether or not Beneficiary has provided notice of
default or of an intention to exercise its remedies for such default.

 

DEED OF TRUST AND SECURITY AGREEMENT – Page 51

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44. Administrative Fees. Beneficiary shall have the right to charge reasonable
administrative fees during the Term of the Note as Beneficiary may determine,
its reasonable discretion, in connection with any servicing requests made by
Trustor requiring Beneficiary’s evaluation, preparation and processing of any
such requests not to exceed $5,000.00 in any one matter. Administrative fees
shall not be charged for routine servicing matters contemplated by the Loan
Documents including, without limitation: processing payments; processing
insurance and UCC continuation documentation; processing escrow draws; review of
tenant leases, subordination non-disturbance and attornment agreements and
tenant estoppels on standard forms approved by Beneficiary without material
modifications. Such administrative fees shall apply to requests for matters not
permitted or contemplated by the Loan Documents, including, without limitation
requests for transfers or assignments, requests for partial releases; requests
for review of new easements and loan modifications and to requests, which while
contemplated by the Loan Documents, because of the nature of the request, will
require significantly more time than an institutional lender, acting reasonably,
would contemplate for such request (including without limitation, requests for
the approval of tenant leases, tenant estoppels and tenant subordination,
non-disturbance and attornment agreements which contain material differences
from Beneficiary’s standard forms). Beneficiary shall also be entitled to
reimbursement for professional fees it incurs for such administration, including
without limitation, those of architects, engineers and Attorneys’ Fees, provided
that Beneficiary shall be entitled to reimbursement of Attorneys’ Fees for
either in-house counsel or outside counsel, but not both.

 

45. Trustee’s Costs and Expenses; Governmental Charges. Trustor shall pay all
costs, fees and expenses of Trustee, its agents and counsel in connection with
the performance of its duties hereunder, including without limitation the cost
of any trustee’s sale guaranty or other title insurance coverage ordered in
connection with any foreclosure proceedings hereunder, and shall pay all taxes
(except federal and state income taxes) or other governmental charges or
impositions imposed by any governmental authority on Trustee or Beneficiary by
reason of their interest in the Loan Documents.

 

46. Protection of Security; Costs and Expenses. Trustor shall appear in and
defend any action or proceeding purporting to affect the security hereof or the
rights or powers of Beneficiary, and shall pay all costs and expenses, including
without limitation cost of evidence of title and reasonable Attorneys’ Fees, in
any such action or proceeding in which Beneficiary or Trustee may appear, and in
any suit brought by Beneficiary to foreclose this Deed of Trust or to

 

DEED OF TRUST AND SECURITY AGREEMENT – Page 52

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enforce or establish any other rights or remedies of Beneficiary hereunder
(including, without limitation, any action pursuant to Civil Procedure Code
Section 726.5). If Trustor fails to perform any of the covenants or agreements
contained in this Deed of Trust within any applicable notice and cure periods
provided for in this Deed of Trust, or if any action or proceeding is commenced
which affects Beneficiary’s interest in the Security or any part thereof,
including, but not limited to, eminent domain, code enforcement, or proceedings
of any nature whatsoever under any federal or state law, whether now existing or
hereafter enacted or amended, relating to bankruptcy, insolvency, arrangement,
reorganization or other form of debtor relief, or to a decedent, then after
compliance with the applicable notice and cure provisions provided for in this
Deed of Trust, Beneficiary may, but without obligation to do so and without
further notice to or demand upon Trustor and without releasing Trustor from any
obligation hereunder, make such appearances, disburse such sums and take such
action as Beneficiary deems necessary or appropriate to protect Beneficiary’s
interest, including, but not limited to, disbursement of reasonable Attorneys’
Fees, entry upon the Security to make repairs or take other action to protect
the security hereof, and payment, purchase, contest or compromise of any
encumbrance, charge or lien which in the judgment of Beneficiary appears to be
prior or superior hereto. Trustor further agrees to pay all reasonable expenses
of Beneficiary and Trustee (including without limitation Attorney’s Fees and
disbursements) (i) incident to the protection of the rights of Beneficiary
hereunder, or (ii) incident to the enforcement or collection of payment of the
Indebtedness, whether by judicial or non-judicial proceedings, or in connection
with any bankruptcy, insolvency, arrangement, reorganization or other debtor
relief proceeding of Trustor, or otherwise, or (iii) in connection with any
title insurance coverage ordered in connection with any foreclosure proceedings
hereunder. Trustor also agrees to pay all taxes (except federal and state income
taxes) and other governmental charges or impositions imposed by any governmental
authority on Beneficiary by reason of their interest in the Loan Documents. Any
amounts disbursed by Beneficiary pursuant to this Section 46 shall be additional
indebtedness of Trustor secured by the Loan Documents as of the date of
disbursement and shall bear interest at the Default Rate. All such amounts shall
be payable by Trustor immediately without demand. Nothing contained in this
Section shall be construed to require Beneficiary to incur any expense, make any
appearance, or take any other action.

