Exhibit 10.2


 




 


 





MEZZANINE LOAN AGREEMENT




Dated as of May 19, 2006



Between



MONDRIAN SCOTTSDALE MEZZ HOLDING COMPANY LLC

as Borrower



And



GREENWICH CAPITAL FINANCIAL PRODUCTS, INC.

as Lender


 




 





 

















 


TABLE OF CONTENTS


 


	
  1.

  	
  DEFINITIONS; PRINCIPLES OF CONSTRUCTION

  	
  1

  
	
   

  	
  1.1

  	
  Specific Definitions

  	
  1

  
	
   

  	
  1.2

  	
  Index of Other Definitions

  	
  13

  
	
   

  	
  1.3

  	
  Principles of Construction

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  GENERAL LOAN TERMS

  	
  16

  
	
   

  	
  2.1

  	
  The Loan

  	
  16

  
	
   

  	
  2.2

  	
  Interest; Monthly Payments

  	
  16

  
	
   

  	
   

  	
  2.2.1

  	
  Generally

  	
  16

  
	
   

  	
   

  	
  2.2.2

  	
  Default Rate

  	
  16

  
	
   

  	
   

  	
  2.2.3

  	
  Taxes

  	
  16

  
	
   

  	
   

  	
  2.2.4

  	
  Breakage Indemnity

  	
  17

  
	
   

  	
   

  	
  2.2.5

  	
  New Payment Date

  	
  17

  
	
   

  	
  2.3

  	
  Loan Repayment

  	
  17

  
	
   

  	
   

  	
  2.3.1

  	
  Repayment

  	
  17

  
	
   

  	
   

  	
  2.3.2

  	
  Mandatory Prepayments

  	
  18

  
	
   

  	
   

  	
  2.3.3

  	
  Optional Prepayments

  	
  18

  
	
   

  	
  2.4

  	
  Release of Collateral

  	
  18

  
	
   

  	
  2.5

  	
  Payments and Computations

  	
  18

  
	
   

  	
   

  	
  2.5.1

  	
  Making of Payments

  	
  18

  
	
   

  	
   

  	
  2.5.2

  	
  Computations

  	
  19

  
	
   

  	
   

  	
  2.5.3

  	
  Late Payment Charge

  	
  19

  
	
   

  	
  2.6

  	
  Interest Rate Protection Agreements

  	
  19

  
	
   

  	
   

  	
  2.6.1

  	
  Interest Rate Protection Agreement

  	
  19

  
	
   

  	
   

  	
  2.6.2

  	
  Execution of Documents

  	
  20

  
	
   

  	
   

  	
  2.6.3

  	
  No Obligation of Lender

  	
  20

  
	
   

  	
   

  	
  2.6.4

  	
  Receipts from Interest Rate Protection Agreements

  	
  20

  
	
   

  	
  2.7

  	
  Fees; Spread Maintenance Premium

  	
  21

  
	
   

  	
   

  	
  2.7.1

  	
  Origination/Advance Fees

  	
  21

  
	
   

  	
   

  	
  2.7.2

  	
  Spread Maintenance Premium /Prepayment Premium

  	
  21

  
	
   

  	
  2.8

  	
  Extension Options

  	
  21

  
	
   

  	
  2.9

  	
  Additional Advances

  	
  22

  
	
   

  	
   

  	
  2.9.1

  	
  Conditions Precedent

  	
  22

  
	
   

  	
   

  	
  2.9.2

  	
  Additional Advances

  	
  24

  
	
   

  	
   

  	
  2.9.3

  	
  Optional Disbursements

  	
  25

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  CASH MANAGEMENT AND RESERVES

  	
  25

  
	
   

  	
  3.1

  	
  Cash Management Arrangements

  	
  25

  
	
   

  	
  3.2

  	
  Reserves

  	
  26

  
	
   

  	
   

  	
  3.2.1

  	
  General

  	
  26

  
	
   

  	
   

  	
  3.2.2

  	
  Renovation/Re-Branding Reserve

  	
  26

  
	
   

  	
  3.3

  	
  Grant of Security Interest; Application of Funds

  	
  26

  
	
   

  	
  3.4

  	
  Cash Flow Allocation

  	
  27

  



 


i

















 


	
  4.

  	
  REPRESENTATIONS AND WARRANTIES

  	
  28

  
	
   

  	
  4.1

  	
  Organization; Special Purpose

  	
  28

  
	
   

  	
  4.2

  	
  Proceedings; Enforceability

  	
  28

  
	
   

  	
  4.3

  	
  No Conflicts

  	
  28

  
	
   

  	
  4.4

  	
  Litigation

  	
  28

  
	
   

  	
  4.5

  	
  Agreements

  	
  29

  
	
   

  	
  4.6

  	
  Title

  	
  29

  
	
   

  	
  4.7

  	
  No Bankruptcy Filing

  	
  29

  
	
   

  	
  4.8

  	
  Full and Accurate Disclosure

  	
  29

  
	
   

  	
  4.9

  	
  Tax Filings

  	
  30

  
	
   

  	
  4.10

  	
  ERISA; No Plan Assets

  	
  30

  
	
   

  	
  4.11

  	
  Compliance

  	
  30

  
	
   

  	
  4.12

  	
  Contracts

  	
  31

  
	
   

  	
  4.13

  	
  Federal Reserve Regulations; Investment Company Act

  	
  31

  
	
   

  	
  4.14

  	
  Easements; Utilities and Public Access

  	
  31

  
	
   

  	
  4.15

  	
  Physical Condition

  	
  31

  
	
   

  	
  4.16

  	
  Leases

  	
  32

  
	
   

  	
  4.17

  	
  Fraudulent Transfer

  	
  32

  
	
   

  	
  4.18

  	
  Ownership of Borrower and Owner

  	
  32

  
	
   

  	
  4.19

  	
  Purchase Options

  	
  32

  
	
   

  	
  4.20

  	
  Management Agreement

  	
  32

  
	
   

  	
  4.21

  	
  Hazardous Substances

  	
  33

  
	
   

  	
  4.22

  	
  Name; Principal Place of Business

  	
  33

  
	
   

  	
  4.23

  	
  Other Debt

  	
  33

  
	
   

  	
  4.24

  	
  Pledged Collateral

  	
  33

  
	
   

  	
  4.25

  	
  Senior Loan

  	
  34

  
	
   

  	
  4.26

  	
  Perfection of Accounts

  	
  34

  
	
   

  	
  4.27

  	
  No Contractual Obligations

  	
  35

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  COVENANTS

  	
  35

  
	
   

  	
  5.1

  	
  Existence

  	
  35

  
	
   

  	
  5.2

  	
  Taxes and Other Charges

  	
  35

  
	
   

  	
  5.3

  	
  Access to the Property

  	
  36

  
	
   

  	
  5.4

  	
  Repairs; Maintenance and Compliance; Alterations

  	
  36

  
	
   

  	
   

  	
  5.4.1

  	
  Repairs; Maintenance and Compliance

  	
  36

  
	
   

  	
   

  	
  5.4.2

  	
  Alterations

  	
  36

  
	
   

  	
  5.5

  	
  Performance of Other Agreements

  	
  37

  
	
   

  	
  5.6

  	
  Cooperate in Legal Proceedings

  	
  37

  
	
   

  	
  5.7

  	
  Further Assurances

  	
  37

  
	
   

  	
  5.8

  	
  Environmental Matters

  	
  37

  
	
   

  	
   

  	
  5.8.1

  	
  Hazardous Substances

  	
  37

  
	
   

  	
   

  	
  5.8.2

  	
  Environmental Monitoring

  	
  38

  
	
   

  	
   

  	
  5.8.3

  	
  O & M Program

  	
  40

  
	
   

  	
  5.9

  	
  Title to the Pledged Collateral

  	
  40

  
	
   

  	
  5.10

  	
  Leases

  	
  40

  
	
   

  	
   

  	
  5.10.1

  	
  Generally

  	
  40

  
	
   

  	
   

  	
  5.10.2

  	
  Additional Covenants with respect to Leases

  	
  40

  



 


ii

















 


	
   

  	
  5.11

  	
  Estoppel Statement

  	
  40

  
	
   

  	
  5.12

  	
  Property Management

  	
  41

  
	
   

  	
   

  	
  5.12.1

  	
  Management Agreement

  	
  41

  
	
   

  	
   

  	
  5.12.2

  	
  Termination of Manager

  	
  41

  
	
   

  	
   

  	
  5.12.3

  	
  Cure by Lender

  	
  42

  
	
   

  	
  5.13

  	
  Special Purpose Bankruptcy Remote Entity

  	
  42

  
	
   

  	
  5.14

  	
  Assumption in Non-Consolidation Opinion

  	
  42

  
	
   

  	
  5.15

  	
  Change in Business or Operation of Property

  	
  42

  
	
   

  	
  5.16

  	
  Debt Cancellation

  	
  42

  
	
   

  	
  5.17

  	
  Affiliate Transactions

  	
  42

  
	
   

  	
  5.18

  	
  Zoning

  	
   

  	
  43

  
	
   

  	
  5.19

  	
  No Joint Assessment

  	
  43

  
	
   

  	
  5.20

  	
  Principal Place of Business

  	
  43

  
	
   

  	
  5.21

  	
  Change of Name, Identity or Structure

  	
  43

  
	
   

  	
  5.22

  	
  Indebtedness

  	
  43

  
	
   

  	
  5.23

  	
  Licenses

  	
  44

  
	
   

  	
  5.24

  	
  Compliance with Restrictive Covenants, Etc.

  	
  44

  
	
   

  	
  5.25

  	
  ERISA

  	
  44

  
	
   

  	
  5.26

  	
  Prohibited Transfers

  	
  44

  
	
   

  	
  5.27

  	
  Liens

  	
  44

  
	
   

  	
  5.28

  	
  Dissolution

  	
  45

  
	
   

  	
  5.29

  	
  Incurrence of Expenses

  	
  45

  
	
   

  	
  5.30

  	
  Expenses

  	
  45

  
	
   

  	
  5.31

  	
  Indemnity

  	
  45

  
	
   

  	
  5.32

  	
  Patriot Act Compliance

  	
  47

  
	
   

  	
  5.33

  	
  Hotel Operation

  	
  47

  
	
   

  	
  5.34

  	
  Limitation on Securities Issuances

  	
  48

  
	
   

  	
  5.35

  	
  Limitation on Distributions

  	
  48

  
	
   

  	
  5.36

  	
  Contractual Obligations

  	
  48

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  NOTICES AND REPORTING

  	
  48

  
	
   

  	
  6.1

  	
  Notices

  	
  48

  
	
   

  	
  6.2

  	
  Borrower Notices and Deliveries

  	
  48

  
	
   

  	
  6.3

  	
  Financial Reporting

  	
  49

  
	
   

  	
   

  	
  6.3.1

  	
  Bookkeeping

  	
  49

  
	
   

  	
   

  	
  6.3.2

  	
  Annual Reports

  	
  49

  
	
   

  	
   

  	
  6.3.3

  	
  Monthly/Quarterly Reports

  	
  50

  
	
   

  	
   

  	
  6.3.4

  	
  Other Reports

  	
  50

  
	
   

  	
   

  	
  6.3.5

  	
  Annual Budget

  	
  50

  
	
   

  	
   

  	
  6.3.6

  	
  Senior Loan

  	
  51

  
	
   

  	
   

  	
  6.3.7

  	
  Breach

  	
  51

  
	
   

  	
   

  	
  6.3.8

  	
  Hotel Accounting

  	
  51

  
	
   

  	
   

  	
  6.3.9

  	
  Inspection

  	
  51

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  INSURANCE; CASUALTY; AND CONDEMNATION

  	
  52

  
	
   

  	
  7.1

  	
  Insurance

  	
  52

  
	
   

  	
   

  	
  7.1.1

  	
  Coverage

  	
  52

  



 


iii

















 


	
   

  	
   

  	
  7.1.2

  	
  Policies

  	
  55

  
	
   

  	
  7.2

  	
  Casualty

  	
  56

  
	
   

  	
   

  	
  7.2.1

  	
  Notice; Restoration

  	
  56

  
	
   

  	
   

  	
  7.2.2

  	
  Settlement of Proceeds

  	
  56

  
	
   

  	
  7.3

  	
  Condemnation

  	
  57

  
	
   

  	
   

  	
  7.3.1

  	
  Notice; Restoration

  	
  57

  
	
   

  	
   

  	
  7.3.2

  	
  Collection of Award

  	
  57

  
	
   

  	
  7.4

  	
  Application of Proceeds or Award

  	
  58

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  DEFAULTS

  	
  58

  
	
   

  	
  8.1

  	
  Events of Default

  	
  58

  
	
   

  	
  8.2

  	
  Remedies

  	
  59

  
	
   

  	
   

  	
  8.2.1

  	
  Acceleration

  	
  60

  
	
   

  	
   

  	
  8.2.2

  	
  Remedies Cumulative

  	
  60

  
	
   

  	
   

  	
  8.2.3

  	
  Severance

  	
  60

  
	
   

  	
   

  	
  8.2.4

  	
  Delay

  	
  61

  
	
   

  	
   

  	
  8.2.5

  	
  Lender’s Right to Perform

  	
  61

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  SENIOR LOAN

  	
  61

  
	
   

  	
  9.1

  	
  Compliance with Senior Loan Documents

  	
  61

  
	
   

  	
  9.2

  	
  Senior Loan Defaults

  	
  62

  
	
   

  	
  9.3

  	
  Senior Loan Estoppels

  	
  63

  
	
   

  	
  9.4

  	
  No Amendments to Senior Loan Documents

  	
  63

  
	
   

  	
  9.5

  	
  Acquisition of the Senior Loan

  	
  63

  
	
   

  	
  9.6

  	
  Deed in Lieu of Foreclosure

  	
  64

  
	
   

  	
  9.7

  	
  Refinancing or Prepayment of the Senior Loan

  	
  64

  
	
   

  	
  9.8

  	
  Intercreditor Agreement

  	
  64

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  SPECIAL PROVISIONS

  	
  64

  
	
   

  	
  10.1

  	
  Sale of Note and Secondary Market Transaction

  	
  64

  
	
   

  	
   

  	
  10.1.1

  	
  General; Borrower Cooperation

  	
  64

  
	
   

  	
   

  	
  10.1.2

  	
  Use of Information

  	
  65

  
	
   

  	
   

  	
  10.1.3

  	
  Borrower’s Obligations Regarding Disclosure Documents

  	
  65

  
	
   

  	
   

  	
  10.1.4

  	
  Borrower Indemnity Regarding Filings

  	
  66

  
	
   

  	
   

  	
  10.1.5

  	
  Indemnification Procedure

  	
  66

  
	
   

  	
   

  	
  10.1.6

  	
  Contribution

  	
  67

  
	
   

  	
   

  	
  10.1.7

  	
  Rating Surveillance

  	
  67

  
	
   

  	
   

  	
  10.1.8

  	
  Severance of Loan

  	
  67

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
  MISCELLANEOUS

  	
  68

  
	
   

  	
  11.1

  	
  Exculpation

  	
  68

  
	
   

  	
  11.2

  	
  Brokers and Financial Advisors

  	
  70

  
	
   

  	
  11.3

  	
  Retention of Servicer

  	
  70

  
	
   

  	
  11.4

  	
  Survival

  	
  70

  
	
   

  	
  11.5

  	
  Lender’s Discretion

  	
  70

  
	
   

  	
  11.6

  	
  Governing Law

  	
  71

  
	
   

  	
  11.7

  	
  Modification, Waiver in Writing

  	
  72

  



 


iv

















 


	
   

  	
  11.8

  	
  Trial by Jury

  	
  72

  
	
   

  	
  11.9

  	
  Headings/Exhibits

  	
  72

  
	
   

  	
  11.10

  	
  Severability

  	
  72

  
	
   

  	
  11.11

  	
  Preferences

  	
  72

  
	
   

  	
  11.12

  	
  Waiver of Notice

  	
  73

  
	
   

  	
  11.13

  	
  Remedies of Borrower

  	
  73

  
	
   

  	
  11.14

  	
  Prior Agreements

  	
  73

  
	
   

  	
  11.15

  	
  Offsets, Counterclaims and Defenses

  	
  73

  
	
   

  	
  11.16

  	
  Publicity

  	
  73

  
	
   

  	
  11.17

  	
  No Usury

  	
  74

  
	
   

  	
  11.18

  	
  Conflict; Construction of Documents

  	
  74

  
	
   

  	
  11.19

  	
  No Third Party Beneficiaries

  	
  74

  
	
   

  	
  11.20

  	
  Spread Maintenance Premium/Prepayment Premium

  	
  74

  
	
   

  	
  11.21

  	
  Assignment

  	
  75

  
	
   

  	
  11.22

  	
  Proofs of Claim

  	
  75

  
	
   

  	
  11.23

  	
  Waiver of Stay

  	
  75

  
	
   

  	
  11.24

  	
  Certain Additional Rights of Lender

  	
  76

  
	
   

  	
  11.25

  	
  Future Funding Obligations

  	
  77

  
	
   

  	
  11.26

  	
  Set-Off

  	
  77

  
	
   

  	
  11.27

  	
  Counterparts

  	
  77

  



 


Schedule 1             Exceptions
to Representations and Warranties

Schedule 2             [Intentionally Reserved]

Schedule 3             Organization of Borrower

Schedule 4             Definition of Special Purpose Bankruptcy
Remote Entity


Schedule 5             Approved
Operating Budget


Schedule 6             Initial
Renovation Work


Schedule 7             Form of
Request for Additional Advance


Schedule 8             Approved
Renovation/Re-Branding Budget


 


v

















 


MEZZANINE LOAN AGREEMENT


 


MEZZANINE LOAN AGREEMENT dated
as of May 19, 2006 (as the same may be modified, supplemented, amended or
otherwise changed, this “Agreement”)
between MONDRIAN SCOTTSDALE MEZZ HOLDING
COMPANY LLC, a Delaware limited liability company (together with its
permitted successors and assigns, “Borrower”), and GREENWICH CAPITAL FINANCIAL PRODUCTS, INC., a Delaware
corporation (together with its successors and assigns, “Lender”).


 


1.             DEFINITIONS;
PRINCIPLES OF CONSTRUCTION


 


1.1          Specific
Definitions.  The following terms
have the meanings set forth below:


 


Additional Advance:  an advance of Principal made by Lender to
Borrower pursuant to Section 2.9 hereof.


 


Affiliate:  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.


 


Approved
CapEx/FF&E Expenses:  the cost of FF&E Expenses and Capital
Expenses incurred by Owner, which FF&E Expenses and Capital Expenses shall
either be (a) included in the Approved Capital/FF&E Budget for the
current calendar year, (b) approved by Lender, (c) are within 110% of
the total amounts included in the Approved Capital/FF&E Budget for the
current calendar year or (d) of an emergency nature, and with respect to
which it would be impracticable, in Owner’s reasonable judgment, under the
circumstances to obtain Lender’s prior written consent, provided Owner delivers
notice to Lender as soon as practicable after an emergency expenditure.  The parties acknowledge that an Approved
Capital/FF&E Budget has not been delivered as of the date hereof.  Accordingly, only items covered under clauses
(b) and (d) above shall constitute Approved CapEx/FF&E Expenses until such an Approved
Capital/FF&E Budget has been prepared, delivered and approved by Lender in
accordance with Section 6.3.5 hereof.


 


Approved Operating
Expenses: operating expenses incurred by Owner
which (i) are included in the Approved Operating Budget for the current
calendar month (excluding such portion of the fees payable to Manager under the
Management Agreement which are in excess of four percent (4%) of Gross Revenues
actually received during the applicable period; provided, however, the
foregoing shall not be deemed to preclude Owner from paying any such fees
pursuant to the terms of the Management Agreement from its own funds),
(ii) are for real estate taxes, insurance premiums, electric, gas, oil,
water, sewer or other utility service to the Property or (iii) have been
approved by Lender in its reasonable discretion.  Except for a management fee of up to four
percent (4%) of Gross Revenues as described above, no other management,
franchise or other similar fees payable to any Affiliate of Owner, Borrower,
Guarantor or Manager shall be an Approved Operating Expense hereunder (although
nothing


 

















 


shall be deemed to preclude Owner from paying any such fees pursuant
from its own funds).  The initial
Approved Operating Budget is attached hereto as Schedule 5.


 


Approved Renovation/Re-Branding
Expenses: Capital Expenses incurred by Owner in
connection with the renovation and re-branding of the Property and the
Improvements, which Capital Expenses shall either be (a) included in the
Approved Renovation/Re-Branding Budget attached hereto as Schedule 8 or (b)
otherwise reasonably approved by Lender.


 


Business Day:  any day other than a Saturday, Sunday or
any day on which commercial banks in New York, New York are authorized or
required to close.


 


Capital Expenses:  expenses that are capital in nature or
required under GAAP to be capitalized.


 


Cash Trap Period:  shall have the meaning set forth in the
Senior Loan Agreement.


 


Code:  the Internal Revenue Code of 1986, as amended
and as it may be further amended from time to time, any successor statutes
thereto, and applicable U.S. Department of Treasury regulations promulgated
thereunder.


 


Collateral:  all collateral securing or intended to secure
the Debt, including the Pledged Collateral.


 


Contractual
Obligation: 
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.


 


Control:  with respect to any Person, either
(i) ownership directly or indirectly of 49% or more of all equity
interests in such Person or (ii) the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
such Person, through the ownership of voting securities, by contract or otherwise.


 


Debt:  the unpaid Principal, all interest accrued
and unpaid thereon, any Spread Maintenance Premium, any Prepayment Premium and
all other sums due to Lender in respect of the Loan or under any Loan Document.


 


Debt Yield:  as of any date, the ratio (expressed as a
percentage) of (i) Net Operating Income for the twelve (12) month period
ending with the most recently completed calendar month to (ii) the sum of
(A) the outstanding Principal as of such date plus (B) the outstanding
principal balance of any Senior Loan as of such date.


 


Default:  the occurrence of any event under any Loan
Document which, with the giving of notice or passage of time, or both, would be
an Event of Default.


 


Default Rate:  a rate per annum equal to the lesser of
(i) the maximum rate permitted by applicable law, or (ii) 5% above
the Interest Rate, compounded monthly.


 


2

















 


Deposit Bank:  Wachovia Bank, National Association, or such
other bank or depository selected by Lender in its discretion.


