EXHIBIT 10.38

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LOAN AGREEMENT

 

Dated as of August 19, 2004

 

Between

 

HH FP PORTFOLIO HOLDING LLC,

as Borrower

 

and

 

JPMORGAN CHASE BANK,

as Lender

 

 

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TABLE OF CONTENTS

 

     Page

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I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION

    

      Section 1.1.

   Definitions.    2

      Section 1.2.

   Principles of Construction.    23

II. GENERAL TERMS

    

      Section 2.1.

   Loan Commitment; Disbursement to Borrower.    23

      Section 2.2.

   Interest Rate.    24

      Section 2.3.

   Loan Payment.    24

      Section 2.4.

   Prepayments.    25

      Section 2.5.

   Release of Obligations Pursuant to a Defeasance.    27

      Section 2.6.

   Release of Borrower’s Obligations or Collateral.    29

      Section 2.7.

   Cash Management.    30

III. CONDITIONS PRECEDENT

    

      Section 3.1.

   Conditions Precedent to Closing.    31

IV. REPRESENTATIONS AND WARRANTIES

    

      Section 4.1.

   Borrower Representations.    33

      Section 4.2.

   Survival of Representations.    41

V. BORROWER COVENANTS

    

      Section 5.1.

   Affirmative Covenants.    42

      Section 5.2.

   Negative Covenants.    52

VI. INSURANCE; CASUALTY; CONDEMNATION; REQUIRED REPAIRS

    

      Section 6.1.

   Insurance.    58

      Section 6.2.

   Casualty.    58

      Section 6.3.

   Condemnation.    59

      Section 6.4.

   Restoration.    59

VII. RESERVE FUNDS

    

      Section 7.1.

   Required Repair Funds.    59

      Section 7.2.

   Tax and Insurance Escrow Fund.    59

      Section 7.3.

   Replacements and Replacement Reserve.    61

      Section 7.4.

   Excess Cash Flow Escrow Fund.    61

      Section 7.5.

   Reserve Funds, Generally.    62

      Section 7.6.

   Transfer of Reserve Funds Under Mortgage Loan.    62

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VIII. DEFAULTS

    

      Section 8.1.

   Event of Default.    63

      Section 8.2.

   Remedies.    66

IX. SPECIAL PROVISIONS

    

      Section 9.1.

   Sale of Notes and Securitization.    68

      Section 9.2.

   Securitization Indemnification.    70

      Section 9.3.

   Intentionally Omitted.    73

      Section 9.4.

   Exculpation.    73

      Section 9.5.

   Matters Concerning Manager.    75

      Section 9.6.

   Matters Concerning Franchisor.    75

      Section 9.7.

   Servicer.    75

X. MISCELLANEOUS

    

      Section 10.1.

   Survival.    75

      Section 10.2.

   Lender’s Discretion.    76

      Section 10.3.

   Governing Law.    76

      Section 10.4.

   Modification, Waiver in Writing.    77

      Section 10.5.

   Delay Not a Waiver.    78

      Section 10.6.

   Notices.    78

      Section 10.7.

   Trial by Jury.    79

      Section 10.8.

   Headings.    79

      Section 10.9.

   Severability.    79

      Section 10.10.

   Preferences.    79

      Section 10.11.

   Waiver of Notice.    79

      Section 10.12.

   Remedies of Borrower.    80

      Section 10.13.

   Expenses; Indemnity.    80

      Section 10.14.

   Schedules Incorporated.    81

      Section 10.15.

   Offsets, Counterclaims and Defenses.    81

      Section 10.16.

   No Joint Venture or Partnership; No Third Party Beneficiaries.    81

      Section 10.17.

   Publicity.    82

      Section 10.18.

   Waiver of Marshalling of Assets.    82

      Section 10.19.

   Waiver of Counterclaim.    82

      Section 10.20.

   Conflict; Construction of Documents; Reliance.    82

      Section 10.21.

   Brokers and Financial Advisors.    83

      Section 10.22.

   Prior Agreements.    83

      Section 10.23.

   Counterparts.    83

      Section 10.24.

   Certain Additional Rights of Lender.    83

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SCHEDULES

 

Schedule I

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Properties - Release Amounts

Schedule II

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Organizational Structure

Schedule III

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Rent Roll

Schedule IV

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Franchise Agreements

Schedule V

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Management Agreements

Schedule VI

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Subordination of Management Agreements

 

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LOAN AGREEMENT

 

THIS LOAN AGREEMENT, dated as of August 19, 2004 (as amended, restated,
replaced, supplemented or otherwise modified from time to time, this
“Agreement”), between JPMORGAN CHASE BANK, a New York banking corporation,
having an address at 270 Park Avenue, New York, New York 10017 (“Lender”) HH FP
PORTFOLIO HOLDING LLC, a Delaware limited liability company, having its
principal place of business at 8405 Greensboro Drive, Suite 500, McLean,
Virginia 22102 (“Borrower”).

 

W I T N E S S E T H:

 

WHEREAS, JPMorgan Chase Bank, a New York banking corporation, having an address
at 270 Park Avenue, New York, New York 10017, as mortgage lender (“Mortgage
Lender”), is making a loan in the principal amount of $135,000,000.00 (the
“Mortgage Loan”) to HH FP Portfolio LLC, a Delaware limited liability company
(“Mortgage Borrower”) pursuant to that certain Loan Agreement, dated as of the
date hereof (as the same may be amended, supplemented, replaced or otherwise
modified from time to time, the “Mortgage Loan Agreement”), which Mortgage Loan
is evidenced by that certain Promissory Note, dated as of the date hereof (as
the same may be amended, supplemented, replaced or otherwise modified from time
to time, the “Mortgage Note”), made by Mortgage Borrower to Mortgage Lender and
secured by, among other things, those certain first priority mortgages and deed
to secure debt dated as of the date hereof (as the same may be amended,
supplemented, replaced or otherwise modified from time to time, collectively,
the “Mortgage”) given by Mortgage Borrower and Operating Lessee (as hereinafter
defined) in favor of Mortgage Lender pursuant to which Mortgage Borrower has
granted Mortgage Lender a first priority mortgage on, among other things, the
Properties (as such term is defined in the Mortgage Loan Agreement) and other
collateral as more fully described in the Mortgage;

 

WHEREAS, Borrower is the legal and beneficial owner of one hundred percent
(100%) of the sole equity membership interests in Mortgage Borrower (the
“Pledged Mortgage Borrower Interests”) ;

 

WHEREAS, HHC TRS FP Portfolio Holding LLC, a Delaware limited liability company
(“Operating Lessee Pledgor”), is the legal and beneficial owner of one hundred
percent (100%) of the membership interests in Operating Lessee (collectively
with the Pledged Mortgage Borrower Interests, the “Pledged Company Interests”);

 

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

 

WHEREAS, as a condition precedent to the obligation of Lender to make the Loan
to Borrower, Borrower and Operating Lessee Pledgor have entered into that
certain Pledge Agreement and Security Agreement, dated as of the date hereof, in
favor of Lender (as amended, supplemented or otherwise modified from time to
time, the “Pledge Agreement”), pursuant to which Borrower has granted to Lender
a first priority security interest in the Collateral (as defined in the Pledge
Agreement) as collateral security for the Debt (as hereinafter defined); and

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

 

NOW THEREFORE, in consideration of the making of the Loan by Lender and the
covenants, agreements, representations and warranties set forth in this
Agreement, the parties hereto hereby covenant, agree, represent and warrant as
follows:

 

I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION

 

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

 

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

 

“Adjusted Release Amount” shall mean, for each Individual Property, one hundred
twenty-five percent (125%) of the applicable Release Amount for such Individual
Property.

 

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

 

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

 

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

 

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

 

“Annual Budget” shall mean the operating budget, including all planned Capital
Expenditures, for each of the Properties prepared by or on behalf of Borrower or
Mortgage Borrower for the applicable Fiscal Year or other period.

 

“Applicable Interest Rate” shall mean a rate of ten and one hundred thirty-seven
thousandths percent (10.137%) per annum.

 

“Approved Annual Budget” shall have the meaning set forth in Section 5.1.11(d)
hereof.

 

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

 

“Assignment of Management Agreement” shall mean, with respect to each Individual
Property, that certain Assignment of Management Agreement and Subordination of
Management Fees, dated as of the date hereof, among Mortgage Lender, Mortgage
Borrower and the applicable Manager, as the same may be amended, restated,
replaced, supplemented, renewed, extended or otherwise modified from time to
time.

 

“Award” shall mean any compensation paid by any Governmental Authority in
connection with a Condemnation with respect to all or any part of any Individual
Property.

 

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

 

“Bankruptcy Code” shall mean Title 11 of the United States Code, 11 U.S.C. §101,
et seq., as the same may be amended from time to time, and any successor statute
or statutes and all rules and regulations from time to time promulgated
thereunder, and any comparable foreign laws relating to bankruptcy, insolvency
or creditors’ rights or any other Federal or state bankruptcy or insolvency law.

 

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

 

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

 

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

 

“Cash Flow Threshold” shall mean $14,876,448.00.

 

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“Cash Flow Trigger Cure” shall mean Net Cash Flow for the Properties has been in
excess of the Cash Flow Threshold for the Properties for three (3) consecutive
months.

 

“Cash Flow Trigger Event” shall mean that the Net Cash Flow of the Properties
for the preceding twelve (12) month period is less than the Cash Flow Threshold.

 

“Cash Flow Trigger Period” shall mean the period commencing on the occurrence of
a Cash Flow Trigger Event and continuing until the occurrence of a Cash Flow
Trigger Cure.

 

“Cash Management Account” shall have the meaning set forth in Section 2.6.2(a)
hereof.

 

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

 

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

 

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

 

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

 

“Collateral” shall have the meaning set forth in the Pledge Agreement.

 

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

 

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

 

“Contractual Obligation” shall mean as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or undertaking to
which such Person is a party or by which it or any of its property is bound, or
any provision of the foregoing.

 

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

 

“Crestline Manager” shall mean Crestline Hotels & Resorts, Inc., a Delaware
corporation.

 

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“Debt” shall mean the outstanding principal amount set forth in, and evidenced
by, this Agreement and the Note together with all interest accrued and unpaid
thereon and all other sums (including the Yield Maintenance Premium) due to
Lender in respect of the Loan under the Note, this Agreement, the Pledge
Agreement and the other Loan Documents.

 

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

 

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

 

(a) the numerator is the Net Operating Income (excluding interest on credit
accounts) for such period as set forth in the financial statements required
hereunder; and

 

(b) the denominator is the aggregate amount of principal and interest due and
payable for such period on (i) the Note or, in the event a Defeasance Event has
occurred, the Undefeased Note, and (ii) the Mezzanine Note.

 

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

 

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

 

“Default Rate” shall mean a rate per annum equal to the lesser of (a) the
Maximum Legal Rate and (b) five percent (5%) above the Applicable Interest Rate.

 

“Defeasance Date” shall have the meaning set forth in Section 2.5.1(a)(i)
hereof.

 

“Defeasance Deposit” shall mean an amount equal to the remaining principal
amount of the Note or the Defeased Note, as applicable, the Yield Maintenance
Premium and any costs and expenses incurred or to be incurred in the purchase of
U.S. Obligations necessary to meet the Scheduled Defeasance Payments.

 

“Defeasance Event” shall have the meaning set forth in the Mortgage Loan
Agreement.

 

“Defeasance Lockout Date” shall mean the earlier to occur of (a) the date that
is two (2) years from the “startup day” within the meaning of Section 860G(a)(9)
of the Code for the REMIC Trust or (b) August 19, 2008.

 

“Defeased Note” shall have the meaning set forth in Section 2.5.1(a)(v) hereof.

 

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

 

“Discount Rate” shall mean the rate which, when compounded monthly, is
equivalent to the Prepayment Treasury Rate when compounded semi-annually.

 

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

 

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

 

“Eligibility Requirements” means, with respect to any Person, that such Person
(i) has total assets (in name or under management) in excess of $600,000,000 and
(except with respect to a pension advisory firm or similar fiduciary)
capital/statutory surplus or shareholder’s equity of $250,000,000 and (ii) is
engaged in the business of making or owning commercial real estate loans or
operating commercial properties.

 

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

 

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

 

“Environmental Report” shall mean, with respect to each Individual Property,
that certain environmental report more particularly described on Schedule V
attached to the Mortgage Loan Agreement.

 

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

 

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

 

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“Excess Cash Flow” shall have the meaning set forth in the Mortgage Loan
Agreement.

 

“Excess Cash Flow Escrow Account” shall have the meaning set forth in Section
9.3 hereof.

 

“Excess Cash Flow Escrow Fund” shall have the meaning set forth in Section 9.3
hereof.

 

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

 

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

 

“Extraordinary Expense” shall have the meaning set forth in Section 5.1.11(e)
hereof.

 

“Fiscal Year” shall mean the period from the Closing Date through December 31,
2004 and each twelve (12) month period thereafter commencing on January 1 and
ending on December 31 during each year of the term of the Loan.

 

“Fitch” shall mean Fitch, Inc.

 

“Franchise Agreement” shall mean, with respect to each Individual Property, that
certain franchise agreement more specifically identified on Schedule IV hereto,
as the same may be amended or modified from time to time in accordance with the
terms and provisions of this Agreement, or, if the context requires, any
Replacement Franchise Agreement executed in accordance with the terms and
provisions of this Agreement.

 

“Franchisor” shall mean, with respect to each Individual Property, the
franchisor with respect thereto, as the same is identified on Schedule IV
hereto, or, if the context requires, a Qualified Franchisor.

 

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

 

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

 

“Gross Income from Operations” shall mean, for any period, all income, computed
in accordance with GAAP, derived from the ownership and operation of the
Properties from whatever source during such period, but excluding Rents from
month-to-month tenants or tenants that are included in any Bankruptcy Action,
sales, use and occupancy or other taxes on receipts required to be accounted for
by Mortgage Borrower, Borrower, or Operating Lessee to any Governmental
Authority, refunds and uncollectible accounts, sales of furniture, fixtures and

 

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equipment, Insurance Proceeds and Condemnation Proceeds (other than business
interruption or other loss of income insurance), and any disbursements to
Borrower or Operating Lessee from the Mortgage Loan Reserve Funds.

 

“Guarantor” shall mean Highland Hospitality L.P., a Delaware limited
partnership.

 

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

 

“Improvements” shall have the meaning set forth in the granting clause of the
related Mortgage with respect to each Individual Property.

 

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

 

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

 

“Indemnifying Person” shall mean Borrower.

 

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

 

“Individual Property” shall mean each parcel of real property, the Improvements
thereon and all personal property owned by Mortgage Borrower and/or Operating
Lessee and encumbered by a Mortgage, together with all rights pertaining to such
property and Improvements, as more particularly described in the Granting
Clauses of each Mortgage and referred to therein as the “Property”.

 

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“Insolvency Opinion” shall mean that certain non-consolidation opinion letter
dated the date hereof delivered by Hogan & Hartson L.L.P. in connection with the
Loan.

 

“Insurance Premiums” shall have the meaning set forth in the Mortgage Loan
Agreement.

 

“Insurance Proceeds” shall have the meaning set forth in the Mortgage Loan
Agreement.

 

“JPMorgan” shall mean JPMorgan Chase Bank and its successors in interest.

 

“Lease” shall mean any lease, sublease or subsublease, letting, license,
concession or other agreement (whether now or hereafter in effect) pursuant to
which any Person is granted a possessory interest in, or right to use or occupy
all or any portion of any space in any Individual Property, and (a) every
modification, amendment or other agreement relating to such lease, sublease,
subsublease, or other agreement entered into in connection with such lease,
sublease, subsublease, or other agreement and (b) every guarantee of the
performance and observance of the covenants, conditions and agreements to be
performed and observed by the other party thereto.

 

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

 

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

 

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

 

“Lien” shall mean, with respect to each Individual Property, any mortgage, deed
of trust, deed to secure debt, lien, pledge, hypothecation, easement,
restrictive covenant, preference, assignment, security interest, or any other
encumbrance, lis pendens, charge or transfer of, or any agreement to enter into
or create, any of the foregoing, on or affecting Mortgage Borrower, Operating
Lessee, the Collateral, the related Individual Property any portion thereof or
any interest therein, including, without limitation, any conditional sale or
other title retention agreement, any financing lease having substantially the
same economic effect as any of the foregoing, the filing of any financing
statement, and mechanic’s, materialmen’s and other similar liens and
encumbrances. Notwithstanding the foregoing, any purchase and sale agreement or
similar agreement or option to sell entered into or otherwise granted by
Borrower with respect to all or any portion of any Individual Property shall not
constitute a “Lien”

 

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hereunder provided, that the consummation of the transactions contemplated under
and such agreement or option is in accordance with the terms and conditions of
this Agreement and the other Loan Documents.

 

“Liquidation Event” shall have the meaning set forth in Section 2.4.4 hereof.

 

“Liquor License Agreement” shall mean, with respect to each Individual Property
listed on Schedule IX attached to the Mortgage Loan Agreement, that certain
Beverage Services Management Agreement, dated as of the date hereof, between
Operating Lessee, as owner, and the holder of the applicable liquor license, as
licensee.

 

“Loan” shall mean the loan made by Lender to Borrower pursuant to this
Agreement.

 

“Loan Documents” shall mean, collectively, this Agreement, the Note, the Pledge
Agreement, the Environmental Indemnity, the Subordination of Management
Agreement, the Guaranty, the Cash Management Agreement and all other documents
executed and/or delivered by or on behalf of Borrower, Operating Lessee or
Guarantor in connection with the Loan.

 

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

 

“Lockbox Agreement” shall mean, with respect to each Individual Property, that
certain lockbox agreement, dated as of the Closing Date more specifically
identified on Schedule VII attached hereto.

 

“Lockbox Bank” shall mean, collectively, those certain lockbox banks, which each
establish, maintain and hold a Lockbox Account or any successor or permitted
assigns thereof.

 

“Lockbox Event” shall mean (a) the occurrence and continuance of an Event of
Default or (b) a Cash Flow Trigger Period.

 

“Management Agreement” shall mean, with respect to each Individual Property, the
management agreement entered into by and between Operating Lessee and the
applicable Manager, pursuant to which Manager is to provide management and other
services with respect to the related Individual Property, as more particularly
described on Schedule V hereto, or, if the context requires, any Replacement
Management Agreement.

 

“Manager” shall mean, with respect to each Individual Property, the manager
under the applicable Management Agreement or, if the context requires, any
Qualified Manager who is managing any Individual Property in accordance with the
terms and provisions of this Agreement.

 

“Material Adverse Effect” shall mean any action or occurrence which materially
and adversely affects, or could reasonably be expected to materially and
adversely affect (a) the use, operation or value of an Individual Property, (b)
the business operations and/or the financial condition of Borrower, Mortgage
Borrower, Operating Lessee, Operating Lessee Pledgor, or

 

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Guarantor, (c) the ability of Borrower, Mortgage Borrower, Operating Lessee,
Operating Lessee Pledgor, and/or Guarantor to perform its obligations under the
Loan Documents, or (d) the validity or enforceability of any Loan Documents.

 

“Maturity Date” shall mean September 1, 2011, or such other date on which the
final payment of principal of the Note becomes due and payable as therein or
herein provided, whether at such stated maturity date, by declaration of
acceleration, or otherwise.

 

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

 

“Monthly Debt Service Payment Amount” shall mean a constant monthly payment of
$229,594.06.

 

“Mezzanine Defeasance Event” shall have the meaning set forth in Section
2.5.1(a) hereof.

 

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

 

“Mortgage” shall have the meaning set forth in the Recitals to this Agreement.

 

“Mortgage Borrower” shall have the meaning set forth in the Recitals to this
Agreement, together with its successors and permitted assigns.

 

“Mortgage Borrower Company Agreement” shall mean the Limited Liability Company
Operating Agreement of Mortgage Borrower, dated as of July 19, 2004, between
Borrower, as sole equity member, and Mortgage Borrower.

 

“Mortgage Lender” shall have the meaning set forth in the Recitals to this
Agreement, together with its successors and assigns.

 

“Mortgage Loan” shall have the meaning set forth in the Recitals to this
Agreement.

 

“Mortgage Loan Agreement” shall have the meaning set forth in the Recitals to
this Agreement.

 

“Mortgage Loan Default” shall mean an “Event of Default” under and as defined in
the Mortgage Loan Agreement.

 

“Mortgage Loan Documents” shall mean, collectively, the Mortgage Note, the
Mortgage Loan Agreement, the Mortgage, the Assignment of Leases and Rents, the
Cash Management Agreement, and any and all other documents defined as “Loan
Documents” in the Mortgage Loan Agreement, as amended, restated, replaced,
supplemented or otherwise modified from time to time.

 

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“Mortgage Loan Reserve Funds” shall mean the “Reserve Funds” as defined in the
Mortgage Loan Agreement.

 

“Mortgage Note” shall have the meaning set forth in the Recitals to this
Agreement.

 

“Net Cash Flow” shall mean, with respect to the Properties or any Individual
Property for any period, the amount obtained by subtracting Operating Expenses
and deposits made to the Replacement Reserve Fund and deposits made with any
Manager for Replacements for such period from Gross Income from Operations for
such period.

 

“Net Liquidation Proceeds After Debt Service” shall mean, with respect to any
Liquidation Event, all amounts paid to or received by or on behalf of Mortgage
Borrower in connection with such Liquidation Event, including, without
limitation, proceeds of any sale, refinancing or other disposition or
liquidation, less (a) Lender’s and/or Mortgage Lender’s reasonable costs
incurred in connection with the recovery thereof, (b) the costs incurred by
Mortgage Borrower in connection with a Restoration of all or any portion of any
Individual Property made in accordance with the Mortgage Loan Documents, (c)
amounts required or permitted to be deducted therefrom and amounts paid pursuant
to the Mortgage Loan Documents to Mortgage Lender, (d) in the case of a
foreclosure sale, disposition or Transfer of any Individual Property in
connection with realization thereon following an Event of Default under the
Mortgage Loan, such reasonable and customary costs and expenses of sale or other
disposition (including attorneys’ fees and brokerage commissions), (e) in the
case of a foreclosure sale, such costs and expenses incurred by Mortgage Lender
under the Mortgage Loan Documents as Mortgage Lender shall be entitled to
receive reimbursement for under the terms of the Mortgage Loan Documents, (f) in
the case of a refinancing of the Mortgage Loan, such costs and expenses
(including attorneys’ fees) of such refinancing as shall be reasonably approved
by Lender, and (g) the amount of any prepayments required pursuant to the
Mortgage Loan Documents, and/or the Loan Documents, in connection with any such
Liquidation Event.