 

47. Notices. Any notice, demand, request, statement or consent made hereunder
shall be in writing, signed by the party giving such notice, request, demand,
statement, or consent, and shall be deemed to have been properly given when
either delivered personally,

 

DEED OF TRUST AND SECURITY AGREEMENT – Page 53

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delivered to a reputable overnight delivery service providing a receipt or
deposited in the United States mail, postage prepaid and registered or certified
return receipt requested, at the address set forth below, or at such other
address within the continental United States of America as may have theretofore
have been designed in writing. The effective date of any notice given as
aforesaid shall be the date of personal service, one (1) Business Day after
delivery to such overnight delivery service, or three (3) Business Days after
being deposited in the United States Mail, whichever is applicable. For purposes
hereof, the addresses are as follows:

 

If to Beneficiary:    Connecticut General Life Insurance Company      c/o CIGNA
Realty Investors      280 Trumbull Street      Hartford, Connecticut 06103     
Attn: Debt Asset Management, H-11G with a copy to:    CIGNA Realty Investors  
   280 Trumbull Street      Hartford, Connecticut 06103      Attn: Real Estate
Law, H-16C If to Trustor:    HH Palm Springs LLC      c/o Highland Hospitality
Corporation      8405 Greensboro Drive, Suite 500      McLean, Virginia 22102  
   Attention: General Counsel with a courtesy copy to:    Highland Hospitality
Corporation      8405 Greensboro Drive, Suite 500      McLean, Virginia 22102  
   Attention: Chief Financial Officer

 

Notwithstanding the foregoing agreement to provide a courtesy copy to Trustor’s
counsel, such copy shall be a courtesy copy only, and failure to provide such
courtesy copy shall have absolutely no effect or entitle Trustor to any remedy
whatsoever. Any notice duly given to Trustor as provided above shall be
effective whether or not the courtesy copy was given to Trustor’s counsel.

 

48. Release. Upon the satisfaction in full of the Indebtedness, Beneficiary
shall promptly release of record the Security from the lien hereof and shall
surrender this Deed of Trust and the Assignment of Rents and Leases and all
notes evidencing indebtedness secured by this Deed of Trust to Trustor. Trustor
shall pay all costs of recordation.

 

DEED OF TRUST AND SECURITY AGREEMENT – Page 54

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49. Applicable Law. The provisions hereof shall be construed in accordance with
the laws of the State of California, without giving effect to any principles of
conflicts of laws.

 

50. Tenancy at Will. In the event of a trustee’s sale hereunder, if at the time
of such sale Trustor occupies the portion of the Security so sold or any part
thereof, Trustor shall immediately become the tenant of the purchaser at such
sale, which tenancy shall be a tenancy from day to day, terminable at the will
of either tenant or landlord, at a rental per day based upon the value of the
portion of the Security so occupied, such rental to be due and payable daily to
the purchaser. An action of forcible detainer shall lie if the tenant holds over
after a demand in writing for possession of such Security.