 


Eligible Account:  a separate and identifiable account from all
other funds held by the holding institution that is either (i) an account or
accounts (A) maintained with a federal or state-chartered depository
institution or trust company which complies with the definition of Eligible
Institution or (B) as to which Lender has received a Rating Comfort Letter
from each of the applicable Rating Agencies with respect to holding funds in
such account, or (ii) a segregated trust account or accounts maintained with
the corporate trust department of a federal depository institution or state
chartered depository institution subject to regulations regarding fiduciary
funds on deposit similar to Title 12 of the Code of Federal Regulations
§9.10(b), having in either case of clause (i) or clause (ii) above, corporate
trust powers, acting in its fiduciary capacity, and a combined capital and
surplus of at least $50,000,000 and subject to supervision or examination by
federal and state authorities.  An Eligible
Account will not be evidenced by a certificate of deposit, passbook or other
instrument.


 


Eligible Institution:
a depository institution insured by the Federal Deposit Insurance Corporation
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 Letters of Credit or 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.


 


ERISA:  the Employment Retirement Income Security Act
of 1974, as amended from time to time, and the rules and regulations
promulgated thereunder.


 


ERISA Affiliate:  all members of a controlled group of
corporations and all trades and business (whether or not incorporated) under
common control and all other entities which, together with Borrower and/or
Owner, are treated as a single employer under any or all of
Section 414(b), (c), (m) or (o) of the Code.


 


FF&E:  all furniture, furnishings, fixtures and
equipment reasonably necessary for the operation of the hotel (including but
not limited to the guest rooms, restaurants, bars, mini-bars, meeting rooms,
banquet rooms and recreational facilities) located at the Property.


 


FF&E Expenses:  expenses that are for FF&E or are used in
connection with the use, occupancy, operation and maintenance of all or any
part of the hotel located on the Property, other than stocks of food and other
supplies held for consumption in normal operation but including, without
limitation, appliances, machinery, equipment, signs, artwork, office
furnishings and equipment, guest room furnishings, and specialized equipment
for kitchens, laundries, bars, restaurant, public rooms, health and
recreational facilities, linens, dishware, all partitions, screens, awnings,
shades, blinds, floor coverings, hall and lobby equipment, heating, lighting,
plumbing, ventilating, refrigerating, incinerating, elevators, escalators, air
conditioning and communication plants or systems with appurtenant fixtures,
vacuum cleaning systems, call or beeper systems, security systems, sprinkler
systems and other fire prevention and extinguishing apparatus and materials;
reservation system computer and related equipment; all equipment, manual,
mechanical or motorized, for the construction, maintenance, repair and


 


3

















 


cleaning of, parking areas, walks, underground ways, truck ways,
driveways, common areas, roadways, highways and streets; and the Vehicles (as
defined in the USALI).


 


GAAP:  generally accepted accounting principles in
the United States of America as of the date of the applicable financial report.


 


Governmental
Authority: 
any court, board, agency, commission, office or authority of any nature
whatsoever or any governmental unit (federal, state, county, district,
municipal, city or otherwise) now or hereafter in existence.


 


Gross Revenues:  shall mean, for the period of determination,
all Rents for such period; provided, however, that Gross Revenues shall not
include (i) gratuities or service charges or other similar receipts which are
to be paid over the Property employees or persons occupying similar positions
for performing similar duties or any other Third Party Disbursements; (ii)
proceeds of other insurance or other money or credits received in settlement
for loss, theft, or damage to property relating to or used in the Property
(other than the proceeds of any business interruption insurance received with
respect to the Property); (iii) excise taxes, sales taxes, use taxes, bed
taxes, admission taxes, tourist taxes, gross receipts taxes, value added taxes,
entertainment taxes, or other taxes or similar charges payable to governmental
authorities; (iv) any amounts otherwise included in Gross Revenues to the
extent such amounts are refunded to guests and patrons; (v) such other
exclusions requested by Borrower and approved by Lender in its sole and
absolute discretion; (vi) Lease Termination Payments and (vii) any amounts
recovered in any legal actions or proceedings, or settlements thereof, arising
out of the operation of the Property except to the extent such amounts would
otherwise have been included in Gross Revenues.


 


Guarantor:  Morgans Group LLC, a Delaware limited
liability company.


 


Hotel Transactions:  collectively, (i) occupancy arrangements for
customary hotel transactions in the ordinary course of Owner’s business
conducted at the hotel located at the Property, including nightly rentals (or
licensing) of individual hotel rooms or suites, banquet room use and food and
beverage services and (ii) informational or guest services which are terminable
on one month’s notice or less without cause and without penalty or premium,
including co-marketing, promotional services and outsourced services.


 


Initial Renovation
Work: the renovation work to be performed at the
Property by Owner more particularly described on Schedule 6 attached hereto.


 


Interest Period:  (i) the period from the date hereof
through the first day thereafter that is the last day of a calendar month (the
“Initial Interest Period”)
and (ii) each period thereafter from the first (1st) day of
each calendar month through the last day of each such calendar month; except
that the Interest Period, if any, that would otherwise commence before and end
after the Maturity Date shall end on the Maturity Date.  Notwithstanding the foregoing, if Lender exercises
its right to change the Payment Date to a New Payment Date in accordance with
Section 2.2.5, then from and after such election, each Interest Period shall be
the period from the New Payment Date in each calendar month through the day in
the next succeeding calendar month immediately preceding the New Payment Date
in such calendar month.


 


4

















 


Interest Rate:  for any Interest Period, the Spread (which
includes a servicing fee of five (5) basis points) plus LIBOR for such Interest
Period (or, when applicable pursuant to this Agreement or any other Loan
Document, the Default Rate).


 


Inventory:
as defined in the UCC, and including items which would be entered on a balance
sheet under the line items for “Inventories” or “china, glassware, silver, linen
and uniforms” under USALI.


 


Leases:  all leases, subleases and other agreements or
arrangements heretofore or hereafter entered into affecting the use, enjoyment
or occupancy of, or the conduct of any activity upon or in, the Property or the
Improvements, including any guarantees, extensions, renewals, modifications or
amendments thereof and all additional remainders, reversions and other rights
and estates appurtenant thereunder.  As
used herein, the term “Leases” shall include any consulting, licensing or other
similar agreements or arrangements with respect to the Property, including
without limitation with respect to any food and/or beverage operations at the
Property.  As used herein, the term
“Leases” shall not include Hotel Transactions.


 


Lease Termination
Payments: 
(i)  all fees, penalties, commissions or other payments made to
Owner in connection with or relating to the rejection, buy-out, termination,
surrender or cancellation of any Lease (including in connection with any
bankruptcy proceeding), (ii)  any security deposits or proceeds of letters
of credit held by Owner in lieu of cash security deposits, which Owner is
permitted to retain pursuant to the applicable provisions of any Lease and
(iii)  any payments made to Owner relating to unamortized tenant
improvements and leasing commissions under any Lease.


 


Legal Requirements:
statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and
injunctions of Governmental Authorities affecting Borrower, Owner, any Loan
Document or all or part of the Collateral or the Property or the construction,
ownership, use, alteration or operation 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 instrument, either of record or known to
Borrower, at any time in force affecting all or part of the Property.


 


LIBOR:  with respect to any Interest Period, a
floating interest rate per annum (rounded upwards to the next 1/100th
of 1%) equal to the rate for U.S. dollar deposits with one month maturities
which appears on Telerate Page 3750 as of 11:00 am, London time on the related
Determination Date; provided, however, that if such rate does not
appear on Telerate Page 3750, “LIBOR” shall mean a rate per annum equal to the
rate at which U.S. dollar deposits in an amount approximately equal to the
Loan, and with one month maturities, are offered in immediately available funds
in the London Interbank Market to the London office of National Westminster
Bank, Plc by leading banks in the Eurodollar market at 11:00 a.m., London
time.  “Telerate Page 3750” means the display
designated as “Page 3750” on the Associated Press-Dow Jones Telerate Service
(or such other page as may replace Page 3750 on the Associated Press-Dow Jones
Telerate Service or such other service as may be nominated by the British
Bankers’ Association as the information vendor for the purpose of displaying
British Banker’s Association interest settlement rates for U.S. Dollar
deposits).  Any LIBOR determined on the
basis of the rate displayed on Telerate Page 3750 in accordance with the
provisions hereof shall


 


5

















 


be subject to corrections, if any, made in such rate and displayed by
the Associated Press-Dow Jones Telerate Service within one (1) hour of the time
when such rate is first displayed by such Service.  For purposes hereof, (i) “Determination Date”
shall mean, (A) with respect to the Initial Interest Period, the date which is
two Eurodollar Business Days prior to the date hereof and (B) with respect to
any other Interest Period, the date which is two Eurodollar Business Days prior
to the fifth (5th) day of the calendar month occurring during such Interest
Period; and (ii) “Eurodollar
Business Day” shall mean any day other than a Saturday, Sunday
or other day on which banks in the City of London, England are closed for
interbank or foreign exchange transactions.


 


Lien:
any mortgage, deed of trust, lien (statutory or otherwise), pledge,
hypothecation, easement, restrictive covenant, preference, assignment, security
interest or any other encumbrance, charge or transfer of, or any agreement to
enter into or create any of the foregoing, on or affecting (i) all or any
part of the Property or any interest therein, (ii) any direct or indirect
interest in Owner, Borrower or Sole Member or (iii) all or part of the
Collateral, including 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, lis pendens and mechanic’s, materialmen’s and other similar
liens and encumbrances.


 


Liquidation Event:  (i) any Casualty to the Property or any
material portion thereof, (ii) any Condemnation of the Property or any material
portion thereof, (iii) a Transfer of the Property in connection with
realization thereon following an Event of Default under the Senior Loan,
including without limitation a foreclosure sale, or (iv) any refinancing or
payoff of the Property or the Senior Loan permitted hereunder (including any
refund of reserves on deposit with Senior Lender (but not disbursements
therefrom)).


 


Loan Documents:  this Agreement and all other documents,
agreements and instruments now or hereafter evidencing, securing, guarantying
or providing other credit support or delivered to Lender in connection with the
Loan, including the following, each of which is dated as of the date hereof:  (i) the Promissory Note made by Borrower
to Lender in the principal amount equal to the Loan (the “Note”), (ii) the
Pledge and Security Agreement (the “Pledge”) made by Borrower in favor of Lender
which creates a security interest in the 100% ownership interest of Borrower in
Owner (the “Pledged
Collateral”), (iii) the Subordinate Deposit Account
Agreement (the “Subordinate
Deposit Account Agreement”) among Borrower, Lender, Manager and
the Deposit Bank and (iv) the Guaranty of Recourse Obligations made by
Guarantor (the “Recourse
Guaranty”); as each of the foregoing may be (and each of the
foregoing defined terms shall refer to such documents as they may be) amended,
restated, replaced, severed, split, supplemented or otherwise modified from
time to time (including pursuant to Section 10.1.8).


 


Lockout Date:  December 1, 2006.


 


Management Agreement:  the management agreement between Owner and
Manager, pursuant to which Manager is to manage the Property, as same may be
amended, restated, replaced, supplemented or otherwise modified from time to
time in accordance with Section 5.12.


 


6

















 


Manager:  Morgans Hotel Group Management LLC, a
Delaware limited liability company, or any successor, assignee or replacement manager
appointed by Borrower in accordance with Section 5.12 hereof.


 


Material Alteration:
any alteration affecting structural elements of the Property the cost of which
exceeds $1,000,000; provided, however, that in no event shall (i) any
Required Repairs, (ii) any tenant improvement work performed pursuant to
any Lease existing on the date hereof or entered into hereafter in accordance
with the provisions of this Agreement, (iii) alterations performed as part
of a Restoration or (iv) the Initial Renovation Work, constitute a Material
Alteration.


 


Maturity Date:  the date on which the final payment of
principal of the Note becomes due and payable as therein provided, whether at
the Stated Maturity Date, by declaration of acceleration, or otherwise.


 


MG:  Morgans Group LLC, a Delaware limited
liability company.


 


MHGC:  Morgans Hotel Group Co., a Delaware
corporation.


 


Minimum Debt Yield
Requirement: 
a Debt Yield equal to: 
(i) eight percent (8%), for the period from the date hereof through
(but excluding) July 1, 2007, (ii) nine percent (9%), for the period from
and including July 1, 2007 through (but excluding) July 1, 2008, (iii) ten
percent (10%), for the period from and including July 1, 2008 through (but
excluding) July 1, 2009, (iv) eleven percent (11%), for the period from
and including July 1, 2009 through (but excluding) July 1, 2010 and
(v) twelve percent (12%), for the period from and including July 1, 2010
throughout the remainder of the Term.


 


Net Liquidation
Proceeds after Debt Service:  with respect to any Liquidation Event, all
amounts paid to or received by or on behalf of Owner in connection with such
Liquidation Event, including, without limitation, proceeds of any sale,
refinancing or other disposition or liquidation, less (i) Lender’s and/or
Senior Lender’s reasonable costs incurred in connection with the recovery
thereof, (ii) the costs incurred by Owner in connection with a restoration of
the Property made in accordance with the Senior Loan Documents, (iii) amounts
required or permitted to be deducted therefrom and amounts paid pursuant to the
Senior Loan Documents to Senior Lender, (iv) in the case of a foreclosure
sale, disposition or Transfer of the Property in connection with realization
thereon following an Event of Default under the Senior Loan, such reasonable
and customary costs and expenses of sale or other disposition (including
attorneys’ fees and brokerage commissions), (v) in the case of a
foreclosure sale, such costs and expenses incurred by Senior Lender under the
Senior Loan Documents as Senior Lender shall be entitled to receive
reimbursement for under the terms of the Senior Loan Documents and (vi) in
the case of a refinancing of the Senior Loan, such costs and expenses
(including reasonable attorneys’ fees) of such refinancing as shall be
reasonably approved by Lender.


 


Net Operating Income:  shall have the meaning set forth in the
Senior Loan Agreement.


 


7

















 


Officer’s
Certificate: 
a certificate delivered to Lender by Borrower, or on behalf of Borrower
by an Affiliate which Controls Borrower which is signed by a senior executive
officer of Borrower or an Affiliate which Controls Borrower, as the case may
be.


 


Operating Expenses:  means, during any period of determination,
without duplication, (i) any and all actual cash operating expenses
relating to the operation of the Property during such period, (ii) the
costs incurred for ordinary maintenance and repairs of, and necessary capital
improvements to, the Property during such period (other than replacements of
FF&E), but, in the case of necessary capital improvements, only to the
extent that such costs are treated as current expenses in accordance with the
GAAP, (iii) reserves paid during such period and (iv) the greater of
(A) amounts actually expended during such period for the replacement of
FF&E or (B) four percent (4%) of Gross Revenues for such period.  Operating Expenses shall not include any
(w) expenses which are extraordinary in nature and which would, under
GAAP, be considered “non-recurring”, (x) pre-opening expenses and expenses
incurred in connection with the Initial Renovation Work, (y) amounts
distributed from the Deposit Account into the Debt Service Subaccount, the Tax
and Insurance Subaccount and the Security Deposit Subaccount and the pursuant
to the Deposit Account Agreement, or (z) payments made to any Person that
is an Affiliate of Borrower or Owner for materials or service to the Property
to the extent that such payment is greater than that which would be paid for
such materials or services pursuant to an arm’s length agreement with
unaffiliated entities.


 


Other Charges:  all ground rents, maintenance charges,
impositions other than Taxes, and any other charges, including vault charges
and license fees for the use of vaults, chutes and similar areas adjoining the
Property, now or hereafter levied or assessed or imposed against the Property
or any part thereof.


 


Owner:  MHG Scottsdale Holdings LLC, a Delaware
limited liability company.


 


Payment Date:  the first (1st) day of each
calendar month or, upon Lender’s exercise of its right to change the Payment
Date in accordance with Section 2.2.5, the New Payment Date (in either case, if
such day is not a Business Day, the Payment Date shall be the first Business
Day thereafter).  The first Payment Date
hereunder shall be July 1, 2006.


 


Permitted
Encumbrances: (i) the Liens created by the
Loan Documents, (ii) the Liens created by the Senior Loan Documents, (iii)
all Liens and other matters disclosed in the Title Insurance Policy,
(iv) Liens, if any, for Taxes or Other Charges not yet due and payable and
not delinquent, (v) any workers’, mechanics’ or other similar Liens on the
Property provided that any such Lien is bonded or discharged within 30 days
after Borrower or Owner first receives notice of such Lien and (vi) such
other title and survey exceptions as Lender approves in writing in Lender’s
discretion.


 


Permitted Transfers:


 


(i)    a Lease entered into in
accordance with the Loan Documents;


 


(ii)   a Permitted Encumbrance;


 


(iii)  Hotel Transactions;


 


8

















 


(iv)  transfers of publicly traded
shares of capital stock in MHGC;


 


(v)   provided that no Event of
Default shall then exist, a Transfer of a direct or indirect interest in Sole
Member to any Person provided
that:


 


(A)          such Transfer shall not
(x) cause the transferee (other than MHGC and MG or an Approved Mezzanine
Lender), together with its Affiliates, to acquire Control of Borrower or Sole
Member or to increase its direct or indirect interest in Borrower or in Sole
Member to an amount which equals or exceeds forty-nine percent (49%) or (y)
result in Borrower or Sole Member no longer being Controlled by both of MHGC
and MG (or an Approved Mezzanine Lender);


 


(B)           after giving effect to
such Transfer, MHGC and MG shall each (or an Approved Mezzanine Lender) shall
continue to own at least fifty-one percent (51%) of all equity interests
(direct or indirect) in Borrower;


 


(C)           if such Transfer would
cause the transferee to increase its direct or indirect interest in Borrower or
in Sole Member to an amount which equals or exceeds thirty percent (30%),
Lender shall have approved in its reasonable discretion such proposed
transferee, which approval shall be based upon Lender’s satisfactory
determination as to the reputable character and creditworthiness of such
proposed transferee, as evidenced by credit and background checks performed by
Lender and such other financial statements and other information reasonably
requested by Lender;


 


(D)          Borrower shall give
Lender notice of such Transfer together with copies of all instruments
effecting such Transfer not less than ten (10) days prior to the date of such
Transfer;


 


(E)           Such Transfer shall not
cause a breach by Borrower of the single purpose bankruptcy remote provisions
set forth in Section 5.13 hereof or;


 


(vi)          provided that no Event
of Default shall then exist, a Transfer of a direct or indirect interest in
Sole Member, which shall cause the transferee to increase its direct or
indirect interest in Borrower or in Sole
Member to an amount which equals or exceeds forty-nine percent (49%), provided
that:


 


(A)          Such Transfer is first
approved by Lender in its reasonable discretion (Lender hereby acknowledges
that Sole Member intends to Transfer an interest in Sole Member to third party
investors which may equal or exceed a forty-nine percent (49%) interest in Sole
Member.  Accordingly, Lender will act
reasonably and in good faith in granting or withholding its consent to any such
Transfer);


 


(B)           After giving effect to
such Transfer, MHGC and MG shall each (or an Approved Mezzanine Lender shall)
continue to Control (in the sense of clause (ii) of the defined term “Control”)
Borrower and Sole Member;


 


9

















 


(C)           Borrower, at its sole
cost and expense, shall have (1) delivered (or caused to be delivered) to
Lender and, if such Transfer occurs after a Secondary Market Transaction, the
applicable Rating Agencies, a substantive non-consolidation opinion with
respect to Borrower in form and substance satisfactory to Lender and the
applicable Rating Agencies and (2) reimbursed Lender for all reasonable
expenses incurred by it in connection with such Transfer; and


 


(D)          if such Transfer occurs
after a Secondary Market Transaction, Borrower, at its sole cost and expense,
shall have delivered (or caused to be delivered) to Lender and the applicable
Rating Agencies, a Rating Comfort Letter.


 


Person:  any individual, corporation, partnership,
limited liability company, joint venture, estate, trust, unincorporated
association, any other person or entity, and 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.


 


Plan:  (i) an employee benefit or other plan
established or maintained by Borrower or any ERISA Affiliate or to which
Borrower or any ERISA Affiliate makes or is obligated to make contributions and
(ii) which is subject to Title IV of ERISA or Section 302 of ERISA or
Section 412 of the Code.


 


Prepayment Premium:  (i) with respect to any repayment or
prepayment of Principal (or acceleration of the Loan or application by Lender
of any amounts in any Cash Management Account to Principal during an Event of
Default) on or after the Lockout Date through and including June 30, 2007,
an amount equal to one percent (1%) of the portion of the Principal being
repaid or prepaid (or the amount of Principal so accelerated or amounts applied
to Principal).  No Prepayment Premium
shall be payable with respect to any repayment or prepayment of Principal (or
acceleration of the Loan or amounts applied to Principal) occurring on or after
July 1, 2007.


 


Property:
the parcel of real property and Improvements thereon owned by Owner and
encumbered by the Mortgage; together with all rights pertaining to such real
property and Improvements.  The Property
is located in Scottsdale, Arizona.


 


Rating Agency:  each of Standard & Poor’s, a division of
The McGraw-Hill Companies, Inc. (“S&P”), Moody’s Investors Service, Inc. (“Moody’s”), and Fitch,
Inc., a division of Fitch Ratings Ltd. (“Fitch”) or any other nationally-recognized
statistical rating organization to the extent any of the foregoing have been
engaged by Lender or its designee in connection with or in anticipation of any
Secondary Market Transaction.


 


Rating Comfort
Letter:  a
letter issued by each of the applicable Rating Agencies at Borrower’s sole cost
and expense, which confirms that the taking of the action referenced to therein
will not result in any qualification, withdrawal or downgrading of any existing
ratings of Securities created in a Secondary Market Transaction.


 


Rents:  without duplication, all rents, rent
equivalents, moneys payable as damages (including payments by reason of the
rejection of a Lease in a Bankruptcy Proceeding) or in lieu of rent or rent
equivalents, royalties (including all oil and gas or other mineral royalties


 


10

















 


and bonuses), income, fees, receivables, receipts, revenues, deposits
(including security, utility and other deposits), accounts, cash, issues,
profits, charges for services rendered, all Lease Termination Payments, and
other payment and consideration of whatever form or nature received by or paid
to or for the account of or benefit of Owner or any of their agents or
employees, including without limitation, Manager, from any and all sources
arising from or attributable to the Property and the Improvements, including
all revenues and credit card receipts collected from or with respect to guest
rooms, restaurants that are owned and operated by Borrower or on behalf of
Borrower, bars that are owned and operated by Borrower or on behalf of
Borrower, mini-bars, meeting rooms, banquet rooms and recreational facilities,
parking charges, all receivables, customer obligations, installment payment
obligations and other obligations 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 the Property or rendering of services by
Borrower or any of their agents or employees, including, without limitation,
Manager, of the hotel or the commercial space located in the Improvements or
acquired from others (including 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 to the extent Borrower is entitled to
retain such deposits), 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.