 

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

 

“Note” shall mean that certain Promissory Note of even date herewith in the
principal amount of Twenty-Five Million and No/100 Dollars ($25,000,000), made
by Borrower in favor of Lender, as the same may be amended, restated, replaced,
supplemented, renewed, extended or otherwise modified from time to time,
including any Defeased Note and Undefeased Note, if any, that may exist from
time to time.

 

“O&M Agreement” shall mean, with respect to each of the Properties located in
Parsippany, New Jersey and Boston, Massachusetts, that certain Operations and
Maintenance Agreement, dated as of the date hereof, between Mortgage Borrower,
Operating Lessee and Mortgage Lender given in connection with the Mortgage Loan,
as the same may be amended, restated, replaced, supplemented or otherwise
modified from time to time.

 

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“Officer’s Certificate” shall mean a certificate delivered to Lender by Borrower
which is signed by the president, any vice president or the treasurer of
Borrower.

 

“Open Repayment Date” shall mean the Payment Date one month prior to the
Maturity Date.

 

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

 

“Operating Lease” shall mean, with respect to each Individual Property, that
certain Lease Agreement, dated as of the Closing Date, between Mortgage
Borrower, as lessor, and Operating Lessee, as lessee.

 

“Operating Lessee” shall mean HHC TRS FP Portfolio LLC, a Delaware limited
liability company, together with its successors and permitted assigns.

 

“Operating Lessee Pledgor” shall have the meaning set forth in the Recitals to
this Agreement, together with its successors and permitted assigns.

 

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

 

“Out Parcel” shall mean that certain portion of the Individual Property located
in Hauppauge, New York, specified as “Release Parcel” on Schedule VIII attached
to the Mortgage Loan Agreement.

 

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

 

“Permitted Encumbrances” shall mean collectively (a) the Liens and security
interests created by the Loan Documents and the Mortgage Loan Documents, (b) all
Liens, encumbrances and other matters disclosed in the Title Insurance Policies,
(c) Liens, if any, for Taxes imposed by any Governmental Authority not yet due
or delinquent, (d) any Lien and security interest expressly permitted within the
definition hereunder of “Special Purpose Entity”, (e) easements created in the
ordinary course of business that do not have a Material Adverse Effect, and (f)
such other title and survey exceptions as Lender has approved or may approve in
writing in Lender’s sole discretion.

 

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

 

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

 

“Personal Property” shall have the meaning set forth in the granting clauses of
the Mortgage with respect to each Individual Property.

 

“Physical Conditions Report” shall mean, with respect to each Individual
Property, a report prepared by a company reasonably satisfactory to Lender
regarding the physical condition of such Individual Property, reasonably
satisfactory in form and substance to Lender.

 

“PIP Requirements” shall mean, collectively, with respect to any Individual
Property, the obligation of Mortgage Borrower and/or Operating Lessee to comply
with any property improvement program that is mandated or otherwise required
under any Management Agreement, Franchise Agreement or other applicable
licensing agreement.

 

“Pledge Agreement” shall have the meaning set forth in the Recitals to this
Agreement.

 

“Pledged Company Interests” shall have the meaning set forth in the Recitals to
this Agreement.

 

“Pledged Mortgage Borrower Interests” shall have the meaning set forth in the
Recitals to this Agreement.

 

“Pledgor” shall have the meaning set forth in the Pledge Agreement.

 

“Policies” shall have the meaning set forth in the Mortgage Loan Agreement.

 

“Prepayment Treasury Rate” shall mean the Treasury Rate for the week ending
prior to the applicable Payment Date for U.S. Treasury constant maturities with
maturity dates (one longer and one shorter) most nearly approximating the Open
Repayment Date.

 

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

 

“Provided Information” shall mean any and all financial and other information
provided at any time by, or on behalf of, any Indemnifying Person with respect
to the Properties, the Collateral, Borrower, Mortgage Borrower, Operating
Lessee, Operating Lessee Pledgor, Guarantor and/or Manager.

 

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“Qualified Franchisor” shall mean either (a) Franchisor; (b) Hyatt Corporation,
Hilton Inns, Inc., Marriott International, Inc. (including Courtyard by
Marriott, Residence Inn by Marriott and Renaissance), Westin Hotel Company,
Sheraton Operating Corporation, Inter Continental, Ritz Carlton or Meridien,
provided that there shall have been no material adverse change in such Person
since the Closing Date; or (c) in the reasonable judgment of Lender, a reputable
and experienced franchisor (which may be an Affiliate of Borrower) possessing,
directly or through its Affiliates, experience in flagging hotel properties
similar in size, scope, use and value as the Properties, provided, that Borrower
shall have (i) obtained prior written confirmation from the applicable Rating
Agencies that licensing of the Properties by such Person will not cause a
downgrade, withdrawal or qualification of the then current ratings of the
Securities or any class thereof, and (ii) if such Person is an Affiliate of
Borrower, delivered to Lender an Additional Insolvency Opinion.

 

“Qualified Manager” shall mean either (a) Manager; (b) Westin Hotel Company,
Sheraton Operating Corporation, Marriott International, Inc. (including
Courtyard by Marriott, Residence Inn by Marriott and Renaissance), Hilton Inns,
Inc., Starwood Worldwide Resorts Inc., Inter Continental, Ritz Carlton, or
Meridien, provided that there shall have been no material adverse change in such
Person since the Closing Date; or (c) in the reasonable judgment of Lender, a
reputable management organization (which may be an Affiliate of Borrower) having
at least five (5) years’ experience in the management of hotels with similar
uses as the Properties, and in the jurisdictions in which the Properties are
located, which (x) at the time of its engagement and has, for at least five (5)
years prior to its engagement as property manager, managed at least five (5)
properties of the same property type as the Properties, and (y) is not the
subject of a bankruptcy or similar insolvency proceeding, provided, that
Borrower shall have (i) obtained prior written confirmation from the applicable
Rating Agencies that management of the Properties by such Person will not cause
a downgrade, withdrawal or qualification of the then current ratings of the
Securities or any class thereof, and (ii) is such Person is an Affiliate of
Borrower, delivered to Lender an Additional Insolvency Opinion.

 

“Qualified Transferee” shall mean any one of the following Persons:

 

(a) a real estate investment trust, bank, saving and loan association,
investment bank, insurance company, trust company, commercial credit
corporation, pension plan, pension fund or pension advisory firm, mutual fund,
government entity or plan, provided that any such Person referred to in this
clause (a) satisfies the Eligibility Requirements;

 

(b) an investment company, money management firm or “qualified institutional
buyer” within the meaning of Rule 144A under the Securities Act of 1933, as
amended, or an institutional “accredited investor” within the meaning of
Regulation D under the Securities Act of 1933, as amended, provided that any
such Person referred to in this clause (b) satisfies the Eligibility
Requirements;

 

(c) an institution substantially similar to any of the foregoing entities
described in clauses (a) or (b) that satisfies the Eligibility Requirements;

 

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(d) any entity Controlled by any of the entities described in clauses (a), (b)
or (c) above; or

 

(e) an investment fund, limited liability company, limited partnership or
general partnership where a fund manager or an entity that is otherwise a
Qualified Transferee under clauses (a), (b), (c) or (d) of this definition acts
as the general partner, managing member or fund manager and at least fifty
percent (50%) of the equity interests in such investment vehicle are owned,
directly or indirectly, by one or more entities that are otherwise Qualified
Transferees under clauses (a), (b), (c) or (c) of this definition.

 

“Rating Agencies” shall mean each of S&P, Moody’s and Fitch, or any other
nationally recognized statistical rating agency which has been approved by
Lender.

 

“Release Amount” shall mean for an Individual Property the amount set forth on
Schedule I hereto.

 

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

 

“Rents” shall mean, with respect to each Individual Property, all rents
(including, without limitation, percentage rents), rent equivalents, moneys
payable as damages or in lieu of rent or rent equivalents, royalties (including,
without limitation, all oil and gas or other mineral royalties and bonuses),
income, receivables, receipts, revenues, accounts, cash, issues, profits,
charges for services rendered, and other consideration of whatever form or
nature received by or paid to or for the account of or benefit of Mortgage
Borrower or its agents or employees from any and all sources arising from or
attributable to the Individual Property, and proceeds, if any, from business
interruption or other loss of income or insurance, including, without
limitation, all hotel receipts, revenues and credit card receipts collected from
guest rooms, restaurants, bars, meeting rooms, banquet rooms and recreational
facilities, all receivables, installment payments and other payments made under
arrangements now existing or hereafter arising or created out of the sale,
lease, sublease, license, concession or other grant of the right of the use and
occupancy of property or rendering of services by Mortgage Borrower or any
operator or manager of the hotel or the commercial space located in the
Improvements or acquired from others (including, without limitation, from the
rental of any office space, retail space, guest rooms or other space, halls,
stores, and offices, and deposits securing reservations of such space), license,
lease, sublease and concession fees and rentals, health club membership fees,
food and beverage wholesale and retail sales, service charges, vending machine
sales and proceeds, if any, from business interruption or other loss of income
insurance.

 

“Replacement Franchise Agreement” shall mean either (a) a franchise agreement
with a Qualified Franchisor substantially in the same form and substance as the
Franchise Agreement or such Qualified Franchisor’s then existing form, provided
that such existing form is reasonably acceptable to Lender, or (b) a franchise,
trademark and license agreement with a Qualified Franchisor, which franchise,
trademark and license agreement shall be reasonably acceptable to Lender in form
and substance, provided, with respect to this subclause (b), Lender, at its
option, may require that Borrower shall have obtained prior written confirmation
from the applicable Rating Agencies that such franchise, trademark and license

 

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agreement will not cause a downgrade, withdrawal or qualification of the then
current rating of the Securities or any class thereof, and provided further that
Lender shall not unreasonably delay its response to any such requests.

 

“Replacement Management Agreement” shall mean, collectively, (a) either (i) a
management agreement with a Qualified Manager substantially in the same form and
substance as the Management Agreement, or (ii) a management agreement with a
Qualified Manager, which management agreement shall be reasonably acceptable to
Lender in form and substance, provided, with respect to this subclause (ii),
Lender, at its option, may require that Borrower obtain confirmation from the
applicable Rating Agencies that such management agreement will not cause a
downgrade, withdrawal or qualification of the then current rating of the
Securities or any class thereof, and provided further that Lender shall not
unreasonably delay its response to any such requests; and (b) an assignment of
management agreement and subordination of management fees substantially in the
form then used by Lender (or of such other form and substance reasonably
acceptable to Lender), executed and delivered to Lender by Borrower and such
Qualified Manager at Borrower’s expense.

 

“Replacement Reserve Account” shall have the meaning set forth in Section 7.3.1
hereof.

 

“Replacement Reserve Fund” shall have the meaning set forth in Section 7.3.1
hereof.

 

“Replacement Reserve Monthly Deposit” shall have the meaning set forth in the
Mortgage Loan Agreement.

 

“Replacements” shall have the meaning set forth in Section 7.3.1 hereof.

 

“Required Repairs” shall have the meaning set forth in the Mortgage Loan
Agreement.

 

“Reserve Funds” shall mean, collectively, the Tax and Insurance Escrow Fund, the
Replacement Reserve Fund, the Excess Cash Flow Escrow Fund, and any other escrow
fund established pursuant to the Mortgage Loan Documents or in accordance with
Article VII hereof.

 

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

 

“Restricted Party” shall mean, collectively (a) Borrower, Mortgage Borrower,
Operating Lessee, Operating Lessee Pledgor, any Guarantor and any Affiliated
Manager and (b) any shareholder, partner, member, non-member manager (other than
a natural person), direct or indirect legal or beneficial owner of, Borrower,
Mortgage Borrower, Operating Lessee, Operating Lessee Pledgor, any Guarantor,
any Affiliated Manager or any non-member manager. Restricted Parties shall not
include (i) Highland Hospitality Corporation or any of its shareholders, (ii)
the Independent Directors or Independent Members or (iii) the limited partners
of Guarantor that are not Affiliates of Guarantor.

 

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

 

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

 

“Scheduled Defeasance Payments” shall have the meaning set forth in Section
2.5.1(b) hereof.

 

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

 

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

 

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

 

“Security Agreement” shall have the meaning set forth in Section 2.5.1(a)(vi)
hereof.

 

“Servicer” shall have the meaning set forth in Section 9.7 hereof.

 

“Servicing Agreement” shall have the meaning set forth in Section 9.7 hereof.

 

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

 

“Special Purpose Entity” shall mean a corporation, limited partnership or
limited liability company which at all times since its formation and after the
date hereof:

 

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

 

(b) is not engaged and will not engage in any business unrelated to (i) the
ownership of the Collateral, (ii) acting as general partner of the limited
partnership that owns the Collateral or (iii) acting as a managing member of the
limited liability company that owns the Collateral, as applicable;

 

(c) does not have and will not have any assets other than those related to the
Collateral or its partnership interest in the limited partnership or the member
interest in the limited liability company that owns the Collateral or acts as
the general partner or managing member thereof, as applicable;

 

(d) has not engaged, sought or consented to and will not engage in, seek or
consent to any dissolution, winding up, liquidation, consolidation, merger, sale
of all or

 

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substantially all of its assets, transfer of partnership or membership interests
(if such entity is a general partner in a limited partnership or a member in a
limited liability company) or amendment of its limited partnership agreement,
articles of incorporation, articles of organization, certificate of formation or
operating agreement (as applicable) with respect to the matters set forth in
this definition;

 

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

 

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

 

(g) if such entity is a limited liability company with more than one (1) equity
member, has at least one (1) member that is a Special Purpose Entity that is a
corporation that has at least two (2) Independent Directors and that owns at
least one percent (1.0%) of the equity of the limited liability company;

 

(h) if such entity is a limited liability company with only one (1) equity
member, is a limited liability company organized in the State of Delaware that
has (i) as its only member a non-managing member, or (ii) at least two (2)
Independent Managers and has not caused or allowed and will not cause or allow
the board of managers of such entity to take any action requiring the unanimous
affirmative vote of one hundred percent (100%) of the managers unless two (2)
Independent Managers shall have voted in favor of such action;

 

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

 

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

 

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

 

(l) has maintained and will maintain its accounts, books and records separate
from any other Person and will file its own tax returns, except to the extent
that it is a tax disregarded entity;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(t) has and will have no Indebtedness other than (i) the Loan, (ii) trade
payables incurred in the ordinary course of business relating to the ownership
and operation of the Collateral and the routine administration of Borrower, in
amounts not to exceed two percent (2%) of the principal balance of the Loan,
which trade payables are not more than sixty (60) days past the date incurred
(unless being contested in good faith

 

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in accordance with the terms of the Loan Documents), are not evidenced by a note
and are paid when due, and which amounts are normal and reasonable under the
circumstances, and (iii) such other liabilities that are permitted pursuant to
this Agreement or expressly required pursuant to the Loan Documents;

 

(u) has not and will not assume or guarantee or become obligated for the debts
of any other Person or hold out its credit as being available to satisfy the
obligations of any other Person except as permitted pursuant to this Agreement;

 

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

 

(w) has allocated and will allocate fairly and reasonably any overhead expenses
that are shared with any Affiliate, including, but not limited to, paying for
shared office space and services performed by any employee of an Affiliate;

 

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

 

(y) has not pledged and will not pledge its assets to secure the obligations of
any other Person other than as expressly required under the Loan Documents;

 

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

 

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

 

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

 

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

 

(dd) has not entered into or been a party to, and will not enter into or be a
party to, any transaction with its partners, members, shareholders or Affiliates
except (i) in the

 

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ordinary course of its business and on terms which are intrinsically fair,
commercially reasonable and are no less favorable to it than would be obtained
in a comparable arm’s-length transaction with an unrelated third party and (ii)
in connection with this Agreement;

 

(ee) has not and will not have any obligation to, and will not, indemnify its
partners, officers, directors or members, as the case may be, except as provided
in its organizational documents;

 

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

 

(gg) except as contemplated under the Loan Documents does not and will not have
any of its obligations guaranteed by any Affiliate; and

 

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

 

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

 

“Static Cash Deposit” shall have the meaning set forth in Section 7.2 hereof.

 

“Subordination of Management Agreement” shall mean, with respect to each
Management Agreement, that certain subordination of management agreement more
specifically identified on Schedule VI attached hereto, each dated as of the
date hereof, as the same may be amended, restated, replaced, supplemented or
otherwise modified from time to time.

 

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

 

“Taxes” shall mean all real estate and personal property taxes, assessments,
water rates or sewer rents, now or hereafter levied or assessed or imposed
against any Individual Property or part thereof.

 

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

 

“Title Insurance Policies” shall have the meaning set forth in the Mortgage Loan
Agreement.

 

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

 

“Transferee” shall have the meaning set forth in Section 5.2.10(f) hereof.

 

“Treasury Rate” shall mean, as of the Open Repayment Date, the yield, calculated
by linear interpolation (rounded to the nearest one-thousandth of one percent
(i.e., 0.001%) of the yields of noncallable United State Treasury obligations
with terms (one longer

 

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and one shorter) most nearly approximately the period from such date of
determination to the Maturity Date, as determined by Lender on the basis of
Federal Reserve Statistical Release H.15-Selected Interest Rates under the
heading U.S. Governmental Security/Treasury Constant Maturities, or, in the
absence thereof, other recognized source of financial market information
selected by Lender.

 

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

 

“UCC Title Insurance Policy” shall have the meaning set forth in Section 3.13(b)
hereof.

 

“Undefeased Note” shall have the meaning set forth in Section 2.5.1(a)(v)
hereof.

 

“Uniform System of Accounts” shall mean the most recent edition of the Uniform
System of Accounts for Hotels, as adopted by the American Hotel and Motel
Association.

 

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

 

“Yield Maintenance Premium” shall mean the amount (if any) which, when added to
the remaining principal amount of the Note or the principal amount of a Defeased
Note, as applicable, will be sufficient to purchase U.S. Obligations providing
the required Scheduled Defeasance Payments.

 

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

 

II. GENERAL TERMS

 

Section 2.1. Loan Commitment; Disbursement to Borrower.

 

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

 

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

 

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2.1.3 The Note, Mortgages and Loan Documents. The Loan shall be evidenced by the
Note and secured by the Pledge Agreement and the other Loan Documents.

 

2.1.4 Use of Proceeds. Borrower shall use the proceeds of the Loan solely to (a)
make an equity contribution to Mortgage Borrower in order to cause Mortgage
Borrower to use such amounts for any use permitted pursuant to Section 2.1.4 of
the Mortgage Loan Agreement (b) pay costs and expenses incurred in connection
with the closing of the Loan, as approved by Lender, and (c) retain the balance,
if any.

 

Section 2.2. Interest Rate.

 

2.2.1 Interest Rate. Interest on the outstanding principal balance of the Loan
shall accrue from the Closing Date to but excluding the Maturity Date at the
Applicable Interest Rate.

 

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

 

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

 

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

 

Section 2.3. Loan Payment.

 

2.3.1 Scheduled Payments. Borrower shall pay to Lender (a) on the Closing Date,
an amount equal to interest only on the outstanding principal balance of the
Loan from the Closing Date up to but not including the first Payment Date
following the Closing Date (unless

 

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such Closing Date is the first (1st) day of the month, in which case no such
interest only payment shall be due), and (b) on each Payment Date thereafter up
to and including the Maturity Date, Borrower shall make a payment to Lender of
principal and interest in an amount equal to the Monthly Debt Service Payment
Amount, which payments shall be applied first to accrued and unpaid interest and
the balance to principal. The principal portion of the Monthly Debt Service
Payment Amount required hereunder is based upon a twenty-five (25) year
amortization schedule.

 

2.3.2 Payments Generally. The first interest accrual period hereunder shall
commence on and include the Closing Date and end on August 31, 2004. Each
interest accrual period thereafter shall commence on the first (1st) day of each
calendar month during the term of the Loan and shall end on and include the last
day of such calendar month. For purposes of making payments hereunder, but not
for purposes of calculating interest accrual periods, if the day on which such
payment is due is not a Business Day, then amounts due on such date shall be due
on the immediately succeeding Business Day and with respect to payments of
principal due on the Maturity Date, interest shall be payable at the Applicable
Interest Rate or the Default Rate, as the case may be, through and including the
day immediately preceding such Maturity Date. All amounts due pursuant to this
Agreement and the other Loan Documents shall be payable without setoff,
counterclaim, defense or any other deduction whatsoever.

 

2.3.3 Payment on Maturity Date. Borrower shall pay to Lender on the Maturity
Date the outstanding principal balance of the Loan, all accrued and unpaid
interest and all other amounts due hereunder and under the Note, the Mortgages
and the other Loan Documents.

 

2.3.4 Late Payment Charge. If any principal, interest or any other sums due
under the Loan Documents is not paid by Borrower by the date on which it is due,
Borrower shall pay to Lender upon demand an amount equal to the lesser of five
percent (5%) of such unpaid sum or the maximum amount permitted by applicable
law in order to defray the expense incurred by Lender in handling and processing
such delinquent payment and to compensate Lender for the loss of the use of such
delinquent payment. Any such amount shall be secured by the Mortgages and the
other Loan Documents to the extent permitted by applicable law.

 

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

 

Section 2.4. Prepayments.

 

2.4.1 Voluntary Prepayments. Except as otherwise provided herein, Borrower shall
not have the right to prepay the Loan in whole or in part prior to the Maturity
Date. On the Open Repayment Date, or on any Payment Date thereafter, Borrower
may, at its option and upon thirty (30) days prior notice to Lender, prepay the
Debt in whole but not in part without payment of the Yield Maintenance Premium.

 

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2.4.2 Mandatory Prepayments. If any Individual Property or Mortgage Borrower’s
interests therein or Borrower’s interests in Mortgage Borrower or Operating
Lessee Pledgor’s interests in Operating Lessee are sold, transferred or
otherwise disposed of, voluntarily or involuntarily, other than in accordance
with the terms of this Agreement or if the Mortgage Loan is repaid in full, then
Borrower shall be required to pay the Loan in full and otherwise in accordance
with Section 2.4.1 hereof plus payment of the Yield Maintenance Premium if such
payment occurs prior to the Open Repayment Date.