 

51. Substitution of Trustee. Beneficiary may remove Trustee at any time or from
time to time for any reason (with or without cause) and appoint a successor
trustee, and upon such appointment, all powers, rights, duties and authority of
Trustee, as aforesaid, shall thereupon become vested in such successor. Such
substitute trustee shall be appointed by written instrument, which appointment
may be executed by any authorized agent of Beneficiary or in any other manner
permitted by applicable law.

 

52. Indemnification of Trustee. Except for gross negligence or willful
misconduct, Trustee shall not be liable for any act or omission or error of
judgment. Trustee may rely on any document believed by him in good faith to be
genuine. All money received by Trustee shall, until used or applied as herein
provided, be held in trust, but need not be segregated (except to the extent
required by law), and Trustee shall not be liable for interest thereon. Trustor
hereby indemnifies Trustee against all liability and expenses, which he may
incur in the performance of his duties hereunder.

 

53. Other. If more than one party is named as Trustee herein, any one party may
perform any obligations or duties of the Trustee herein without the joinder of
any other party named herein. Beneficiary may exercise any and all other rights,
remedies and recourse granted under the Loan Documents now or hereafter existing
in equity or at law for the protection and preservation of the Security.

 

54. Invalidity. If any provision of this Deed of Trust shall be held invalid or
unenforceable, the same shall not affect in any respect whatsoever the validity
of the remainder of this Deed of Trust, except that if such provision relates to
the payment of principal or interest,

 

DEED OF TRUST AND SECURITY AGREEMENT – Page 55

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then the Beneficiary may, at its option, declare the Indebtedness due and
payable upon one hundred (120) days prior written notice to Trustor and,
provided there exists no Event of Default hereunder, without prepayment fee.

 

55. Captions. The captions in this instrument are inserted only as a matter of
convenience and for reference, and are not and shall not be deemed to be any
part hereof.

 

56. Modifications. This Deed of Trust may not be changed or terminated except in
writing signed by both parties. The provisions of this Deed of Trust shall
extend and be applicable to all renewals, amendments, extensions,
consolidations, and modifications of the other Loan Documents, and any and all
references herein to the Loan Documents shall be deemed to include any such
renewals, amendments, extensions, consolidations or modifications thereof.

 

57. Bind and Inure. The provisions of this Deed of Trust shall be binding on the
Trustor and its heirs, successors and assigns, and any subsequent owners of the
Security. The covenants of Trustor herein shall run with the land, and this Deed
of Trust and all of the covenants herein contained shall inure to the benefit of
the Beneficiary, its successors and assigns.

 

58. Replacement of Note. Upon receipt of evidence reasonably satisfactory to
Trustor of the loss, theft, destruction or mutilation of the Note, and in the
case of any such loss, theft or destruction, upon delivery of an indemnity
agreement reasonably satisfactory to Trustor or, in the case of any such
mutilation, upon surrender and cancellation of the Note, Trustor will execute
and deliver, in lieu thereof, a replacement Note, identical in form and
substance to the Note and dated as of the date of the Note and upon such
execution and delivery all references in this Deed of Trust to the Note shall be
deemed to refer to such replacement Note.

 

59. Time of the Essence. Time is of the essence with respect to each and every
covenant, agreement and obligation of Trustor under this Deed of Trust, the Note
and any of the other Loan Documents.

 

60. Business Day. The terms “Business Day” and “Business Days” as used in this
Deed of Trust shall mean any calendar day other than a Saturday, a Sunday or a
federal holiday on which the U.S. Postal Service’s offices are closed for
business in one or more of McLean, Virginia or Hartford, Connecticut.

 

DEED OF TRUST AND SECURITY AGREEMENT – Page 56

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61. [Omitted].