 


Sales and Occupancy
Taxes: 
sales, use or occupancy or other taxes on charges for the use of guest
rooms required to be paid to any Governmental Authority.


 


Security Documents:  collectively, (i) the Pledge, (ii) a notice
of pledge to Owner, (iii) all Uniform Commercial Code financing statements
required by this Agreement to be filed with respect to the security interests
in personal property created pursuant to the Security Documents, (iv) the
Pledged Securities and (v) all other documents and agreements executed or
delivered to Lender by Borrower in connection with any of the foregoing documents.


 


Senior Deposit
Account: the “Deposit Account” established
pursuant to the terms of the Senior Loan Agreement (as such term is defined in
Section 3.1 of the Senior Loan Agreement).


 


Senior Deposit
Account Agreement: 
the Deposit Account Agreement dated the date hereof among Owner, Senior
Lender, Manager and the Deposit Bank.


 


Senior Lender:  Greenwich Capital Financial Products, Inc.,
or any successor holder of the Senior Loan.


 


Senior Loan:  the $22,000,000 mortgage loan made by Senior
Lender to Owner in accordance with the Senior Loan Agreement.


 


Senior Loan
Agreement: 
the Loan Agreement dated as of the date hereof between Senior Lender and
Owner, as the same may be amended, restated, replaced, supplemented or
otherwise modified from time to time, with the consent of Lender.


 


Senior Loan
Documents: 
the “Loan Documents” as defined in the Senior Loan Agreement.


 


11

















 


Senior Note:  the Promissory Note dated the date hereof in
the original principal amount of $22,000,000 made by Owner and payable to
Senior Lender.


 


Servicer:  a servicer selected by Lender to service the
Loan, including any “master servicer” or “special servicer” appointed under the
terms of any pooling and servicing agreement or similar agreement entered into
as a result of a Secondary Market Transaction.


 


Sole Member:  Morgans Group LLC, a Delaware limited
liability company, the sole member of Borrower.


 


Spread:  2.30%.


 


Spread Maintenance
Premium: 
with respect to any payment or prepayment of Principal (or acceleration
of the Loan or application of any amounts in any Cash Management Account to
Principal during an Event of Default) prior to the Lockout Date, an amount
equal to the product of the following: (A) the amount of such prepayment
(or the amount of Principal so accelerated or amounts in any Cash Management
Account applied to Principal during an Event of Default), multiplied by
(B) the Spread, multiplied by (C) a fraction (expressed as a
percentage) having a numerator equal to the number of months difference between
the First Extended Maturity Date (whether or not the extension option is
exercised pursuant to Section 2.8 hereof) and the date such
prepayment occurs (or the next succeeding Payment Date through which interest
has been paid by Borrower) and a denominator equal to twelve (12).


 


State:  the state in which the Property is located.


 


Stated Maturity Date:
June 1, 2008, as the same may be extended pursuant to Section 2.8, and as
such date may be changed in accordance with Section 2.2.5.


 


Subordinate Deposit
Account:  an
Eligible Account at the Deposit Bank controlled by Lender.


 


Taxes:  all real estate and personal property taxes,
assessments, water rates or sewer rents, maintenance charges, impositions,
vault charges and license fees, now or hereafter levied or assessed or imposed
against all or part of the Property.


 


Term:  the entire term of this Agreement, which
shall expire upon repayment in full of the Debt and full performance of each
and every obligation to be performed by Borrower pursuant to the Loan
Documents.


 


Third Party
Disbursements: 
to the extent actually deposited in the Clearing Account, (i)
receivables, receipts, revenues, and/or deposits with respect to gift shop,
laundry and parking facilities and movie rentals or other facilities at the
Property operated through unaffiliated third party contracts, which Borrower is
contractually obligated to collect on behalf of third parties that are not
Affiliates of Borrower, Sole Member, Manager or Guarantor which are to be, and
actually have been, paid to such third parties, (ii) gratuities or service
charges or other similar receipts which are to be paid to any employees of
Manager or persons occupying similar positions for performing similar duties
and which are actually paid over to such persons and (iii) Sales and Occupancy
Taxes.


 


12

















 


Transfer:  (i) any sale, conveyance, transfer, Lease or
assignment, or the entry into any agreement to sell, convey, transfer, lease or
assign, whether by law or otherwise, of, on, in or affecting (w) all or
part of the Property (including any legal or beneficial direct or indirect
interest therein), (x) all or any part of the Collateral, (y) any
direct or indirect interest in Borrower or Owner (including any profit interest
or rights to distributions of cash), or (z) any direct or indirect
interest in Sole Member or (ii) any change of Control of Borrower, Owner or
Sole Member.  For purposes hereof, (i) a
Transfer of an interest in Borrower or Owner or Sole Member shall be deemed to
include (A) if Borrower or Owner or Sole Member or controlling shareholder
of Borrower or Owner or Sole Member is a corporation, the voluntary or
involuntary sale, conveyance or transfer of such corporation’s stock (or the
stock of any corporation directly or indirectly controlling such corporation by
operation of law or otherwise) or the creation or issuance of new stock in one
or a series of transactions by which an aggregate of more than 10% of such
corporation’s stock shall be vested in a party or parties who are not now
stockholders or any change in the control of such corporation and (B) if
Borrower, Owner, Sole Member or controlling shareholder of Borrower, Owner or
Sole Member is a limited or general partnership, joint venture or limited
liability company, the change, removal, resignation or addition of a general
partner, managing partner, limited partner, joint venturer or member or the
transfer of the partnership interest of any general partner, managing partner or
limited partner or the transfer of the interest of any joint venturer or member
and (ii) a change of Control of Borrower or Owner or Sole Member shall be
deemed to have occurred if (A) there is any change in the identity of any
individual or entity or any group of individuals or entities who have the
right, by virtue of any partnership agreement, articles of incorporation,
by-laws, articles of organization, operating agreement or any other agreement,
with or without taking any formative action, to cause Borrower or Owner (or
Sole Member) to take some action or to prevent, restrict or impede Borrower (or
Sole Member) from taking some action which, in either case, Borrower or Owner
(or Sole Member) could take or could refrain from taking were it not for the
rights of such individuals or (B) the individual or entity or group of
individuals or entities that Control Borrower or Owner (and Sole Member) as
described in clause (A) ever cease to own at least fifty-one percent (51%) of
all equity interests (direct or indirect) in Borrower or Owner (and Sole
Member).


 


UCC: 
the Uniform Commercial Code as in effect in the State of
Delaware.


 


USALI:  Uniform System of Accounts for the Lodging
Industry, 9th edition (or most current edition adopted by Borrower).


 


Welfare Plan:  an employee welfare benefit plan, as defined
in Section 3(1) of ERISA.


 


1.2          Index
of Other Definitions. The following terms are defined in the sections
or Loan Documents indicated below:


 


“Acceptable Counterparty”
- 2.6.1


“Additional Advance Shortfall”
- 2.9.2


“Annual Budget” - 6.3.5


“Applicable Taxes” -
2.2.3


“Approved Annual Budget “
- 6.3.5


 


13

















 


“Approved
Capital/FF&E Budget” - 6.3.5


“Approved Operating Budget”
- 6.3.5


“Award” - 7.3.2


“Bankruptcy Proceeding” -
4.7


“Borrower’s Recourse Liabilities”
- 11.1


“Cash Management Accounts”
- 3.3


“Casualty” - 7.2.1


“Clearing Account” -
Senior Loan Agreement


“Clearing Account Agreement”
- Senior Loan Agreement


“Condemnation” - 7.3.1


“Consumer Price Index” -
7.1.1


“Disclosure Document” -
10.1.2


“Easements” - 4.14


“Eligible Account” —
Subordinate Deposit Account Agreement


“Environmental Laws” -
4.21


“Equipment” - Mortgage


“Event of Default” -
8.1


“Exchange Act” - 10.1.2


“First Extended Maturity Date”
- 2.8


“Fitch” - 1.1 (Definition
of Rating Agency)


“Future Funding Obligations”
- 11.25


“GCM Group” - 10.1.3


“Government Lists” - 5.32


“Hazardous Substances”
-  4.21


“Holder” - 11.25


“Improvements” - Mortgage


“Indemnified Liabilities”
- 5.31


“Indemnified Party” -
5.31


“Independent Director” -
Schedule 4


“Initial Advance” — 2.1


“Initial Interest Period”
- 1.1 (Definition of Interest Period)


“Insurance Premiums” -
7.1.2


“Insured Casualty” -
7.2.2


“Intercreditor Agreement”
- 9.8


“Interest Rate Protection Agreement”
- 2.6.1


“Issuer” - 10.1.3


“Late Payment Charge” -
2.5.3


“Lender’s Consultant” -
5.8.1


“Liabilities” - 10.1.3


“Licenses” - 4.11


“Loan” - 2.1


“Moody’s” - 1.1
(Definition of Rating Agency)


“Mortgage” - Senior
Loan Agreement


“New Payment Date”-
2.2.5


“Note” - 1.1 (Definition
of Loan Documents)


“Notice” - 6.1


 


14

















 


“O & M Program” -
5.8.3


“OFAC” - 5.31


“Patriot Act” - 5.31

“Patriot Act Offense” - 5.31


“Permitted Equipment Financing”
- 5.22


“Permitted Indebtedness”
- 5.22


“Permitted Investments” -
Subordinate Deposit Account Agreement


“Pledge” - Section
1.1. (Definition of Loan Documents)


“Pledged Collateral”
- Section 1.1. (Definition of Loan Documents)


“Pledged Securities” -
Pledge


“Policies” - 7.1.2


“Principal” - 2.1


“Proceeds” - 7.2.2


“Proposed Material Lease”
- 5.10.2


“Provided Information” -
10.1.1


“Qualified Carrier” -
7.1.1


“Registration Statement”
- 10.1.3


“Remedial Work” - 5.8.2


“Renovation/Re-Branding Reserve
Subaccount” - 3.2.2


“Rent Roll” - 4.16


“Recourse Guaranty” — 1.1
(Definition of Loan Documents)


“Required Records” -
6.3.6


“Required Repairs” -
Senior Loan Agreement


“Restoration” - Senior
Loan Agreement


“S&P” - 1.1
(Definition of Rating Agency)


“Second Extended Maturity Date”
- 2.8


“Secondary Market Transaction”
- 10.1.1


“Securities” - 10.1.1


“Securities Act” - 10.1.2


“Special Purpose Bankruptcy Remote
Entity” - 5.13


“Springing Recourse Event”
- 11.1


“Subaccounts” - 3.1


“Subordinate Deposit Account Agreement”
- Section 1.1 (Definition of Loan Documents)


“Terrorism Premium Cap” -
7.1.1


“Third Extended Maturity Date”
- 2.8


“Title Insurance Policy”
- Senior Loan Agreement


“Toxic Mold” - 4.21


“Underwriter Group” -
10.1.3


“Underwriters” - 10.1.3


 


1.3          Principles
of Construction.  Unless
otherwise specified, (i) all references to sections and schedules are to
those in this Agreement, (ii) the words “hereof,” “herein” and “hereunder”
and words of similar import refer to this Agreement as a whole and not to any
particular provision, (iii) all definitions are equally applicable to the
singular and plural forms of the terms defined, (iv) the word “including”
means “including but not limited to,” (v) accounting terms not
specifically defined herein shall be construed in accordance with GAAP and (vi)
all references to the Senior Loan Agreement, the Senior Note or any other
Senior Loan Document shall mean the


 


15

















 


Senior Loan Agreement, the
Senior Note or such other Senior Loan Document as in effect on the date hereof,
as each of the same may hereafter be amended, restated, replaced, supplemented
or otherwise modified, but only to the extent that Lender has consented to the
foregoing pursuant to Section 9.4 of this Agreement.


 


2.             GENERAL
LOAN TERMS


 


2.1          The
Loan.  Lender is making a loan
(the “Loan”)
to Borrower on the date hereof, in the original principal amount (the “Principal”) of up to
$18,000,000.  The Loan shall consist of
an initial advance of $13,000,000 (the “Initial Advance”) made on the date hereof,
and subject to and upon the terms and conditions of this Agreement, additional
advances (each, an “Additional
Advance”) in a maximum principal amount of up to $5,000,000,
which shall be made in a series of advances as more particularly described in Section
2.9 hereof.  Lender’s obligation to
make any Additional Advance after the date hereof is subject to the applicable
terms, conditions and limitations set forth in this Agreement.  No amount repaid in respect of the Loan (or
any portion thereof) may be reborrowed. 
The Loan shall mature on the Stated Maturity Date.  Borrower acknowledges receipt of the Initial
Advance, the proceeds of which are being and shall be used to (i) return
capital to direct and indirect owners of Borrower used to acquire the Property,
(ii) fund certain of the Subaccounts, and (iii) pay transaction
costs.  Any excess proceeds may be used
for any lawful purpose.


 


2.2          Interest;
Monthly Payments.


 


2.2.1       Generally.  From and after the date hereof, interest on
the unpaid Principal shall accrue at the Interest Rate and be payable as
hereinafter provided.  On the date
hereof, Borrower shall pay interest on the unpaid Principal from the date
hereof through and including May 31, 2006. 
On July 1, 2006 and each Payment Date thereafter through and including
the Maturity Date, Borrower shall pay interest on the unpaid Principal which
has accrued through the last day of the Interest Period immediately preceding
such Payment Date.  The outstanding
principal balance of the Loan and all accrued and unpaid interest shall be due
and payable on the Maturity Date.  If the
Loan (or any portion thereof) is repaid on any date other than on a Payment
Date (whether prior to or after the Stated Maturity Date), Borrower shall also
pay interest that would have accrued on such repaid Principal to but not
including the next Payment Date.


 


2.2.2       Default Rate.  After the occurrence and during the
continuance of an Event of Default, the entire unpaid Debt shall bear interest
at the Default Rate, and shall be payable upon demand from time to time, to the
extent permitted by applicable law.


 


2.2.3       Taxes.  Any and all payments by Borrower hereunder
and under the other Loan Documents shall be made free and clear of and without
deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, excluding
taxes imposed on Lender’s income, and franchise taxes imposed on Lender by the
law or regulation of any Governmental Authority (all such non-excluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to in this Section 2.2.3 as “Applicable Taxes”).  If Borrower shall be required by law to
deduct any Applicable Taxes from or in respect of any sum payable hereunder to
Lender, the following shall


 


16

















 


apply:  (i) the sum payable
shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 2.2.3), Lender receives an amount equal to the sum it would
have received had no such deductions been made, (ii) Borrower shall make
such deductions and (iii) Borrower shall pay the full amount deducted to
the relevant taxation authority or other authority in accordance with
applicable law.  Payments pursuant to
this Section 2.2.3 shall be made within twenty (20) days after the date
Lender makes written demand therefor.


 


2.2.4       Breakage Indemnity.  Borrower shall indemnify Lender against any
loss or expense which Lender may actually sustain or incur in liquidating or
redeploying deposits from third parties acquired to effect or maintain the Loan
or any part thereof as a consequence of (i) any payment or prepayment of
the Loan or any portion thereof made on a date other than a Payment Date and
(ii) any default in payment or prepayment of the Principal or any part
thereof or interest accrued thereon, as and when due and payable (at the date
thereof or otherwise, and whether by acceleration or otherwise).  Lender shall deliver to Borrower a statement
for any such sums which it is entitled to receive pursuant to this
Section 2.2.4, which statement shall be binding and conclusive absent
manifest error.  Borrower’s obligations
under this Section 2.2.4 are in addition to Borrower’s obligations to pay
any Spread Maintenance Premium and Prepayment Premium applicable to a payment
or prepayment of Principal.


 


2.2.5       New Payment Date.  Lender
shall have the right, to be exercised not more than once during the term of the
Loan, to change the Payment Date to a date other than the first (1st)
day of each month (a “New
Payment Date”), on 30 days’ written notice to Borrower;
provided, however, that any such change in the Payment Date: (i) shall not
modify the amount of regularly scheduled monthly interest payments, except that
the first payment of interest payable on the New Payment Date shall be
accompanied by interest at the interest rate herein provided for the period
from the Payment Date in the month in which the New Payment Date first occurs
to the New Payment Date, and (ii) shall extend the Stated Maturity Date to the
New Payment Date occurring in the month set forth in the definition of Stated
Maturity Date.


 


2.3          Loan
Repayment.


 


2.3.1       Repayment.  Borrower shall repay the entire outstanding
principal balance of the Note in full on the Maturity Date, together with
interest thereon to (but excluding) the date of repayment and any other amounts
due and owing under the Loan Documents. 
Except during the continuance of an Event of Default, all proceeds of
any repayment, including any prepayments of the Loan, shall be applied by
Lender as follows in the following order of priority:  First,
accrued and unpaid interest at the Interest Rate; Second, to Principal; and Third,
to the Prepayment Premium, if any, and any other amounts then due
and owing under the Loan Documents, including the Spread Maintenance Premium
(if such repayment or prepayment occurs prior to the Lockout Date).  If prior to the Stated Maturity Date the Debt
is accelerated by reason of an Event of Default or any amounts in any Cash
Management Account are applied by Lender to Principal by reason of an Event of
Default, then Lender shall be entitled to receive, in addition to the unpaid
Principal and accrued interest and other sums due under the Loan Documents, an
amount equal to the Spread Maintenance Premium or Prepayment Premium applicable
to such Principal so accelerated.  During
the continuance of an Event of Default, all proceeds of repayment, including
any payment or recovery on the Collateral (or any portion 


 


17

















 


thereof) (whether through foreclosure or otherwise) shall, unless
otherwise provided in the Loan Documents, be applied in such order and in such
manner as Lender shall elect in Lender’s discretion.


 


2.3.2       Mandatory Prepayments.


 


(a)   In the event of any Liquidation
Event, Borrower shall cause the related Net Liquidation Proceeds After Debt
Service to be deposited directly into the Subordinate Deposit Account, which
shall then be applied by Lender on the next succeeding Payment Date towards the
amount necessary to fully repay the Loan including all interest accrued to the
date of prepayment and any other sums then due and payable by Borrower to
Lender.  Any amounts of Net Liquidation
Proceeds After Debt Service in excess of the Debt shall be paid to Borrower.


 


(b)   Borrower shall notify Lender of
any Liquidation Event not later than one Business Day following the first date
on which Borrower has knowledge of such event. 
Borrower shall be deemed to have knowledge of (i) a sale (other than a
foreclosure sale) of the 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 Property, on the date
on which a commitment for such refinancing has been entered into.  The provisions of this Section 2.3.2 shall
not be construed to contravene in any manner the restrictions and other
provisions regarding refinancing of the Senior Loan or Transfer of the Property
set forth in this Agreement and the other Loan Documents.


 


2.3.3       Optional Prepayments.  Notwithstanding anything herein or in any
other Loan Documents to the contrary, except as the result of an acceleration
of the Stated Maturity Date or if expressly provided under Section 2.3.2
hereof, Borrower may not voluntarily prepay the Loan, in whole or in part,
prior to the Lockout Date.  At any time
on or subsequent to the Lockout Date, Borrower shall have the right to prepay
all or, provided no Event of Default has occurred and is continuing, any
portion of the Principal on any Payment Date provided that Borrower gives
Lender at least thirty (30) days prior written notice thereof and such prepayment
is accompanied by the Prepayment Premium applicable thereto.  If any such prepayment is not made on a
Payment Date, Borrower shall also pay interest that would have accrued on such
prepaid Principal to but not including the next Payment Date.


 


2.4          Release
of Collateral.  Lender shall,
upon the written request and at the expense of Borrower, upon payment in full
of the Debt in accordance herewith, release the Liens of the Pledge and other
Security Documents if not theretofore released.


 


2.5          Payments
and Computations.


 


2.5.1       Making of Payments.  Each payment by Borrower shall be made in
funds settled through the New York Clearing House Interbank Payments System or
other funds immediately available to Lender by 2:00 p.m., New York City time,
on the date such payment is due, to Lender by deposit to such account as Lender
may designate by written notice to Borrower. 
Whenever any such payment shall be stated to be due on a day that is not
a Business Day, such payment shall be made on the first Business Day thereafter.  All such payments shall be made irrespective
of, and without any deduction, set-off or counterclaim whatsoever and are


 


18

















 


payable without relief from valuation and appraisement laws and with all
costs and charges incurred in the collection or enforcement thereof, including
attorneys’ fees and court costs.


 


2.5.2       Computations.  Interest payable under the Loan Documents
shall be computed on the basis of the actual number of days elapsed over a 360-day
year.


 


2.5.3       Late Payment Charge.  If any Principal, interest or other sum due
under any Loan Document is not paid by Borrower on the date on which it is due,
Borrower shall pay to Lender upon demand an amount equal to the lesser of 5% of
such unpaid sum or the maximum amount permitted by applicable law (the “Late Payment Charge”),
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.  Such amount
shall be secured by the Loan Documents.


 


2.6          Interest
Rate Protection Agreements.


 


2.6.1       Interest Rate Protection Agreement.
As of the date hereof, Borrower has entered into, made all payments required
under, and satisfied all conditions precedent to the effectiveness of, an
interest rate protection agreement that satisfies all of the following
conditions (such interest rate protection agreement together with (i) any
extension thereof or (ii) any other interest rate protection agreement entered
into pursuant to Section 2.8, being referred to herein as the “Interest Rate Protection Agreement”):


 


(1)   the Interest Rate Protection
Agreement is with a financial institution having a long term, unsecured and
unsubordinated debt rating of at least “AA-” by S&P and “Aa2” by Moody’s
(an “Acceptable
Counterparty”); has a term ending no earlier than the Stated
Maturity Date; is an interest rate cap in respect of a notional amount not less
than the maximum principal amount of the Loan that shall have the effect of
capping LIBOR at six percent (6%) per annum; and provides that the only
obligation of Borrower thereunder is the making of a single payment upon the
execution and delivery thereof.