 

2.4.3 Prepayments After Default. If following the occurrence and during the
continuance of an Event of Default, payment of all or any part of the Debt is
tendered by Borrower or otherwise recovered by Lender (including through
application of any Reserve Funds), such tender or recovery shall be (a) made on
the next occurring Payment Date together with the Monthly Debt Service Payment
Amount and (b) deemed a voluntary prepayment by Borrower in violation of the
prohibition against prepayment set forth in Section 2.4.1 and Borrower shall
pay, in addition to the Debt, an amount equal to the greater of (i) five percent
(5%) of the outstanding principal balance of the Loan to be prepaid or
satisfied, and (ii) the Yield Maintenance Premium that would be required if a
Defeasance Event had occurred in an amount equal to the outstanding principal
amount of the Loan to be prepaid or satisfied. During the continuance of an
Event of Default, any prepayment shall be applied to payments of principal of
the Loan and other amounts due under the Loan Documents in such order and
priority as Lender may determine in its sole discretion.

 

2.4.4 Liquidation Events. (a) In the event of (i) any Casualty to all or any
portion of the Properties, (ii) any Condemnation of all or any portion of the
Properties, (iii) a Transfer of any Individual Property in connection with
realization thereon following a Mortgage Loan Default, including without
limitation a foreclosure sale, or (iv) any refinancing of any Individual
Property or the Mortgage Loan (each, a “Liquidation Event”), Borrower shall
cause the related Net Liquidation Proceeds After Debt Service to be paid
directly to Lender. On each date on which Lender actually receives a
distribution of Net Liquidation Proceeds After Debt Service, Borrower shall
prepay the outstanding principal balance of the Note in an amount equal to one
hundred percent (100%) of such Net Liquidation Proceeds After Debt Service,
together with interest that would have accrued on such amount through the next
Payment Date. Any amounts of Net Liquidation Proceeds After Debt Service in
excess of the Debt shall be paid to Borrower. Any prepayment received by Lender
pursuant to this Section 2.4.4(a) on a date other than a Payment Date shall be
held by Lender as collateral security for the Loan in an interest bearing
account, with such interest accruing to the benefit of Borrower, and shall be
applied by Lender on the next Payment Date. Other than following an Event of
Default, no Yield Maintenance Premium or fee shall be due in connection with any
prepayment made pursuant to this Section 2.4.4(a).

 

(b) Borrower shall immediately notify Lender of any Liquidation Event once
Borrower has knowledge of such event. Borrower shall be deemed to have knowledge
of (i) a sale (other than a foreclosure sale) of an Individual Property on the
date on which a contract of sale for such sale is entered into, and a
foreclosure sale, on the date notice of such foreclosure sale is given, and (ii)
a refinancing of the Properties, on the date on which a commitment for such
refinancing has been entered into. The provisions of this Section 2.4.(b) shall
not be construed to contravene in any manner the restrictions and other
provisions regarding refinancing of the Mortgage Loan or Transfer of the
Properties set forth in this Agreement, the other Loan Documents and the
Mortgage Loan Documents.

 

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Section 2.5. Release of Obligations Pursuant to a Defeasance.

 

2.5.1 (a) In connection with a Defeasance Event under the Mortgage Loan
Agreement, provided no Event of Default shall then exist and so long as the
Defeasance Lockout Date has occurred, Borrower shall have the right at any time
prior to the date voluntary prepayments are permitted under Section 2.4.1 hereof
(i) in connection with a Defeasance Event affecting a portion of the Mortgage
Loan, to obtain the release of Borrower’s obligations under the Loan Documents
(other than those expressly stated to survive) with respect to the Individual
Property or Properties that are the subject of the Defeasance Event and (ii) in
connection with a Defeasance Event affecting all of the Mortgage Loan, to obtain
the release of the Lien of the Pledge Agreement (the events described in clauses
(i) and (ii) above, collectively, a “Mezzanine Defeasance Event”), by and upon
satisfaction of the following conditions:

 

(i) Mortgage Borrower shall have satisfied all of the conditions to the proposed
defeasance set forth in the Mortgage Loan Agreement;

 

(ii) Borrower shall provide not less than thirty (30) days’ prior written notice
to Lender specifying the Payment Date (the “Defeasance Date”) on which the
Mezzanine Defeasance Event is to occur and the principal amount of the Loan to
be paid;

 

(iii) Borrower shall pay to Lender all accrued and unpaid interest on the
principal balance of the Loan to and including the Defeasance Date;

 

(iv) Borrower shall pay to Lender all other sums, not including scheduled
interest or principal payments, then due under the Note, this Agreement, the
Pledge Agreement and the other Loan Documents;

 

(v) In the event only a portion of the Loan is the subject of the Mezzanine
Defeasance Event, Borrower shall cause Lender to prepare all necessary documents
to modify this Agreement and to amend and restate the Note and issue two
substitute notes, one note having a principal balance equal to the defeased
portion of the original Note and a maturity date equal to Maturity Date (the
“Defeased Note”) and the other note having a principal balance equal to the
undefeased portion of the Note (the “Undefeased Note”). The Defeased Note and
Undefeased Note shall otherwise have terms identical to the Note, except that a
Defeased Note cannot be the subject of any further Mezzanine Defeasance Event;

 

(vi) The principal balance of the Defeased Note shall equal or exceed the
Adjusted Release Amount for the applicable Individual Property; provided,
however, if the undefeased portion of the Loan at the time a release is
requested is less than the Adjusted Release Amount, the Defeased Note shall
equal the remaining undefeased portion of the Loan at the time of release;

 

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(vii) Borrower shall deliver an opinion of counsel for Borrower that is standard
in commercial lending transactions and subject only to customary qualifications,
assumptions and exceptions opining, among other things, that Borrower has
legally and validly transferred and assigned the U.S. Obligations and all
obligations, rights and duties under and to the Note or Defeased Note (as
applicable) to the Successor Borrower, that Lender has a perfected first
priority security interest in the Defeasance Deposit and the U.S. Obligations
delivered by Borrower;

 

(viii) Borrower shall execute and deliver a pledge and security agreement, in
form and substance that would be reasonably satisfactory to a prudent lender
creating a first priority lien on the Defeasance Deposit and the U.S.
Obligations purchased with the Defeasance Deposit in accordance with the
provisions of this Section 2.5 (the “Security Agreement”);

 

(ix) Borrower shall deliver an Officer’s Certificate certifying that the
requirements set forth in this Section 2.5.1(a) have been satisfied;

 

(x) Borrower shall deliver a certificate of Borrower’s independent certified
public accountant certifying that the U.S. Obligations purchased with the
Defeasance Deposit generate monthly amounts equal to or greater than the
Scheduled Defeasance Payments;

 

(xi) Borrower shall deliver such other certificates, documents or instruments as
Lender may reasonably request; and

 

(xii) Borrower shall pay all costs and expenses of Lender incurred in connection
with the Mezzanine Defeasance Event, including reasonable attorneys’ fees and
expenses incurred in connection with the Mezzanine Defeasance Event and any
revenue, documentary stamp or intangible taxes or any other tax or charge due in
connection with the transfer of the Note, or otherwise required to accomplish
the defeasance.

 

(b) In connection with each Defeasance Event, Borrower shall use the Defeasance
Deposit to purchase U.S. Obligations which provide payments on or prior to, but
as close as possible to, all successive scheduled Payment Dates after the
Defeasance Date upon which interest and principal payments are required under
this Agreement and the Note, in the case of a Defeasance Event for the entire
outstanding principal balance of the Loan, or the Defeased Note, in the case of
a Defeasance Event for only a portion of the outstanding principal balance of
the Loan, as applicable, and in amounts equal to the scheduled payments due on
such Payment Dates under this Agreement and the Note or the Defeased Note, as
applicable (including, without limitation, scheduled payments of principal,
interest, servicing fees (if any), and any other amounts due under the Loan
Documents on such dates) and assuming such Note or Defeased Note is prepaid in
full on the Open Repayment Date (the “Scheduled Defeasance Payments”). Borrower,
pursuant to the Security Agreement or other appropriate document, shall
authorize and direct that the payments received from the U.S. Obligations may be
made directly to Lender and applied to satisfy the obligations of Borrower under
this Agreement and

 

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the Note or the Defeased Note, as applicable. Any portion of the Defeasance
Deposit in excess of the amount necessary to purchase the U.S. Obligations
required by this Section 2.5 and satisfy Borrower’s other obligations under this
Section 2.5 and Section 2.6 shall be remitted to Borrower.

 

2.5.2 Collateral. Each of the U.S. Obligations that are part of the defeasance
collateral shall be duly endorsed by the holder thereof as directed by Lender or
accompanied by a written instrument of transfer in form and substance that would
be satisfactory to a prudent lender (including, without limitation, such
instruments as may be required by the depository institution holding such
securities or by the issuer thereof, as the case may be, to effectuate
book-entry transfers and pledges through the book-entry facilities of such
institution) in order to perfect upon the delivery of the defeasance collateral
a first priority security interest therein in favor of the Lender in conformity
with all applicable state and federal laws governing the granting of such
security interests.

 

2.5.3 Successor Borrower. In connection with any Defeasance Event, Borrower may
at its option establish or designate a successor entity (the “Successor
Borrower”) which shall be a single purpose bankruptcy remote entity with one (1)
Independent Director or Independent Member, and Borrower shall transfer and
assign all obligations, rights and duties under and to the Note or the Defeased
Note, as applicable, to such Successor Borrower. Such Successor Borrower shall
assume the obligations under the Note or the Defeased Note, as applicable, and
Borrower shall be relieved of its obligations under such documents. Borrower
shall pay $1,000 to any such Successor Borrower as consideration for assuming
the obligations under the Note or the Defeased Note, as applicable.
Notwithstanding anything in this Agreement to the contrary, no other assumption
fee shall be payable upon a transfer of the Note or the Defeased Note, as
applicable, in accordance with this Section 2.5.3, but Borrower shall pay all
costs and expenses incurred by Lender, including Lender’s reasonable attorneys’
fees and expenses, incurred in connection therewith.

 

Section 2.6. Release of Borrower’s Obligations or Collateral. Except as set
forth in this Section 2.6, no repayment, prepayment, or defeasance of the Note
shall cause, give rise to a right to require, or otherwise result in, the
release or assignment of any of Borrower’s obligations under the Loan Agreement
or the Lien of the Pledge Agreement on the Collateral.

 

2.6.1 Release of Borrower’s Obligations. If Borrower has elected to pay a
portion of the Loan pursuant to a Mezzanine Defeasance Event and the
requirements of Section 2.5 and this Section 2.6 have been satisfied, Borrower’s
obligations under the Loan Documents (other than those expressly stated to
survive) with respect to the Individual Property that is the subject of the
Defeasance Event under the Mortgage Loan Agreement shall be released.

 

2.6.2 Release of Lien of Pledge Agreement.

 

(a) If Borrower has elected to pay all of the Loan pursuant to a Mezzanine
Defeasance Event and the requirements of Section 2.5 and this Section 2.6 have
been satisfied, the Collateral shall be released from the Lien of the Pledge
Agreement and, at Borrower’s request, Lender shall terminate the Environmental
Indemnity, the Guaranty and the other Loan Documents requested by Borrower to
the same extent as if the Loan was paid in full.

 

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(b) In connection with the release of the Lien of the Pledge Agreement, Borrower
shall submit to Lender, not less than thirty (30) days prior to the Defeasance
Date, a release of Lien (and related Loan Documents) for execution by Lender.
Such release shall be in a form satisfactory to a prudent lender. In addition,
Borrower shall provide all other documentation Lender reasonably requires to be
delivered by Borrower in connection with such release, together with an
Officer’s Certificate certifying that such documentation (i) is in compliance
with all Legal Requirements, and (ii) will effect such releases in accordance
with the terms of this Agreement.

 

2.6.3 Release of Out Parcel. At any time after the date hereof, provided no
Event of Default exists, Borrower may permit Mortgage Borrower to transfer and
obtain a release of the Out Parcel from the Lien of the applicable Security
Instrument; provided all conditions set forth in the Mortgage Loan Agreement
have been met or satisfied (or otherwise waived) in the discretion of the
Mortgage Lender in accordance with the terms and provisions of the Mortgage Loan
Agreement.

 

Section 2.7. Cash Management.

 

2.7.1 Lockbox Account. (a) Borrower shall cause Mortgage Borrower to establish
and maintain with respect to each Individual Property a segregated Eligible
Account (collectively, the “Lockbox Account”) with Lockbox Bank in trust for the
benefit of Mortgage Lender, which Lockbox Account shall be under the sole
dominion and control of Mortgage Lender pursuant and in accordance with the
Mortgage Loan Documents.

 

(b) Borrower shall cause Mortgage Borrower, Operating Lessee or Manager, as
applicable, to (i) deliver irrevocable written instructions to (i) all tenants
under Leases to deliver all Rents payable thereunder directly to the Lockbox
Account, and (ii) each of the credit card companies or credit card clearing
banks with which Mortgage Borrower, Operating Lessee or Manager has entered into
merchant’s agreements to deliver all receipts payable with respect to the
Properties directly to the Lockbox Account. Borrower shall cause Mortgage
Borrower, Operating Lessee or Manager, as applicable, to deposit all amounts
received by Mortgage Borrower, Operating Lessee or Manager constituting Rents
into the Lockbox Account within one (1) Business Day after receipt.

 

(c) Pursuant to the terms of the Lockbox Agreement Borrower shall, or shall
cause Mortgage Borrower to cause Operating Lessee to, obtain from Lockbox Bank
its agreement to transfer to the Cash Management Account in immediately
available funds by federal wire transfer all amounts on deposit in the Lockbox
Account once every Business Day throughout the term of the Loan upon notice from
Mortgage Lender that a Lockbox Event has occurred. Provided that no Lockbox
Event has occurred and is continuing, all funds on deposit in the Lockbox
Account shall be disbursed to the account or accounts designated by Mortgage
Borrower to Lockbox Bank in accordance with the related Lockbox Agreement.

 

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2.7.2 Cash Management Account. (a) Borrower shall cause Mortgage Borrower to
establish and maintain a segregated Eligible Account (the “Cash Management
Account”) pursuant to the Mortgage Loan Documents to be held by Servicer in
trust for the benefit of Mortgage Lender, which Cash Management Account shall be
under the sole dominion and control of Mortgage Lender. In the event that
Mortgage Borrower fails to establish or maintain the Cash Management Account
pursuant to the Mortgage Loan Documents, Borrower shall enter into a Mezzanine
Cash Management Agreement with Lender in form substantially similar to the Cash
Management Agreement. If Mortgage Lender waives any Cash Management Account
required in accordance with the terms of the Mortgage Loan Agreement, or if the
Mortgage Loan is refinanced or paid off in full (without a prepayment of the
Loan) and the Cash Management Account that is required hereunder is not required
under the new mortgage loan, if any, then Borrower shall cause any amounts that
would have been deposited into the Cash Management Account in accordance with
the terms of the Mortgage Loan Agreement to be transferred to and deposited with
Lender.

 

(b) Provided that no Lockbox Event is occurring, Borrower shall pay to Lender on
each Payment Date all amounts so required pursuant to the Loan Documents. On
each Payment Date during the occurrence of a Lockbox Event (or, if such Payment
Date is not a Business Day, on the immediately preceding Business Day), all
funds on deposit in the Cash Management Account that are due to Lender shall be
paid to Lender.

 

(c) Notwithstanding anything contained herein to the contrary, all funds
remitted to Lender in accordance with the Cash Management Agreement following
the occurrence of an Event of Default may be applied by Lender in such order and
priority as Lender shall determine.

 

III. CONDITIONS PRECEDENT

 

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

 

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

 

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

 

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

 

(a) Pledge Agreement. Lender shall have received from Borrower and Operating
Lessee Pledgor fully executed and acknowledged counterparts of the Pledge
Agreement and delivery of the Pledged Company Interests, the UCC Financing
Statements, and

 

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such other documents required pursuant to the Pledge Agreement, in the
reasonable judgment of Lender, so as to effectively create valid and enforceable
Liens upon the Collateral, of the requisite priority, in favor of Lender,
subject only to the Permitted Encumbrances and such other Liens as are permitted
pursuant to the Loan Documents. Lender shall have also received from Borrower
fully executed counterparts of the other Loan Documents.

 

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

 

(c) Mortgage Loan Documents. The Mortgage Loan Documents shall have been duly
authorized, executed and delivered by all parties thereto, the Mortgage Loan
shall have been contemporaneously funded and Lender shall have received and
approved certified copies thereof. All of the conditions precedent set forth in
Article III of the Mortgage Loan Agreement shall have been satisfied and the
Mortgage Loan shall have closed and been fully advanced in accordance therewith.

 

(d) Encumbrances. Borrower and Operating Lessee Pledgor shall have taken or
caused to be taken such actions in such a manner so that Lender has a valid and
perfected first priority Lien as of the Closing Date on the Collateral and with
respect to the Pledge Agreement, and Lender shall have received satisfactory
evidence thereof.

 

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

 

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

 

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3.1.6 Opinions of Borrower’s Counsel. Lender shall have received opinions from
Borrower’s counsel (a) with respect to non-consolidation as set forth in the
Insolvency Opinion, (b) with respect to priority and perfection of the
Collateral and (c) with respect to the due execution, authority, enforceability
of the Loan Documents and such other matters as Lender may require, all such
opinions in form, scope and substance satisfactory to Lender and Lender’s
counsel in their sole discretion.

 

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

 

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

 

3.1.9 Transaction Costs. Borrower shall have paid or reimbursed Lender for all
UCC Title Insurance Policy premiums, recording and filing fees, costs of the
Environmental Reports, Physical Conditions Reports, appraisals and other
reports, the reasonable fees and costs of Lender’s counsel and all other third
party out-of-pocket expenses incurred in connection with the origination of the
Loan to the extent such costs and expenses relating to third party costs have
not already been paid or reimbursed by Mortgage Borrower to Mortgage Lender.

 

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

 

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

 

IV. REPRESENTATIONS AND WARRANTIES

 

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

 

4.1.1 Organization. Borrower and Operating Lessee Pledgor have been duly
organized and are validly existing and in good standing with requisite power and
authority to own their properties and to transact the businesses in which each
is now engaged. Borrower and Operating Lessee Pledgor are duly qualified to do
business and are in good standing in each jurisdiction where each is required to
be so qualified in connection with its properties, businesses

 

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and operations. Borrower and Operating Lessee Pledgor possess all rights,
licenses, permits and authorizations, governmental or otherwise, necessary to
entitle each to own its properties and to transact the businesses in which each
is now engaged, the sole business of Borrower is the ownership, management and
operation of Mortgage Borrower and the sole business of Operating Lessee Pledgor
is the ownership, management, and operation of Operating Lessee. The ownership
interests of Borrower, Operating Lessee and Pledgor are as set forth on the
organizational chart attached hereto as Schedule II.

 

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

 

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

 

4.1.4 Litigation. There are no actions, suits or proceedings at law or in equity
by or before any Governmental Authority or other agency now pending or, to their
respective knowledge, threatened against or affecting Borrower, Mortgage
Borrower, Operating Lessee, Operating Lessee Pledgor, Guarantor or any
Individual Property, which actions, suits or proceedings, if determined against
Borrower, Mortgage Borrower, Operating Lessee, Operating Lessee Pledgor,
Guarantor or any Individual Property, would have a Material Adverse Effect.

 

4.1.5 Agreements. Neither Borrower nor Operating Lessee Pledgor is a party to
any agreement or instrument or subject to any restriction which might materially
and adversely affect Borrower, Mortgage Borrower, Operating Lessee, Operating
Lessee Pledgor, the Collateral or any Individual Property, or Borrower’s,
Mortgage Borrower’s, Operating Lessee’s or Operating Lessee Pledgor’s business,
properties or assets, operations or condition, financial or

 

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otherwise. None of Borrower, Mortgage Borrower, Operating Lessee, or Operating
Lessee Pledgor is in default in any material respect in the performance,
observance or fulfillment of any of the obligations, covenants or conditions
contained in any agreement or instrument to which it is a party or by which
Borrower, Mortgage Borrower, Operating Lessee, Operating Lessee Pledgor, the
Collateral or any of the Properties are bound. None of Borrower, Mortgage
Borrower Operating Lessee, or Operating Lessee Pledgor has any material
financial obligation under any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which Borrower, Mortgage Borrower,
Operating Lessee, or Operating Lessee Pledgor is a party or by which Borrower,
Mortgage Borrower, Operating Lessee, or Operating Lessee Pledgor, the Properties
or the Collateral is otherwise bound, other than (a) obligations incurred in the
ordinary course of the operation of the Properties as permitted pursuant to
clause (t) of the definition of “Special Purpose Entity” set forth in Section
1.1 hereof, (b) obligations under the Loan Documents and the Mortgage Loan
Documents, as applicable, and any Operating Lease, or (c) any obligation
expressly permitted under this Agreement.

 

4.1.6 Title. The Pledgor under the Pledge Agreement is the record and beneficial
owner of, and Borrower and Operating Lessee Pledgor have good, marketable title
to, the Collateral, free and clear of all Liens whatsoever except the Liens
created by the Loan Documents. The Permitted Encumbrances in the aggregate do
not materially and adversely affect the value, operation or use of the
applicable Individual Property (as currently used) or Borrower’s ability to
repay the Loan. The Pledge Agreement, together with the UCC Financing Statements
relating to the Collateral, will create a valid lien on, and security interest
in and to, the Collateral, all in accordance with the terms thereof. To the best
of Borrower’s knowledge, there are no claims for payment for work, labor or
materials affecting the Properties which are or may become a Lien prior to, or
of equal priority with, the Liens created by the Mortgage Loan Documents.