 

62. Authority of Beneficiary. As Operating Tenant is not a maker of the Note,
Operating Tenant hereby authorizes Beneficiary to perform any of the following
acts at any time and from time to time, all without notice to Operating Tenant
and without affecting Beneficiary’s rights or Operating Tenant’s obligations
under this Deed of Trust: (i) alter any terms of the Loan Documents, including
renewing, compromising, extending or accelerating, or otherwise changing the
time for payment of, or increasing or decreasing the rate of interest under, the
Note, (ii) take and hold security for the Loan Documents, accept additional or
substituted security for the Loan Documents, and subordinate, exchange, enforce,
waive, release, compromise, fail to perfect, sell or otherwise dispose of any
such security, (iii) apply any security now or later held for the Loan Documents
in any order that Beneficiary in its sole discretion may choose, and direct the
order and manner of any sale of all or any part of it and bid at any such sale,
(iv) release any obligor under the Note or any of the other Loan Documents,
including without limitation Borrower (each an “Obligor”) of its liability under
any Loan Document, and/or (v) substitute, add or release any one or more
guarantors or endorsers of the Loan Documents.

 

63. Waivers of Operating Tenant. Operating Tenant absolutely, unconditionally,
knowingly, and expressly waives:

 

(a) notice of acceptance hereof; (2) notice of any loans or other financial
accommodations made or extended under this Deed of Trust and the Loan Documents
to which it is a party or the creation or existence of any Indebtedness;
(3) notice of the amount of the Indebtedness, subject, however, to the Operating
Tenant’s right to make inquiry of the Beneficiary to ascertain the amount of the
Indebtedness at any reasonable time; (4) notice of any adverse change in the
financial condition of any Obligor or of any other fact that might increase
Operating Tenant’s risk hereunder; (5) notice of presentment for payment,
demand, protest, and notice thereof as to any instruments among the Loan
Documents to which the Operating Tenant is a party; (6) notice of any Event of
Default; and (7) all other notices (except if such notice is specifically
required to be given to Operating Tenant hereunder or under the Loan Documents
to which the Operating Tenant is a party) and demands to which Operating Tenant
might otherwise be entitled.

 

DEED OF TRUST AND SECURITY AGREEMENT – Page 57

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(b) its right, under Sections 2845 or 2850 of the California Civil Code, or
otherwise, to require the Beneficiary to institute suit against, or to exhaust
any rights and remedies which the Beneficiary has or may have against, any
Obligor or any third party, or against any collateral for the Indebtedness
provided by any Obligor or any third party. Operating Tenant further waives any
defense arising by reason of any disability or other defense (other than the
defense that the Indebtedness shall have been fully and finally performed and
indefeasibly paid) of any Obligor or by reason of the cessation from any cause
whatsoever of the liability of any Obligor in respect thereof.

 

(c) (1) any rights to assert against Beneficiary any defense (legal or
equitable), set-off, counterclaim, or claim which the Operating Tenant may now
or at any time hereafter have against any Obligor or any other party liable to
the Beneficiary; (2) any defense, set-off, counterclaim, or claim, of any kind
or nature, arising directly or indirectly from the present or future lack of
perfection, sufficiency, validity, or enforceability of the Indebtedness or any
security therefor; (3) any defense the Operating Tenant has to performance
hereunder, and any right the Operating Tenant has to be exonerated, provided by
Sections 2819, 2822, or 2825 of the California Civil Code, or otherwise, arising
by reason of: the impairment or suspension of the Beneficiary’s rights or
remedies against any Obligor; the alteration by the Beneficiary of the
Indebtedness; any discharge of any Obligor’s obligations to the Beneficiary by
operation of law as a result of the Beneficiary’s intervention or omission; or
the acceptance by the Beneficiary of anything in partial satisfaction of the
Indebtedness; and (4) the benefit of any statute of limitations affecting
Trustor’s liability hereunder or the enforcement thereof, and any act which
shall defer or delay the operation of any statute of limitations applicable to
the Indebtedness shall similarly operate to defer or delay the operation of such
statute of limitations applicable to Trustor’s liability hereunder.

 

(d) Operating Tenant absolutely, unconditionally, knowingly, and expressly
waives any defense arising by reason of or deriving from (i) any claim or
defense based upon an election of remedies by any Beneficiary including any
defense based upon an election of remedies by the Beneficiary under the
provisions of Sections 580a, 580b, 580d, and 726 of the California Code of Civil
Procedure or any similar law of California or any other jurisdiction; or
(ii) any election by any Beneficiary under Section 1111(b) of the Bankruptcy
Code to limit the amount of, or any collateral securing, its claim against an
Obligor.