 


(2)   Borrower’s interest in such
Interest Rate Protection Agreement has been assigned to Lender pursuant to
documentation satisfactory to Lender in form and substance, and the
counterparty to such Interest Rate Protection Agreement has executed and
delivered to Lender an acknowledgment of such assignment, which acknowledgment
includes such counterparty’s agreement to pay directly into the Subordinate
Deposit Account all sums payable by such counterparty pursuant to the Interest
Rate Protection Agreement and shall otherwise be satisfactory to Lender in form
and substance.


 


(3)   In connection with an Interest
Rate Protection Agreement, Borrower shall obtain and deliver to Lender an
opinion of counsel from counsel (in-house or independent) for the issuer of the
Interest Rate Protection Agreement (upon which Lender and its successors and
assigns may rely) which shall provide in relevant part, that: (a) the issuer is
duly organized, validly existing, and in good standing under the laws of its
jurisdiction of incorporation and has the organizational power and authority to
execute and deliver, and to perform its obligations under, the Interest Rate
Protection Agreement; (b) the execution and delivery of the Interest Rate
Protection Agreement by the issuer, and any other agreement which the issuer
has executed and


 


19

















 


delivered
pursuant thereto, and the performance of its obligations thereunder have been
and remain duly authorized by all necessary action and do not contravene any
provision of its certificate of incorporation or by-laws (or equivalent
organizational documents) or any law, regulation or contractual restriction
binding on or affecting it or its property; (c) all consents, authorizations
and approvals required for the execution and delivery by the issuer of the
Interest Rate Protection Agreement, and any other agreement which the issuer
has executed and delivered pursuant thereto, and the performance of its
obligations thereunder have been obtained and remain in full force and effect,
all conditions thereof have been duly complied with, and no other action by,
and no notice to or filing with any governmental authority or regulatory body
is required for such execution, delivery or performance; and (d) the Interest
Rate Protection Agreement, and any other agreement which the issuer has
executed and delivered pursuant thereto, has been duly executed and delivered
by the issuer and constitutes the legal, valid and binding obligation of the
issuer, enforceable against the issuer in accordance with its terms, subject to
applicable bankruptcy, insolvency and similar laws affecting creditors’ rights
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)   In the event of any downgrade,
withdrawal or qualification of the rating of the issuer of the Interest Rate
Protection Agreement below “A+” by S&P and “Aa3” by Moody’s, Borrower shall
replace the Interest Rate Protection Agreement with a replacement Interest Rate
Protection Agreement from an Acceptable Counterparty (with terms identical to
the Interest Rate Protection Agreement being replaced, or otherwise approved by
Lender in its reasonable discretion and the Rating Agencies) not later than
twenty (20) days following receipt of notice from Lender or the Servicer of
such downgrade, withdrawal or qualification.


 


2.6.2       Execution of Documents.  Borrower shall promptly execute and deliver
to the counterparty of the Interest Rate Protection Agreement such
confirmations and agreements as may be requested by such counterparty in
connection with such Interest Rate Protection Agreement.


 


2.6.3       No Obligation of Lender.  Borrower agrees that Lender shall not have
any obligation, duty or responsibility to Borrower or any other Person by reason
of, or in connection with, any Interest Rate Protection Agreement (including
any duty to provide or arrange any Interest Rate Protection Agreement, to
consent to any mortgage or pledge of the Property or any portion thereof as
security for Borrower’s performance of its obligations under any Interest Rate
Protection Agreement, or to provide any credit or financial support for the
obligations of Borrower or any other Person thereunder or with respect
thereto).  No Interest Rate Protection
Agreement shall alter, impair, restrict, limit or modify in any respect the
obligation of Borrower to pay interest on the Loan as and when the same becomes
due and payable in accordance with the provisions of the Loan Documents.


 


2.6.4       Receipts from Interest Rate Protection
Agreements.  All payments made by
the counterparty to the Interest Rate Protection Agreement shall be deposited
into the Subordinate Deposit Account and applied in the same manner as Rents
are applied under Section 3.4.


 


20

















 


2.7          Fees;
Spread Maintenance Premium.


 


2.7.1       Origination/Advance Fees.  On the date hereof, Borrower shall pay to
Lender an origination fee of $130,000.00. 
In addition, concurrently with the making of each Additional Advance
hereunder, Borrower shall pay to Lender an advance fee of one percent (1%) of
the amount of each such Additional Advance.


 


2.7.2       Spread Maintenance Premium /Prepayment
Premium.  Upon any repayment or
prepayment of Principal (including in connection with an acceleration of the
Loan or the application by Lender of any amounts in any Cash Management Account
to Principal by reason of an Event of Default) made prior to the Lockout Date,
Borrower shall pay to Lender on the date of such repayment or prepayment (or
acceleration of the Loan or application by Lender) the Spread Maintenance
Premium applicable thereto.  Upon any
repayment or prepayment of Principal (including in connection with an
acceleration of the Loan or the application by Lender of any amounts in any
Cash Management Account are applied to Principal by reason of an Event of
Default) made on or subsequent to Lockout Date, Borrower shall pay to Lender on
the date of such repayment or prepayment the Prepayment Premium applicable
thereto.  All Spread Maintenance Premium
and Prepayment Premium payments hereunder shall be deemed to be earned by
Lender upon the funding of the Loan.


 


2.8          Extension
Options.  Borrower shall have the
right, at its option, to extend the Term until (i) June 1, 2009 (the
“First Extended Maturity
Date”), (ii) June 1, 2010 (the “Second Extended Maturity Date”)
and (iii) June 1, 2011 (the “Third Extended Maturity Date”) by giving
notice of such extension to Lender at least fifteen (15) days prior to
(i) the originally scheduled Stated Maturity Date, in the case of
extending the Term until the First Extended Maturity Date, (ii) the First
Extended Maturity Date, in the case of extending the Term until the Second
Extended Maturity Date and (iii) the Second Extended Maturity Date, in the
case of extending the Term until the Third Extended Maturity Date.  Upon receipt of such request to extend the
Term until the First Extended Maturity Date, the Second Extended Maturity Date
or the Third Extended Maturity Date, as the case may be, Lender will promptly confirm
to Borrower in writing whether or not the Stated Maturity Date will be so
extended, which extension will be granted upon the satisfaction of each of the
following conditions (as applicable):


 


(a)   no Event of Default exists at
the time such request is made and on the originally scheduled Stated Maturity
Date, the First Extended Maturity Date or the Second Extended Maturity Date, as
applicable;


 


(b)   Borrower delivers to Lender an
Officer’s Certificate confirming the accuracy of the information contained in
clause (a) above;


 


(c)   on or prior to the originally
scheduled Stated Maturity Date, the First Extended Maturity Date or the Second
Extended Maturity Date, as the case may be, Borrower either (i) extends
the term of the Interest Rate Protection Agreement to a date not earlier than
the First Extended Maturity Date, the Second Extended Maturity Date or the
Third Extended Maturity Date, as applicable, or (ii) enters into a new
interest rate protection agreement which


 


21

















 


expires no
earlier than the First Extended Maturity Date, the Second Extended Maturity
Date or the Third Extended Maturity Date, as applicable, and which extension or
new agreement is in respect of a notional amount of the then outstanding Principal
and is otherwise on the same terms set forth in Section 2.6.1
hereof and has the effect of capping LIBOR at six percent (6%) per annum;


 


(d)   in the case of extending the
Term until the Second Extended Maturity Date, the Debt Yield for the twelve (12)-month
period ending May 31, 2009 (or the most recently completed twelve
(12)-month period for which information is available) is at least twelve
percent (12%);


 


(e)   in the case of extending the
Term until the Third Extended Maturity Date, the Debt Yield for the twelve
(12)-month period ending May 31, 2010 (or the most recently completed
twelve (12)-month period for which information is available) is at least
thirteen percent (13%);


 


(f)    if the option to extend the
Term until the Second Extended Maturity Date is exercised, Borrower shall pay
to Lender on the First Extended Maturity Date, an extension fee in an amount
equal to one quarter of one percent (0.25%) of the then-outstanding Principal;


 


(g)   if the option to extend the
Term until the Third Extended Maturity Date is exercised, Borrower shall pay to
Lender on the Second Extended Maturity Date, an extension fee in an amount
equal to one quarter of one percent (0.25%) of the then-outstanding Principal;


 


(h)   Borrower shall have paid to
Lender all reasonable costs and expenses (including reasonable attorneys’ fees)
incurred by Lender in connection with any such extension; and


 


(i)    If requested by Lender,
Borrower and Guarantor shall execute and deliver such documents as Lender may
reasonably request to confirm the continued validity of the Loan Documents and
the continued validity, perfection and priority of the Liens thereof as so
extended.


 


If Borrower is unable to satisfy all of the foregoing conditions within
the applicable time frames for each, Lender shall have no obligation to extend
the Stated Maturity Date hereunder.


 


2.9          Additional
Advances.


 


2.9.1       Conditions Precedent.  Lender shall, from time to time, make
Additional Advances to be used solely to pay or reimburse Borrower for Approved
Renovation/Re-Branding Expenses at the Property; provided the following
conditions precedent are satisfied:


 


(a)   Lender receives a notice of
borrowing in the form of Schedule 7 at least ten (10) Business Days
before the date, and again on the date, the proposed Additional Advance is to
be made;


 


22

















 


(b)   Both immediately prior to the
making of the Additional Advance and after giving effect thereto, no Default or
Event of Default shall be continuing;


 


(c)   The representations and
warranties made by Borrower in this Agreement and in the other Loan Documents
shall be true and correct in all material respects on and as of the date of the
making of the Additional Advance with the same force and effect as if made on
and as of such date;


 


(d)   There shall be no more than one
Additional Advance during any calendar month;


 


(e)   In no event will the aggregate
amount of the requested Additional Advance, together with all prior Additional
Advances previously made by Lender exceed $5,000,000;


 


(f)    With respect to any Additional
Advance, such Additional Advance will be used solely to make a contribution to
Owner for Owner to pay for (or to reimburse Owner for) Approved
Renovation/Re-Branding Expenses at the Property;


 


(g)   Lender shall have received
(i) a title search showing that since the making of the last Additional
Advance there has been no change in the state of title to the Property and no
survey exceptions with respect to the Property not theretofore approved by
Lender, together with other evidence satisfactory to Lender that no mechanic’s
Liens or other Liens have been filed and remain filed with respect to the
Property and (ii) an endorsement to the applicable UCC Insurance Policy,
which endorsement shall have the effect of (x) updating the effective date
of such UCC Insurance Policy to the date of the making of the Additional
Advance and (y) increasing the coverage of such UCC Insurance Policy by an
amount equal to the amount of the Additional Advance;


 


(h)   All fees and expenses payable
to Lender, including the fees and expenses referred to in Sections 2.7
and 5.30, to the extent then due and payable, shall have been (or
contemporaneously are being) paid in full, and all title premiums and other
title and survey charges shall have been (or contemporaneously are being) paid
in full;


 


(i)    Lender shall have received
reasonably satisfactory evidence that all permits, licenses and approvals
required for any work associated with such requested disbursement have been
obtained and are in full force and effect;


 


(j)    To the extent reasonably
requested by Lender, Lender shall have received such affidavits and
certificates as to such matters as Lender may reasonably request, including
certificates of the approved architect or engineer, if applicable, or, of a
construction consultant retained by Lender at Borrower’s expense in connection
with any work that (1) all of the work completed has been done substantially in
compliance with the plans and specifications and applicable Legal Requirements,
and (2) the disbursement of such Additional Advance is required to reimburse
payments of costs incurred for Approved Renovation/Re-Branding Expenses or to
pay costs incurred for Approved Renovation/Re-Branding Expenses due to,
contractors, subcontractors, materialmen, laborers, engineers, architects or
other persons rendering services or materials or paying for such work;


 


23

















 


(k)   Borrower shall have delivered
(or shall have caused Owner to deliver) to Lender lien waivers (conditional or
otherwise) executed and delivered by the general contractor and all
subcontractors, materialmen and other Persons requested by Lender for all work
for which a Additional Advance has previously been made or for which the
Additional Advance in question is being requested;


 


(l)    To the extent reasonably
requested by Lender, Lender shall have received from Borrower an Officer’s
Certificate: (1) certifying that all work relating to work performed on or
prior to the date of the certificate has been completed in a good and
workmanlike manner in accordance with all Legal Requirements,
(2) identifying each Person that supplied labor or materials with respect
to such capital improvement, (3) stating that each general contractor and
architect retained for any work are reputable and licensed or otherwise
authorized to do business in the State and have been engaged pursuant to arms’
length agreements entered into on market terms and conditions and
(4) stating that each such Person has been or upon receipt of the
requested Additional Advance will be paid in full for work for which a
Additional Advance has been made or is being requested;


 


(m)  [Intentionally Deleted];


 


(n)   When such work has been
completed, Lender shall have received a copy of any certificate or certificates
required by law to render occupancy of the Improvements legal;


 


(o)   Lender shall have received such
other documents relating to the Property or the Additional Advance as Lender
may reasonably request; and


 


(p)   If necessary, Borrower shall
have either (1) (x) obtained a new Interest Rate Protection Agreement
satisfying each of the terms and conditions set forth in Section 2.6
hereof and in a notional amount equal to the outstanding principal balance of
the Loan after giving effect to the applicable Additional Advance and (y) shall
have delivered to Lender an Assignment of Interest Rate Protection Agreement on
Lender’s then standard form with respect to such new Interest Rate Protection
Agreement or (2) increased the notional amount under any existing Interest Rate
Protection Agreement by an amount equal to the applicable Additional Advance,
which Interest Rate Protection Agreement shall otherwise remain on the same
terms and shall continue to satisfy the conditions set forth in Section 2.6
hereof.  If an Interest Rate Protection
Agreement satisfying each of the terms and conditions set forth in Section
2.6 hereof is, already (i.e., prior to the Additional Advance in question),
in a notional amount equal to the then outstanding principal balance of the
Loan (after giving effect to the Additional Advance in question) and an
Assignment of Interest Rate Protection Agreement on Lender’s then standard form
with respect to such Interest Rate Protection Agreement is already (i.e., prior
to the Additional Advance in question) in effect, the conditions set forth in
this clause (p) shall be deemed satisfied.


 


2.9.2       Additional Advances.  It is the intention of Lender and Borrower
that the entire amount of the Additional Advance (i.e., $5,000,000) shall be
requested by Borrower on or before October 31, 2006.  If for any reason on October 31, 2006, Lender
has not made Additional Advances in an aggregate amount of $5,000,000, provided
no Default or Event of Default is then continuing and provided the conditions
set forth in clauses (g) and (h) of Section 


 


24

















 


2.9.1 above have theretofore been, or simultaneously will be,
satisfied, Lender shall fund the amount by which $5,000,000 exceeds the
aggregate amount of the Additional Advances theretofore funded by Lender prior
to October 31, 2006 (the “Additional
Advance Shortfall”), which Additional Advance Shortfall shall be
deposited by Lender into the Renovation/Re-Branding Reserve Subaccount and
thereafter be disbursed and applied in accordance with the terms and provisions
of Section 3.2.2 hereof.  Borrower shall
have no right to request, and Lender shall have no obligation to fund, any
Additional Advance after October 31, 2006.


 


2.9.3       Optional Disbursements.


 


(a)   If any or all conditions
precedent to making an Additional Advance have not been satisfied on the date
such Additional Advance was requested to be made, Lender may, at its sole
option (i) waive so many of such conditions precedent as it may elect, and/or
(ii) disburse only that portion of the requested Additional Advance for
which all of the conditions precedent have been satisfied.  To the extent Lender makes an Additional
Advance for which any of the conditions precedent have not been satisfied, the
making of such Additional Advance shall constitute a waiver of such unsatisfied
conditions for such Additional Advance (but not for any other Additional
Advance), unless otherwise set forth in a written notice from Lender to
Borrower.


 


(b)   Upon the occurrence and during
the continuance of a Default or an Event of Default, Lender shall have the
right (but no obligation) to make any or all Additional Advances directly to
contractors or any other Person to whom payment is due with respect to any
Approved Renovation/Re-Branding Expenses. 
The execution of this Agreement by Borrower shall, and hereby does,
constitute an irrevocable direction and authorization to so disburse any such
Additional Advance.  No further direction
or authorization from Borrower shall be necessary or required for such direct
disbursements and all such disbursements shall satisfy pro tanto the obligations of Lender
hereunder and shall be secured by the applicable Loan Documents as fully as if
made directly to Borrower, regardless of the disposition thereof by the payee.


 


(c)   Lender shall have the right
(but not the obligation), by its own action (and without any request therefor
by Borrower), to disburse to itself (or retain from) any Additional Advance
amounts to pay interest, fees and any other sums then due and payable to Lender
pursuant to the Loan Documents, after Borrower’s failure to make such payments
in accordance with the terms and provisions of the Loan Documents.


 


3.             CASH
MANAGEMENT AND RESERVES


 


3.1          Cash
Management Arrangements.  Borrower
shall cause Owner to cause all Rents to be deposited and applied in accordance
with the Senior Loan Documents.  Borrower
shall cause Owner to cause all Rents to be deposited and applied in accordance
with the Senior Loan Documents.  All
funds deposited by the Deposit Bank into the Subordinate Deposit Account shall
be deemed to be a distribution from Owner to Borrower and shall be applied and
disbursed in accordance with this Agreement and the Subordinate Deposit Account
Agreement.  The Subordinate Deposit
Account and all subaccounts established by Lender therein (which may be ledger
or book entry accounts and not actual accounts) shall at all times be Eligible
Accounts (such subaccounts are referred to herein as “Subaccounts”).  The Subordinate Deposit Account


 


25

















 


and any Subaccount will be
under the sole control and dominion of Lender, and neither Borrower, Owner nor
Manager nor any person claiming by or through Borrower or Manager shall have
any right of withdrawal therefrom. 
Borrower shall pay for all expenses of opening and maintaining all of
the above accounts.  If, at any time
during the Term, Senior Lender is not requiring Owner to comply with the cash
management arrangements set forth in Section 3.1 of the Senior Loan Agreement
and the Clearing Account Agreement and the Senior Deposit Account Agreement (or
the Senior Loan has been refinanced or otherwise repaid in full in accordance
with the terms of this Agreement), then Lender shall have the right, at its
option, to require such cash management arrangements, substantially in
accordance with the provisions of the foregoing.


 


3.2          Reserves.


 


3.2.1       General.  If, at any time during the Term, Senior
Lender is not requiring Owner to make the required deposits required under
Article 3 of the Senior Loan Agreement (or the Senior Loan has been refinanced
or otherwise repaid in full in accordance with the terms of this Agreement),
including pursuant to Sections 3.3, 3.4 or 3.6 of the Senior Loan Agreement,
then Lender shall have the right, at its option, to require Borrower to make
such required deposits to Lender, in which case such deposits shall be made by
Borrower and held in Subaccounts and disbursed by Lender substantially in
accordance with the provisions of such applicable sections of the Senior Loan
Agreement (including Section 3.11(a) of the Senior Loan Agreement governing
priority and order of application).


 


3.2.2       Renovation/Re-Branding Reserve.  Any amounts advanced by Lender pursuant to
Section 2.9.2 hereof constituting the Additional Advance Shortfall shall
be transferred by Lender into a Subaccount (the “Renovation/Re-Branding Reserve Subaccount”).  Provided each of the conditions and
deliveries precedent set forth in Section 2.9.1 hereof have been satisfied
or delivered (other than clause (g) if the same has theretofore been
satisfied), Lender shall disburse funds held in the Renovation/Re-Branding
Reserve Subaccount to Borrower, within ten (10) days after the delivery by
Borrower to Lender of a request therefor (but not more often than once per
month), in increments of at least $5,000 to be used solely to make capital
contributions to Owner for Owner to pay (or to reimburse Owner for the prior
payment of) Approved Renovation/Re-Branding Expenses at the Property.  Any such disbursement of more than $25,000 to
pay (rather than reimburse) Approved Renovation/Re-Branding Expenses may, at
Lender’s option, be made by joint check payable to Owner and the payee on such
Approved Renovation/Re-Branding Expenses.


 


3.3          Grant
of Security Interest; Application of Funds.  As security for payment of the Debt and the
performance by Borrower of all other terms, conditions and provisions of the
Loan Documents, Borrower hereby pledges and assigns to Lender, and grants to
Lender a security interest in, all Borrower’s right, title and interest in and
to all payments to or monies held in or credited to the Subordinate Deposit
Account and all Subaccounts created pursuant to this Agreement (collectively,
the “Cash Management
Accounts”) and in and to all payments or monies held in the Cash
Management Accounts.  Borrower shall not,
without obtaining the prior written consent of Lender, further pledge, assign
or grant any security interest in any Cash Management Account, or permit any
Lien to attach thereto, or any levy to be made thereon, or any UCC Financing
Statements, except those naming Lender as the secured party, to be filed


 


26

















 


with respect thereto.  This Agreement is, among other things,
intended by the parties to be a security agreement for purposes of the UCC.
Notwithstanding the foregoing, Lender acknowledges that the security interest
granted to Lender hereunder and pursuant to the other Loan Documents with
respect to Third Party Disbursements is granted subject to the right, title and
interest of any third party that is not an Affiliate of Borrower, Sole Member
or Guarantor in and to such Third Party Disbursements.  Upon the occurrence and during the
continuance of an Event of Default, Lender may apply any sums in any Cash
Management Account in any order and in any manner as Lender shall elect in
Lender’s discretion without seeking the appointment of a receiver and without
adversely affecting the rights of Lender to foreclose the Lien of the Security
Documents or exercise its other rights under the Loan Documents.  Cash Management Accounts shall not constitute
trust funds and may be commingled with other monies held by Lender.  All interest which accrues on the funds in
any Cash Management Account shall accrue for the benefit of Borrower and shall
be taxable to Borrower and shall be added to and disbursed in the same manner
and under the same conditions as the principal sum on which said interest
accrued.  Upon repayment in full of the
Debt, all remaining funds in the Subaccounts, if any, shall be promptly
disbursed to Borrower.