 

4.1.7 Solvency. Borrower and Operating Lessee Pledgor have (a) not entered into
the transaction or executed the Note, this Agreement or any other Loan
Documents, as applicable, with the actual intent to hinder, delay or defraud any
creditor and (b) received reasonably equivalent value in exchange for their
respective obligations under such Loan Documents. The fair saleable value of
Borrower’s, Mortgage Borrower’s, Operating Lessee’s and Operating Lessee
Pledgor’s assets exceeds and will, immediately following the making of the Loan,
exceed Borrower’s, Mortgage Borrower’s, Operating Lessee’s and Operating Lessee
Pledgor’s total liabilities, including, without limitation, subordinated,
unliquidated, disputed and contingent liabilities. The fair saleable value of
each of Borrower’s, Mortgage Borrower’s, Operating Lessee’s and Operating Lessee
Pledgor’s assets is and will, immediately following the making of the Loan, be
greater than Borrower’s, Mortgage Borrower’s, Operating Lessee’s and Operating
Lessee Pledgor’s probable liabilities, including the maximum amount of its
contingent liabilities on its debts as such debts become absolute and matured.
Each of Borrower’s, Mortgage Borrower’s, Operating Lessee’s and Operating Lessee
Pledgor’s assets do not and, immediately following the making of the Loan will
not, constitute unreasonably small capital to carry out its business as
conducted or as proposed to be conducted. None of Borrower, Mortgage Borrower,
Operating Lessee or Operating Lessee Pledgor intends to, nor believes that it
will, incur debt and liabilities (including contingent liabilities and other
commitments) beyond its ability to pay such debt and liabilities as they mature
(taking into account the timing and amounts of cash to be received by Borrower,
Mortgage Borrower, Operating Lessee and Operating Lessee

 

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Pledgor and the amounts to be payable on or in respect of obligations of
Borrower). No petition in bankruptcy has been filed against Borrower, Mortgage
Borrower, Operating Lessee, Operating Lessee Pledgor, or Guarantor, and none of
Borrower, Mortgage Borrower, Operating Lessee, Operating Lessee Pledgor, or
Guarantor has ever made an assignment for the benefit of creditors or taken
advantage of any insolvency act for the benefit of debtors. None of Borrower,
Mortgage Borrower, Operating Lessee Operating Lessee Pledgor, or Guarantor are
contemplating either the filing of a petition by it under any state or federal
bankruptcy or insolvency laws or the liquidation of all or a major portion of
Borrower’s, Mortgage Borrower’s, Operating Lessee’s, or Operating Lessee
Pledgor’s assets or properties, and none of Borrower, Mortgage Borrower,
Operating Lessee, or Operating Lessee Pledgor has any knowledge of any Person
contemplating the filing of any such petition against it or Guarantor.

 

4.1.8 Full and Accurate Disclosure. To Borrower’s knowledge, no statement of
fact made by Borrower in this Agreement or in any of the other Loan Documents
contains any untrue statement of a material fact or omits to state any material
fact necessary to make statements contained herein or therein not misleading.
There is no material fact presently known to Borrower or Operating Lessee
Pledgor which has not been disclosed to Lender which adversely affects, nor as
far as Borrower can foresee, might adversely affect, Borrower, Mortgage
Borrower, Operating Lessee, Operating Lessee Pledgor, Guarantor, the Collateral,
any Individual Property or the business, operations or condition (financial or
otherwise) of Borrower.

 

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

 

4.1.10 Compliance. Each of Borrower, Operating Lessee Pledgor and the Properties
(including the use thereof) comply in all material respects with all applicable
Legal Requirements, including, without limitation, building and zoning
ordinances and codes. Neither Borrower nor Operating Lessee Pledgor is in
default or violation of any order, writ, injunction, decree or demand of any
Governmental Authority, except where a failure to comply will not have a
Material Adverse Effect. There has not been committed by Borrower or Operating
Lessee Pledgor any act or omission affording the federal government or any other
Governmental Authority the right of forfeiture as against any Individual
Property or any part thereof or any monies paid in performance of Borrower’s
obligations under any of the Loan Documents.

 

4.1.11 Financial Information. All financial data, including, without limitation,
the statements of cash flow and income and operating expense, that have been
delivered to Lender in respect of Borrower, Mortgage Borrower, Operating Lessee,
Operating Lessee Pledgor, the Collateral, or the Properties in connection with
the Loan (i) are true, complete and correct in all material respects, (ii)
accurately represent the financial condition of the Properties

 

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and the Collateral in all material respects as of the date of such reports, and
(iii) to the extent prepared or audited by an independent certified public
accounting firm, have been prepared in accordance with GAAP throughout the
periods covered, except as disclosed therein and except for an intercompany
transaction shown on the income statements for the Individual Property located
in Hauppauge, New York as previously disclosed to Lender. Except for Permitted
Encumbrances, Borrower does not have any contingent liabilities, liabilities for
taxes, unusual forward or long-term commitments or unrealized or anticipated
losses from any unfavorable commitments that are known to Borrower and
reasonably likely to have a Materially Adverse Effect, except as referred to or
reflected in said financial statements. Since the date of such financial
statements, there has been no material adverse change in the financial
condition, operation or business of Mortgage Borrower, Borrower, Operating
Lessee or Operating Lessee Pledgor from that set forth in said financial
statements.

 

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

 

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

 

4.1.14 Intentionally Omitted.

 

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

 

4.1.16 Intentionally Omitted.

 

4.1.17 Enforceability. The Loan Documents are not subject to any right of
rescission, set-off, counterclaim or defense by Borrower, Principal, Operating
Lessee Pledgor or Guarantor, including the defense of usury, nor would the
operation of any of the terms of the Loan Documents, or the exercise of any
right thereunder, render the Loan Documents unenforceable (subject to principles
of equity and bankruptcy, insolvency and other laws generally affecting
creditors’ rights and the enforcement of debtors’ obligations), and none of
Borrower, Principal, Operating Lessee, Operating Lessee Pledgor or Guarantor
have asserted any right of rescission, set-off, counterclaim or defense with
respect thereto.

 

4.1.18 No Prior Assignment. To the best of Borrower’s knowledge, there are no
prior assignments of the Leases, the Operating Lease or any portion of the Rents
due and payable or to become due and payable which are presently outstanding.
There are no prior assignments of the Collateral which are presently outstanding
except in accordance with the Loan Documents.

 

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4.1.19 Insurance. Borrower has obtained and has delivered to Lender certificates
evidencing all Policies reflecting the insurance coverages, amounts and other
requirements set forth in this Agreement. No claims, which if determined
adversely to Borrower are reasonably likely to have a Material Adverse Effect,
have been made under any such Policies, and no Person, including Borrower,
Mortgage Borrower, Operating Lessee or Operating Lessee Pledgor has done, by act
or omission, anything which would impair the coverage of any such Policies.

 

4.1.20 Mortgage Loan Representations and Warranties. All of the representations
and warranties contained in the Mortgage Loan Documents are hereby incorporated
into this Agreement and deemed made hereunder as and when made thereunder and
shall remain incorporated without regard to any waiver amendment or other
modification thereof by the Mortgage Lender or to whether the related Mortgage
Loan Document has been repaid, defeased or otherwise terminated, unless
otherwise consented to in writing by Lender.

 

4.1.21 Equity Contribution. Guarantor has made or caused to be made a
contribution of cash equity to Mortgage Borrower in an amount equal to no less
than Sixty-Seven Million Dollars ($67,000,000), which amount shall not be
distributed to any constituent Person of Mortgage Borrower.

 

4.1.22 No Contractual Obligations. Other than the Loan Documents, as of the date
of this Agreement, Borrower is not subject to any Contractual Obligations that
would have a Material Adverse Effect.

 

4.1.23 Affiliates. Effective as of the consummation of the transactions
contemplated by this Agreement, the sole equity member of Borrower is Guarantor,
which owns one hundred percent (100%) of the membership interests in Borrower.

 

4.1.24 Intentionally Omitted.Intentionally Omitted.

 

4.1.26 Leases. The Properties are not subject to any Leases in excess of three
thousand (3,000) square feet other than (a) the Leases described in Schedule III
attached hereto and made a part hereof, and (b) the Operating Leases. Mortgage
Borrower is the owner and lessor of landlord’s interest in the Operating Leases
and Operating Lessee is the owner and lessor of landlord’s interest in the
Leases. No Person has any possessory interest in any Individual Property or
right to occupy the same except under and pursuant to the provisions of the
Leases. The current Leases are in full force and effect and there are no
defaults thereunder by either party and there are no conditions that, with the
passage of time or the giving of notice, or both, would constitute defaults
thereunder. To the best of Borrower’s knowledge, no Rent has been paid more than
one (1) month in advance of its due date. To the best of Borrower’s knowledge,
all work to be performed by Mortgage Borrower or Operating Lessee under each
Lease has been performed as required and has been accepted by the applicable
tenant, and any payments, free rent, partial rent, rebate of rent or other
payments, credits, allowances or abatements required to be given by Mortgage
Borrower or Operating Lessee to any tenant has already been received by such
tenant. There has been no prior sale, transfer or assignment, hypothecation or
pledge of any Lease or of the Rents received therein which is still in effect.
To the best of Borrower’s knowledge, no tenant listed on Schedule III has
assigned its Lease or sublet all or any portion of

 

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the premises demised thereby, no such tenant holds its leased premises under
assignment or sublease, nor does anyone except such tenant and its employees
occupy such leased premises. No tenant under any Lease has a right or option
pursuant to such Lease or otherwise to purchase all or any part of the leased
premises or the building of which the leased premises are a part. To the best of
Borrower’s knowledge, no tenant under any Lease has any right or option for
additional space in the Improvements.

 

4.1.27 Intentionally Omitted.

 

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

 

4.1.29 Filing and Recording Taxes. All transfer taxes, deed stamps, intangible
taxes or other amounts in the nature of transfer taxes required to be paid by
any Person under applicable Legal Requirements currently in effect in connection
with the transfer of the Collateral to Borrower have been paid. All recording,
stamp, intangible or other similar tax required to be paid by any Person under
applicable Legal Requirements currently in effect in connection with the
execution, delivery, recordation, filing, registration, perfection or
enforcement of any of the Loan Documents, including, without limitation, the
Pledge Agreement, have been paid, and, under current Legal Requirements, the
Loan Documents are enforceable in accordance with their respective terms by
Lender (or any subsequent holder thereof), subject to principles of equity and
bankruptcy, insolvency and other laws generally applicable to creditors’ rights
and the enforcement of debtors’ obligations.

 

4.1.30 Special Purpose Entity/Separateness. (a) Until the Debt has been paid in
full, Borrower hereby represents, warrants and covenants that (i) Borrower is,
shall be and shall continue to be a Special Purpose Entity, (ii) Mortgage
Borrower is, shall be and shall continue to be a Special Purpose Entity, (iv)
Operating Lessee is, shall be and shall continue to be a Special Purpose Entity;
and Operating Lessee Pledgor is, shall be and shall continue to be a Special
Purpose Entity; provided, however, that Lender agrees that, in the event that
Borrower, Mortgage Borrower, Operating Lessee, or Operating Lessee Pledgor fails
to maintain an Independent Director or an Independent Manager solely as a result
of the failure of Corporation Services Company or other similar service
organization to appoint and maintain an independent director or independent
manager who complies with the definition of “Independent Director” or
“Independent Manager” contained herein, Mortgage Borrower, Borrower, Operating
Lessee, or Operating Lessee Pledgor shall have thirty (30) days (or such shorter
period of time which is necessary to ensure that an “Independent Director” or
“Independent Manager” is available to vote on any matter required by the Loan
Documents or the relevant entity’s organizational documents) from the date that
Mortgage Borrower, Borrower, Operating Lessee, or Operating Lessee Pledgor
becomes aware of such failure to replace such independent director or
independent manager with an independent director or independent manager who
complies with the definition of “Independent Director” or “Independent Manager”
contained herein and such failure shall not constitute an Event of Default
herein unless Mortgage Borrower, Borrower, Operating Lessee, or Operating Lessee
Pledgor fails to consummate such replacement within such thirty (30) day period.

 

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

 

(c) All of the assumptions made in the Insolvency Opinion with respect to the
Restricted Parties, including, but not limited to, any exhibits attached
thereto, are true and correct in all respects and any assumptions made in any
subsequent non-consolidation opinion required to be delivered in connection with
the Loan Documents (an “Additional Insolvency Opinion”), including, but not
limited to, any exhibits attached thereto, will have been and shall be true and
correct in all respects. Borrower has complied and will comply with, and
Mortgage Borrower, Operating Lessee and Operating Lessee Pledgor have complied
and Borrower will cause Mortgage Borrower, Operating Lessee, and Operating
Lessee Pledgor to comply with, all of the assumptions made with respect to
Borrower, Mortgage Borrower, Operating Lessee, and Operating Lessee Pledgor in
the Insolvency Opinion. Borrower will have complied and will comply with all of
the assumptions made with respect to Borrower, Mortgage Borrower, Operating
Lessee, and Operating Lessee Pledgor in any Additional Insolvency Opinion. Each
entity other than Borrower, Mortgage Borrower, Operating Lessee or Operating
Lessee Pledgor which is a Restricted Party with respect to which an assumption
shall be made in any Additional Insolvency Opinion will have complied and will
comply with all of the assumptions made with respect to it in any Additional
Insolvency Opinion.

 

4.1.31 Management Agreement. Each Management Agreement is in full force and
effect and (a) to the knowledge of Borrower, there is no default thereunder by
Manager and no event has occurred that, with the passage of time and/or the
giving of notice would constitute a default thereunder, and (b) there is no
default by Operating Lessee thereunder and no event has occurred that, with the
passage of time and/or the giving of notice would constitute a default by
Operating Lessee thereunder.

 

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

 

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

 

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

 

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4.1.35 Embargoed Person. At all times throughout the term of the Loan, including
after giving effect to any Transfers permitted pursuant to the Loan Documents,
(a) none of the funds or other assets of Borrower, Mortgage Borrower, Operating
Lessee, Operating Lessee Pledgor or Guarantor constitute property of, or are
beneficially owned, directly or, to their respective knowledge, indirectly, by
any person, entity or government subject to trade restrictions under U.S. law,
including, but not limited to, the International Emergency Economic Powers Act,
50 U.S.C. §§ 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et
seq., and any Executive Orders or regulations promulgated thereunder with the
result that the investment in Borrower, Mortgage Borrower, Operating Lessee,
Operating Lessee Pledgor or Guarantor, as applicable (whether directly or
indirectly), is prohibited by law or the Loan made by the Lender is in violation
of law (“Embargoed Person”); (b) no Embargoed Person has any interest of any
nature whatsoever in Borrower, Mortgage Borrower, Operating Lessee, Operating
Lessee Pledgor or Guarantor, as applicable, with the result that the investment
in Borrower, Mortgage Borrower, Operating Lessee, Operating Lessee Pledgor or
Guarantor, as applicable (whether directly or indirectly), is prohibited by law
or the Loan is in violation of law; and (c) none of the funds of Borrower,
Mortgage Borrower, Operating Lessee, Operating Lessee Pledgor or Guarantor, as
applicable, have been derived from any unlawful activity with the result that
the investment in Borrower, Mortgage Borrower, Operating Lessee, Operating
Lessee Pledgor or Guarantor, as applicable (whether directly or indirectly), is
prohibited by law or the Loan is in violation of law.

 

(a) Intentionally Omitted.

 

4.1.36 Franchise Agreement. Each Franchise Agreement is in full force and effect
and (a) to the knowledge of Borrower, there is no default thereunder by
Franchisor and no event that, with the passage of time and/or the giving of
notice would constitute a default by Franchisor thereunder, and (b) there is no
default thereunder by Operating Lessee and no event has occurred that, with the
passage of time and/or giving of notice, would constitute a default by Operating
Lessee thereunder.

 

4.1.37 Operating Lease. The Operating Lease is in full force and effect and
there is no material default, breach or violation existing thereunder by
Mortgage Borrower or Operating Lessee and no event has occurred that, with the
passage of time or the giving of notice, or both, would constitute a default,
breach or violation by any party thereunder. The terms and provisions of the
Operating Lease, are subordinate to this Agreement and the Pledge Agreement.
Neither the execution and delivery of the Loan Documents, Borrower’s or Mortgage
Borrower’s performance thereunder, nor the exercise of any remedies by Lender,
will adversely affect Mortgage Borrower’s rights under the Operating Lease.

 

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

 

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V. BORROWER COVENANTS

 

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

 

5.1.1 Existence; Compliance with Legal Requirements. Borrower shall do or cause
to be done all things necessary to preserve, renew and keep in full force and
effect its existence, rights, licenses, permits and franchises and comply in all
material respects with all Legal Requirements applicable to Borrower, Operating
Lessee Pledgor and the Collateral. There shall never be committed by Borrower or
Operating Lessee Pledgor and Borrower any act or omission affording the federal
government or any state or local government the right of forfeiture against any
Individual Property or any part thereof or any monies paid in performance of
Borrower’s obligations under any of the Loan Documents. Borrower hereby
covenants and agrees not to commit, permit or suffer to exist any act or
omission affording such right of forfeiture. Borrower shall cause Mortgage
Borrower to cause Operating Lessee to at all times maintain, preserve and
protect all franchises and trade names and preserve all the remainder of its
property used or useful in the conduct of its business and shall keep the
Properties in good working order and repair, and from time to time make, or
cause to be made, all reasonably necessary repairs, renewals, replacements,
betterments and improvements thereto, all as more fully provided in the
Mortgages. Borrower shall cause Mortgage Borrower to cause Operating Lessee to
keep the Properties insured at all times by financially sound and reputable
insurers, to such extent and against such risks, and maintain liability and such
other insurance, as is more fully provided in this Agreement. Borrower shall
cause Mortgage Borrower to cause Operating Lessee to operate any Individual
Property that is the subject of an O&M Agreement in accordance with the terms
and provisions thereof in all material respects. After prior notice to Lender,
Borrower, Mortgage Borrower, Operating Lessee Pledgor or Operating Lessee, at
its own expense, may contest by appropriate legal proceeding promptly initiated
and conducted in good faith and with due diligence, the validity of any Legal
Requirement, the applicability of any Legal Requirement to Borrower, Mortgage
Borrower, Operating Lessee Pledgor, Operating Lessee or any Individual Property
or any alleged violation of any Legal Requirement, provided that (i) no Default
or Event of Default has occurred and remains uncured; (ii) Mortgage Borrower or
Operating Lessee is permitted to do so under the provisions of any mortgage or
deed of trust superior in lien to the applicable Mortgage; (iii) such proceeding
shall be permitted under and be conducted in accordance with the provisions of
any instrument to which such entities are subject and shall not constitute a
default thereunder and such proceeding shall be conducted in accordance with all
applicable statutes, laws and ordinances; (iv) no Individual Property nor any
part thereof or interest therein will be in danger of being sold, forfeited,
terminated, cancelled or lost; (v) Borrower, Mortgage Borrower, Operating Lessee
Pledgor or Operating Lessee shall promptly upon final determination thereof
comply with any such Legal Requirement determined to be valid or applicable or
cure any violation of any Legal Requirement; (vi) such proceeding shall suspend
the enforcement of the contested Legal Requirement against Borrower, Mortgage
Borrower, Operating Lessee Pledgor, Operating Lessee and any Individual
Property; and

 

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(vii) Borrower, Mortgage Borrower, Operating Lessee Pledgor or Operating Lessee
shall furnish such security as reasonably may be required in the proceeding, or
as may be requested by Lender, to insure compliance with such Legal Requirement,
together with all interest and penalties payable in connection therewith. Lender
may apply any such security, as necessary to cause compliance with such Legal
Requirement at any time when, in the reasonable judgment of Lender, the
validity, applicability or violation of such Legal Requirement is finally
established or any Individual Property (or any part thereof or interest therein)
shall be in danger of being sold, forfeited, terminated, cancelled or lost.

 

5.1.2 Taxes and Other Charges. Borrower shall pay or shall cause Mortgage
Borrower to pay all Taxes and Other Charges now or hereafter levied or assessed
or imposed against the Properties or any part thereof as the same become due and
payable; provided, however, Borrower’s obligation to cause Mortgage Borrower to
directly pay Taxes shall be suspended for so long as Borrower complies with the
terms and provisions of Section 7.2 hereof. Borrower will deliver or cause to be
delivered to Lender receipts for payment or other evidence satisfactory to
Lender that the Taxes and Other Charges have been so paid or are not then
delinquent no later than ten (10) days prior to the date on which the Taxes
and/or Other Charges would otherwise be delinquent if not paid. Borrower shall
furnish or cause to be furnished to Lender receipts for the payment of the Taxes
and the Other Charges prior to the date the same shall become delinquent
provided, however, Borrower is not required to furnish such receipts for payment
of Taxes in the event that such Taxes have been paid by Mortgage Lender pursuant
to the Mortgage Loan Agreement hereof. Borrower shall not suffer and shall not
permit Mortgage Borrower to suffer, and shall promptly cause Mortgage Borrower
to promptly cause to be paid and discharged (or bonded in a manner reasonably
acceptable to Lender) any Lien or charge whatsoever which may be or become a
Lien or charge against the Properties, and shall promptly pay for all utility
services provided to the Properties. After prior notice to Lender, Borrower or
Mortgage Borrower, at its own expense, may contest by appropriate legal
proceeding, promptly initiated and conducted in good faith and with due
diligence, the amount or validity or application in whole or in part of any
Taxes or Other Charges, provided that (a) no Default or Event of Default has
occurred and remains uncured; (b) Borrower or Mortgage Borrower are permitted to
do so under the provisions of any mortgage or deed of trust superior in lien to
the applicable Mortgage; (c) such proceeding shall be permitted under and be
conducted in accordance with the provisions of any other instrument to which
Borrower or Mortgage Borrower is subject and shall not constitute a default
thereunder and such proceeding shall be conducted in accordance with all
applicable statutes, laws and ordinances; (d) no Individual Property nor any
part thereof or interest therein will be in danger of being sold, forfeited,
terminated, cancelled or lost; (e) Borrower and/or Mortgage Borrower shall
promptly upon final determination thereof pay the amount of any such Taxes or
Other Charges, together with all costs, interest and penalties which may be
payable in connection therewith; (f) such proceeding shall suspend the
collection of such contested Taxes or Other Charges from the applicable
Individual Property; and (g) Borrower shall furnish such security as reasonably
may be required in the proceeding, or as may be requested by Lender, to insure
the payment of any such Taxes or Other Charges, together with all interest and
penalties thereon. Lender may pay over any such cash deposit or part thereof
held by Lender to the claimant entitled thereto at any time when, in the
judgment of Lender, the entitlement of such claimant is established or any
Individual Property (or part thereof or interest therein) shall be in danger of
being sold, forfeited, terminated, cancelled or lost or there shall be any
danger of the Lien of any Mortgage being primed by any related Lien.

 

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5.1.3 Litigation. Borrower shall give prompt notice to Lender of any litigation
or governmental proceedings pending or threatened against Borrower, Mortgage
Borrower, Operating Lessee Pledgor, Operating Lessee and Guarantor which might
materially adversely affect Borrower’s, Mortgage Borrower’s, Operating Lessee’s,
Operating Lessee Pledgor’s or Guarantor’s condition (financial or otherwise) or
business or any Individual Property.