 

DEED OF TRUST AND SECURITY AGREEMENT – Page 58

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(e) Pursuant to California Civil Code Section 2856(b):

 

(i) Operating Tenant waives all rights and defenses arising out of an election
of remedies by the creditor, even though that election of remedies, such as a
nonjudicial foreclosure with respect to security for a guaranteed obligation,
has destroyed such Operating Tenant’s rights of subrogation and reimbursement
against any Obligor by the operation of Section 580(d) of the California Code of
Civil Procedure or otherwise.

 

(ii) Operating Tenant waives all rights and defenses that the Beneficiary may
have because the Indebtedness is secured by real property. This means, among
other things: (1) Beneficiary may collect from an Obligor without first
foreclosing on any real or personal property collateral pledged by any Obligor;
and (2) if the Beneficiary forecloses on any real property collateral pledged by
any Obligor: (A) the amount of the Indebtedness may be reduced only by the price
for which that collateral is sold at the foreclosure sale, even if the
collateral is worth more than the sale price; and (B) Beneficiary may collect
from an Obligor even if Beneficiary, by foreclosing on the real property
collateral, has destroyed any right Operating Tenant may have to collect from
such Obligor. This is an unconditional and irrevocable waiver of any rights and
defenses Operating Tenant may have because the Indebtedness is secured by real
property. These rights and defenses include, but are not limited to, any rights
or defenses based upon Section 580a, 580b, 580d, or 726 of the California Code
of Civil Procedure.

 

DEED OF TRUST AND SECURITY AGREEMENT – Page 59

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If any of the Indebtedness at any time is secured by a mortgage or deed of trust
upon real property, Beneficiary may elect, in its sole discretion, upon a
default with respect to the Indebtedness, to foreclose such mortgage or deed of
trust judicially or nonjudicially in any manner permitted by law, before or
after enforcing this Deed of Trust and the Loan Documents, without diminishing
or affecting the liability of Operating Tenant hereunder except to the extent
the Indebtedness is repaid with the proceeds of such foreclosure. Operating
Tenant understands that (a) by virtue of the operation of California’s
antideficiency law applicable to nonjudicial foreclosures, an election by the
Beneficiary nonjudicially to foreclose such a mortgage or deed of trust probably
would have the effect of impairing or destroying rights of subrogation,
reimbursement, contribution, or indemnity of Operating Tenant against any
Obligor or other guarantors or sureties, and (b) absent the waiver given by
Operating Tenant, such an election would prevent Beneficiary from enforcing this
Deed of Trust and the Loan Documents to which Operating Tenant is a party
against Operating Tenant. Understanding the foregoing, and understanding that
Operating Tenant is hereby relinquishing a defense to the enforceability of this
Deed of Trust and the Loan Documents to which Operating Tenant is a party,
Operating Tenant hereby waives any right to assert against the Beneficiary any
defense to the enforcement of this Deed of Trust and the Loan Documents to which
Operating Tenant is a party, whether denominated “estoppel” or otherwise, based
on or arising from an election by the Beneficiary nonjudicially to foreclose any
such mortgage or deed of trust. Operating Tenant understands that the effect of
the foregoing waiver may be that Operating Tenant may have liability hereunder
for amounts with respect to which Operating Tenant may be left without rights of
subrogation, reimbursement, contribution, or indemnity against any Obligor or
other guarantors or sureties. Operating Tenant also agrees that the “fair market
value” provisions of Section 580a of the California Code of Civil Procedure
shall have no applicability with respect to the determination of Operating
Tenant’s liability under this Deed of Trust and the Loan Documents to which
Operating Tenant is a party.