 


3.4          Cash
Flow Allocation.


 


(a)   All amounts deposited into the
Subordinate Deposit Account during the immediately preceding Interest Period
shall be applied on each Payment Date as follows in the following order of
priority:


 


(i)    First, to pay the monthly
portion of the fees charged by the Deposit Bank in accordance with the
Subordinate Deposit Account Agreement;


 


(ii)   Second, to Lender to pay the interest
due on such Payment Date (plus, if applicable, interest at the Default Rate and
all other amounts, other than those described under other clauses of this
Section 3.4, then due to Lender under the Loan Documents);


 


(iii)  Third, to Lender, for purposes
of funding any reserves, if required under Section 3.2;


 


(iv)  Fourth, provided (A) no Event of
Default is continuing and (B) sufficient funds exist in the Subordinate Deposit
Account, to pay, in accordance with Borrower’s instructions, any management, franchise,
chain service or other similar fees payable to any Affiliate of Owner,
Borrower, Guarantor or Manager; and


 


(v)   Lastly, payments to Borrower of
any remaining amounts.


 


(b)   The failure of Borrower to make
all of the payments required under clauses (i) through (iii) of
Section 3.4(a) in full on each Payment Date shall constitute an Event of
Default under this Agreement; provided, however, if adequate funds are
available in the Subordinate Deposit Account for such payments, the failure by
the Deposit Bank to allocate such funds into the appropriate Subaccounts shall
not constitute an Event of Default.


 


27

















 


(c)          Notwithstanding anything
to the contrary contained in this Section 3.4, after the occurrence of an
Event of Default, Lender may apply all amounts deposited into the Subordinate
Deposit Account to the Debt in such order and in such manner as Lender shall
elect in Lender’s sole and absolute discretion. 
Lender’s right to so apply such funds shall be in addition to all other
rights and remedies provided to Lender under the Loan Documents.


 


4.                                      REPRESENTATIONS
AND WARRANTIES


 


Borrower represents and warrants to Lender as of the date hereof that,
except to the extent (if any) disclosed on Schedule 1 with reference to a
specific Section of this Article 4:


 


4.1                               Organization;
Special Purpose.  Each of
Borrower, Owner and Sole Member has
been duly formed or organized and is validly existing and in good standing
under the laws of the state of its formation or organization, with requisite
power and authority, and all rights, licenses, permits and authorizations,
governmental or otherwise, necessary to own its properties and to transact the
business in which it is now engaged. 
Each of Borrower, Owner and Sole Member is duly qualified to do business and is in good standing in each
jurisdiction where it is required to be so qualified in connection with its
properties, business and operations. 
Each of Borrower, Owner is a Special Purpose Bankruptcy Remote Entity.


 


4.2                               Proceedings;
Enforceability.  Borrower has
taken all necessary action to authorize the execution, delivery and performance
of the Loan Documents.  The Loan
Documents have been duly executed and delivered by Borrower and constitute
legal, valid and binding obligations of Borrower enforceable against Borrower
in accordance with their respective terms, subject to applicable bankruptcy,
insolvency and similar laws affecting rights of creditors generally, and
general principles of equity.  The Loan
Documents are not subject to, and Borrower has not asserted, any right of
rescission, set-off, counterclaim or defense, including the defense of usury.


 


4.3                               No
Conflicts.  The execution,
delivery and performance of the Loan Documents by Borrower and the transactions
contemplated hereby (x) do 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 (other than pursuant to the Loan Documents) upon any
of the property of Borrower or Owner pursuant to the terms of, any agreement or
instrument to which Borrower or Owner is a party or by which its property is
subject, and (y) do not 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 Owner or any of their respective properties.  Neither Owner’s nor Borrower’s rights under
the Licenses and the Management Agreement will be adversely affected by the
execution and delivery of the Loan Documents, Borrower’s performance
thereunder, or the exercise of any remedies by Lender.  Any consent, approval, authorization, order,
registration or qualification of or with any Governmental Authority required
for the execution, delivery and performance by Borrower of the Loan Documents
has been obtained and is in full force and effect.


 


4.4                               Litigation.  There are no actions, suits or other proceedings
at law or in equity by or before any Governmental Authority now pending or, to
Borrower’s best knowledge, threatened against or affecting Borrower, Owner or
the Property, which, if adversely determined, could reasonably be expected to
materially adversely affect the condition (financial or otherwise) or


 


28

















 


business of Borrower (including the ability of Borrower to carry out
its obligations under the Loan Documents), Owner or the use, value, condition
or ownership of the Property or the Collateral.


 


4.5                               Agreements.  Neither Borrower nor Owner is a party to any
agreement or instrument or subject to any restriction which could be reasonably
expected to adversely affect Borrower or Owner or the Property, or Borrower’s
or Owner’s business, properties, operations or condition, financial or
otherwise.  Neither Borrower nor Owner is
in default in any material respect in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
Permitted Encumbrance or any other agreement or instrument to which it is a
party or by which it, the Collateral or the Property is bound.


 


4.6                               Title.  Owner has good, marketable and indefeasible
title in fee to the real property and good title to the balance of the
Property, free and clear of all Liens except the Permitted Encumbrances.  The Pledge, together with any UCC Financing
Statements required to be filed in connection therewith, will create a valid,
perfected first priority liens on the Borrower’s interest in the Pledged
Collateral, all in accordance with the terms thereof.  The Permitted Encumbrances do not materially
adversely affect the value, operation or use of the Property, or Borrower’s
ability to repay the Loan.  No Condemnation
or other proceeding has been commenced or, to Borrower’s best knowledge, is
contemplated with respect to all or part of the Property or for the relocation
of roadways providing access to the Property. 
To Borrower’s best knowledge, there are no claims for payment for work,
labor or materials affecting the Property which are or may become a Lien prior
to, or of equal priority with, the Liens created by the Loan Documents.  There are no outstanding options to purchase
or rights of first refusal affecting all or any portion of the Property.  The survey for the Property delivered to
Senior Lender does not fail to reflect any material matter affecting the
Property or the title thereto.  All of
the Improvements included in determining the appraised value of the Property
lie wholly within the boundaries and building restriction lines of the
Property, and no improvement on an adjoining property encroaches upon the
Property, and no easement or other encumbrance upon the Property encroaches
upon any of the Improvements, except those insured against by the Title
Insurance Policy.  Each parcel comprising
the Property is a separate tax lot and is not a portion of any other tax lot
that is not a part of the Property. 
There are no pending or proposed special or other assessments for public
improvements or otherwise affecting the Property, or any contemplated
improvements to the Property that may result in such special or other
assessments.


 


4.7                               No
Bankruptcy Filing.  Neither Owner
nor Borrower is contemplating either the filing of a petition by it under any
state or federal bankruptcy or insolvency law or the liquidation of all or a
major portion of its property (a “Bankruptcy Proceeding”), and Borrower has no
knowledge of any Person contemplating the filing of any such petition against
Borrower or Owner.  In addition, neither
Borrower nor Sole Member nor Owner nor any principal nor Affiliate of Borrower
or Sole Member or Owner has been a party to, or the subject of a Bankruptcy
Proceeding for the past ten years.


 


4.8                               Full
and Accurate Disclosure.  No
statement of fact made by Borrower in any Loan Documents contains any untrue
statement of a material fact or omits to state any material fact necessary to
make statements contained therein not misleading.  There is no material fact presently known to
Borrower that has not been disclosed to Lender which adversely affects, or,


 


29

















 


could be reasonably be expected
to adversely affect, the Property, the Pledged Collateral or the business,
operations or condition (financial or otherwise) of Borrower or Owner.  All financial data, including the statements
of cash flow and income and operating expense, that have been delivered to
Lender in respect of Borrower, Owner, the Collateral and the Property
(i) are true, complete and correct in all material respects,
(ii) accurately represent the financial condition of Borrower, Owner and
the Property as of the date of such reports, and (iii) to the extent
audited, reported on, reviewed or prepared by an independent certified public
accounting firm, have been prepared in accordance with GAAP consistently
applied throughout the periods covered, except as disclosed therein.  Neither Borrower nor Owner has any known and
material contingent liabilities, liabilities for taxes, unusual forward or
long-term commitments, unrealized or anticipated losses from any unfavorable
commitments or any liabilities or obligations not expressly permitted by this
Agreement and the Senior Loan Agreement. 
Since the date of such financial statements, there has been no
materially adverse change in the financial condition, operations or business of
Borrower, Owner and the Property from that set forth in said financial
statements.  All representations under
this Section 4.8 which are solely based on financial data prepared by
the seller of the Property which cover a period of time prior to Owner’s
acquisition of the Property on May 3, 2006 shall be limited to the best
knowledge of Borrower.


 


4.9                               Tax
Filings.  To the extent required,
Borrower and Owner have filed (or have obtained effective extensions for
filing) all federal, state and local tax returns required to be filed and have
paid or made adequate provision for the payment of all federal, state and local
taxes, charges and assessments payable by Borrower and Owner.  Borrower believes that Borrower’s and Owner’s
tax returns (if any) properly reflect the income and taxes of Borrower and
Owner for the periods covered thereby, subject only to reasonable adjustments
required by the Internal Revenue Service or other applicable tax authority upon
audit.


 


4.10                        ERISA;
No Plan Assets.  As of the date
hereof and throughout the Term (i) neither Borrower nor Owner is or will be an
“employee benefit plan,” as defined in Section 3(3) of ERISA,
(ii) none of the assets of Borrower or Owner constitutes or will
constitute “plan assets” of one or more such plans within the meaning of 29
C.F.R. Section 2510.3-101, (iii) neither Borrower nor Owner is or
will be a “governmental plan” within the meaning of Section 3(32) of
ERISA, and (iv) transactions by or with Borrower or Owner are not and will
not be subject to state statutes regulating investment of, and fiduciary
obligations with respect to, governmental plans.  As of the date hereof, neither Borrower, nor
Owner nor any member of a “controlled group of corporations” (within the
meaning of Section 414 of the Code) maintains, sponsors or contributes to a
“defined benefit plan” (within the meaning of Section 3(35) of ERISA) or a
“multiemployer pension plan” (within the meaning of Section 3(37)(A) of ERISA).


 


4.11                        Compliance.  Except as otherwise set forth in the PZR
Report delivered to Lender in connection with Loan, Borrower, Owner and the
Property and the use thereof comply in all material respects with all
applicable Legal Requirements
(including with respect to parking and applicable zoning and land use laws,
regulations and ordinances). 
Neither Borrower nor Owner is in default or violation of any order,
writ, injunction, decree or demand of any Governmental Authority, the violation
of which could reasonably be expected to materially adversely affect the
condition (financial or otherwise) or business of Borrower or Owner.  The Property is used exclusively for hotel
use and other appurtenant and related uses (including appurtenant health club,
spa, restaurant, bar, recreational, entertainment and parking uses).  In the event that all or


 


30

















 


any part of the Improvements
are destroyed or damaged, said Improvements can be legally reconstructed to
their condition prior to such damage or destruction, and to Borrower’s best
knowledge thereafter exist for the same use without violating any zoning or
other ordinances applicable thereto as of the date hereof and without the
necessity of obtaining any variances or special permits.  No legal proceedings are pending or, to the
knowledge of Borrower, threatened with respect to the zoning of the Property.  Neither the zoning nor any other right to
construct, use or operate the Property is in any way dependent upon or related
to any property other than the Property. All certifications, permits, licenses
and approvals, including certificates of completion and occupancy permits
required for the legal use, occupancy and operation of the Property
(collectively, the “Licenses”),
have been obtained and are in full force and effect.  The use being made of the Property is in
conformity with the certificate of occupancy issued for the Property and all
other restrictions, covenants and conditions affecting the Property.


 


4.12                        Contracts.  Except as set forth on Schedule 2 attached
hereto, there are no service, maintenance or repair contracts affecting the
Property that are not terminable on one month’s notice or less without cause
and without penalty or premium.  All
service, maintenance or repair contracts affecting the Property have been
entered into at arms-length in the ordinary course of the business of Owner and
provide for the payment of fees in amounts and upon terms comparable to
existing market rates.


 


4.13                        Federal
Reserve Regulations; Investment Company Act.  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 that would be inconsistent with such Regulation U or
any other regulation of such Board of Governors, or for any purpose prohibited
by Legal Requirements or any Loan Document. 
Borrower is not (i) an “investment company” or a company
“controlled” by an “investment company,” within the meaning of the Investment
Company Act of 1940, as amended; (ii) 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 (iii) subject to any other federal or
state law or regulation which purports to restrict or regulate its ability to
borrow money.


 


4.14                        Easements;
Utilities and Public Access.  All
easements, cross easements, licenses, air rights and rights-of-way or other
similar property interests (collectively, “Easements”), if any, necessary for the full
utilization of the Improvements for their intended purposes have been obtained,
are described in the Title Insurance Policy and are in full force and effect
without default thereunder.  The Property
has rights of access to public ways and is served by water, sewer, sanitary
sewer and storm drain facilities adequate to service it for its intended
uses.  All public utilities necessary or
convenient to the full use and enjoyment of the Property are located in the
public right-of-way abutting the Property, and all such utilities are connected
so as to serve the Property without passing over other property absent a valid
easement.  All roads necessary for the
use of the Property for its current purpose have been completed and dedicated
to public use and accepted by all Governmental Authorities.


 


4.15                        Physical
Condition.  The Property,
including all Improvements, parking facilities, systems, Equipment and
landscaping, are in good condition, order and repair in all material respects;
there exists no structural or other material defect or damages to the Property.


 


31

















 


Neither Borrower nor Owner has
received notice from any insurance company or bonding company of any defect or
inadequacy in the Property, or any part thereof, which would adversely affect its
insurability or cause the imposition of extraordinary premiums or charges
thereon or any termination of any policy of insurance or bond.  No portion of the Property is located in an
area as identified by the Federal Emergency Management Agency as an area having
special flood hazards.  The Improvements
have suffered no material casualty or damage which has not been fully repaired
and the cost thereof fully paid.


 


4.16                        Leases.  The Property is not subject to any Leases.


 


4.17                        Fraudulent
Transfer.  Borrower has not
entered into the Loan or any Loan Document with the actual intent to hinder,
delay, or defraud any creditor, and Borrower has received reasonably equivalent
value in exchange for its obligations under the Loan Documents.  Giving effect to the transactions
contemplated by the Loan Documents, the fair saleable value of Borrower’s
assets exceeds and will, immediately following the execution and delivery of
the Loan Documents, exceed Borrower’s total liabilities, including
subordinated, unliquidated, disputed or contingent liabilities, including the
maximum amount of its contingent liabilities or its debts as such debts become
absolute and matured.  Borrower’s assets
do not and, immediately following the execution and delivery of the Loan
Documents will not, constitute unreasonably small capital to carry out its
business as conducted or as proposed to be conducted.  Borrower does not intend to, and does not
believe that it will, incur debts and liabilities (including contingent
liabilities and other commitments) beyond its ability to pay such debts as they
mature (taking into account the timing and amounts to be payable on or in
respect of obligations of Borrower).


 


4.18                        Ownership
of Borrower and Owner.  Borrower
is the owner of 100% of the issued and outstanding ownership interests in
Owner, free and clear of all Liens and encumbrances.  No other ownership interests in Owner have
been issued or are issuable.  All of the
ownership interests in Owner have been duly and validly issued, have been fully
paid for and are non-assessable.  There
are no options or rights to acquire any ownership interests in Owner.  The sole member of Borrower is the Sole
Member.  The membership interests in
Borrower are owned free and clear of all Liens, warrants, options and rights to
purchase, other than the Permitted Encumbrances.  Borrower has no obligation to any Person to
purchase, repurchase or issue any ownership interest in it.  The organizational chart attached hereto as
Schedule 3 is complete and accurate and illustrates all Persons who have a
direct or indirect ownership interest in Borrower and Owner, except for any
additional economic benefits, promotes or other incidents of ownership which
may not be reflected on such chart but are set forth in the relevant organizational
documents.


 


4.19                        Purchase
Options.  Neither the Property
nor any part thereof is subject to any purchase options or other similar rights
in favor of third parties.


 


4.20                        Management
Agreement.  The Management
Agreement is in full force and effect. 
With respect to the Management Agreement, there is no default, breach or
violation existing thereunder, and no event has occurred (other than payments
due but not yet delinquent) that, with the passage of time or the giving of
notice, or both, would constitute a default, breach or violation thereunder, by
either party thereto.


 


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4.21                        Hazardous
Substances.  (i) The
Property is not in violation of any Legal Requirement pertaining to or imposing
liability or standards of conduct concerning environmental regulation,
contamination or clean-up, including the Comprehensive Environmental Response,
Compensation and Liability Act, the Resource Conservation and Recovery Act, the
Emergency Planning and Community Right-to-Know Act of 1986, the Hazardous
Substances Transportation Act, the Solid Waste Disposal Act, the Clean Water
Act, the Clean Air Act, the Toxic Substance Control Act, the Safe Drinking
Water Act, the Occupational Safety and Health Act, any state super-lien and
environmental clean-up statutes (including with respect to Toxic Mold), any
local law requiring related permits and licenses and all amendments to and
regulations in respect of the foregoing laws (collectively, “Environmental Laws”);
(ii) the Property is not subject to any private or governmental Lien or
judicial or administrative notice or action or inquiry, investigation or claim
relating to hazardous, toxic and/or dangerous substances, toxic mold or fungus
of a type that may pose a risk to human health or the environment or would
negatively impact the value of the Property (“Toxic Mold”) or any other substances or
materials which are included under or regulated by Environmental Laws
(collectively, “Hazardous
Substances”); (iii) except as set forth in the Phase I
report delivered to Lender in connection with the Loan and to the best of
Borrower’s knowledge, after due inquiry, no Hazardous Substances are or have
been discharged, generated, treated, disposed of or stored on, incorporated in,
or removed or transported from the Property other than in compliance with all
Environmental Laws; (iv) except as set forth in the Phase I report
delivered to Lender in connection with the Loan and to the best of Borrower’s
knowledge, after due inquiry, no Hazardous Substances are present in, on or
under any nearby real property which could migrate to or otherwise affect the
Property; (v) to the best of Borrower’s knowledge, after due inquiry, no Toxic
Mold is on or about the Property which requires remediation; (vi) to the
best of Borrower’s knowledge, after due inquiry, no underground storage tanks
exist on the Property and the Property has never been used as a landfill; and
(vii) there have been no environmental investigations, studies, audits,
reviews or other analyses conducted by or on behalf of Borrower which have not
been provided to Lender.


 


4.22                        Name;
Principal Place of Business. 
Except as set forth on Schedule 1 attached hereto, Borrower does not use
and will not use any trade name and has not done and will not do business under
any name other than its actual name set forth herein.  Owner does not use and Borrower will cause
Owner not to use any trade name or do any business under any name other than
the permitted names set forth in the Senior Loan Agreement.  The principal place of business of Borrower
is c/o Morgans Hotel Group Co., 475 Tenth Avenue, 11th Floor, New York, New
York 10018 and the principal place of business of Owner is the Property, and
neither Borrower nor Owner has any other place of business.  Borrower’s federal tax identification number
is 20-4856058.  Borrower is not subject
to back-up withholding taxes.


 


4.23                        Other
Debt.  There is no indebtedness
with respect to Borrower, Owner or the Property or any excess cash flow or any
residual interest therein, whether secured or unsecured, other than Permitted
Encumbrances, the Senior Loan, Permitted Indebtedness and with respect to
Owner, “Permitted Indebtedness” (as such term is defined in the Senior Loan
Agreement).


 


33

















 


4.24                        Pledged
Collateral.


 


(a)          Borrower is the sole
beneficial owner of the Pledged Collateral and no Lien exists or will exist
(except the Permitted Encumbrances) upon the Pledged Collateral at any time
(and no right or option to acquire the same exists in favor of any other
Person).


 


(b)         The Pledged Collateral is
not and will not be subject to any contractual restriction upon the transfer
thereof (except for any such restriction contained in the Pledge).


 


(c)          The chief place of
business of Borrower and the office where Borrower keeps its records concerning
the Pledged Collateral will be located at all times at the address specified as
Borrower’s address in Section 6.1.


 


(d)         The Pledged Securities
have been duly authorized and validly issued and are fully paid and
non-assessable and are not subject to any options to purchase or similar rights
of any Person.


 


(e)          The Security Documents
create a valid security interest in the Pledged Collateral, securing the
payment of the Debt, and upon the filing in the appropriate filing offices of
the financing statements to be delivered pursuant to this Agreement, such
security interests will be perfected, first priority security interests, and
all filings and other actions necessary to perfect such security interests will
have been duly taken.  Upon the exercise
of its rights and remedies under the Pledge, Lender will succeed to all of the
rights, titles and interest of Borrower in Owner without the consent of any other
Person and will, without the consent of any other Person, be admitted as the
sole member in Owner.


 


4.25                        Senior
Loan.  The Senior Loan has been
fully funded in the amount of $22,000,000. 
The outstanding principal balance of the Senior Loan, as of the Closing
Date, is $22,000,000.  No default,
breach, violation or event of default has occurred under any Senior Loan
Document which remains uncured or unwaived and no circumstance, event or
condition has occurred or exists which, with the giving of notice and/or the
expiration of the applicable period would constitute an Event of Default under
the Senior Loan Documents.  Each and
every representation and warranty of Owner, made to Senior Lender contained in
any one or more of the Senior Loan Documents is true, correct, complete and
accurate in all material respects as of the date hereof and 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 Senior Lender or to whether the
related Senior Loan Document has been repaid, defeased or otherwise terminated,
unless otherwise consented to in writing by Lender.


 


4.26                        Perfection
of Accounts.  Borrower hereby
represents and warrants to Lender that:


 


(a)                                  This
Agreement, together with the other Loan Documents, create a valid and
continuing security interest (as defined in the Uniform Commercial Code) in the
Subordinate Deposit Account and the Subaccounts in favor of Lender, which
security interest is prior to all other Liens, other than Permitted
Encumbrances, and is enforceable as such against creditors of and purchasers
from Borrower.  Other than in connection
with the Loan Documents and except


 


34

















 


for Permitted Encumbrances, Borrower has not sold or otherwise conveyed
the Subordinate Deposit Account or any of the Subaccounts;


 


(b)                                 The
Subordinate Deposit Account and the Subaccounts constitute “deposit accounts”
or “securities accounts” within the meaning of the Uniform Commercial Code; and


 


(c)                                  None
of the Subordinate Deposit Account or any of the Subaccounts are in the name of
any Person other than Borrower, as pledgor, or Lender, as pledgee.  Borrower has not consented to the Deposit
Bank’s complying with instructions with respect to the Subordinate Deposit
Account or any of the Subaccounts from any Person other than Lender.