 

5.1.4 Access to Properties. Borrower shall cause Mortgage Borrower to permit,
and cause Operating Lessee to permit, agents, representatives and employees of
Lender to inspect the Properties or any part thereof at reasonable hours upon
reasonable advance notice.

 

5.1.5 Notice of Default. Borrower shall promptly advise Lender of any material
adverse change in Borrower’s, Mortgage Borrower’s, Operating Lessee’s, Operating
Lessee Pledgor’s, or Guarantor’s condition, financial or otherwise, or of the
occurrence of any Default or Event of Default of which Borrower has knowledge
including any Mortgage Loan Default.

 

5.1.6 Cooperate in Legal Proceedings. Borrower shall cooperate fully with Lender
with respect to any proceedings before any court, board or other Governmental
Authority which Lender reasonably believes would have a Material Adverse Effect
upon the rights of Lender hereunder or any rights obtained by Lender under any
of the other Loan Documents and, in connection therewith, permit Lender, at its
election, to participate in any such proceedings.

 

5.1.7 Perform Loan Documents. Borrower shall observe, perform and satisfy all
the terms, provisions, covenants and conditions of, and shall pay when due all
costs, fees and expenses to the extent required under the Loan Documents
executed and delivered by, or applicable to, Borrower.

 

5.1.8 Award and Insurance Benefits. Borrower shall cooperate with Lender to
maximize the benefits of any Awards or Insurance Proceeds lawfully or equitably
payable in connection with any Individual Property, and Lender shall be
reimbursed for any expenses incurred in connection therewith (including
reasonable attorneys’ fees and disbursements) out of any applicable Net
Liquidation Proceeds After Debt Service.

 

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

 

(a) to the extent in Borrower’s possession or reasonably obtainable by Borrower,
Mortgage Borrower or Operating Lessee, furnish to Lender all instruments,
documents, boundary surveys, footing or foundation surveys, certificates, plans
and specifications, appraisals, title and other insurance reports and
agreements, and each and every other document, certificate, agreement and
instrument required to be furnished by Borrower pursuant to the terms of the
Loan Documents or which are reasonably requested by Lender in connection
therewith and which are consistent with the terms thereof;

 

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

 

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

 

5.1.10 Supplemental Mortgage Affidavits. Borrower represents that it has caused
Mortgage Borrower to pay all state, county and municipal recording and all other
taxes imposed upon the execution and recordation of the Mortgage.

 

5.1.11 Financial Reporting. (a) Borrower will keep and maintain or will cause to
be kept and maintained on a Fiscal Year basis, in accordance with the Uniform
System of Accounts and GAAP, which for each Individual Property shall be
prepared as part of the audited financial statements of Highland Hospitality
Corporation, proper and accurate books, records and accounts reflecting all of
the financial affairs of Borrower and all items of income and expense in
connection with the operation on an individual basis of the Properties. Lender
shall have the right from time to time at all times during normal business hours
upon reasonable notice to examine such books, records and accounts at the office
of Borrower or any other Person maintaining such books, records and accounts and
to make such copies or extracts thereof as Lender shall desire. During the
continuance of an Event of Default, Borrower shall pay any costs and expenses
incurred by Lender to examine Borrower’s accounting records with respect to the
Properties, as Lender shall determine to be necessary or appropriate in the
protection of Lender’s interest.

 

(b) Borrower will furnish and will cause to be furnished to Lender annually,
within ninety (90) days following the end of each Fiscal Year of Borrower, a
complete copy of Highland Hospitality Corporation’s consolidated annual
financial statements audited by a “Big Four” accounting firm in accordance with
the Uniform System of Accounts and GAAP covering the Properties on a combined
basis as well as each Individual Property for such Fiscal Year and containing
statements of profit and loss for each of the Properties and a balance sheet for
each Individual Property. Such statements shall set forth the financial
condition and the results of operations for the Properties for such Fiscal Year,
and shall include, but not be limited to, amounts representing annual Net
Operating Income, Gross Income from Operations and Operating Expenses. Such
annual financial statements shall be accompanied by the following for each
Individual Property: (i) a comparison of the budgeted income and expenses and
the actual income and expenses for the prior Fiscal Year for each Individual
Property, (ii) a review report of a “Big Four” accounting firm or other
independent certified public accountant reasonably acceptable to Lender, (iii)
occupancy statistics for the Properties on a combined basis as well as for each
Individual Property, and (iv) an Officer’s Certificate certifying that each
annual financial statement presents fairly the financial condition and the
results of operations of Borrower, Mortgage Borrower, and the Properties being
reported upon and that such financial statements have been prepared in
accordance with the Uniform System of Accounts and GAAP

 

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and as of the date thereof whether there exists an event or circumstance which
constitutes a Default or Event of Default under the Loan Documents executed and
delivered by, or applicable to, Borrower, Mortgage Borrower, Operating Lessee
Pledgor or Operating Lessee, and if such Default or Event of Default exists, the
nature thereof, the period of time it has existed and the action then being
taken to remedy the same.

 

(c) Borrower will furnish, or cause to be furnished, to Lender on or before
twenty-five (25) days after the end of each calendar month prior to the
occurrence of a Securitization of the Mortgage Loan and on or before forty-five
(45) days after the end of each calendar quarter following the Securitization of
the Mortgage Loan the following items, accompanied by an Officer’s Certificate
stating that such items are true, correct, accurate, and complete and fairly
present the financial condition and results of the operations of Borrower,
Mortgage Borrower and the Properties on a combined basis as well as each
Individual Property (subject to normal year-end adjustments) as applicable: (i)
monthly and year-to-date operating statements (including Capital Expenditures)
prepared for each calendar month, noting Net Operating Income, Gross Income from
Operations, and Operating Expenses (not including any contributions to the
Replacement Reserve Fund), and, upon Lender’s request, other information
necessary and sufficient to fairly represent the financial position and results
of operation of the Properties during such calendar month, and containing a
comparison of budgeted income and expenses and the actual income and expenses
together with a detailed explanation of any variances of five percent (5%) or
more between budgeted and actual amounts for such periods, all in form
reasonably satisfactory to Lender; and (ii) the amount of all operating rent due
pursuant to the Operating Lease for the subject month. In addition, such
Officer’s Certificate shall also state that the representations and warranties
of Borrower set forth in Section 4.1.30 are true and correct as of the date of
such certificate and that there are no trade payables outstanding for more than
sixty (60) days (subject to Borrower’s right to contest in accordance with this
Agreement). All calculations of the operating rent due under each Operating
Lease shall be subject to verification by Lender.

 

(d) For the partial year period commencing on the date hereof, and for each
Fiscal Year thereafter, Borrower shall submit to Lender an Annual Budget not
later than thirty (30) days prior to the commencement of such period or Fiscal
Year in form reasonably satisfactory to Lender. The Annual Budget for each
Fiscal Year shall be subject to Lender’s approval not to be unreasonably
withheld (each such Annual Budget, an “Approved Annual Budget”). The Annual
Budget for the Fiscal Year 2004 has been approved by Lender as of the Closing
Date as the Approved Annual Budget for such Fiscal Year. In the event that
Lender objects to a proposed Annual Budget submitted by Borrower which requires
the approval of Lender hereunder, Lender shall advise Borrower of such
objections within fifteen (15) days after receipt thereof (and deliver to
Borrower a reasonably detailed description of such objections) and Borrower
shall promptly revise such Annual Budget and resubmit the same to Lender. Lender
shall advise Borrower of any objections to such revised Annual Budget within ten
(10) days after receipt thereof (and deliver to Borrower a reasonably detailed
description of such objections) and Borrower shall promptly revise the same in
accordance with the process described in this subsection until Lender approves
the Annual Budget. Until such time that Lender approves a proposed Annual Budget
which requires the approval of Lender hereunder, the most recently Approved
Annual Budget shall apply; provided, that such Approved Annual Budget shall be
adjusted to reflect actual increases in Taxes, Insurance Premiums and Other
Charges.

 

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(e) In the event that Borrower or Mortgage Borrower must incur an extraordinary
Operating Expense or Capital Expenditure not set forth in the Approved Annual
Budget (each, an “Extraordinary Expense”), then Borrower shall promptly deliver
to Lender a reasonably detailed explanation of such proposed Extraordinary
Expense for Lender’s approval.

 

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

 

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

 

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

 

5.1.14 Costs of Enforcement. In the event (a) that any Mortgage encumbering any
Individual Property is foreclosed in whole or in part or that any such Mortgage
is put into the hands of an attorney for collection, suit, action or
foreclosure, (b) of the foreclosure of any mortgage prior to or subsequent to
any Mortgage encumbering any Individual Property in which proceeding Lender
exercises any or all of its rights or remedies under the Pledge Agreement or any
other Loan Documents as and when permitted thereby is made a party, or (c) of
the bankruptcy, insolvency, rehabilitation or other similar proceeding in
respect of Borrower or Operating Lessee Pledgor or any of their constituent
Persons or an assignment by Borrower or Operating Lessee Pledgor or any of their
constituent Persons for the benefit of its creditors, Borrower, its successors
or assigns, shall be chargeable with and agrees to pay all costs of collection
and defense, including attorneys’ fees and costs, incurred by Lender or Borrower
in connection therewith and in connection with any appellate proceeding or
post-judgment action involved therein, together with all required service or use
taxes.

 

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5.1.15 Estoppel Statement. (a) After request by Lender, Borrower shall within
ten (10) Business Days furnish Lender with a statement, duly acknowledged and
certified, setting forth (i) the original principal amount of the Loan, (ii) the
unpaid principal amount of the Loan, (iii) the Applicable Interest Rate of the
Loan, (iv) the date installments of interest and/or principal were last paid,
(v) any offsets or defenses to the payment of the Debt, if any, and (vi) that
the Note, this Agreement, the Pledge Agreement and the other Loan Documents are
valid, legal and binding obligations and have not been modified or if modified,
giving particulars of such modification.

 

(b) After request by Borrower, Lender shall within ten (10) Business Days
furnish Borrower with a statement, duly acknowledged and certified, setting
forth (i) the original principal amount of the Loan, (ii) the unpaid principal
amount of the Loan, (iii) the Applicable Interest Rate of the Loan, (iv) the
date installments of interest and/or principal were last paid, (v) any offsets
or defenses to the payment of the Debt, if any, (vi) that the Note, this
Agreement, the Pledge Agreement and the other Loan Documents are valid, legal
and binding obligations and have not been modified or if modified, giving the
particulars of such modification, and (vii) whether any written notice of a
Default is then outstanding.

 

(c) Borrower shall use commercially reasonable efforts to deliver to Lender upon
request, tenant estoppel certificates from each commercial tenant leasing space
at the Properties in form and substance reasonably satisfactory to Lender
provided that Borrower shall not be required to deliver such certificates more
frequently than two (2) times in any calendar year.

 

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

 

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

 

5.1.18 Confirmation of Representations. Borrower shall deliver, in connection
with any Securitization, (a) one or more Officer’s Certificates certifying as to
the accuracy of all representations made by Borrower in the Loan Documents as of
the date of the closing of such Securitization in all relevant jurisdictions,
and (b) certificates of the relevant Governmental Authorities in all relevant
jurisdictions indicating the good standing and qualification of Borrower,
Mortgage Borrower, Operating Lessee and Operating Lessee Pledgor and the good
standing of Guarantor as of the date of the Securitization.

 

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

 

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5.1.20 Leasing Matters. Any Leases with respect to an Individual Property
executed after the date hereof, for more than three thousand (3,000) square feet
shall be approved by Lender, which approval shall not be unreasonably withheld,
conditioned or delayed. If (a) Borrower submits to Lender a proposed Lease for
which Lender’s consent is required hereunder together with reasonably detailed
financial information relating to the tenant under such Lease and such other
information as Lender may reasonably request, accompanied by a notice in
capitalized, bold faced 14 point type containing the following statement at the
top of the first page: “THIS IS A REQUEST FOR LEASE APPROVAL. IF LENDER FAILS TO
APPROVE OR DISAPPROVE THE ENCLOSED LEASE WITHIN TEN (10) BUSINESS DAYS, BORROWER
MAY DELIVER A DEEMED APPROVAL NOTICE,” (b) Lender fails to either approve or
reject said Lease within such ten (10) Business Day period after receipt of the
first notice, and Borrower delivers the Lease to Lender accompanied by a notice
in capitalized, bold faced 14 point type containing the following statement at
the top of the first page: “THIS IS A SECOND REQUEST FOR LEASE APPROVAL. IF
LENDER FAILS TO APPROVE OR DISAPPROVE THE ENCLOSED LEASE WITHIN FIVE (5)
BUSINESS DAYS, SUCH LEASE WILL BE DEEMED APPROVED BY LENDER,” and (c) Lender
fails to approve or reject the Lease within such five (5) Business Day period
(approval or rejection by notice by facsimile on the same day being acceptable),
then the Lease shall be deemed approved by Lender. Upon request, Borrower shall
cause Mortgage Borrower to furnish Lender with copies of all executed Leases.
All renewals of Leases and all proposed Leases shall provide for rental rates
comparable to existing local market rates. All proposed Leases shall be on
commercially reasonable terms and shall not contain any terms which would
materially affect Lender’s rights under the Loan Documents. All Leases executed
after the date hereof shall provide that they are subordinate to the Mortgage
encumbering the applicable Individual Property and that the lessee agrees to
attorn to Lender or any purchaser at a sale by foreclosure or power of sale.
Lender agrees to enter into a subordination, no disturbance and attornment
agreement in such form and substance as is reasonably acceptable to Lender with
any tenant (other than the Operating Lessee) whose Lease is in excess of three
thousand (3,000) square feet and has been approved by Lender. Borrower shall,
and shall cause Mortgage Borrower to cause Operating Lessee to, (i) observe and
perform the obligations imposed upon the lessor under the Leases in a
commercially reasonable manner; (ii) enforce and may amend or terminate the
terms, covenants and conditions contained in the Leases upon the part of the
lessee thereunder to be observed or performed in a commercially reasonable
manner and in a manner not to impair the value of the Individual Property
involved except that no termination by Mortgage Borrower or acceptance of
surrender by a tenant of any Leases shall be permitted unless by reason of a
tenant default and then only in a commercially reasonable manner to preserve and
protect the Individual Property; provided, however, that no such termination or
surrender of any Lease covering more than three thousand (3,000) square feet
will be permitted without the consent of Lender (which consent shall not be
unreasonably withheld, conditioned or delayed); (iii) not collect any of the
rents more than one (1) month in advance (other than security deposits); (iv)
not execute any other assignment of lessor’s interest in the Leases or the Rents
(except as contemplated by the Loan Documents); (v) not alter, modify or change
the terms of the Leases in a manner inconsistent with the provisions of the Loan
Documents; and (vi) execute and deliver at the request of Lender all such
further assurances, confirmations and

 

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assignments in connection with the Leases as Lender shall from time to time
reasonably require. Notwithstanding anything to the contrary contained herein,
Borrower shall not cause or permit Mortgage Borrower or Operating Lessee to
enter into a lease of all or substantially all of any Individual Property
without Lender’s prior consent.

 

5.1.21 Alterations. Borrower shall obtain Lender’s prior consent to any
alterations to any Improvements, which consent shall not be unreasonably
withheld, conditioned or delayed. Notwithstanding the foregoing provided no
Event of Default has occurred and is continuing, Lender’s consent shall not be
required in connection with (a) any alterations to the Improvements (excluding
Decorative Changes) that will not have a Material Adverse Effect, provided that
such alterations (i) are made in connection with tenant improvement work
performed pursuant to the terms of any Lease executed on or before the date
hereof, (ii) do not adversely affect any structural component of any
Improvements, any utility or HVAC system contained in any Improvements or the
exterior of any building constituting a part of any Improvements and the
aggregate cost thereof does not exceed One Million Dollars ($1,000,000), or
(iii) consist of repair or replacement of (x) parking areas or resurfacing or
restriping of parking areas, (y) lighting, or (z) grounds keeping, or (iv) are
performed in connection with the Restoration of an Individual Property after the
occurrence of a Casualty in accordance with the terms and provisions of this
Agreement; or (b) any Decorative Changes; (c) any Required Repairs made in
accordance with Section 7.1 of the Mortgage Loan Agreement; or (d) any
Replacements made in accordance with Section 7.3 hereof. If the total unpaid
amounts due and payable with respect to alterations to the Improvements at any
Individual Property (other than such amounts to be paid or reimbursed by tenants
under the Leases) shall at any time exceed the lesser of four percent (4%) of
the Release Amount for the applicable Individual Property or Three Million
Dollars ($3,000,000) (the “Threshold Amount”) and such cost will not be paid
from amounts on deposit in the Replacement Reserve Fund or the Required Repair
Fund, then prior to the commencement of such alterations, Borrower shall
promptly deliver to Lender as security for the payment of such amounts and as
additional security for Borrower’s obligations under the Loan Documents any of
the following: (A) cash, (B) U.S. Obligations, (C) other collateral, credit
enhancement or rated securities acceptable to Lender and that the applicable
Rating Agencies have confirmed in writing will not, in and of itself, result in
a downgrade, withdrawal or qualification of the initial, or, if higher, then
current ratings assigned to any Securities or any class thereof in connection
with any Securitization, or (D) a completion and performance bond or an
irrevocable letter of credit (payable on sight draft only) issued by a financial
institution having a rating by S&P of not less than “A-1+” if the term of such
bond or letter of credit is no longer than three (3) months or, if such term is
in excess of three (3) months, issued by a financial institution having a rating
that is acceptable to Lender and that the applicable Rating Agencies have
confirmed in writing will not, in and of itself, result in a downgrade,
withdrawal or qualification of the initial, or, if higher, then current ratings
assigned to any Securities or any class thereof in connection with any
Securitization. Such security shall be in an amount equal to the excess of the
total unpaid amounts with respect to alterations to the Improvements on the
applicable Individual Property (other than such amounts to be paid or reimbursed
by tenants under the Leases) over the Threshold Amount and, if any Event of
Default shall occur and be continuing, Lender may apply such security from time
to time at the option of Lender to pay for such alterations. Provided no Event
of Default is then continuing, any security delivered to Lender pursuant to this
Section 5.1.21 (less the cost of completing any applicable “punch list” items as
reasonably estimated by Lender) shall be returned to Borrower upon the payment
in full and lien-free, substantial completion of the alterations for which such
security was delivered.

 

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5.1.22 Operation of Properties. (a) Borrower shall cause Mortgage Borrower to
cause Operating Lessee to operate the Properties, in all material respects, in
accordance with the Management Agreement (or Replacement Management Agreement)
as applicable. In the event that the Management Agreement expires or is
terminated (without limiting any obligation of Borrower to obtain Lender’s
consent to any termination or modification of the Management Agreement in
accordance with the terms and provisions of this Agreement), Borrower shall
promptly cause Mortgage Borrower to cause Operating Lessee to enter into a
Replacement Management Agreement with Manager or another Qualified Manager, as
applicable. In the event that the Franchise Agreement expires or is terminated
(without limiting any obligation of Borrower to obtain Lender’s consent to any
termination or modification of the Franchise Agreement in accordance with the
terms and provisions of this Agreement), Borrower shall promptly cause Mortgage
Borrower to cause Operating Lessee to enter into a Replacement Franchise
Agreement with Franchisor or another Qualified Franchisor, as applicable.

 

(b) Borrower shall, and shall cause Mortgage Borrower to cause Operating Lessee
to: (i) promptly perform and/or observe, in all material respects, all of the
covenants and agreements required to be performed and observed by it under the
Management Agreement and the Franchise Agreement and do all things necessary to
preserve and to keep unimpaired its material rights thereunder; (ii) promptly
notify Lender of any material default under the Management Agreement and the
Franchise Agreement of which it is aware; and (iii) enforce the performance and
observance of all of the covenants and agreements required to be performed
and/or observed by Manager under the Management Agreement, in a commercially
reasonable manner.

 

5.1.23 Mortgage Loan Reserve Funds. Borrower shall cause Mortgage Borrower to
deposit and maintain each of the Mortgage Loan Reserve Funds as more
particularly set forth in Article VII of the Mortgage Loan Agreement and to
perform and comply with all the terms and provisions relating thereto.

 

5.1.24 Notices. Borrower shall give notice, or cause notice to be given to
Lender promptly upon the occurrence and during the continuance of an Event of
Default and upon any and all the following:

 

(a) any Default or Mortgage Loan Default;

 

(b) any default or event of default under any Contractual Obligation of
Borrower, or, to the knowledge of Borrower, Mortgage Borrower, Operating Lessee,
Operating Lessee Pledgor or Guarantor that could reasonably be expected to have
a Material Adverse Effect;

 

(c) any litigation or proceeding affecting Borrower, or, to the knowledge of
Borrower, affecting any of Mortgage Borrower, Operating Lessee, Operating Lessee
Pledgor or Guarantor, in which the amount involved in each case is $1,000,000 or
more and not fully covered by insurance, or in which injunctive or similar
relief is sought;

 

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(d) a change in the business, operations, property or financial or other
condition or prospects of Borrower, or, to the knowledge of Borrower, Mortgage
Borrower, Operating Lessee, Operating Lessee Pledgor or Guarantor which could
reasonably be expected to have a material adverse effect on Borrower, the
ability of Borrower to perform under the Loan Documents or the rights and
remedies of Lender under the Loan Documents.

 

5.1.25 Special Distributions. On each date on which amounts are required to be
paid to Lender under any of the Loan Documents, Borrower shall exercise its
rights under the Mortgage Borrower Company Agreement to cause Mortgage Borrower
to make to Borrower a distribution in an aggregate amount such that Lender shall
receive the amount required to be disbursed to Lender on such date.

 

5.1.26 Mortgage Borrower Covenants. Borrower shall cause Mortgage Borrower to
comply with all obligations with which Mortgage Borrower has covenanted to
comply under the Mortgage Loan Agreement and all other Mortgage Loan Documents
(including, without limitation, those certain affirmative and negative covenants
set forth in Article V of the Mortgage Loan Agreement) unless otherwise
consented to in writing by Lender.