 

DEED OF TRUST AND SECURITY AGREEMENT – Page 60

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(f) Operating Tenant hereby absolutely, unconditionally, knowingly, and
expressly waives: (i) any right of subrogation such Operating Tenant has or may
have as against any Obligor with respect to the Indebtedness; (ii) any right to
proceed against any Obligor or any other person or entity, now or hereafter, for
contribution, indemnity, reimbursement, or any other suretyship rights and
claims, whether direct or indirect, liquidated or contingent, whether arising
under express or implied contract or by operation of law, which such Operating
Tenant may now have or hereafter have as against any Obligor with respect to the
Indebtedness; and (iii) any right to proceed or seek recourse against or with
respect to any property or asset of any Obligor.

 

WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR OTHER PROVISION SET FORTH
IN THIS AGREEMENT, OPERATING TENANT HEREBY ABSOLUTELY, KNOWINGLY,
UNCONDITIONALLY, AND EXPRESSLY WAIVES AND AGREES NOT TO ASSERT ANY AND ALL
BENEFITS OR DEFENSES ARISING DIRECTLY OR INDIRECTLY UNDER ANY ONE OR MORE OF
CALIFORNIA CIVIL CODE SECTIONS 2799, 2808, 2809, 2810, 2815, 2819, 2820, 2821,
2822, 2825, 2839, 2845, 2848, 2849, AND 2850, CALIFORNIA CODE OF CIVIL PROCEDURE
SECTIONS 580a, 580b, 580c, 580d, AND 726, CALIFORNIA UNIFORM COMMERCIAL CODE
SECTIONS 3116, 3118, 3119, 3419, 3605, 9504, 9505 AND 9507, AND CHAPTER 2 OF
TITLE 14 OF PART 4 OF DIVISION 3 OF THE CALIFORNIA CIVIL CODE.

 

Notwithstanding anything to the contrary in this Deed of Trust, except with
respect to the obligations of Trustor set forth in Sections 4 (Impositions), 7
(Insurance), 42 (Nonrecourse), and this Section 63 (Waivers), for all purposes
Operating Tenant shall not have any responsibility to perform or provide any
obligation, covenant, representation or warranty under this Deed of Trust,
except and only to the extent Beneficiary has accelerated the obligations
secured by the Deed of Trust and Beneficiary reasonably determines that
Operating Tenant’s performance of an such an excluded obligation or covenant is
required in order for Beneficiary to realize upon all or any portion of the
Security. Operating Tenant’s obligations under Section 42 shall be limited to
acts or omissions which arise in connection with Operating Tenant’s duties under
the Operating Lease. So long as no Event of Default shall have occurred and be
continuing,

 

DEED OF TRUST AND SECURITY AGREEMENT – Page 61

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nothing contained in this Section shall be construed so as to negatively affect
Highland Hospitality Corporation’s continued qualification as a real estate
investment trust under the Internal Revenue Code.

 

Except such arrangements in existence on the date hereof as approved by
Beneficiary, Operating Tenant further agrees that it will not in the future
operate any other hotels or similar projects whether under agreements similar to
the Operating Lease or otherwise except as approved by Beneficiary in writing in
its sole and absolute discretion.

 

64. Obligor’s Financial Condition. Operating Tenant assumes full responsibility
for keeping informed of Obligor’s financial condition and business operations
and all other circumstances affecting Obligor’s ability to pay and perform its
obligations to Beneficiary, and agrees that Beneficiary shall have no duty to
disclose to Operating Tenant any information which Beneficiary may receive about
Obligor’s financial condition, business operations or any other circumstances
bearing on Obligor’s ability to perform.

 

[SIGNATURES APPEAR ON THE NEXT PAGE]

 

DEED OF TRUST AND SECURITY AGREEMENT – Page 62

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IN WITNESS WHEREOF, the Trustor has duly executed this Deed of Trust as a sealed
instrument on the day and year first above written.