 


4.27                        No
Contractual Obligations.  Other
than the Loan Documents and the organizational documents of Owner and Borrower,
as of the date of this Agreement, Borrower is not subject to any Contractual
Obligations and has not entered into any agreement, instrument or undertaking
by which it or its assets are bound.


 


All of the representations and warranties in this Article 4 and
elsewhere in the Loan Documents (i) shall survive for so long as any
portion of the Debt remains owing to Lender and (ii) shall be deemed to
have been relied upon by Lender notwithstanding any investigation heretofore or
hereafter made by Lender or on its behalf, provided, however, that the
representations, warranties and covenants set forth in Section 4.21 shall
survive in perpetuity.


 


5.                                      COVENANTS


 


Until the end of the Term, Borrower hereby covenants and agrees with
Lender that:


 


5.1                               Existence.  Each of Borrower and Sole Member shall (and
Borrower shall cause Owner to) (i) do or cause to be done all things
necessary to preserve, renew and keep in full force and effect its existence,
rights, and franchises, (ii) continue to engage in the business presently
conducted by it, (iii) obtain and maintain all Licenses, and
(iv) qualify to do business and remain in good standing under the laws of
each jurisdiction, in each case as and to the extent required for the
ownership, maintenance, management and operation of the Property.


 


5.2                               Taxes
and Other Charges.  Borrower
shall (or shall cause Owner to) pay all Taxes and Other Charges as the same
become due and payable, and deliver to Lender receipts for payment or other
evidence satisfactory to Lender that the Taxes and Other Charges have been so
paid no later than 30 days before they would be delinquent if not paid
(provided, however, that Borrower need not pay (or cause Owner to pay) such
Taxes nor furnish (nor cause Owner to furnish) such receipts for payment of
Taxes paid by Senior Lender pursuant to the Senior Loan Documents).  Borrower shall promptly pay (or cause Owner
to pay) for all franchise fees, income taxes and other impositions and taxes
imposed by Governmental Authorities on Owner, Borrower and Sole Member.  Borrower shall not suffer and shall promptly
cause to be paid and discharged any Lien against the Property, and shall
promptly pay (or cause Owner to pay) for all utility services provided to the
Property.  After prior notice to Lender,
Borrower may cause Owner, at Owner’s expense, without paying such Taxes or
Other Charges, to contest by appropriate legal proceeding, promptly initiated
and conducted in good faith and with due diligence, the amount or validity or
application of any Taxes or Other Charges, provided that (i) no Event of
Default has occurred and is continuing, (ii) such proceeding shall suspend
the


 


35

















 


collection of the Taxes or such
Other Charges, (iii) such proceeding shall be permitted under and be
conducted in accordance with the provisions of any other instrument to which
Borrower or Owner is subject, including the Senior Loan Documents, and shall
not constitute a default thereunder, (iv) no part of or interest in the
Property will be in danger of being sold, forfeited, terminated, canceled or
lost, (v) Borrower or Owner shall have furnished such security as may be
required in the proceeding, or as may be requested by Lender, to insure the
payment of any such Taxes or Other Charges, together with all interest and
penalties thereon, which shall not be less than 100% of the Taxes and Other
Charges being contested (provided, however, that no such security will be
required if Owner has provided adequate security for the same to Senior Lender
in accordance with the Senior Loan Documents), and (vi) Borrower shall
promptly upon final determination thereof pay (or cause Owner to pay) the
amount of such Taxes or Other Charges, together with all costs, interest and
penalties.  Lender may pay over any such
security or part thereof held by Lender to the claimant entitled thereto at any
time when, in the reasonable judgment of Lender, the failure to so pay may
adversely affect the rights of Lender under any Loan Document and/or the
failure to so pay may result in the Property (or any portion thereof) being
sold, lost or forfeited.


 


5.3                               Access
to the Property.  Borrower shall
permit (or cause Owner to permit) agents, representatives, consultants and
employees of Lender to inspect the Property or any part thereof at reasonable
hours upon reasonable advance notice.


 


5.4                               Repairs;
Maintenance and Compliance; Alterations.


 


5.4.1                     Repairs; Maintenance and
Compliance.  Borrower shall cause
Owner to at all times maintain, preserve and protect all franchises and trade
names, and Borrower shall cause Owner to maintain the Property in a good and
safe condition and repair and shall not (and shall not permit Owner to) remove,
demolish or alter the Improvements or Equipment or FF&E (except for
alterations performed in accordance with Section 5.4.2 and, subject to
ordinary wear and tear, normal replacement of Equipment and FF&E with
Equipment and FF&E of equivalent value and functionality).  Borrower shall promptly comply with all Legal
Requirements and immediately cure (or cause Owner to cure) properly any
violation of a Legal Requirement. 
Borrower shall notify Lender in writing within one Business Day after
Borrower first receives notice of any such non-compliance.  Borrower shall (or shall cause Owner to)
repair, replace or rebuild any part of the Property that becomes damaged, worn
or dilapidated and shall (or shall cause Owner to) complete and pay for any
Improvements in the process of construction or repair as and when payment
becomes due.


 


5.4.2                     Alterations.  Except for Material Alterations, Borrower may
(and may permit Owner to), without Lender’s consent, perform alterations to the
Improvements, Equipment and FF&E which are expressly permitted pursuant to
Section 5.4.2 of the Senior Loan Agreement.  Borrower shall not perform (or allow Owner to
perform) any Material Alteration without Lender’s prior written consent, which
consent shall not be unreasonably withheld or delayed; provided, however, that
Lender may, in its sole and absolute discretion, withhold consent to any
Material Alteration the cost of which is reasonably estimated to exceed
$1,500,000 or which is likely to result in a decrease of Net Operating Income
by 2.5% or more for a period of 60 days or longer.  Lender may, as a condition to giving its
consent to a Material Alteration, require that Borrower deliver to Lender
security for payment of the cost of such


 


36

















 


Material Alteration in an amount equal to 125% of the cost of the
Material Alteration as reasonably estimated by Lender (provided, however, that
no such security will be required if Owner has provided adequate security for
the same to Senior Lender in accordance with the Senior Loan Documents.  Upon substantial completion of the Material
Alteration, Borrower shall provide evidence satisfactory to Lender that
(i) the Material Alteration was constructed in accordance with applicable
Legal Requirements and substantially in accordance with plans and
specifications approved by Lender (which approval shall not be unreasonably withheld
or delayed), (ii) all contractors, subcontractors, materialmen and
professionals who provided work, materials or services in connection with the
Material Alteration have been paid in full and have delivered unconditional
releases of lien and (iii) all material Licenses necessary for the use,
operation and occupancy of the Material Alteration (other than those which
depend on the performance of tenant improvement work) have been issued.  Borrower shall reimburse Lender upon demand
for all out-of-pocket costs and expenses (including the reasonable fees of any
architect, engineer or other professional engaged by Lender) incurred by Lender
in reviewing plans and specifications or in making any determinations necessary
to implement the provisions of this Section 5.4.2.


 


5.5                               Performance
of Other Agreements.  Borrower
shall observe and perform and cause Owner to observe and perform each and every
term to be observed or performed by Owner pursuant to the terms of any
agreement or instrument affecting or pertaining to the Collateral or the
Property, including without limitation, the Loan Documents and the Management
Agreement.


 


5.6                               Cooperate
in Legal Proceedings.  Borrower
shall cooperate fully with Lender with respect to, and permit Lender, at its
option, to participate in, any proceedings before any Governmental Authority
which may adversely affect the value of the Collateral or the rights of Lender
under any Loan Document.


 


5.7                               Further
Assurances.  Borrower shall, at
Borrower’s sole cost and expense, (i) 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, as Lender may reasonably require from time to time; and (ii) upon
Lender’s request therefor given from time to time after the occurrence of any
Event of Default pay for reports of UCC, federal tax lien, state tax lien,
judgment and pending litigation searches with respect to Borrower and Sole
Member, such search to be conducted by search firms reasonably designated by
Lender in each of the locations reasonably designated by Lender.


 


5.8                               Environmental
Matters.


 


5.8.1                     Hazardous Substances.  So long as Owner is in possession of the
Property, Borrower shall (or shall cause Owner to) (i) keep the Property
owned, leased or possessed by it free from Hazardous Substances and in
compliance with all Environmental Laws, (ii) promptly notify Lender if
Borrower shall become aware that (A) any Hazardous Substance is on or near
the Property, (B) the Property is in violation of any Environmental Laws
or (C) any condition on or near the Property shall pose a threat to the
health, safety or welfare of humans and (iii) remove such Hazardous
Substances and/or cure such violations and/or remove such threats, as
applicable, as required by law (or as shall be required by Lender in the case
of


 


37

















 


removal which is not required by law, but in response to the opinion of
a licensed hydrogeologist, licensed environmental engineer or other qualified
environmental consulting firm engaged by Lender (“Lender’s Consultant”)), promptly after
Borrower becomes aware of same, at Borrower’s sole expense.  Nothing herein shall prevent Borrower from
recovering such expenses from any other party that may be liable for such
removal or cure.


 


5.8.2                     Environmental Monitoring.


 


(a)          Borrower shall give
prompt written notice to Lender of (i) any proceeding or inquiry by any
party (including any Governmental Authority) with respect to the presence of
any Hazardous Substance on, under, from or about the Property, (ii) all
claims made or, to Borrower’s best knowledge, threatened by any third party
(including any Governmental Authority) against Borrower, Owner or the Property
or any party occupying the Property relating to any loss or injury resulting
from any Hazardous Substance, and (iii) Borrower’s or Owner’s discovery of
any occurrence or condition on any real property adjoining or in the vicinity
of the Property that could cause the Property to be subject to any
investigation or cleanup pursuant to any Environmental Law.  Upon becoming aware of the presence of mold
or fungus at the Property, Borrower shall (or shall cause Owner to) (i)
undertake an investigation to identify the source(s) of such mold or fungus and
shall develop and implement an appropriate remediation plan to eliminate the
presence of any Toxic Mold, (ii) perform or cause to be performed all acts
reasonably necessary for the remediation of any Toxic Mold (including taking
any action necessary to clean and disinfect any portions of the Property
affected by Toxic Mold, including providing any necessary moisture control
systems at the Property), and (iii) provide evidence reasonably satisfactory to
Lender of the foregoing.  Borrower shall
permit (and shall cause Owner to permit) Lender to join and participate in, as
a party if it so elects, any legal or administrative proceedings or other
actions initiated with respect to the Property in connection with any
Environmental Law or Hazardous Substance to the extent such action could
reasonably be expected to affect the rights of Lender under any Loan Document,
and Borrower shall pay (or shall cause Owner to pay) all reasonable attorneys’
fees and disbursements incurred by Lender in connection therewith.


 


(b)         Upon Lender’s reasonable
request, at any time and from time to time (but not more than once in any
twelve (12) month period, unless Lender has a good faith belief that there is a
violation of Environmental Laws or a release of Hazardous Substances at or near
the Property), Borrower shall (or shall cause Owner to) provide an inspection
or audit of the Property prepared by a licensed hydrogeologist, licensed
environmental engineer or qualified environmental consulting firm approved by
Lender assessing the presence or absence of Hazardous Substances on, in or near
the Property, and if Lender in its good faith judgment determines that
reasonable cause exists for the performance of such environmental inspection or
audit, then the cost and expense of such audit or inspection shall be paid by
Borrower. Such inspections and audit may include soil borings and ground water
monitoring.  If Borrower (or Owner) fails
to provide any such inspection or audit within 30 days after such request,
Lender may order same, and Borrower hereby grants (and shall cause Owner to
grant) to Lender and its employees and agents access to the Property and a
license to undertake such inspection or audit.


 


(c)          If any environmental
site assessment report prepared in connection with such inspection or audit
recommends that an operations and maintenance plan be implemented for any


 


38

















 


Hazardous
Substance, whether such Hazardous Substance existed prior to the ownership of
the Property by Owner, or presently exists or is reasonably suspected of
existing, Borrower shall cause (or shall cause Owner to cause) such operations
and maintenance plan to be prepared and implemented at its expense upon request
of Lender, and with respect to any Toxic Mold, Borrower shall (or shall cause
Owner to) take all action necessary to clean and disinfect any portions of the
Improvements affected by Toxic Mold in or about the Improvements, including
providing any necessary moisture control systems at the Property.  If any investigation, site monitoring,
containment, cleanup, removal, restoration or other work of any kind is
reasonably necessary under an applicable Environmental Law (“Remedial Work”),
Borrower shall commence (or shall cause Owner to commence) all such Remedial
Work within 30 days after written demand by Lender and thereafter diligently
prosecute to completion all such Remedial Work within such period of time as
may be required under applicable law. 
All Remedial Work shall be performed by licensed contractors reasonably
approved in advance by Lender and under the supervision of a consulting
engineer approved by Lender.  All costs
of such Remedial Work shall be paid by Borrower or Owner, including Lender’s
reasonable attorneys’ fees and disbursements incurred in connection with the
monitoring or review of such Remedial Work. 
If Borrower does not (or does not cause Owner to) timely commence and
diligently prosecute to completion the Remedial Work, Lender may (but shall not
be obligated to) cause such Remedial Work to be performed at Borrower’s
expense.  Notwithstanding the foregoing,
Borrower shall not be required to commence (or cause Owner to commence) such
Remedial Work within the above specified time period: (x) if prevented
from doing so by any Governmental Authority, (y) if commencing such
Remedial Work within such time period would result in Borrower or Owner or such
Remedial Work violating any Environmental Law, or (z) if Borrower or
Owner, at its expense and after prior written notice to Lender, is contesting
by appropriate legal, administrative or other proceedings, conducted in good
faith and with due diligence, the need to perform Remedial Work.  Owner shall have the right to contest the
need to perform such Remedial Work, provided that, (1) Owner is permitted
by the applicable Environmental Laws to delay performance of the Remedial Work
pending such proceedings, (2) neither the Property nor any part thereof or
interest therein will be sold, forfeited or lost if Owner fails to promptly
perform the Remedial Work being contested, and if Owner fails to prevail in
contest, Borrower or Owner would thereafter have the opportunity to perform
such Remedial Work, (3) Lender would not, by virtue of such permitted
contest, be exposed to any risk of any civil liability for which Borrower or
Owner has not furnished additional security as provided in clause
(4) below, or to any risk of criminal liability, and neither the Property
nor any interest therein would be subject to the imposition of any Lien for
which Borrower or Owner has not furnished additional security as provided in
clause (4) below, as a result of the failure to perform such Remedial Work
and (4) Borrower or Owner shall have furnished to Lender additional security
in respect of the Remedial Work being contested and the loss or damage that may
result from Borrower’s or Owner’s failure to prevail in such contest in such
amount as may be reasonably requested by Lender but in no event less than one
hundred twenty-five percent (125%) of the cost of such Remedial Work as
estimated by Lender or Lender’s Consultant and any loss or damage that may
result from Borrower’s or Owner’s failure to prevail in such contest (provided,
however, that no such security will be required if Owner has provided adequate
security for the same to Senior Lender in accordance with the Senior Loan
Documents).


 


(d)         Borrower shall not
install or permit to be installed on the Property any underground storage tank.


 


39

















 


5.8.3                     O & M Program.  The environmental report delivered to Lender
in connection with the Loan recommends the development of or continued
compliance with an operation and maintenance program for the Property
(including, without limitation, with respect to the presence of asbestos and/or
lead-based paint) (“O
& M Program”), Borrower shall (or shall cause Owner to)
develop (or continue to comply with, as the case may be) such O & M Program
and shall, during the term of the Loan, including any extension or renewal
thereof, comply in all material respects with the terms and conditions of the O
& M Program.


 


5.9                               Title
to the Pledged Collateral. 
Borrower will warrant and defend the title to the Collateral (and shall
cause Owner to warrant and defend the title to the Property), and the validity
and priority of all Liens granted or otherwise given to Lender under the Loan
Documents, subject only to Permitted Encumbrances, against the claims of all
Persons.


 


5.10                        Leases.


 


5.10.1              Generally.  Upon request, Borrower shall furnish (or
shall cause Owner to furnish) Lender with executed copies of all Leases then in
effect.  Borrower shall not permit Owner
to enter into any Lease or a proposed renewal, extension or modification of an
existing Lease without the prior written consent of Lender, such consent not to
be unreasonably withheld, conditioned or delayed.


 


5.10.2              Additional Covenants with respect to
Leases.  Borrower shall cause
Owner to (i) observe and perform the material obligations imposed upon the
lessor under the Leases and shall not do or permit anything to impair the value
of the Leases as security for the Debt; (ii) promptly send copies to
Lender of all notices of default that Owner shall send or receive under any
Lease; (iii) enforce, in accordance with commercially reasonable practices
for properties similar to the Property, the terms, covenants and conditions in
the Leases to be observed or performed by the lessees, short of termination
thereof; (iv) not collect any of the Rents more than one (1) month in
advance (other than security deposits); (v) not execute any other
assignment of lessor’s interest in the Leases or the Rents (except as
contemplated by the Senior Loan Documents); (vi)  not modify any Lease in
a manner inconsistent with the Loan Documents; (vii) not convey or
transfer or suffer or permit a conveyance or transfer of the Property so as to
effect a merger of the estates and rights of, or a termination or diminution of
the obligations of, lessees under Leases; (viii) not consent to any
assignment of or subletting under any Lease unless required in accordance with
its terms without the prior consent of Lender, which, so long as no Event of
Default is continuing, be unreasonably withheld or delayed; and (ix) not
cancel or terminate any Lease or accept a surrender thereof without the prior
consent of Lender, which consent shall not, so long as no Event of Default is
continuing, be unreasonably withheld or delayed.


 


5.11                        Estoppel
Statement.  After request by
Lender, Borrower shall within twenty (20) days furnish Lender with a statement
addressed to Lender, its successors and assigns, duly acknowledged and
certified, setting forth (i) the unpaid Principal, (ii) the Interest
Rate, (iii) the date installments of interest and/or Principal were last
paid, (iv) any offsets or defenses to the payment of the Debt, and
(v) that the Loan Documents are valid, legal and binding obligations and
have not been modified or if modified, giving particulars of such modification.


 


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5.12                        Property
Management.


 


5.12.1              Management Agreement.  Borrower shall (i) cause Owner to cause
the Property to be managed pursuant to the Management Agreement;
(ii) cause Owner to promptly perform and observe all of the covenants
required to be performed and observed by it under the Management Agreement and
do all things necessary to preserve and to keep unimpaired its rights
thereunder; (iii) promptly notify (or cause Owner to notify) Lender of any
material default under the Management Agreement of which it is aware;
(iv) promptly deliver (or cause Owner to deliver) to Lender a copy of each
financial statement, business plan, capital expenditure plan, and property
improvement plan and any other notice, report and estimate received by Owner
under the Management Agreement; and (v) cause Owner to promptly enforce
the performance and observance of all of the covenants required to be performed
and observed by Manager under the Management Agreement.  Without Lender’s prior written consent,
Borrower shall not permit Owner to (a) surrender, terminate, cancel,
extend or renew the Management Agreement or otherwise replace the Manager or
enter into any other management agreement (except pursuant to
Section 5.12.2); (b) reduce or consent to the reduction of the term
of the Management Agreement; (c) increase or consent to the increase of
the amount of any charges under the Management Agreement; (d) otherwise
materially modify, change, supplement, alter or amend in any material respect,
or waive or release any of its material rights and material remedies under, the
Management Agreement; (e) suffer or permit the occurrence and continuance
of a material default beyond any applicable cure period under the Management
Agreement (or any successor management agreement) if such material default
permits the Manager to terminate the Management Agreement (or such successor
management agreement); or (f) suffer or permit the ownership, management
or control of the Manager to be transferred to a Person other than an Affiliate
of Owner.  Lender hereby acknowledges
that Borrower or Sole Member intends to Transfer an interest in Borrower or
Sole Member to third party investors which may equal or exceed a forty-nine
percent (49%) interest in Borrower or Sole Member.  Accordingly, if, in connection with such a
Transfer, modifications to the Management Agreement are required, Lender will
act reasonably and in good faith in granting or withholding its consent to any
such modifications to the Management Agreement.


 


5.12.2              Termination of Manager.  If (i) an Event of Default shall be
continuing, or (ii) Manager is in default under the Management Agreement,
or (iii) upon the gross negligence, malfeasance or willful misconduct of the
Manager, Borrower shall, at the request of Lender (subject, however, to the
rights of Senior Lender under the Senior Loan Documents), cause Owner to
terminate the Management Agreement, and, subject to the rights of Senior Lender
under the Senior Loan Documents, replace Manager with a replacement manager
acceptable to Lender in Lender’s reasonable discretion and the applicable
Rating Agencies on terms and conditions satisfactory to Lender and the
applicable Rating Agencies.  Borrower’s
failure to cause Owner to appoint an acceptable manager within sixty
(60) days after Lender’s request of Borrower to terminate the Management
Agreement shall constitute an immediate Event of Default.  Borrower may from time to time cause Owner to
appoint a successor manager to manage the Properties, which successor manager
and Management Agreement shall be approved in writing by Lender in Lender’s
discretion and the applicable Rating Agencies (and Lender’s approval may be
conditioned upon Borrower delivering a Rating Comfort Letter as to such
successor manager and Management Agreement). 
If at any time Lender consents to the appointment of a new manager, such
new manager and Borrower shall, as a condition of


 


41

















 


Lender’s consent, execute a consent and subordination of management
agreement substantially in the form of the Consent and Subordination of Manager
of even date herewith executed and delivered by Manager to Lender.


 


5.12.3              Cure by Lender.  If Borrower shall permit Owner to default
in the performance or observance of any term, covenant or condition of the
Management Agreement on its part to be performed or observed beyond any
applicable grace or cure period, then, without limiting Lender’s other rights
or remedies under this Agreement or the other Loan Documents, and without
waiving or releasing Borrower from any of its obligations hereunder and without
releasing Owner under the Management Agreement, Lender shall have the right,
but shall be under no obligation, to pay any sums and to perform any act as may
be appropriate to cause all the terms, covenants and conditions of the
Management Agreement on the part of Owner to be performed or observed, but such
performance by Lender shall not be deemed a cure of any Default or Event of
Default arising by reason of Owner’s breach of the Management Agreement.