 

5.1.27 Operating Lease. Borrower shall, or shall cause Mortgage Borrower to, (a)
cause the hotel located on each Individual Property to be operated pursuant to
the Operating Lease; (b) promptly perform and/or observe all of the material
covenants, agreements and obligations required to be performed and observed by
Mortgage Borrower under the Operating Lease and do all things necessary to
preserve and to keep unimpaired its material rights thereunder; (c) promptly
notify Lender of any default under the Operating Lease; (d) promptly enforce in
a commercially reasonable manner the performance and observance of all of the
covenants and agreements required to be performed and/or observed by Operating
Lessee under the Operating Lease; and (e) cause Operating Lessee to operate the
Properties and conduct its business and operations in accordance with the terms
of the Mortgage Loan Agreement as if it were a Borrower thereunder and not allow
or permit Operating Lessee to take any of the actions that Mortgage Borrower is
prohibited from taking pursuant to the terms of the Mortgage Loan Agreement.

 

Section 5.2. Negative Covenants. From the date hereof until payment and
performance in full of all obligations of Borrower under the Loan Documents or
the earlier release of the Collateral in accordance with the terms of this
Agreement and the other Loan Documents, Borrower covenants and agrees with
Lender that it will not do, directly or indirectly, any of the following:

 

5.2.1 Operation of Properties. (a) Borrower shall not, and shall not permit or
allow Mortgage Borrower to permit or allow Operating Lessee to, without Lender’s
prior consent (which consent shall not be unreasonably withheld, conditioned or
delayed) (i) surrender, terminate or cancel the Management Agreement; provided,
that Borrower may, or may allow Mortgage Borrower or Operating Lessee to,
without Lender’s consent, replace the Manager so long as the replacement manager
is a Qualified Manager pursuant to a Replacement Management Agreement; (ii)
surrender, terminate or cancel the Franchise Agreement; provided, that Borrower
may, or may allow Mortgage Borrower or Operating Lessee to, without Lender’s

 

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consent, replace the Franchisor so long as the replacement franchisor is a
Qualified Franchisor pursuant to a Replacement Franchise Agreement; (iii) reduce
or consent to the reduction of the term of the Management Agreement or the
Franchise Agreement; (iv) increase or consent to the increase of the amount of
any charges under the Management Agreement or the Franchise Agreement; or (v)
otherwise modify, change, supplement, alter or amend, or waive or release any of
its rights and remedies under, the Management Agreement or the Franchise
Agreement in any material respect.

 

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

 

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

 

(i) Permitted Encumbrances;

 

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

 

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

 

5.2.3 Dissolution. Borrower shall not (a) engage in any dissolution, liquidation
or consolidation or merger with or into any other business entity, (b) engage in
any business activity not related to the ownership of the Collateral, (c)
transfer, lease or sell, in one transaction or any combination of transactions,
the assets or all or substantially all of the properties or assets of Borrower
except to the extent permitted by the Loan Documents, (d) modify, amend, waive
or terminate its organizational documents or its qualification and good standing
in any jurisdiction or (e) cause Mortgage Borrower, Operating Lessee Pledgor or
Operating Lessee to (i) dissolve, wind up or liquidate or take any action, or
omit to take an action, as a result of which Mortgage Borrower, Operating Lessee
Pledgor or Operating Lessee would be dissolved, wound up or liquidated in whole
or in part, or (ii) amend, modify, waive or terminate the organizational
documents of Mortgage Borrower, Operating Lessee Pledgor or Operating Lessee, in
each case, without obtaining the prior consent of Lender.

 

5.2.4 Change in Business. (a) Borrower shall not cause Mortgage Borrower to
enter into any line of business other than the ownership and operation of the
Properties, or make any material change in the scope or nature of its business
objectives, purposes or operations, or undertake or participate in activities
other than the continuance of its present business. In addition, Borrower shall
not permit or cause Mortgage Borrower to cancel or otherwise forgive or release
any material claim or debt (other than termination of Leases in accordance
herewith) owed to Mortgage Borrower by any Person, except for adequate
consideration and in the ordinary cause of Mortgage Borrower’s business.
Borrower shall not enter into any line of business other than the ownership of
the Collateral, or make any material change in the scope or nature of its
business objectives, purposes or operations, or undertake or participate in
activities other than the continuance of its present business.

 

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(b) Borrower shall not cause or permit Mortgage Borrower to permit, allow or
otherwise cause Operating Lessee to enter into any line of business other than
the operation of the Properties pursuant to the Operating Lease, or make any
material change in the scope or nature of its business objectives, purposes or
operations, or undertake or participate in activities other than the continuance
of its present business.

 

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

 

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

 

5.2.7 Intentionally Omitted.

 

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

 

5.2.9 ERISA. (a) Neither Borrower nor Operating Lessee Pledgor shall not engage
in any transaction which would cause any obligation, or action taken or to be
taken, hereunder (or the exercise by Lender of any of its rights under the Note,
this Agreement or the other Loan Documents) to be a non-exempt (under a
statutory or administrative class exemption) prohibited transaction under ERISA.

 

(b) Borrower further covenants and agrees to deliver to Lender such
certifications or other evidence from time to time throughout the term of the
Loan, as requested by Lender in its sole discretion, that (i) neither Borrower
nor Operating Lessee Pledgor is an “employee benefit plan” as defined in Section
3(3) of ERISA, which is subject to Title I of ERISA, or a “governmental plan”
within the meaning of Section 3(32) of ERISA; (ii) neither Borrower nor
Operating Lessee Pledgor is subject to any state statute regulating investments
of,

 

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or fiduciary obligations with respect to, governmental plans; and (iii) one or
more of the following circumstances is true:

 

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

 

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

 

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

 

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

 

(b) Without the prior consent of Lender and except to the extent otherwise set
forth in this Section 5.2.10, Borrower shall not, and shall not permit any
Restricted Party to, (i) sell, convey, mortgage, grant, bargain, encumber,
pledge, assign, grant options with respect to, or otherwise transfer or dispose
of (directly or indirectly, voluntarily or involuntarily, by operation of law or
otherwise, and whether or not for consideration or of record) the Collateral or
any part thereof or any legal or beneficial interest therein or (ii) permit a
Sale or Pledge of an interest in any Restricted Party (collectively, a
“Transfer”), other than (A) pursuant to Leases of space in the Improvements to
tenants in accordance with the provisions of Section 5.1.20 hereof and (B) the
disposition of equipment and other personal property pursuant to the replacement
thereof or otherwise in the ordinary course of operation of the Properties.

 

(c) A Transfer shall include, but not be limited to, (i) an installment sales
agreement wherein Borrower agrees to sell the Collateral or any part thereof for
a price to be paid in installments; (ii) with the exception of the Operating
Lease, an agreement by Mortgage Borrower leasing all or a substantial part of an
Individual Property for other than actual occupancy by a space tenant thereunder
or a sale, assignment or other transfer of, or the grant of a security interest
in, Mortgage Borrower’s or Operating Lessee’s right, title and interest in and
to any Leases or any Rents; (iii) if a Restricted Party is a corporation, any
merger, consolidation or Sale or Pledge of such corporation’s stock or the
creation or issuance of new stock; (iv) if a Restricted Party is a limited or
general partnership or joint venture, any merger or consolidation or the change,
removal, resignation or addition of a general partner or the Sale or Pledge of
the partnership interest of any general partner or any profits or proceeds
relating to such partnership interest, or the Sale or Pledge of limited
partnership interests or any profits or proceeds relating

 

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to such limited partnership interest or the creation or issuance of new limited
partnership interests; (v) if a Restricted Party is a limited liability company,
any merger or consolidation or the change, removal, resignation or addition of a
managing member or non-member manager (or if no managing member, any member) or
the Sale or Pledge of the membership interest of a managing member (or if no
managing member, any member) or any profits or proceeds relating to such
membership interest, or the Sale or Pledge of non-managing membership interests
or the creation or issuance of new non-managing membership interests; or (vi) if
a Restricted Party is a trust or nominee trust, any merger, consolidation or the
Sale or Pledge of the legal or beneficial interest in a Restricted Party or the
creation or issuance of new legal or beneficial interests.

 

(d) Notwithstanding the provisions of this Section 5.2.10, the following
transfers shall not be deemed to be a Transfer: (i) the Sale or Pledge, in one
or a series of transactions, of not more than forty-nine percent (49%) of the
stock in a Restricted Party or other beneficial interest, and (ii) the Sale or
Pledge, in one or a series of transactions, of not more than forty-nine percent
(49%) of the limited partnership interests or membership interests (as the case
may be) in a Restricted Party; provided, however, in the case of each of the
foregoing (i) and (ii), (A) no such sales or transfers shall result in the
change of voting control in the Restricted Party, (B) as a condition to each
such sale or transfer, Lender shall receive not less than thirty (30) days prior
notice of such proposed sale or transfer, (C) if after giving effect to any such
Sale or Pledge, more than forty-nine percent (49%) in the aggregate of direct or
indirect interests in a Restricted Party are owned by any Person and its
Affiliates that owned less than forty-nine percent (49%) direct or indirect
interest in such Restricted Party as of the Closing Date, Borrower shall deliver
to Lender an Additional Insolvency Opinion acceptable to Lender and the Rating
Agencies, (D) no such Sale or Pledge of any direct ownership interests in
Borrower, Mortgage Borrower, Operating Lessee, or Operating Lessee Pledgor shall
be permitted, and (E) Borrower, Mortgage Borrower, Operating Lessee, and
Operating Lessee Pledgor shall each continue to be a Special Purpose Entity
following such Sale or Pledge. In addition, at all times, Guarantor must
continue to control Borrower, Mortgage Borrower, Operating Lessee, Operating
Lessee Pledgor, and any Affiliated Manager and own, directly or indirectly, at
least a one hundred percent (100%) interest in Borrower, Mortgage Borrower,
Operating Lessee, Operating Lessee Pledgor, and Affiliated Manager. Lender’s
consent or approval shall not be required with respect to (I) the trading or
issuance of shares or other securities of Highland Hospitality Corporation on a
nationally recognized stock exchange, or (II) the transfer, sale or issuance of
operating partnership units or other securities of Guarantor to a Qualified
Transferee, provided that such Qualified Transferee or Highland Hospitality
Corporation controls Guarantor and owns not less than a thirty percent (30%)
interest in Guarantor, or (III) the transfer, sale or issuance of operating
partnership units of Guarantor in connection with the merger, reorganization or
consolidation of Highland Hospitality Corporation or Guarantor, provided that
the surviving entity is a publicly listed company on a nationally recognized
exchange and such entity has a net worth greater than the net worth of Highland
Hospitality Corporation immediately before such merger, reorganization or
consolidation, provided further, that with respect to (II) and (III), (x) as a
condition to each such transfer, sale or issuance, Lender shall receive not less
than fifteen (15) days prior notice of such proposed transfer, sale or issuance,
and (y) if after giving effect to any such transfer, sale or issuance, more than
forty-nine percent (49%) in the aggregate of direct or indirect interests in a
Restricted Party are owned by any Person and its Affiliates that owned less than
forty-nine percent (49%) direct or indirect interest in such Restricted Party as
of the Closing Date, Borrower shall deliver to Lender an Additional Insolvency
Opinion acceptable to Lender and the Rating Agencies.

 

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(e) Lender shall not be required to demonstrate any actual impairment of its
security or any increased risk of default hereunder in order to declare the Debt
immediately due and payable upon a Transfer without Lender’s consent. This
provision shall apply to every Transfer regardless of whether voluntary or not,
or whether or not Lender has consented to any previous Transfer.

 

(f) Lender may or may not consent to any assumption of the Loan in Lender’s sole
discretion.

 

5.2.11 Limitations on Distributions. Following the occurrence and during the
continuance of an Event of Default, neither Borrower nor Operating Lessee
Pledgor shall make any distributions to its members.

 

5.2.12 Other Limitations. Prior to the payment in full of the Debt, neither
Borrower nor any of its Affiliates shall, without the prior written consent of
Lender (which may be furnished or withheld at its sole and absolute discretion),
give its consent or approval to any of the following actions or items:

 

(a) except as permitted by Lender herein (i) any refinance, defeasance or
payment in full of the Mortgage Loan without a contemporaneous payment in full
or defeasance of the Loan, (ii) any Transfer of any or all of the Properties or
any portion thereof except in connection with a defeasance of the Loan or in
accordance with Section 5.2.10 hereof, or (iii) any action in connection with or
in furtherance of the foregoing;

 

(b) creating, incurring, assuming or suffering to exist any additional Liens on
any portion of any Individual Property except for Permitted Encumbrances;

 

(c) any material modification, amendment, consolidation, spread, restatement,
waiver or termination of any of the Mortgage Loan Documents;

 

(d) the distribution to the partners, members or shareholders of Mortgage
Borrower of property other than cash; or

 

(e) the settlement of any claim against Borrower or any of its Affiliates, other
than a fully insured third party claim, in any amount greater than $250,000 (in
the case of Borrower or Operating Lessee Pledgor) or $1,000,000 (in the case of
Mortgage Borrower or Operating Lessee), such consent to be given in the sole
discretion of Lender.

 

5.2.13 Contractual Obligations. Other than the Loan Documents and the Mortgage
Borrower Operating Agreement, neither Borrower nor any of its assets shall be
subject to any Contractual Obligations that would have a Material Adverse
Effect, and Borrower shall not enter into any agreement, instrument or
undertaking by which it or its assets are bound, except for such liabilities,
that are incidental to its activities as a regular member of Mortgage Borrower
and that will not have a Material Adverse Effect.

 

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5.2.14 Operating Lease. Without Lender’s prior written consent, Borrower shall
not cause or permit Mortgage Borrower to (a) surrender, terminate or cancel the
Operating Lease; (b) reduce or consent to the reduction of the term of the
Operating Lease; (c) increase or consent to the increase of the amount of any
charges under the Operating Lease; (d) modify, change, supplement, alter or
amend the Operating Lease or waive or release any of Mortgage Borrower’s rights
and remedies under the Operating Lease, provided, that an Operating Lease may be
amended to reduce the rent payable thereunder if such reduction in rents (i) is
consistent with market conditions, (ii) would be agreed to in a comparable
arms-length transaction with an unrelated third party, and (iii) provides for
rent payable in the aggregate under all Operating Leases of no less than an
amount equal to 1.2 times the Debt Service due under the Loan and the debt
service due under the Mortgage Loan; or (e) waive, excuse, condone or in any way
release or discharge Operating Lessee of or from Operating Lessee’s material
obligations, covenants and/or conditions under the Operating Lease.

 

VI. INSURANCE; CASUALTY; CONDEMNATION; REQUIRED REPAIRS

 

Section 6.1. Insurance. (a) Borrower shall cause Mortgagor Borrower to maintain
at all times during the term of the Loan the Policies required under Section 6.1
of the Mortgage Loan Agreement, including, without limitation, meeting all
insurer requirements thereunder. In addition, Borrower shall cause Lender to be
named as an additional named insured under each of the Policies described in
Sections 6.1(a)(ii), (v), (vii), (viii), (ix) and (x) of the Mortgage Loan
Agreement. In addition, Borrower shall cause Lender to be named as a named
insured together with Mortgage Lender, as their interest may appear, under the
Policies required under Sections 6.1(a)(i), (iii), (iv) and (vi) of the Mortgage
Loan Agreement. Borrower shall also cause all insurance policies required under
this Section 6.1 to provide for at least thirty (30) days prior notice to Lender
in the event of policy cancellation or material changes. Borrower shall provide
Lender with evidence of all such insurance required hereunder simultaneously
with Mortgage Borrower’s provision of such evidence to Mortgage Lender.

 

(b) If at any time Lender is not in receipt of written evidence that all
Policies are in full force and effect, Lender shall have the right, without
notice to Borrower, to take such action as Lender deems necessary to protect its
interest in the Properties, including, without limitation, the obtaining of such
insurance coverage as Lender in its sole discretion deems appropriate, provided
that Mortgage Lender is not proceeding in taking such action under the Mortgage
Loan Agreement. All premiums incurred by Lender in connection with such action
or in obtaining such insurance and keeping it in effect shall be paid by
Borrower to Lender upon demand and shall bear interest at the Default Rate.

 

Section 6.2. Casualty. If the Individual Property shall be damaged or destroyed,
in whole or in part, by fire or other casualty (a “Casualty”), Borrower shall
give prompt notice of such damage to Lender and shall cause Mortgage Borrower to
promptly commence and diligently prosecute the completion of the Restoration of
the Individual Property (other than work required to be completed by Tenants,
under Leases) as nearly as possible to the condition the Individual Property was
in immediately prior to such Casualty, with such alterations as may be
reasonably approved by Lender and otherwise in accordance with Section 6.4 of
the Mortgage Loan Agreement. Borrower shall pay all costs of such Restoration

 

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whether or not such costs are covered by insurance. Lender may, but shall not be
obligated to make proof of loss if not made promptly by Borrower. In addition,
Lender may participate in any settlement discussions with any insurance
companies with respect to any Casualty in which the Net Proceeds or the costs of
completing the Restoration are equal to or greater than four percent (4%) of the
Release Amount for the related Individual Property (and shall approve the final
settlement, which approval shall not be unreasonably withheld, conditioned or
delayed) and Borrower shall deliver to Lender all instruments required by Lender
to permit such participation.

 

Section 6.3. Condemnation. Borrower shall promptly give Lender notice of the
actual or threatened commencement of any proceeding for the Condemnation of any
Individual Property and shall deliver to Lender copies of any and all papers
served in connection with such proceedings. Lender may participate in any such
proceedings, and Borrower shall from time to time deliver to Lender all
instruments requested by it to permit such participation. Borrower shall, at its
expense, diligently prosecute any such proceedings, and shall consult with
Lender, its attorneys and experts, and cooperate with them in the carrying on or
defense of any such proceedings. Notwithstanding any taking by any public or
quasi-public authority through Condemnation or otherwise (including, but not
limited to, any transfer made in lieu of or in anticipation of the exercise of
such taking), Borrower shall continue to pay the Debt at the time and in the
manner provided for its payment in the Note and in this Agreement and the Debt
shall not be reduced until any Award shall have been actually received and
applied by Lender, after the deduction of expenses of collection, to the
reduction or discharge of the Debt in accordance with Section 2.4.4. Lender
shall not be limited to the interest paid on the Award by the condemning
authority but shall be entitled to receive out of the Award interest at the rate
or rates provided herein or in the Note. If any Individual Property or any
portion thereof is taken by a condemning authority, Borrower shall cause
Mortgage Borrower to promptly commence and diligently prosecute the Restoration
of the applicable Individual Property (other than work required to be completed
by Tenants under Leases) and otherwise comply with the provisions of Section 6.4
of the Mortgage Loan Agreement. If any Individual Property is sold, through
foreclosure or otherwise, prior to the receipt by Lender of the Award, Lender
shall have the right, whether or not a deficiency judgment on the Note shall
have been sought, recovered or denied, to receive the Award, or a portion
thereof sufficient to pay the Debt.

 

Section 6.4. Restoration. Borrower shall, or shall cause Mortgage Borrower to,
deliver to Lender all reports, plans, specifications, documents and other
materials that are delivered to Mortgage Lender under Section 6.4 of the
Mortgage Loan Agreement in connection with the Restoration of any Individual
Property after a Casualty or Condemnation.

 

VII. RESERVE FUNDS

 

Section 7.1. Required Repair Funds. Borrower shall, or shall cause Mortgage
Borrower to, perform the Required Repairs in accordance with all of the terms
and conditions set forth in Section 7.1 of the Mortgage Loan Agreement.

 

Section 7.2. Tax and Insurance Escrow Fund. Borrower shall pay to Lender on each
Payment Date (a) one-twelfth of the Taxes that Lender estimates will be payable
during the next ensuing twelve (12) months in order to accumulate with Lender
sufficient funds to pay all such Taxes at least thirty (30) days prior to their
respective due dates, and

 

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(b) one-twelfth of the Insurance Premiums that Lender reasonably estimates will
be payable for the renewal of the coverage afforded by the Policies upon the
expiration thereof in order to accumulate with Lender sufficient funds to pay
all such Insurance Premiums at least thirty (30) days prior to the expiration of
the Policies (said amounts in (a) and (b) above hereinafter called the “Tax and
Insurance Escrow Fund”). Lender will apply the Tax and Insurance Escrow Fund to
payments of Taxes and Insurance Premiums required to be made by Borrower
pursuant to Section 5.1.2 hereof and under the Mortgage. In making any payment
relating to the Tax and Insurance Escrow Fund, Lender may do so according to any
bill, statement or estimate procured from the appropriate public office (with
respect to Taxes) or insurer or agent (with respect to Insurance Premiums),
without inquiry into the accuracy of such bill, statement or estimate or into
the validity of any tax, assessment, sale, forfeiture, tax lien or title or
claim thereof, provided, however, Borrower shall have the right to contest the
same in good faith in accordance with the terms and conditions of this
Agreement. Provided (x) no Event of Default exists, (y) Borrower has not elected
to make the Static Cash Deposit, and (z) the amount on deposit in the Tax and
Insurance Escrow Fund is sufficient, then (i) Borrower shall not be liable for
any late charges or penalties imposed by any Governmental Authority and/or
insurance providers as a result of Lender’s failure to make any payments of
Taxes and Insurance Premiums required hereunder, and (ii) Lender shall be
responsible for the payment of any such amounts. If the amount of the Tax and
Insurance Escrow Fund shall exceed the amounts due for Taxes and Insurance
Premiums pursuant to Section 5.1.2 and Section 6.1 hereof, Lender shall, in its
sole discretion, return any excess to Borrower or credit such excess against the
next due payments to be made to the Tax and Insurance Escrow Fund. Any amount
remaining in the Tax and Insurance Escrow Fund after the Debt has been paid in
full shall be returned to Borrower. In allocating such excess, Lender may deal
with the Person shown on the records of Lender to be the owner of the
Properties. If at any time Lender reasonably determines that the Tax and
Insurance Escrow Fund is not or will not be sufficient to pay Taxes and
Insurance Premiums by the dates set forth in (a) and (b) above, Lender shall
notify Borrower of such determination and Borrower shall increase its monthly
payments to Lender by the amount that Lender reasonably estimates is sufficient
to make up the deficiency at least thirty (30) days prior to the due date of the
Taxes and/or thirty (30) days prior to expiration of the Policies, as the case
may be. Notwithstanding the foregoing, if Borrower (i) elects upon thirty (30)
days written notice to Lender to deposit into the Tax and Insurance Fund the
amount reasonably estimated by Lender to be due for Taxes and Insurance Premiums
during the immediately succeeding twelve (12) month period (which amount may be
reasonably adjusted by Lender from time to time to reflect any increases in the
Taxes and Insurance Premiums due in the next twelve (12) month period) (the
“Static Cash Deposit”), and (ii) thereafter provides continuing and current
evidence reasonably satisfactory to Lender that all Taxes have been paid by
Borrower prior to their respective due dates and all Insurance Premiums have
been paid by Borrower prior to the expiration of the Policies, then Borrower
shall not be required to pay to Lender on each Payment Date the amount otherwise
required to be deposited into the Tax and Insurance Escrow Fund.