 

TRUSTOR:

HH PALM SPRINGS LLC,

a Delaware limited liability company

By:  

/s/ Douglas W. Vicari

--------------------------------------------------------------------------------

Name:   Douglas W. Vicari Title:   Vice President OPERATING TENANT:

HHC TRS OP LLC,

a Delaware limited liability company

By:  

/s/ Douglas W. Vicari

--------------------------------------------------------------------------------

Name:   Douglas W. Vicari Title:   Vice President

 

DEED OF TRUST AND SECURITY AGREEMENT – Signature Page

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STATE OF   Maryland   §         § COUNTY OF   Montgomery   §

 

This instrument was acknowledged before me on July 6, 2005, by Douglas W.
Vicari, Vice President of HH Palm Springs LLC, on behalf of said limited
liability company.

 

( S E A L )  

/s/ Sharon A. Rowe

--------------------------------------------------------------------------------

    Notary Public in and for     the above County and State My Commission
Expires:   Print Name of Notary:                     10/01/08              

Sharon A. Rowe

--------------------------------------------------------------------------------

 

STATE OF   Maryland   §         § COUNTY OF   Montgomery   §

 

This instrument was acknowledged before me on July 6, 2005, by Douglas W.
Vicari, Vice President of HHC TRS OP LLC, on behalf of said limited liability
company.

 

( S E A L )  

/s/ Sharon A. Rowe

--------------------------------------------------------------------------------

    Notary Public in and for     the above County and State My Commission
Expires:   Print Name of Notary:                     10/01/08              

Sharon A. Rowe

--------------------------------------------------------------------------------

 

DEED OF TRUST AND SECURITY AGREEMENT – Signature Page

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EXHIBIT A

TO

DEED OF TRUST AND SECURITY AGREEMENT

 

Legal Description

 

All that certain real property situated in the County of Riverside, State of
California, described as follows:

 

PARCEL A:

 

Lots 1 and Lettered Lots D and E of Amended Tract No. 20485, in the City of Palm
Springs, County of Riverside, State of California, as per map recorded in Book
200 Pages 47 and 48 of maps, records of Riverside County, California;

 

More particularly described as follows:

 

Beginning at the Southeast corner of said Lot E; Thence along the South line of
said Lot South 89°54’41” West 575.03 feet; Thence North 00°11’16” West 568.60
feet to the beginning of a nontangent curve concave Northwesterly having a
radius of 70.00 feet and a radial to said curve of South 25°33’55” East; Thence
Easterly along said curve through a central angle of 33°43’38” a length of 41.21
feet; Thence North 00°16’01” West 106.53 feet; to the beginning of a nontangent
curve concave to the East having a radius of 70.00 feet and a radial to said
curve South 89°43’59” West; Thence South along said curve though a central angle
of 23°43’02” a length of 28.98 feet; Thence South 10°30’12” East 41.04 feet to
the beginning of a curve concave to the West having a radius of 100.00 feet;
Thence South along said curve though a central angle of 10°14’11” a length of
17.87 feet; Thence North 89°48’44” East 83.52 feet; Thence North 00°03’01” West
130.23 feet; Thence North 89°57’01” East 37.05 feet; Thence North 00°03’01” West
37.09 feet; Thence North 89°50’04” East 241.85 feet; Thence South 00°11’11” East
108.62 feet; Thence South 89°57’00” West 9.38 feet; Thence South 01°56’03” East
18.86 feet; Thence South 89°56’59” West 2.25 feet; Thence South 00°03’01” East
25.15 feet; Thence South 89°56’59” West 5.40 feet; Thence South 00°03’01” East
24.30 feet; Thence North 89°56’59” East 23.85 feet; Thence North 00°03’01” West
6.00 feet; Thence North 89°56’59” East 19.00 feet; Thence North 00°03’01” West
21.85 feet; Thence North 89°56’59” East 148.22 feet; Thence South 00°03’01” East
35.03 feet; Thence South 00°09’22” East 599.14 feet to the point of beginning.

 

Excluding therefrom all buildings and improvements now or hereafter located on
said land.

 

PARCEL B:

 

All buildings and improvements now located on the land described in Parcel A
hereinabove.

 

APN 009-612-726-7

 

DEED OF TRUST AND SECURITY AGREEMENT – EXHIBIT A- Page 1