 


5.13                        Special
Purpose Bankruptcy Remote Entity.  Each of Borrower and Owner shall
at all times be a Special Purpose Bankruptcy Remote Entity.  Borrower shall not directly or indirectly
make any change, amendment or modification to its or Owner’s organizational
documents, or otherwise take any action which could result in Borrower or Owner
not being a Special Purpose Bankruptcy Remote Entity.  A “Special Purpose Bankruptcy Remote Entity”
shall have the meaning set forth on Schedule 4 hereto.


 


5.14                        Assumption
in Non-Consolidation Opinion.  Borrower and Sole Member shall
each conduct its business so that the assumptions (with respect to each Person)
made in that certain substantive non-consolidation opinion letter dated the date
hereof delivered by Borrower’s counsel in connection with the Loan, shall be
true and correct in all respects.


 


5.15                        Change
in Business or Operation of Property.  Borrower shall not enter into any
line of business other than the ownership of Owner.  Borrower shall not permit Owner to purchase
or own any real property other than the Property or to enter into any line of
business other than the ownership and operation of the Property, or make any
material change in the scope or nature of its business objectives, purposes or
operations, or undertake or participate in activities other than the
continuance of its present business or otherwise cease to operate the Property
as a hotel property or terminate such business for any reason whatsoever (other
than temporary cessation in connection with renovations to the Property).


 


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


 


5.17                        Affiliate
Transactions.  Borrower shall not
enter into, or be a party to (or permit Owner to enter into or be a party to),
any transaction with an Affiliate of Borrower or Owner or any of the members of
Borrower or Owner except in the ordinary course of business and on terms which
are fully disclosed to Lender in advance and are no less favorable to Borrower
or Owner or such Affiliate than would be obtained in a comparable arm’s-length
transaction with an unrelated third party.


 


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


 


5.19                        No
Joint Assessment.  Borrower shall
not suffer, permit or initiate (or permit Owner to suffer, permit or initiate)
the joint assessment of the Property (i) with any other real property
constituting a tax lot separate from the Property, and (ii) with any portion of
the 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 the Property.


 


5.20                        Principal
Place of Business.  Borrower
shall not (and shall not permit Owner to) change its principal place of
business or chief executive office without first giving Lender 30 days’ prior
notice.


 


5.21                        Change
of Name, Identity or Structure.  Borrower shall not (and shall not permit Owner
to) change its name, identity (including its trade name or names) or, if not an
individual, Borrower’s or Owner’s corporate, partnership or other structure
without notifying Lender of such change in writing at least thirty (30) days
prior to the effective date of such change and, in the case of a change in
Borrower’s or Owner’s structure, without first obtaining the prior written
consent of Lender.  Borrower shall (and
shall cause Owner to) execute and deliver to Lender, prior to or
contemporaneously with the effective date of any such change, any financing
statement or financing statement change required by Lender to establish or
maintain the validity, perfection and priority of the security interest granted
herein or any other Loan Document.  At
the request of Lender, Borrower shall execute a certificate in form
satisfactory to Lender listing the trade names under which Owner intends to
operate the Property, and representing and warranting that Owner does business
under no other trade name with respect to the Property.


 


5.22                        Indebtedness.  Borrower shall not permit Owner to directly
or indirectly create, incur or assume any indebtedness other than (a) the
Debt, (b) unsecured trade payables incurred in the ordinary course of
business relating to the ownership and operation of the Property and
(c) Permitted Equipment Financing (hereinafter defined) which in the case
of such unsecured trade payables and, the aggregate amount of payment
installments then due, in the case of Permitted Equipment Financing, do not
exceed, at any time, a maximum aggregate amount equal to the greater of (x) four
percent (4%) of the original principal amount of the Senior Loan and (y)
$880,000 and, which in the case of unsecured trade payables, are paid within
sixty (60) days of the date incurred and which in the case of Permitted
Equipment Financing, each payment installment in connection therewith is paid
within sixty (60) days of the date of the applicable invoice for such
installment (collectively, “Permitted Indebtedness”).  Notwithstanding the foregoing, with respect
to the sixty (60)-day period set forth above, Borrower may cause Owner, at its
own expense, contest the amount or validity of any such Permitted Indebtedness
(during which time such sixty (60)-day period shall be tolled), provided that
if Borrower desires to cause Owner to withhold payment of such Permitted
Indebtedness during the pendency of the contest, (i) no part of or
interest in the Property will be in danger of being sold, forfeited,
terminated,


 


43

















 


canceled or lost,
(ii) Borrower shall have furnished such security as may be requested by
Lender, to insure the payment of any such Permitted Indebtedness, together with
all interest and penalties thereon, which shall not be greater than 125% of the
Permitted Indebtedness being contested, and (iii) Borrower shall promptly
upon final determination thereof pay the amount of such Permitted Indebtedness,
together with all costs, interest and penalties and Borrower shall be permitted
to use such security to make such payment. 
As used herein, “Permitted
Equipment Financing” means equipment financing that (A) exists
as of the date hereof and has been disclosed to Lender or (B) is
(i) entered into in the ordinary course of Owner’s business, (ii) for
equipment related to the ownership and operation of the Property whose removal
would not materially damage or impair the value of the Property, and
(iii) secured only by the financed equipment.


 


5.23                        Licenses.  Borrower shall not permit Owner to Transfer
any License required for the operation of the Property.


 


5.24                        Compliance
with Restrictive Covenants, Etc.Borrower will not permit Owner to
modify, waive in any material respect or release any Easements, restrictive
covenants or other Permitted Encumbrances, or suffer, consent to or permit the
foregoing, without Lender’s prior written consent, which consent may be granted
or denied in Lender’s sole discretion.


 


5.25                        ERISA.


 


(1)          Borrower shall not
engage or permit Owner to 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.


 


(2)          Borrower shall not (and
shall cause Owner not to) maintain, sponsor, contribute to or become obligated
to contribute to, or suffer or permit any ERISA Affiliate of Borrower or Owner
to, maintain, sponsor, contribute to or become obligated to contribute to, any
Plan or any Welfare Plan or permit the assets of Borrower or Owner to become
“plan assets,” whether by operation of law or under regulations promulgated
under ERISA.


 


(3)          Borrower shall deliver
to Lender such certifications or other evidence from time to time throughout
the Term, as requested by Lender in its sole discretion, that (A) neither
Borrower nor Owner is or maintains 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;
(B) neither Borrower nor Owner is subject to state statutes regulating
investments and fiduciary obligations with respect to governmental plans; and
(C) the assets of Borrower do not constitute “plan assets” within the meaning
of 29 C.F.R. Section 2510.3-101.


 


5.26                        Prohibited
Transfers.  Borrower shall not
directly or indirectly (or allow Owner to directly or indirectly) make, suffer
or permit the occurrence of any Transfer other than a Permitted Transfer.


 


5.27                        Liens.  Without Lender’s prior written consent,
Borrower shall not create, incur, assume, permit or suffer to exist any Lien on
all or any portion of the Collateral or the Property or any direct or indirect
legal or beneficial ownership interest in Borrower or Owner, except


 


44

















 


Liens in favor of Lender,
Permitted Encumbrances and Permitted Financing, unless with respect to a Lien
on the Property, such Lien is bonded or discharged within 30 days after
Borrower or Owner first receives notice of such Lien.


 


5.28                        Dissolution.  Borrower shall not and shall not permit Owner
to (i) engage in any dissolution, liquidation or consolidation or merger with
or into any other business entity, (ii) engage in any business activity not
related to the ownership and operation of the Collateral and the Property or
(iii) transfer, lease or sell, in one transaction or any combination of
transactions, all or substantially all of the property or assets of Borrower or
Owner except to the extent expressly permitted by the Loan Documents and the
Senior Loan Documents.


 


5.29                        Incurrence
of Expenses.  Borrower shall
cause Owner not to incur any operating expense, Capital Expense, leasing
expense or other expense unless it is an Approved Operating Expense, Approved CapEx/FF&E
Expense or Approved Renovation/Re-Branding Expense.


 


5.30                        Expenses.  Borrower
shall reimburse Lender upon receipt of notice for all reasonable out-of-pocket
costs and expenses (including reasonable attorneys’ fees and disbursements)
incurred by Lender in connection with the Loan, including (i) prior to
closing, the preparation, negotiation, execution and delivery of the Loan
Documents and the consummation of the transactions contemplated thereby and all
the costs of furnishing all opinions by counsel for Borrower;
(ii) Borrower’s and Lender’s ongoing performance under and compliance with
the Loan Documents, including confirming compliance with environmental and
insurance requirements; (iii) the negotiation, preparation, execution,
delivery and administration of any consents, amendments, waivers or other
modifications of or under any Loan Document and any other documents or matters
requested by Lender; (iv) filing and recording of any Loan Documents;
(v) title insurance with respect to the Pledged Collateral, inspections
and appraisals; (vi) the creation, perfection or protection of Lender’s
Liens in the Collateral and the Subordinate Deposit Account (including fees and
expenses for title and lien searches, intangibles taxes, personal property
taxes, due diligence expenses, travel expenses, accounting firm fees, costs of
appraisals, environmental reports and Lender’s Consultant, surveys and
engineering reports); (vii) enforcing or preserving any rights in response
to third party claims or the prosecuting or defending of any action or
proceeding or other litigation, in each case against, under or affecting
Borrower, the Loan Documents, the Collateral, or any other security given for
the Loan; (viii) fees charged by the Rating Agencies and/or additional fees
charged by the Service in connection with any modification of the Loan
requested by Borrower and (ix) enforcing any obligations of or collecting
any payments due from Borrower under any Loan Document or with respect to the
Collateral or in connection with any refinancing or restructuring of the Loan
in the nature of a “work-out”, or any insolvency or bankruptcy
proceedings.  Any costs and expenses due
and payable to Lender hereunder which are not paid by Borrower within ten days
after demand may be paid from any amounts in the Subordinate Deposit Account,
with notice thereof to Borrower.  The
obligations and liabilities of Borrower under this Section 5.30 shall
survive the Term and the exercise by Lender of any of its rights or remedies
under the Loan Documents, including the acquisition of the Collateral by UCC
foreclosure or a conveyance in lieu of foreclosure..


 


5.31                        Indemnity.  Borrower
shall defend, indemnify and hold harmless Lender and each of its Affiliates and
their respective successors and assigns, including the directors, officers,


 


45

















 


partners, members,
shareholders, participants, employees, professionals and agents of any of the
foregoing (including any Servicer) and each other Person, if any, who Controls
Lender, its Affiliates or any of the foregoing (each, an “Indemnified Party”),
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, expenses and disbursements
of any kind or nature whatsoever (including the reasonable fees and
disbursements of counsel for an Indemnified Party in connection with any
investigative, administrative or judicial proceeding commenced or threatened,
whether or not Lender shall be designated a party thereto, court costs and
costs of appeal at all appellate levels, investigation and laboratory fees,
consultant fees and litigation expenses), that may be imposed on, incurred by,
or asserted against any Indemnified Party (collectively, the “Indemnified Liabilities”)
in any manner, relating to or arising out of or by reason of the Loan, (other
than in connection with a Secondary Market Transaction, which is covered under
Section 10.1.5 hereof), including: (i) any breach by Borrower of its
obligations under, or any intentional misrepresentation by Borrower contained
in, any Loan Document; (ii) the use or intended use of the proceeds of the
Loan; (iii) any information provided by or on behalf of Borrower, or
contained in any documentation approved by Borrower; (iv) ownership of the
Security Documents, the Collateral or any interest therein, or receipt of any
Rents; (v) any accident, injury to or death of persons or loss of or
damage to the Property occurring in, on or about the Property or on the adjoining
sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways;
(vi) any use, nonuse or condition in, on or about the Property or on
adjoining sidewalks, curbs, adjacent property or adjacent parking areas,
streets or ways; (vii) performance of any labor or services or the
furnishing of any materials or other property in respect of the Property;
(viii) the presence, disposal, escape, seepage, leakage, spillage,
discharge, emission, release, or threatened release of any Hazardous Substance
on, from or affecting the Property; (ix) any personal injury (including
wrongful death) or property damage (real or personal) arising out of or
related to such Hazardous Substance; (x) any lawsuit brought or
threatened, settlement reached, or government order relating to such Hazardous
Substance; (xi) any violation of the Environmental Laws which is based
upon or in any way related to such Hazardous Substance, including the costs and
expenses of any Remedial Work; (xii) any failure of the Property to comply
with any Legal Requirement; (xiii) any claim by brokers, finders or
similar persons claiming to be entitled to a commission in connection with any
Lease or other transaction involving the Property or any part thereof, or any
liability asserted against Lender with respect thereto; and (xiv) the
claims of any lessee of any portion of the Property or any Person acting
through or under any lessee or otherwise arising under or as a consequence of
any Lease; provided, however, that Borrower shall not have any obligation to
any Indemnified Party hereunder to the extent that it is finally judicially
determined that such Indemnified Liabilities arise from the gross negligence,
illegal acts, fraud or willful misconduct of such Indemnified Party.  Notwithstanding anything to the contrary
contained in this Section 5.31, it is expressly understood and agreed that the
indemnification procedures set forth in Section 10.1.5 and all of Borrower’s
rights set forth therein shall apply to this Section 5.31 and the provisions of
such Section 10.1.5 in their entirety are incorporated herein by
reference.  Any amounts payable to any
Indemnified Party by reason of the application of this paragraph shall be
payable on demand and shall bear interest at the Default Rate from the date
loss or damage is sustained by any Indemnified Party until paid.  The obligations and liabilities of Borrower
under this Section 5.31 shall survive the Term and the exercise by Lender
of any of its rights or remedies under the Loan Documents, including the acquisition
of the Collateral by UCC foreclosure or a conveyance in lieu of foreclosure.


 


46

















 


5.32                        Patriot
Act Compliance.


 


(a)          Borrower will use its
good faith and commercially reasonable efforts to comply (and to cause Owner to
comply) with the Patriot Act (as defined below) and all applicable requirements
of governmental authorities having jurisdiction over Borrower and the Property,
including those relating to money laundering and terrorism.  Lender shall have the right to audit
Borrower’s compliance with the Patriot Act and all applicable requirements of
governmental authorities having jurisdiction over Borrower and the Collateral,
including those relating to money laundering and terrorism.  In the event that Borrower fails to comply
with the Patriot Act or any such requirements of governmental authorities, then
Lender may, at its option, cause Borrower to comply therewith and any and all
reasonable costs and expenses incurred by Lender in connection therewith shall
be secured by the Mortgage and the other Loan Documents and shall be
immediately due and payable.  For
purposes hereof, the term “Patriot
Act” means the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT
ACT) Act of 2001, as the same may be amended from time to time, and
corresponding provisions of future laws.


 


(b)         Neither Borrower nor any
member of Borrower or member of such member nor any owner of a direct or
indirect interest in Borrower (excluding any shareholders having less than a
25% economic interest in MHGC) (i) is listed on any Government Lists (as
defined below), (ii) is a person who has been determined by competent authority
to be subject to the prohibitions contained in Presidential Executive Order No.
13224 (Sept. 23, 2001) or any other similar prohibitions contained in the rules
and regulations of OFAC (as defined below) or in any enabling legislation or
other Presidential Executive Orders in respect thereof, (iii) has been
previously indicted for or convicted of any felony involving a crime or crimes
of moral turpitude or for any Patriot Act Offense (as defined below), or (iv)
is currently under investigation by any governmental authority for alleged
criminal activity.  For purposes hereof,
the term “Patriot Act
Offense” means any violation of the criminal laws of the United
States of America or of any of the several states, or that would be a criminal
violation if committed within the jurisdiction of the United States of America
or any of the several states, relating to terrorism or the laundering of
monetary instruments, including any offense under (A) the criminal laws against
terrorism; (B) the criminal laws against money laundering, (C) the Bank Secrecy
Act, as amended, (D) the Money Laundering Control Act of 1986, as amended, or
the (E) Patriot Act.  “Patriot Act
Offense” also includes the crimes of conspiracy to commit, or aiding and
abetting another to commit, a Patriot Act Offense.  For purposes hereof, the term “Government Lists”
means (i) the Specially Designated Nationals and Blocked Persons Lists
maintained by Office of Foreign Assets Control (“OFAC”), (ii) any other list of
terrorists, terrorist organizations or narcotics traffickers maintained
pursuant to any of the Rules and Regulations of OFAC that Lender notified
Borrower in writing is now included in “Governmental Lists”, or (iii) any
similar lists maintained by the United States Department of State, the United
States Department of Commerce or any other government authority or pursuant to
any Executive Order of the President of the United States of America that
Lender notified Borrower in writing is now included in “Governmental Lists”.


 


5.33                        Hotel
Operation.  Without in any way
limiting the covenants set forth in Section 5.8 or elsewhere in the Loan
Documents, Borrower shall cause Owner to: 
(i) have the hotel located on the Property to be operated, repaired and
maintained as a well-maintained “first-class hotel”


 


47

















 


which shall mean a hotel
providing amenities, services and facilities substantially equivalent or
superior to hotels of similar average room rate and targeted market segment
from time to time operating in the same or comparable geographic area of the
Property, taking into consideration the age and location of the hotel located
on the Property and (ii) maintain Inventory in amounts sufficient to meet the
hotel industry standard for hotels comparable to the hotel located on the
Property and at levels sufficient for the operation of the hotel located on the
Property at full occupancy levels.


 


5.34                        Limitation
on Securities Issuances.  Except in connection with a
Permitted Transfer, none of Borrower or Owner shall issue any membership
interests or other securities other than those that have been issued as of the
date hereof.


 


5.35                        Limitation
on Distributions.  Following the occurrence and
during the continuance of an Event of Default, Borrower shall not make any
distributions to its members.


 


5.36                        Contractual
Obligations.  Other than the Loan Documents, the
organizational documents of Borrower (and the initial membership interests in
Borrower issued pursuant thereto) and Owner, neither Borrower nor any of its
assets shall be subject to any Contractual Obligations, and Borrower shall not
enter into any agreement, instrument or undertaking by which it or its assets
are bound, except for such liabilities, not material in the aggregate, that are
incidental to its activities as a regular member of Owner.


 


6.                                      NOTICES
AND REPORTING


 


6.1                               Notices.  All notices, consents, approvals and requests
required or permitted hereunder or under any other Loan Document (a “Notice”) shall
be given in writing and shall be effective for all purposes if either hand
delivered with receipt acknowledged, or by a nationally recognized overnight
delivery service (such as Federal Express), or by certified or registered
United States mail, return receipt requested, postage prepaid, or by facsimile
and confirmed by facsimile answer back, in each case addressed as follows (or
to such other address or Person as a party shall designate from time to time by
notice to the other party):  If to
Lender: Greenwich Capital Financial Products, Inc., 600 Steamboat Road,
Greenwich, Connecticut 06830, Attention: Mortgage Loan Department, Telecopier:
(203) 618-2052, with a copy to: Kaye Scholer LLP, 425 Park Avenue, New
York, New York 10022, Attention: Stephen Gliatta, Esq., Telecopier: (212)
836-8689; if to Borrower: c/o Morgans Hotel Group Co., 475 Tenth Avenue, 11th
Floor, New York, New York 10018, Attention: Marc S. Gordon, Telecopier: (212)
277-4270, with a copy to: Morgans Hotel Group Co., 475 Tenth Avenue, 11th
Floor, New York, New York 10018, Attention: Jennifer Nellany, Esq., Telecopier:
(212) 277-4290, and with a copy to: McDermott Will & Emery LLP, 340 Madison
Avenue, New York, New York 10017, Attention: Keith M. Pattiz, Esq., Telecopier:
(212) 547-5444.  A notice shall be deemed
to have been given:  in the case of hand
delivery, 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 overnight delivery, upon the first attempted delivery on a Business
Day; or in the case of facsimile, upon the confirmation of such facsimile
transmission.


 


6.2                               Borrower
Notices and Deliveries.  Borrower
shall (or shall cause Owner to) (a) give prompt written notice to Lender of:
(i) any litigation, governmental proceedings or claims or


 


48

















 


investigations pending or
threatened against Borrower, or Sole Member or Owner which might materially
adversely affect Borrower’s, or Sole Member’s or Owner’s condition (financial
or otherwise) or business or the Collateral; (ii) any material adverse
change in Borrower’s, or Sole Member’s or Owner’s condition, financial or
otherwise, or of the occurrence of any Default or Event of Default of which
Borrower has knowledge; and (b) furnish and provide to Lender:
(i) any Securities and Exchange Commission or other public filings, if
any, of Borrower, Sole Member, Owner, Manager, or any Affiliate of any of the
foregoing within two (2) Business Days of such filing and (ii) all
existing instruments, documents, boundary surveys, footing or foundation
surveys, certificates, plans and specifications, appraisals, title and other
insurance reports and agreements, reasonably requested, from time to time, by
Lender.  In addition, after request by
Lender (but no more frequently than once in any twelve (12) month period),
Borrower shall furnish to Lender, (x) within ten days, a certificate
addressed to Lender, its successors and assigns reaffirming all representations
and warranties of Borrower set forth in the Loan Documents as of the date
requested by Lender or, to the extent of any changes to any such
representations and warranties, so stating such changes, and (y) Borrower
shall use commercially reasonable efforts to obtain and deliver within thirty
(30) days after request by Lender (but no more than twice in any twelve (12)
month period with respect to any one tenant (unless an Event of Default has
occurred and is continuing)), tenant estoppel certificates addressed to Lender,
its successors and assigns from each tenant at the Property in form and substance
reasonably satisfactory to Lender.


 


6.3                               Financial
Reporting.


 


6.3.1                     Bookkeeping.  Borrower shall keep (and shall cause Owner to
keep) on a calendar year basis, in accordance with GAAP, proper and accurate
books, records and accounts reflecting all of the financial affairs of Borrower
and Owner and all items of income and expense and any services, Equipment or
furnishings provided in connection with the operation of the Property, whether
such income or expense is realized by Borrower, Owner, Manager or any Affiliate
of Borrower or Owner.  Lender shall have
the right from time to time during normal business hours upon reasonable notice
to examine such books, records and accounts at the office of Borrower or other
Person maintaining them, and to make such copies or extracts thereof as Lender
shall desire.  After an Event of Default,
Borrower shall pay any third party costs incurred by Lender to examine such
books, records and accounts, as Lender shall determine to be necessary or
appropriate in the protection of Lender’s interest.