 

7.2.1 Waiver of Tax Escrow. Borrower shall be relieved of its obligation to make
deposits of Tax and Insurance Escrow Fund under Section 7.2 above, provided that
(a) Mortgage Borrower is required to and does make monthly deposits to a tax
escrow account under the Mortgage Loan, and (b) Lender receives evidence
acceptable to it of the making of such deposits and of the payment of all such
Taxes.

 

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Section 7.3. Replacements and Replacement Reserve.

 

7.3.1 Replacement Reserve Fund. Borrower shall pay to Lender on each Payment
Date the applicable Replacement Reserve Monthly Deposit to fund the costs of
replacements, repairs and maintenance required to be made to the Properties
during the calendar year (collectively, the “Replacements”). Amounts so
deposited shall hereinafter be referred to as Borrower’s “Replacement Reserve
Fund” and the account in which such amounts are held shall hereinafter be
referred to as Borrower’s “Replacement Reserve Account”.

 

7.3.2 Disbursements from Replacement Reserve Account. Lender shall make
disbursements from the Replacement Reserve Fund as requested by Borrower, and
approved by Lender in its reasonable discretion (taking into consideration any
applicable requirements and obligations of borrower with respect to the
Replacements under the related Management Agreement), no more frequently than
once in any thirty (30) day period of no less than $5,000.00 upon delivery by
Borrower or Operating Lessee of Lender’s standard form of draw request
accompanied by copies of paid invoices for the amounts requested and, if
required by Lender for requests in excess of $25,000.00 for a single item, lien
waivers and releases from all parties furnishing materials and/or services in
connection with the requested payment. Lender may require an inspection of the
related Individual Property at Borrower’s expense prior to making a monthly
disbursement in order to verify completion of replacements and repairs of items
in excess of $100,000.00 for which reimbursement is sought.

 

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

 

7.3.4 Waiver of Replacement Reserve Account. Borrower shall be entitled to a
credit against each Replacement Reserve Monthly Deposit under Section 7.3 above
in an amount equal to monthly deposits in respect of Replacements made under the
Mortgage Loan, provided that Lender receives evidence acceptable to it of the
making of such deposits.

 

Section 7.4. Excess Cash Flow Escrow Fund. Upon the occurrence of a Cash Flow
Trigger Event, Borrower shall deposit all Excess Cash Flow in the Cash
Management Account, which shall be held as additional security for the Loan and
amounts so held shall be hereinafter referred to as the “Excess Cash Flow Escrow
Fund” and the account to which such amounts are held shall hereinafter be
referred to as the “Excess Cash Flow Escrow Account”. Upon the occurrence of a
Cash Flow Trigger Cure and provided that no Event of Default shall have occurred
and be continuing, all funds on deposit in the Excess Cash Flow Escrow Account
shall be remitted to Borrower. All funds held in the Excess Cash Flow Escrow
Fund shall be treated as a “Reserve Fund” for purposes of Section 7.5 hereof.
All additional amounts deposited under this Section 7.4 shall be additional
security for the repayment of the Debt and if the Excess Cash Flow Escrow Fund
is held by Lender pursuant to Section 7.6 hereof may be withdrawn by Lender upon
the occurrence of an Event of Default and applied by Lender in such order and
priority as Lender may determine.

 

7.4.1 Waiver of Excess Cash Flow Escrow Account. Borrower shall be relieved of
its obligations under Section 7.4 above, provided that (a) Mortgage Borrower is

 

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required to and does make the required deposits under Section 7.4 of the
Mortgage Loan Agreement and (b) Lender receives evidence reasonably acceptable
to it of the making of such deposits.

 

Section 7.5. Reserve Funds, Generally. (a) Borrower grants to Lender a
first-priority perfected security interest in each of the Reserve Funds and any
and all monies now or hereafter deposited in each Reserve Fund as additional
security for payment of the Debt. Until expended or applied in accordance
herewith, the Reserve Funds shall constitute additional security for the Debt.
During the continuance of an Event of Default, Lender may, in addition to any
and all other rights and remedies available to Lender, apply any sums then
present in any or all of the Reserve Funds to the payment of the Debt in any
order in its sole discretion. The Reserve Funds shall not constitute trust funds
and may be commingled with other monies held by Lender.

 

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

 

(c) The Reserve Funds shall be held in an Eligible Account and invested in
Permitted Investments. All interest or other earnings on a Reserve Fund shall be
added to and become a part of such Reserve Fund and shall be disbursed in the
same manner as other monies deposited in such Reserve Fund. Borrower shall be
responsible for payment of any federal, state or local income or other tax
applicable to the interest or income earned on the Reserve Funds. No other
investments of the sums on deposit in the Reserve Funds shall be permitted
except as set forth in this Section 7.5. Borrower shall bear all reasonable
costs associated with the investment of the sums in the account in Permitted
Investments. Such costs shall be deducted from the income or earnings on such
investment, if any, and to the extent such income or earnings shall not be
sufficient to pay such costs, such costs shall be paid by Borrower promptly on
demand by Lender. Lender shall have no liability for the rate of return earned
or losses incurred on the investment of the sums in Permitted Investments.

 

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

 

Section 7.6. Transfer of Reserve Funds Under Mortgage Loan. If Mortgage Lender
waives any reserves or escrow accounts required in accordance with the terms of
the Mortgage Loan Agreement which reserves or escrow accounts are also required
in accordance with the terms of this Article VII, or if the Mortgage Loan is
refinanced or paid off in full (without a prepayment of the Loan) and Reserve
Funds that are required hereunder are not

 

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required under the new mortgage loan, if any, then Borrower shall cause any
amounts that would have been deposited into any reserves or escrow accounts in
accordance with the terms of the Mortgage Loan Agreement to be transferred to
and deposited with Lender in accordance with the terms of this Article VII (and
Borrower shall enter into a cash management agreement and a lockbox agreement
for the benefit of Lender substantially similar to the Cash Management Agreement
and the Lockbox Agreement entered into at the time of the closing of the
Mortgage Loan), and, if any letters of credit have been substituted by Mortgage
Borrower for any such reserves or escrows as may be specifically permitted by
the Mortgage Loan Agreement, then Borrower shall also cause such letters of
credit to be transferred to Lender to be held by Lender upon the same terms and
provisions as set forth in the Mortgage Loan Agreement.

 

VIII. DEFAULTS

 

Section 8.1. Event of Default. (a) Each of the following events shall constitute
an event of default hereunder (an “Event of Default”):

 

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

 

(ii) subject to Section 2.7.3 hereof, if any of the Taxes or Other Charges are
not paid when the same are due and payable, other than Taxes or Other Charges
being contested pursuant to Section 5.1.2 hereof;

 

(iii) if the Policies are not kept in full force and effect, or if certificates
satisfactorily evidencing the Policies are not delivered to Lender within ten
(10) days after request (provided that, as long as Borrower has not elected to
make a Static Cash Deposit, it shall not constitute an Event of Default if
Lender fails to pay Insurance Premiums in accordance with Section 7.2 hereof
when sufficient funds to make such payments are on deposit in the Tax and
Insurance Escrow Fund);

 

(iv) if Borrower Transfers or otherwise encumbers any portion of the Properties
or the Collateral without Lender’s prior consent in violation of the provisions
of this Agreement or the Pledge Agreement or any other Loan Document or any
Transfer is made in violation of the provisions of Section 5.2.10 hereof;

 

(v) if any representation or warranty made by Borrower herein or in any other
Loan Document, or in any report, certificate, financial statement or other
instrument, agreement or document furnished to Lender shall have been false or
misleading in any material respect as of the date the representation or warranty
was made;

 

(vi) if Borrower, Mortgage Borrower, Operating Lessee, Operating Lessee Pledgor
or Guarantor shall make an assignment for the benefit of creditors;

 

(vii) if a receiver, liquidator or trustee shall be appointed for Borrower,
Mortgage Borrower, Operating Lessee, Operating Lessee Pledgor or Guarantor, or
if Borrower, Mortgage Borrower, Operating Lessee, Operating Lessee Pledgor or

 

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

 

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

 

(ix) if Borrower breaches any of its respective negative covenants contained in
Section 5.2 or any covenant contained in Section 4.1.30 or Section 5.1.11
hereof, provided, however, that a breach of any covenant contained in Section
4.1.30 or in Section 5.2 shall not constitute an Event of Default if (A) such
breach is inadvertent, immaterial and non-recurring, (B) if such breach is
curable, Borrower shall promptly cure such breach within thirty (30) days after
notice thereof from Lender, and (C) with respect to a breach of any covenant
contained in Section 4.1.30, within fifteen (15) Business Days of the request of
Lender, Borrower delivers to Lender an additional Insolvency Opinion, or a
modification of the Insolvency Opinion, to the effect that such breach shall not
in any way impair, negate or amend the opinions rendered in the Insolvency
Opinion, which opinion or modification any counsel delivering such opinion or
modification shall be acceptable to Lender in its reasonable discretion;

 

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

 

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

 

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

 

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

 

(xiv) if Mortgage Borrower ceases to do business as a hotel at the Properties or
terminates such business for any reason whatsoever (other than temporary
cessation in connection with any continuous and diligent Restoration of any
Individual Property following a Casualty or Condemnation);

 

(xv) if (A) a material default has occurred and continues beyond any applicable
cure period under the Operating Lease, (B) the Operating Lease is amended,
modified or terminated in violation of the terms of this Agreement, or (C)
Mortgage Borrower fails to enforce the material terms and provisions of each
Operating Lease;

 

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

 

(xvii) if there shall be default under any of the other Loan Documents beyond
any applicable cure periods contained in such documents, whether as to Borrower
or the Collateral;

 

(xviii) if the Liens created pursuant to any Loan Document shall cease to be a
fully perfected enforceable first priority security interest or any portion of
the Collateral is Transferred without Lender’s prior written consent; or

 

(xix) a Mortgage Loan Default shall occur.

 

(b) Upon the occurrence and during the continuance of an Event of Default (other
than an Event of Default described in clauses (vi), (vii) or (viii) above) and
at any time thereafter, in addition to any other rights or remedies available to
it pursuant to this Agreement and the other Loan Documents or at law or in
equity, Lender may take such action, without notice or demand, that Lender deems
advisable to protect and enforce its rights against Borrower and in and to the
Collateral, including, without limitation, declaring the Debt to be immediately
due and payable, and Lender may enforce or avail itself of any or all rights or
remedies provided in the Loan Documents and may exercise all the rights and
remedies of a secured party under the Uniform Commercial Code, as adopted and
enacted by the State or States where any of the

 

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Collateral is located, against Borrower and the Collateral, including, without
limitation, all rights or remedies available at law or in equity; and upon any
Event of Default described in clauses (vi), (vii) or (viii) above, the Debt and
all other obligations of Borrower hereunder and under the other Loan Documents
shall immediately and automatically become due and payable, without notice or
demand, and Borrower hereby expressly waives any such notice or demand, anything
contained herein or in any other Loan Document to the contrary notwithstanding.

 

Section 8.2. Remedies. (a) Upon the occurrence of an Event of Default, all or
any one or more of the rights, powers, privileges and other remedies available
to Lender against Borrower under this Agreement or any of the other Loan
Documents executed and delivered by, or applicable to, Borrower or at law or in
equity may be exercised by Lender at any time and from time to time, whether or
not all or any of the Debt shall be declared due and payable, and whether or not
Lender shall have commenced any foreclosure proceeding or other action for the
enforcement of its rights and remedies under any of the Loan Documents with
respect to all or any of the Collateral. Any such actions taken by Lender shall
be cumulative and concurrent and may be pursued independently, singularly,
successively, together or otherwise, at such time and in such order as Lender
may determine in its sole discretion, to the fullest extent permitted by law,
without impairing or otherwise affecting the other rights and remedies of Lender
permitted by law, equity or contract or as set forth herein or in the other Loan
Documents. Without limiting the generality of the foregoing, Borrower agrees
that if an Event of Default is continuing (i) Lender is not subject to any “one
action” or “election of remedies” law or rule, and (ii) all liens and other
rights, remedies or privileges provided to Lender shall remain in full force and
effect until Lender has exhausted all of its remedies against the Collateral and
the Collateral has been foreclosed upon, sold and/or otherwise realized upon in
satisfaction of the Debt or the Debt has been paid in full.

 

(b) With respect to Borrower and the Collateral, nothing contained herein or in
any other Loan Document shall be construed as requiring Lender to resort to any
portion of the Collateral for the satisfaction of any of the Debt in preference
or priority to any other portion of the Collateral, and Lender may seek
satisfaction out of all of the portion of the Collateral or any part thereof, in
its absolute discretion in respect of the Debt. In addition, Lender shall have
the right from time to time to partially foreclose upon the Collateral in any
manner and for any amounts secured by the Mortgages then due and payable as
determined by Lender in its sole discretion including, without limitation, the
following circumstances: (i) in the event Borrower defaults beyond any
applicable grace period in the payment of one or more scheduled payments of
principal and interest, Lender may foreclose upon the Collateral to recover such
delinquent payments, or (ii) in the event Lender elects to accelerate less than
the entire outstanding principal balance of the Loan, Lender may foreclose upon
the Collateral to recover so much of the principal balance of the Loan as Lender
may accelerate and such other sums secured by the Pledge Agreement as Lender may
elect. Notwithstanding one or more partial foreclosures, the Collateral shall
remain subject to the Pledge Agreement and the other Loan Documents to secure
payment of sums secured by the Pledge Agreement and the other Loan Documents and
not previously recovered.

 

(c) Lender shall have the right from time to time to sever the Note and the
other Loan Documents into one or more separate notes, pledges and other security
documents (the “Severed Loan Documents”) in such denominations as Lender shall
determine in its sole

 

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discretion for purposes of evidencing and enforcing its rights and remedies
provided hereunder. Borrower shall execute and deliver to Lender from time to
time, promptly after the request of Lender, a severance agreement and such other
documents as Lender shall request in order to effect the severance described in
the preceding sentence, all in form and substance reasonably satisfactory to
Lender. Borrower hereby absolutely and irrevocably appoints Lender as its true
and lawful attorney, coupled with an interest, in its name and stead to make and
execute all documents necessary or desirable to effect the aforesaid severance,
Borrower ratifying all that its said attorney shall do by virtue thereof;
provided, however, Lender shall not make or execute any such documents under
such power until five (5) Business Days after notice has been given to Borrower
by Lender of Lender’s intent to exercise its rights under such power. Except as
may be required in connection with a Securitization pursuant to Section 9.1
hereof, (i) Borrower shall not be obligated to pay any costs or expenses
incurred in connection with the preparation, execution, recording or filing of
the Severed Loan Documents, and (ii) the Severed Loan Documents shall not
contain any representations, warranties or covenants not contained in the Loan
Documents and any such representations and warranties contained in the Severed
Loan Documents will be given by Borrower only as of the Closing Date.

 

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

 

(e) Lender may, but without any obligation to do so and without notice to or
demand on Borrower and without releasing Borrower from any obligation hereunder
or being deemed to have cured any Event of Default hereunder, make, do or
perform any obligation of Borrower hereunder in such manner and to such extent
as Lender may deem necessary. Borrower shall cause Mortgage Borrower to permit
Lender to enter upon the Properties for such purposes, or appear in, defend, or
bring any action or proceeding to protect its interest in the Properties for
such purposes, and the cost and expense thereof (including reasonable attorneys’
fees to the extent permitted by law), with interest as provided in this Section
8.2, shall constitute a portion of the Debt and shall be due and payable to
Lender upon demand. All such costs and expenses incurred by Lender in remedying
such Event of Default or such failed payment or act or in appearing in,
defending, or bringing any action or proceeding shall bear interest at the
Default Rate, for the period after such cost or expense was incurred into the
date of payment to Lender. All such costs and expenses incurred by Lender
together with interest thereon calculated at the Default Rate shall be deemed to
constitute a portion of the Debt and be secured by the liens, claims and
security interests provided to Lender under the Loan Documents and shall be
immediately due and payable upon demand by Lender therefore.

 

(f) Lender shall have the right, but shall not have the obligation, to exercise
Borrower’s rights under the Mortgage Borrower Company Agreement (a) to cure a
Mortgage Loan Default, and (b) to satisfy any Liens, claims or judgments against
any Individual Property (except for Liens permitted by the Mortgage Loan
Documents), in the case of either (a) or (b), unless Borrower or Mortgage
Borrower shall be diligently pursuing remedies to cure to Lender’s sole
satisfaction. Borrower shall reimburse Lender on demand for any and all costs
incurred by Lender in connection with curing any such Mortgage Loan Default or
satisfying any Liens, claims or judgments against any Individual Property.

 

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

 

(h) For the purpose of carrying out the provisions and exercising the rights,
powers and privileges granted in this Section 8.2, Borrower hereby irrevocably
constitutes and appoints the Lender its true and lawful attorney-in-fact to
execute, acknowledge and deliver any instruments and do and perform any acts
such as are referred to in this subsection in the name and on behalf of
Borrower. This power of attorney is a power coupled with an interest and cannot
be revoked.

 

IX. SPECIAL PROVISIONS

 

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

 

(a) provide or cause Mortgage Borrower to provide additional and/or updated
Provided Information, together with appropriate verification and/or consents
related to the Provided Information;

 

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

 

(c) deliver (i) updated opinions of counsel as to non-consolidation, due
execution and enforceability with respect to the Properties, Borrower, Mortgage
Borrower, Operating Lessee, Operating Lessee Pledgor and Guarantor, the
Operating Lease and the Loan Documents, which updated opinions shall be
consistent with those opinions of counsel delivered

 

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as of the Closing Date, and (ii) if required by any Rating Agency, revised
organizational documents for Borrower, which counsel opinions and

 

(d) if required by any Rating Agency, use commercially reasonable efforts to
deliver such additional tenant estoppel letters, subordination agreements or
other agreements from parties to agreements that affect the Properties, which
estoppel letters, subordination agreements or other agreements shall be
substantially in the form used in connection with the closing of the Loan and if
not, then reasonably satisfactory to the Rating Agencies;

 

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

 

(f) execute such amendments to the Loan Documents as may be requested by Lender
or the Rating Agencies to effect the Securitization (provided that, no such
amendments shall increase the obligations of Borrower or Guarantor or reduce the
rights of Borrower or Guarantor under the Loan Documents);

 

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

 

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

 

Borrower shall not be responsible for any costs and expenses incurred by Lender
in connection with a Securitization of the Loan (including, without limitation,
the fees and expenses of the Rating Agencies). Borrower shall be responsible for
all costs and expenses incurred by Borrower in connection with Borrower’s
complying with requests made under this Article IX hereof.

 

9.1.2 Loan Components; Mezzanine Loans. (a) Notwithstanding the provisions of
Section 9.1 to the contrary, Borrower covenants and agrees that in connection
with any Securitization of the Loan, upon Lender’s request Borrower shall
deliver one or more new component notes to replace the original note or modify
the original note and other Loan Documents, as reasonably required, to reflect
multiple components of the Loan and such new notes or modified note shall at all
times shall have the same initial weighted average coupon as the original note
(except following an Event of Default or any prepayment of the Loan pursuant

 

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to Section 2.4.2 hereof), but such new notes or modified note may subsequently
change the interest rate and apply principal, interest rates and amortization of
the Loan between the components in a manner specified by Lender in its sole
discretion, and modify the Mezzanine Cash Management Agreement (if any) with
respect to the newly created components such that the pricing and marketability
of the Securities and the size of each class of Securities and the rating
assigned to each such class by the Rating Agencies shall provide the most
favorable rating levels and achieve the optimum bond execution for the Loan;
provided, that, except as expressly set forth in this Section 9.1.2, none of the
foregoing actions shall have an adverse affect on Borrower or effect any of the
rights or obligations of Borrower or Guarantor under the Loan Documents in any
adverse respect.

 

(b) Notwithstanding the provisions of Section 9.1 to the contrary, Borrower
covenants and agrees that after the Closing Date, Lender shall have the right to
establish different interest rates and to reallocate the amortization and
principal balances (including, without limitation, the reallocation of the
Release Amounts on a pro rata basis) of the Loan and the Mortgage Loan between
each other and to require the payment of the Loan and the Mortgage Loan in such
order of priority as may be designated by Lender in its sole discretion;
provided, that (i) in no event shall the initial weighted average spread of the
Loan and the Mortgage Loan following any such reallocation or modification
change from the initial weighted average spread in effect immediately preceding
such reallocation or modification (except in connection with a prepayment of the
Loan in accordance with Section 2.4.2 hereof or a prepayment of the Mortgage
Loan pursuant to Section 2.4.2 of the Mortgage Loan Agreement or following an
Event of Default or a Mortgage Loan Default), but, provided, further, that such
modifications may subsequently change the weighted average spread and apply
principal, interest rates and amortization between the Loan and the Mortgage
Loan in a manner specified by Lender in its sole discretion; provided, that,
except as expressly set forth in this Section 9.1.2, none of the foregoing
actions shall have an adverse affect on Borrower, Mortgage Borrower or Guarantor
or effect any of the rights or obligations of Borrower under the Loan Documents
or Mortgage Borrower under the Mortgage Loan Documents in any adverse respect.

 

Section 9.2. Securitization Indemnification. (a) Borrower understands that
certain of the Provided Information may be included in Disclosure Documents in
connection with the Securitization and may also be included in filings with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended (the “Securities Act”), or the Securities and Exchange Act of 1934, as
amended (the “Exchange Act”), or provided or made available to investors or
prospective investors in the Securities, the Rating Agencies, and service
providers relating to the Securitization. In the event that the Disclosure
Document is required to be revised prior to the sale of all Securities, Borrower
will cooperate with the holder of the Note in updating the Disclosure Document
by providing all current information necessary to keep the Disclosure Document
accurate and complete in all material respects.

 

(b) The Indemnifying Persons agree to provide, in connection with the
Securitization, an indemnification agreement (i) certifying that (A) the
Indemnifying Persons have carefully examined the Provided Information included
within the sections of the Disclosure Documents entitled “Risk Factors,”
“Special Considerations,” “Description of the Collateral,” “Description of the
Mezzanine Loan,” “The Manager,” “The Borrower” and “Certain Legal Aspects of the
Mezzanine Loan,” and (B) such sections and such other information in the

 

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

 

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

 

(d) Promptly after receipt by an Indemnified Person of notice of any claim or
the commencement of any action, the Indemnified Person shall, if a claim in
respect thereof is to be made against any Indemnifying Person, notify such
Indemnifying Person in writing of the claim or the commencement of that action;
provided, however, that the failure to notify such Indemnifying Person shall not
relieve it from any liability which it may have under the indemnification
provisions of this Section 9.2 except to the extent that it has been materially
prejudiced by such failure and, provided further that the failure to notify such
Indemnifying

 

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Person shall not relieve it from any liability which it may have to an
Indemnified Person otherwise than under the provisions of this Section 9.2. If
any such claim or action shall be brought against an Indemnified Person, and it
shall notify any Indemnifying Person thereof, such Indemnifying Person shall be
entitled to participate therein and, to the extent that it wishes, assume the
defense thereof with counsel reasonably satisfactory to the Indemnified Person.
After notice from any Indemnifying Person to the Indemnified Person of its
election to assume the defense of such claim or action, such Indemnifying Person
shall not be liable to the Indemnified Person for any legal or other expenses
subsequently incurred by the Indemnified Person in connection with the defense
thereof except as provided in the following sentence; provided, however, if the
defendants in any such action include both an Indemnifying Person, on the one
hand, and one or more Indemnified Persons on the other hand, and an Indemnified
Person shall have reasonably concluded that there are any legal defenses
available to it and/or other Indemnified Persons that are different or in
addition to those available to the Indemnifying Person, the Indemnified Person
or Persons shall have the right to select separate counsel to assert such legal
defenses and to otherwise participate in the defense of such action on behalf of
such Indemnified Person or Persons. The Indemnified Person shall instruct its
counsel to maintain reasonably detailed billing records for fees and
disbursements for which such Indemnified Person is seeking reimbursement
hereunder and shall submit copies of such detailed billing records to
substantiate that such counsel’s fees and disbursements are solely related to
the defense of a claim for which the Indemnifying Person is required hereunder
to indemnify such Indemnified Person. No Indemnifying Person shall be liable for
the expenses of more than one (1) such separate counsel unless such Indemnified
Person shall have reasonably concluded that there may be legal defenses
available to it that are different from or additional to those available to
another Indemnified Person.

 

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

 

(f) The Indemnifying Persons agree that if any indemnification or reimbursement
sought pursuant to this Section 9.2 is finally judicially determined to be
unavailable for any reason or is insufficient to hold any Indemnified Person
harmless (with respect only to the Liabilities that are the subject of this
Section 9.2), then the Indemnifying Persons, on the one hand, and such
Indemnified Person, on the other hand, shall contribute to the Liabilities for
which such indemnification or reimbursement is held unavailable or is
insufficient: (x) in such proportion as is appropriate to reflect the relative
benefits to the Indemnifying Persons, on the one hand, and such Indemnified
Person, on the other hand, from the transactions to which such indemnification
or reimbursement relates; or (y) if the allocation provided by clause (x) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect

 

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not only the relative benefits referred to in clause (x) but also the relative
faults of the Indemnifying Persons, on the one hand, and all Indemnified
Persons, on the other hand, as well as any other equitable considerations.
Notwithstanding the provisions of this Section 9.2, (A) no party found liable
for a fraudulent misrepresentation shall be entitled to contribution from any
other party who is not also found liable for such fraudulent misrepresentation,
and (B) the Indemnifying Persons agree that in no event shall the amount to be
contributed by the Indemnified Persons collectively pursuant to this paragraph
exceed the amount of the fees (by underwriting discount or otherwise) actually
received by the Indemnified Persons in connection with the closing of the Loan
or the Securitization.

 

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

 

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

 

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

 

Section 9.3. Intentionally Omitted.

 

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

 

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

 

(i) fraud or intentional misrepresentation by Borrower, Mortgage Borrower,
Operating Lessee Pledgor, Operating Lessee, or any Guarantor in connection with
the Loan;

 

(ii) the willful misconduct of Borrower, Mortgage Borrower, Operating Lessee
Pledgor or Operating Lessee in connection with the Loan;

 

(iii) the misappropriation or conversion by Borrower, Mortgage Borrower,
Operating Lessee or Operating Lessee Pledgor of (A) any Net Liquidation Proceeds
or Insurance Proceeds, (B) any Awards received in connection with a Condemnation
of all or a portion of any Individual Property, (C) any Rents received during
the continuance of an Event of Default, (D) any Rents paid more than one (1)
month in advance or (E) any distribution or other payments made in connection
with any part of the Collateral;

 

(iv) the misappropriation or conversion by Borrower, Mortgage Borrower,
Operating Lessee or Operating Lessee Pledgor of any security deposits, advance
deposits or any other deposits collected with respect to the Properties which
are not delivered to Lender upon a foreclosure of any Individual Property or
action in lieu thereof, except to the extent any such deposits were applied in
accordance with the terms and conditions of any of the Leases prior to the
occurrence of the Event of Default that gave rise to such foreclosure or action
in lieu thereof;

 

(v) if Borrower, Mortgage Borrower, Operating Lessee or Operating Lessee Pledgor
fails to maintain its status as a Special Purpose Entity as required by and in
accordance with the terms and provisions of this Agreement or the Mortgage; or

 

(vi) if Borrower, Mortgage Borrower, Operating Lessee Pledgor or Operating
Lessee fails to obtain Lender’s prior written consent to (A) any voluntary
transfer of any Individual Property or (B) direct or indirect transfer in
Borrower, Mortgage Borrower, Operating Lessee Pledgor or Operating Lessee in
each case as required by the terms of the Loan Documents.

 

Notwithstanding anything to the contrary in this Agreement, the Note or any of
the Loan Documents, (A) Lender shall not be deemed to have waived any right
which Lender may have under Section 506(a), 506(b), 1111(b) or any other
provisions of the U.S. Bankruptcy Code to file a claim for the full amount of
the Debt secured by the Pledge Agreement or to require that all

 

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collateral shall continue to secure all of the Debt owing to Lender in
accordance with the Loan Documents, and (B) the Debt shall be fully recourse to
Borrower in the event of: (i) Borrower, Mortgage Borrower, Operating Lessee
Pledgor or Operating Lessee filing a voluntary petition under the Bankruptcy
Code or any other Federal or state bankruptcy or insolvency law; (ii) Borrower,
Mortgage Borrower, Operating Lessee Pledgor or Operating Lessee filing an answer
consenting to or otherwise acquiescing in or joining in any involuntary petition
filed against it, by any other Person under the Bankruptcy Code or any other
Federal or state bankruptcy or insolvency law, unless there are no legitimate
grounds for contesting such petition (in which case an answer consenting
otherwise acquiescing in or joining in any involuntary petition will not cause
recourse liability under this Section 9.4), or soliciting or causing to be
solicited petitioning creditors for any involuntary petition from any Person;
(iii) Borrower, Mortgage Borrower, Operating Lessee Pledgor or Operating Lessee
consenting to or acquiescing in or joining in an application for the appointment
of a custodian, receiver, trustee, or examiner for Borrower, Mortgage Borrower,
Operating Lessee Pledgor or Operating Lessee or any portion of any Individual
Property or the Collateral; or (iv) Borrower, Mortgage Borrower, Operating
Lessee Pledgor or Operating Lessee making an assignment for the benefit of
creditors, or admitting, in writing or in any legal proceeding, its insolvency
or inability generally to pay its debts as they become due.

 

Section 9.5. Matters Concerning Manager. If (a) Manager shall become bankrupt or
insolvent, or (b) a material default by Manager occurs under the Management
Agreement beyond any applicable grace and cure periods, Borrower shall, at the
request of Lender, cause Mortgage Borrower to cause Operating Lessee to
terminate the Management Agreement and replace Manager with a Qualified Manager
pursuant to a Replacement Management Agreement, it being understood and agreed
that the management fee for such replacement manager shall not exceed then
prevailing market rates.

 

Section 9.6. Matters Concerning Franchisor. If (a) Franchisor shall become
bankrupt or insolvent, or (b) a material default occurs under the Franchise
Agreement beyond any applicable grace and cure periods, Borrower shall, at the
request of Lender, cause Mortgage Borrower to cause Operating Lessee to
terminate the Franchise Agreement and replace the Franchisor with a Qualified
Franchisor pursuant to a Replacement Franchise Agreement, it being understood
and agreed that the franchise fee for such replacement franchisor shall not
exceed then prevailing market rates.

 

Section 9.7. Servicer. At the option of Lender, the Loan may be serviced by a
servicer/trustee (the “Servicer”) selected by Lender and Lender may delegate all
or any portion of its responsibilities under this Agreement and the other Loan
Documents to the Servicer pursuant to a servicing agreement (the “Servicing
Agreement”) between Lender and Servicer. Borrower shall not be responsible for
any fees or any other initial or ongoing costs relating to or arising under the
Servicing Agreement.

 

X. MISCELLANEOUS

 

Section 10.1. Survival. This Agreement and all covenants, agreements,
representations and warranties made herein and in the certificates delivered
pursuant hereto shall survive the making by Lender of the Loan and the execution
and delivery to Lender of the Note,

 

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and shall continue in full force and effect so long as all or any of the Debt is
outstanding and unpaid unless a longer period is expressly set forth herein or
in the other Loan Documents. Whenever in this Agreement any of the parties
hereto is referred to, such reference shall be deemed to include the legal
representatives, successors and assigns of such party. All covenants, promises
and agreements in this Agreement, by or on behalf of Borrower, shall inure to
the benefit of the legal representatives, successors and assigns of Lender.

 

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

 

Section 10.3. Governing Law. (A) THIS AGREEMENT WAS NEGOTIATED IN THE STATE OF
NEW YORK, THE LOAN WAS MADE BY LENDER AND ACCEPTED BY BORROWER IN THE STATE OF
NEW YORK, AND THE PROCEEDS OF THE LOAN DELIVERED PURSUANT HERETO WERE DISBURSED
FROM THE STATE OF NEW YORK, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL
RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY,
AND IN ALL RESPECTS, INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT,
THE NOTE AND THE OTHER LOAN DOCUMENTS AND THE OBLIGATIONS ARISING HEREUNDER AND
THEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE
(WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS) AND ANY APPLICABLE LAW OF
THE UNITED STATES OF AMERICA, EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE
CREATION, PERFECTION, AND ENFORCEMENT OF THE LIENS AND SECURITY INTERESTS
CREATED PURSUANT HERETO AND PURSUANT TO THE OTHER LOAN DOCUMENTS SHALL BE
GOVERNED BY AND CONSTRUED ACCORDING TO THE LAW OF THE STATE IN WHICH THE
COLLATERAL IS LOCATED OR AS OTHERWISE DETERMINED BY APPLICABLE LAW, IT BEING
UNDERSTOOD THAT, TO THE FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE, THE
LAW OF THE STATE OF NEW YORK SHALL GOVERN THE CONSTRUCTION, VALIDITY AND
ENFORCEABILITY OF ALL LOAN DOCUMENTS AND ALL OF THE OBLIGATIONS ARISING
HEREUNDER OR THEREUNDER. TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWER HEREBY
UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY
OTHER JURISDICTION GOVERNS THIS AGREEMENT, THE NOTE AND THE OTHER LOAN
DOCUMENTS, AND THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.

 

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(B) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR BORROWER ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS MAY AT LENDER’S
OPTION BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN THE CITY OF NEW YORK,
COUNTY OF NEW YORK, PURSUANT TO SECTION 5-1402 OF THE NEW YORK GENERAL
OBLIGATIONS LAW AND BORROWER WAIVES ANY OBJECTIONS WHICH IT MAY NOW OR HEREAFTER
HAVE BASED ON VENUE AND/OR FORUM NON CONVENIENS OF ANY SUCH SUIT, ACTION OR
PROCEEDING, AND BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY
SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. BORROWER DOES HEREBY DESIGNATE AND
APPOINT:

 

HOGAN & HARTSON L.L.P.

875 THIRD AVENUE

NEW YORK, NEW YORK 10022

ATTN: ALAN SCHACTER

 

AS ITS AUTHORIZED AGENT TO ACCEPT AND ACKNOWLEDGE ON ITS BEHALF SERVICE OF ANY
AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING IN
ANY FEDERAL OR STATE COURT IN NEW YORK, NEW YORK, AND AGREES THAT SERVICE OF
PROCESS UPON SAID AGENT AT SAID ADDRESS AND NOTICE OF SAID SERVICE MAILED OR
DELIVERED TO BORROWER IN THE MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY
RESPECT EFFECTIVE SERVICE OF PROCESS UPON BORROWER IN ANY SUCH SUIT, ACTION OR
PROCEEDING IN THE STATE OF NEW YORK. BORROWER (I) SHALL GIVE PROMPT NOTICE TO
LENDER OF ANY CHANGED ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II) MAY AT ANY
TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE AUTHORIZED AGENT WITH AN
OFFICE IN NEW YORK, NEW YORK (WHICH SUBSTITUTE AGENT AND OFFICE SHALL BE
DESIGNATED AS THE PERSON AND ADDRESS FOR SERVICE OF PROCESS), AND (III) SHALL
PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES TO HAVE AN
OFFICE IN NEW YORK, NEW YORK OR IS DISSOLVED WITHOUT LEAVING A SUCCESSOR.

 

Section 10.4. Modification, Waiver in Writing. No modification, amendment,
extension, discharge, termination or waiver of any provision of this Agreement,
or of the Note, or of any other Loan Document, nor consent to any departure by
Borrower therefrom, shall in any event be effective unless the same shall be in
a writing signed by the party against whom enforcement is sought, and then such
waiver or consent shall be effective only in the specific instance, and for the
purpose, for which given. Except as otherwise expressly provided herein, no
notice to, or demand on Borrower, shall entitle Borrower to any other or future
notice or demand in the same, similar or other circumstances.

 

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

 

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

 

If to Lender:      JPMorgan Chase Bank        c/o ARCap Servicing, Inc.       
5605 N. MacArthur Blvd. Suite 950        Irving, Texas 75038        Attention:
Clyde Greenhouse – Director of Administration        Facsimile No.: (972)
580-3888          with a copy to:      Cadwalader, Wickersham & Taft LLP       
100 Maiden Lane        New York, New York 10038        Attention: William P.
McInerney, Esq.        Facsimile No.: (212) 504-6666          If to Borrower:
     Highland Hospitality Corporation        8405 Greensboro Drive, Suite 500  
     McLean, Virginia 22102        Attention: General Counsel        Facsimile
No.: (703) 336-4910          With a copy to:      Highland Hospitality
Corporation        8405 Greensboro Drive, Suite 500        McLean, Virginia
22102        Attention: Chief Financial Officer        Facsimile No.: (703)
336-4905

 

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

 

Section 10.7. Trial by Jury.

 

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

 

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

 

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

 

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

 

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

 

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

 

Section 10.13. Expenses; Indemnity. (a) Borrower covenants and agrees to pay or,
if Borrower fails to pay, to reimburse, Lender upon receipt of notice from
Lender for all reasonable out-of-pocket costs and expenses (including reasonable
attorneys’ fees and disbursements) incurred by Lender in connection with (i) the
preparation, negotiation, execution and delivery of this Agreement and the other
Loan Documents and, except as otherwise set forth in Section 9.1 hereof, the
consummation of the transactions contemplated hereby and thereby and all the
costs of furnishing all opinions by counsel for Borrower (including without
limitation any opinions requested by Lender as to any legal matters arising
under this Agreement or the other Loan Documents with respect to the
Properties); (ii) Borrower’s ongoing performance of and compliance with
Borrower’s respective agreements and covenants contained in this Agreement and
the other Loan Documents on its part to be performed or complied with after the
Closing Date, including, without limitation, confirming compliance with
environmental and insurance requirements; (iii) except as otherwise expressly
provided in this Agreement, Lender’s ongoing performance and compliance with all
agreements and conditions contained in this Agreement and the other Loan
Documents on its part to be performed or complied with after the Closing Date;
(iv) the negotiation, preparation, execution, delivery and administration of any
consents, amendments, waivers or other modifications to this Agreement and the
other Loan Documents and any other documents or matters requested by Lender; (v)
securing Borrower’s compliance with any requests made pursuant to the provisions
of this Agreement and the other Loan Documents; (vi) the filing and recording
fees and expenses, Title Insurance and reasonable fees and expenses of counsel
for providing to Lender all required legal opinions, and other similar expenses
reasonably incurred in creating and perfecting the Liens in favor of Lender
pursuant to this Agreement and the other Loan Documents; (vii) enforcing or
preserving any rights, either in response to third party claims or in
prosecuting or defending any action or proceeding or other litigation, in each
case against, under or affecting Borrower, this Agreement, the other Loan
Documents, the Properties, or any other security given for the Loan; and (viii)
enforcing any obligations of or collecting any payments due from Borrower under
this Agreement, the other Loan Documents or with respect to the Properties or in
connection with any refinancing or restructuring of the credit arrangements
provided under this Agreement in the nature of a “work-out” or of any insolvency
or bankruptcy proceedings; provided, however, that Borrower shall not be liable
for the payment of any such costs and expenses to the extent the same arise by
reason of the gross negligence, illegal acts, fraud or willful misconduct of
Lender.

 

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

 

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

 

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

 

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

 

Section 10.16. No Joint Venture or Partnership; No Third Party Beneficiaries.
(a) Borrower and Lender intend that the relationships created hereunder and
under the other Loan Documents be solely that of borrower and lender. Nothing
herein or therein is intended to create a joint venture, partnership,
tenancy-in-common, or joint tenancy relationship between Borrower and Lender nor
to grant Lender any interest in the Properties other than that of mortgagee,
beneficiary or lender.

 

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

 

Section 10.17. Publicity. Except as may be required by applicable Legal
Requirements, all news releases, publicity or advertising by Borrower or its
Affiliates through any media intended to reach the general public which refers
to the Loan Documents or the financing evidenced by the Loan Documents, to
Lender, JPMorgan, or any of their Affiliates shall be subject to the prior
approval of Lender.

 

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

 

Section 10.19. Waiver of Counterclaim. Borrower hereby waives the right to
assert a counterclaim, other than a compulsory counterclaim, in any action or
proceeding brought against it by Lender or its agents.

 

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

 

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foregoing with respect to Lender’s exercise of any such rights or remedies.
Borrower acknowledges that Lender engages in the business of real estate
financings and other real estate transactions and investments which may be
viewed as adverse to or competitive with the business of Borrower or its
Affiliates.

 

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

 

Section 10.22. Prior Agreements. This Agreement and the other Loan Documents
contain the entire agreement of the parties hereto and thereto in respect of the
transactions contemplated hereby and thereby, and all prior agreements among or
between such parties, whether oral or written, including, without limitation,
that certain Loan Commitment dated June 24, 2004 (as amended) between Borrower
and Lender are superseded by the terms of this Agreement and the other Loan
Documents.

 

Section 10.23. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument.

 

Section 10.24. Certain Additional Rights of Lender. Notwithstanding anything
which may be contained in this Agreement to the contrary, Lender shall have:

 

(a) the right to routinely consult with Borrower’s management regarding the
significant business activities and business and financial developments of
Borrower, provided, however, that such consultations shall not include
discussions of environmental compliance programs or disposal of hazardous
substances. Consultation meetings should occur at Lender’s request on a regular
basis (no more frequently than quarterly) with Lender having the right to call
special meetings at any reasonable times and upon reasonable advance notice;

 

(b) the right, in accordance with the terms of this Agreement, to examine the
books and records of Borrower at any time upon reasonable notice;

 

(c) the right, without restricting any other rights of Lender under this
Agreement (including any similar right), to approve any acquisition by Borrower
of any other significant property (other than personal property required for the
day to day operation of the Properties)

 

(d) the right, in accordance with the terms of this Agreement, as described in
Section 5.1.11 hereof, to receive monthly, quarterly and year end financial
reports, including balance sheets, statements of income, shareholder’s equity
and cash flow, a management report and schedules of outstanding indebtedness;
and

 

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The rights described above may be exercised by any entity which owns and
controls, directly or indirectly, substantially all of the interests in Lender.

 

[NO FURTHER TEXT ON THIS PAGE]

 

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

 

HH FP PORTFOLIO HOLDING LLC, a

      Delaware limited liability company

By:

 

/s/ Tracy M.J. Colden

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Name:   Tracy M.J. Colden Title:   Vice President

 

JPMORGAN CHASE BANK, a New York     banking corporation By:  

/s/ Thomas Cosenza

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Name:   Thomas M. Cosenza Title:   Vice President

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SCHEDULE I

 

(Properties - Release Amounts)

 

Property Name

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

  

Location

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

   Mezzanine Release Amount

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

Crowne Plaza Ravinia

   Atlanta, GA    $ 6,980,000

Hilton Parsippany

   Parsippany, NJ    $ 8,230,000

Hyatt - Wind Watch

   Hauppauge, NY    $ 5,440,000

Tremont - Boston

   Boston, MA    $ 4,350,000          

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

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

          $ 25,000,000

 

SCH. I-1

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SCHEDULE II

 

(Organizational Structure)

 

SCH. II-1

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SCHEDULE III

 

(Rent Roll)

 

Property Name

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

  

Lease

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

Crowne Plaza Ravinia    LaGrotta at Ravinia, Inc. Hilton Parsippany    Ruth’s
Chris Steakhouse #35, L.P. Tremont - Boston    The Boston LECO Corp. d/b/a NYC
Jukebox Tremont – Boston    Ladco Management Company Inc.
Management Agreement Tremont - Boston    Boston Ballroom Corporation

 

SCH. III-1

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SCHEDULE IV

 

(Franchise Agreements)

 

SCH. IV-1

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SCHEDULE V

 

(Management Agreements)

 

SCH. V-1

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SCHEDULE VI

 

(Subordination of Management Agreements)

 

SCH. VI-1

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SCHEDULE VII

 

(Lockbox Agreements)

 

Three-Party Springing Blocked Account Service Agreement among Borrower,
Operating Lessee, Lender, and Fleet National Bank.

 

[Lockbox Agreement] among Borrower, Operating Lessee, Lender, and [Bank of
America, N.A.]

 

[Lockbox Agreement] among Borrower, Operating Lessee, Lender, and [JPMorgan
Chase Bank]

 

SCH. VI-1