 


6.3.2                     Annual Reports.  Borrower shall furnish to Lender annually,
within 120 days after each calendar year, a complete copy of Borrower’s
and Owner’s annual financial statements (which may be consolidated financial
statements) audited by a “big four” accounting firm or another independent
certified public accountant reasonably acceptable to Lender (accompanied by an
unqualified opinion from such accounting firm or other independent certified
public accountant), each in accordance with GAAP and containing balance sheets
and statements of profit and loss for Borrower, Owner and the Property in such
detail as Lender may reasonably request. 
Each such statement (x) shall be in form and substance reasonably
satisfactory to Lender, and if reasonably requested by Lender, shall be
prepared in accordance with Regulation S-X of the Securities Act,
(y) shall set forth the financial condition and the income and expenses
for the Property, for the immediately preceding calendar year, including statements
of annual Net Operating Income and (z) shall be accompanied by an
Officer’s


 


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Certificate certifying (1) that such statement is true, complete
and presents fairly the financial condition of the Property and has been
prepared in accordance with GAAP and (2) whether there exists a Default or
Event of Default, and if so, the nature thereof, the period of time it has
existed and the action then being taken to remedy it.


 


6.3.3                     Monthly/Quarterly Reports.  Borrower shall furnish (or shall cause Owner
to furnish) to Lender within 30 days after the end of each calendar month or
calendar quarter (as indicated below) the following items: (i) monthly and
year-to-date operating statements, noting Net Operating Income and other
information necessary and sufficient under GAAP to fairly represent the
financial position and results of operation of the Property during such
calendar month, all in form reasonably satisfactory to Lender; (ii) a
balance sheet for such calendar month; (iii) a comparison of the budgeted
income and expenses and the actual income and expenses for each month and
year-to-date for the Property, together with a detailed explanation of any
variances of 10% or more between budgeted and actual amounts for such period
and year-to-date on a departmental basis; (iv) on a quarterly basis only,
a statement of the actual Capital Expenses made by Borrower or Owner during
each calendar quarter as of the last day of such calendar quarter; (v) a
statement that neither Borrower nor Owner has incurred any indebtedness other
than Permitted Indebtedness or indebtedness permitted under the Senior Loan
Documents; (vi) an aged receivables report, (vii) occupancy rates
(including the average daily rate), (viii) on a quarterly basis only, rent
rolls identifying the leased premises, names of all tenants, units leased,
monthly rental and all other charges payable under each Lease, date to which
paid, term of Lease, date of occupancy, date of expiration, material special
provisions, concessions or inducements granted to tenants, and a year-by-year
schedule showing by percentage the rentable area of the Improvements and the
total base rent attributable to Leases expiring each year) and a delinquency
report for the Property and (ix) on a quarterly basis only, a
reconciliation of operating expenses identifying those funds which were
disbursed to Borrower from the Operating Expense Subaccount during the prior
month which have not been used to pay Approved Operating Expenses or Third Party
Disbursements.  Each such statement shall
be accompanied by an Officer’s Certificate certifying (1) that such items
are true and complete and fairly present the financial condition and results of
the operations of Borrower, Owner and the Property in accordance with GAAP
(subject to normal year-end adjustments) and (2) whether there exists a
Default or Event of Default, and if so, the nature thereof, the period of time
it has existed and the action then being taken to remedy it.


 


6.3.4                     Other Reports.  Promptly upon receipt thereof, Borrower will
deliver copies of all significant reports submitted to Owner or Borrower, as
applicable, by independent public accountants in connection with each annual,
interim or special audit of the financial statements of Owner or Borrower, as
applicable, made by such accountants, including the comment letter submitted by
such accountants to management in connection with their annual audit.  Borrower shall furnish (or shall cause Owner
to furnish) to Lender, within thirty (30) Business Days after request, such
further detailed information with respect to the operation of the Property and
the financial affairs of Borrower, Owner or Manager as may be reasonably
requested by Lender or any applicable Rating Agency.


 


6.3.5                     Annual Budget.  Borrower shall prepare and submit (or shall
cause Owner or Manager to prepare and submit) to Lender by December 15th
of each year during the Term, for approval by Lender, which approval shall not
be unreasonably withheld or delayed, a


 


50

















 


proposed pro forma budget for the Property for the succeeding calendar
year (the “Annual Budget”,
and each Annual Budget approved (or deemed approved pursuant to the terms of
this Section 6.3.5) by Lender is referred to herein as the “Approved Annual Budget”)),
and, promptly after preparation thereof, any revisions to such Annual
Budget.  Lender’s failure to approve or
disapprove any Annual Budget or revision within 30 days after Lender’s receipt
thereof shall be deemed to constitute Lender’s approval thereof.  The Annual Budget shall consist of
(i) an operating expense budget showing, on a month-by-month basis, in
reasonable detail, each line item of the Borrower’s anticipated operating
income and operating expenses (on an accrual basis), including amounts required
to establish, maintain and/or increase any monthly payments required hereunder
(and once such Annual Budget has been approved (or deemed approved pursuant to
the terms of this Section 6.3.5) by Lender, such operating expense budget shall
be referred to herein as the “Approved Operating Budget”), and (ii) a Capital
Expense/FF&E Expense budget showing, on a month-by-month basis, in
reasonable detail, each line item of anticipated Capital Expenses and FF&E
Expenses (and once such Annual Budget has been approved (or deemed approved
pursuant to the terms of this Section 6.3.5) by Lender, such Capital
Expense/FF&E Expense budget shall be referred to herein as the “Approved Capital/FF&E Budget”).  Until such time that any Annual Budget has
been approved (or deemed to have been approved) by Lender, the prior Approved
Annual Budget shall apply for all purposes hereunder (with such adjustments as
reasonably determined by Lender (including increases for any Taxes, Insurance
Premiums or utilities)).  Borrower shall
be permitted to submit revisions to any Approved Operating Budget or any
Approved Capital/FF&E Budget for approval by Lender, which approval shall
not be unreasonably withheld or delayed. 
On the date hereof Borrower has delivered to Lender, an Approved
Operating Budget, which Approved Operating Budget is attached hereto as Schedule
5.


 


6.3.6                     Senior Loan.  Unless otherwise delivered to Lender pursuant
to the provisions of this Section 6.3, Borrower will deliver (or cause Owner to
deliver) to Lender all of the financial statements, reports, certificates and
related items delivered or required to be delivered by Owner to Senior Lender
under the Senior Loan Documents as and when due under the Senior Loan Documents.


 


6.3.7                     Breach.  If Borrower fails to provide (or cause Owner
to provide) to Lender or its designee any of the financial statements,
certificates, reports or information (the “Required Records”) required by this
Section 6.3.7 within 30 days after the date upon which such Required
Record is due, Lender shall have the option, upon 15 days notice to Borrower to
gain access to Borrower’s and Owner’ books and records and prepare or have
prepared at Borrower’s expense, any Required Records not delivered by Borrower
or Owner.


 


6.3.8                     Hotel Accounting.  All monthly and other operating statements to
be delivered by Borrower hereunder shall be (and all accompanying Officer’s
Certificates shall state that they have been) prepared based upon the USALI.


 


6.3.9                     Inspection.  Borrower shall cause Owner to permit any
authorized representatives designated by Lender to visit, examine, audit, and
inspect, upon reasonable notice and during normal business hours, the Property
including Borrower’s and Owner’s financial and accounting records, and to make
copies and take extracts therefrom, and to discuss its and their


 


51

















 


affairs, finances and business with its and their officers and
independent public accountants (with Borrower’s representative(s) present in
all instances), at such reasonable times during normal business hours and as
often as may be reasonably requested. 
Borrower shall cause its Affiliates to make all books of account and
records so available at the office where the same are regularly
maintained.  Lender shall have the right
to copy, duplicate and make abstracts from such books and records as Lender may
require.  During the continuance of an Event
of Default, Borrower shall pay (or cause Owner to pay) any costs incurred by
Lender to examine such books, records and accounts.  Borrower acknowledges and agrees that (i) all
of such audits, inspections and reports shall be made for the sole benefit of
Lender, and not for the benefit of Borrower or any third party, and neither
Lender nor Lender’s auditors or inspectors or any of Lender’s representatives,
agents or contractors assumes any responsibility or liability (except to
Lender) by reason of such audits, inspections or reports, (ii) Borrower will
not rely upon any of such audits, inspections or reports for any purpose
whatsoever, and (iii) the performance of such audits, inspections and reports
will not constitute a waiver of any of the provisions of this Agreement or any
other Loan Document or any of the obligations of Borrower hereunder or
thereunder.  Borrower further
acknowledges and agrees that neither Lender nor Lender’s inspector,
representatives, agents or contractors shall be deemed to be in any way
responsible for any matters related to design or construction of the
Improvements or any construction work. At any time during the term of the Loan
(but not more than once in any twelve (12) month period), Borrower shall
cooperate with Lender and use reasonable efforts to assist Lender in obtaining
an appraisal of the Property.  Such
cooperation and assistance from Borrower shall include but not be limited to
the obligation to provide (or cause Owner to provide) Lender or Lender’s
appraiser with the following: (i) reasonable access to the Property, (ii) a
current certified rent roll for the Property in form and substance satisfactory
to Lender, including current asking rents and a history of change in asking
rents and historical vacancy for the past three years, (iii) current and
budgeted income and expense statements for the prior three years, (iv) the then
existing site plan and survey of the Property, (v) the building plans and
specifications, including typical elevation and floor plans, to the extent in
Borrower’s possession or reasonably available to Borrower; (vi) the current and
prior year real estate tax bills, (vii) a detailed list of past and scheduled
capital improvements and the costs thereof, (viii) all environmental reports
and other applicable information relating to the Property, and (ix) copies of
all recent appraisals/property description information or brochures, including
descriptions of amenities and services relating to the Property to the extent
in Borrower’s possession or reasonably available to Borrower.  The appraiser performing any such appraisal
shall be engaged by Lender and Borrower shall be responsible for any fees
payable to said appraiser in connection with an appraisal of the Property.  Borrower shall cooperate with Lender with
respect to any proceedings before any Governmental Authority which may in any
way affect the rights of Lender hereunder or any rights obtained by Lender
under any of the Loan Documents and, in connection therewith, not prohibit
Lender, at its election, from participating in any such proceedings.


 


7.                                      INSURANCE;
CASUALTY; AND CONDEMNATION


 


7.1                               Insurance.


 


7.1.1                     Coverage.  Borrower, at its sole cost (or at Owner’s
sole cost), for the mutual benefit of Borrower, Owner and Lender, shall cause
Owner to obtain and maintain during the Term the following policies of
insurance:


 


52

















 


(a)          Property insurance
insuring against loss or damage customarily included under so called “all risk”
or “special form” policies including fire, lightning, vandalism, and malicious
mischief, boiler and machinery and, if required by Lender, flood and/or
earthquake coverage and subject to subsection (j) below, coverage for damage or
destruction caused by the acts of “Terrorists” (or such policies shall have no
exclusion from coverage with respect thereto) and such other insurable hazards
as, under good insurance practices, from time to time are insured against for
other property and buildings similar to the premises in nature, use, location,
height, and type of construction.  Such
insurance policy shall also insure for ordinance of law coverage, costs of
demolition and increased cost of construction in amounts satisfactory to
Lender.  Each such insurance policy shall
(i) be in an amount equal to 100% of the then replacement cost of the
Improvements without deduction for physical depreciation and (ii) have
deductibles no greater than $250,000 per occurrence and (iii) be on a
replacement cost basis and contain either no coinsurance or, if coinsurance, an
agreed amount endorsement, and shall cover, without limitation, all tenant
improvements and betterments that Owner is required to insure on a replacement
cost basis.  Senior Lender shall be named
Mortgagee and Loss Payee on a Standard Mortgagee Endorsement.


 


(b)         Flood insurance if any
part of the Property is located in an area now or hereafter designated by the
Federal Emergency Management Agency as a Zone “A” & “V” Special Hazard
Area, or such other Special Hazard Area if Lender so requires in its sole
discretion.  Such policy shall (i) be in
an amount equal to (A) 100% of the full replacement cost of the Improvements on
the Property (without any deduction for depreciation) or (B) such other amount
as agreed to by Lender and (ii) have a maximum permissible deductible of
$3,000.


 


(c)          Public liability
insurance, including (i) ”Commercial General Liability Insurance”,
(ii) ”Owned”, “Hired” and “Non Owned Auto Liability”; (iii) so called
“dram shop” insurance or other liquor liability insurance required in
connection with the sale of alcoholic beverages; and (iv) umbrella
liability coverage for personal injury, bodily injury, death, accident and
property damage, such insurance providing in combination no less than
containing minimum limits per occurrence of $1,000,000 and $2,000,000 in the
aggregate for any policy year with no deductible or self insured retention;
together with at least $25,000,000 excess and/or umbrella liability insurance
for any and all claims.  The policies
described in this subsection shall also include coverage for elevators,
escalators, independent contractors, “Contractual Liability” (covering, to the
maximum extent permitted by law, Borrower’s obligation to indemnify Lender as
required under this Agreement and the other Loan Documents), “Products” and
“Completed Operations Liability” coverage.


 


(d)         Rental loss and/or
business interruption insurance (i) with Senior Lender being named as
“Lender Loss Payee”, (ii) in an amount equal to one hundred percent (100%)
of the projected Rents from the Property for a period of not less than
twenty-four (24) months; and (iii) containing an extended period of
indemnity endorsement which provides that after the physical loss to the
Property has been repaired, the continued loss of income will be insured until
such income either returns to the same level it was at prior to the loss, or
the expiration of twelve (12) months from the date that the Property is
repaired or replaced and operations are resumed, whichever first occurs, and
notwithstanding that the policy may expire prior to the end of such period.  The amount of such insurance shall be
increased from time to time during the Term as and when the estimated or actual
Rents increase.


 


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(e)          Comprehensive boiler and
machinery insurance covering all mechanical and electrical equipment against
physical damage, rent loss and improvements loss and covering, without
limitation, all tenant improvements and betterments that Owner is required to
insure pursuant to the lease on a replacement cost basis and in an amount equal
to the lesser of (i) $2,000,000 and (ii) 100% of the full replacement cost of
the Improvements on the Property (without any deduction for depreciation).


 


(f)            Worker’s compensation
and disability insurance with respect to any employees of Owner, as required by
any Legal Requirement.


 


(g)         During any period of
repair or restoration, builder’s “all-risk” insurance on the so called
completed value basis in an amount equal to not less than the full insurable
value of the Property, against such risks (including fire and extended coverage
and collapse of the Improvements to agreed limits) as Lender may request, in
form and substance acceptable to Lender.


 


(h)         Coverage to compensate
for ordinance of law, the cost of demolition and the increased cost of
construction in an amount satisfactory to Lender, provided that if the Property
is a legal conforming use and Borrower is permitted as of right to rebuild the
Property to be of at least equal value and of substantially the same character,
height, and density, ordinance of law coverage shall not be required hereunder.


 


(i)             Such other insurance
(including environmental liability insurance, earthquake insurance, mine
subsidence insurance and windstorm insurance) as may from time to time be
reasonably required by Lender in order to protect its interests.


 


(j)             Notwithstanding
anything in subsection (a) above to the contrary, Borrower shall be required to
obtain and maintain coverage in its property insurance Policy (or by a separate
Policy) against loss or damage by terrorist acts in an amount equal to 100% of
the “Full Replacement Cost” of the Property; provided that such coverage is
available.  In the event that such
coverage with respect to terrorist acts is not included as part of the “all
risk” property policy required by subsection (a) above, Borrower shall,
nevertheless be required to obtain coverage for terrorism (as stand alone
coverage) in an amount equal to 100% of the “Full Replacement Cost” of the
Property; provided that such coverage is available.  Notwithstanding the foregoing, with respect
to any such stand-alone policy covering terrorist acts, Borrower shall not be
required to pay any Insurance Premiums solely with respect to such terrorism
coverage in excess of the Terrorism Premium Cap (hereinafter defined); provided
that if the Insurance Premiums payable with respect to such terrorism coverage
exceeds the Terrorism Premium Cap, Lender may, at its option (1) purchase such
stand-alone terrorism Policy, with Borrower paying such portion of the
Insurance Premiums with respect thereto equal to the Terrorism Premium Cap and
the Lender paying such portion of the Insurance Premiums in excess of the
Terrorism Premium Cap or (2) modify the deductible amounts, policy limits and
other required policy terms to reduce the Insurance Premiums payable with
respect to such stand-alone terrorism Policy to the Terrorism Premium Cap.  As used herein, (i) “Terrorism Premium Cap”
means an amount equal to 150% of the aggregate Insurance Premiums payable with
respect to all the insurance coverage under Section 7.1.1(a) for the last
policy year in which coverage for terrorism was included as part of the “all
risk” property policy required by subsection (a) above, adjusted annually by a
percentage


 


54

















 


equal to the
increase in the Consumer Price Index (hereinafter defined) and (ii) “Consumer Price Index”
means the Consumer Price Index for All Urban Consumers published by the Bureau
of Labor Statistics of the United States Department of Labor, New York
Metropolitan Statistical Area, All Items (1982-84 = 100), or any successor
index thereto, approximately adjusted, and in the event that the Consumer Price
Index is converted to a different standard reference base or otherwise revised,
the determination of adjustments provided for herein shall be made with the use
of such conversion factor, formula or table for converting the Consumer Price
Index as may be published by the Bureau of Labor Statistics or, if said Bureau
shall not publish the same, then with the use of such conversion factor,
formula or table as may be published by Prentice-Hall, Inc., or any other
nationally recognized publisher of similar statistical information; and if the
Consumer Price Index ceases to be published, and there is no successor thereto
(i) such other index as Lender and Borrower shall agree upon in writing or (ii)
if Lender and Borrower cannot agree on a substitute index, such other index, as
reasonably selected by Lender.  Borrower shall obtain the coverage
required under this subsection (j) from a carrier which otherwise satisfies the
rating criteria specified in Section 7.1.2 (a “Qualified Carrier”) or in the event
that such coverage is not available from a Qualified Carrier, Borrower shall
obtain such coverage from the highest rated insurance company providing such
coverage.


 


7.1.2                     Policies.  All policies of insurance (the “Policies”) required
pursuant to Section 7.1.1 shall (i) be issued by companies approved
by Lender and licensed to do business in the State, with a claims paying
ability rating of “A” or better by S&P (and the equivalent by any other
Rating Agency) (provided, however for multi-layered policies, (A) if four
(4) or less insurance companies issue the Policies, then at least 75% of the
insurance coverage represented by the Policies must be provided by insurance
companies with a claims paying ability rating of “A” or better by S&P (and
the equivalent by any other Rating Agency), with no carrier below “BBB” (and
the equivalent by any other Rating Agency) or (B) if five (5) or more
insurance companies issue the Policies, then at least 60% of the insurance
coverage represented by the Policies must be provided by insurance companies
with a claims paying ability rating of “A” or better by S&P (and the equivalent
by any other Rating Agency), with no carrier below “BBB” (and the equivalent by
any other Rating Agency), and a rating of A:X or better in the current Best’s
Insurance Reports; (ii) name Lender and Senior Lender and its successors
and/or assigns as their interest may appear as the mortgagee (in the case of
property insurance), loss payee (in the case of business interruption/loss of
rents coverage) and an additional insured (in the case of liability insurance);
(iii) contain (in the case of property insurance and subject to the rights
of Senior Lender) a Non-Contributory Standard Mortgagee Clause and a Lender’s
Loss Payable Endorsement, or their equivalents, naming Lender as the person to
which all payments made by such insurance company shall be paid, subject to the
rights of Senior Lender; (iv) contain a waiver of subrogation against
Lender; (v) subject to the rights of Senior Lender, be assigned and
certified copies thereof delivered to Lender; (vi) contain such provisions
as Lender deems reasonably necessary or desirable to protect its interest,
including (A) endorsements providing that neither Borrower, Owner, Lender nor
any other party shall be a co-insurer under the Policies, (B) that Lender shall
receive at least 30 days’ prior written notice of any modification, reduction
or cancellation of any of the Policies, (C) any foreclosure or other action or
proceeding taken by Lender pursuant to any provision of the Loan Documents; and
(viii) be reasonably satisfactory in form and substance to Lender and
approved by Lender as to amounts, form, risk coverage, deductibles, loss payees
and insureds.  Borrower shall cause Owner
to pay the premiums for such Policies (the “Insurance Premiums”) as the same become
due and payable


 


55

















 


(which payments, provided no Event of Default has occurred and is
continuing, may be made from funds available, if any, in the Tax and Insurance
Subaccount held by the Senior Lender) and furnish to Lender evidence of the
renewal of each of the Policies together with (unless such Insurance Premiums
have been paid by Senior Lender pursuant to Section 3.3 of the Senior Loan
Agreement) receipts for or other evidence of the payment of the Insurance
Premiums reasonably satisfactory to Lender. 
If Borrower does not furnish such evidence and receipts at least 10 days
prior to the expiration of any expiring Policy, then Lender may, but shall not
be obligated to, procure such insurance and pay the Insurance Premiums
therefor, and Borrower shall reimburse Lender for the cost of such Insurance
Premiums promptly on demand, with interest accruing at the Default Rate.  Borrower shall deliver (or cause Owner to
deliver) to Lender a certified copy of each Policy within 30 days after its
effective date or, if certified copies are not then available, certified
certificates evidencing such Policies (and Borrower shall thereafter deliver to
Lender a certified copy of each Policy as soon as available).  Within 30 days after request by Lender,
Borrower shall obtain (or cause Owner to obtain) such increases in the amounts
of coverage required hereunder as may be reasonably requested by Lender, taking
into consideration changes in the value of money over time, changes in
liability laws, changes in prudent customs and practices, and the like.  The insurance coverages required under
Section 7.1.1 above may be effected under a blanket policy or policies covering
the Property and other property and assets not constituting a part of the security
for the Loan; provided that Borrower shall provide evidence reasonably
satisfactory to Lender that the insurance premiums for the Property are
separately allocated to the Property and that unless otherwise agreed to by
Lender, the limit of such policy shall be a “true blanket limit” and not
limited by a schedule of values for the properties covered thereby.  Notwithstanding anything in Section 7.1.1
above or this Section 7.1.2 to the contrary, it is specifically understood and
agreed that no other property may be added to any such blanket policies other
than the Property and those other properties covered by such blanket policies
as of the date hereof, unless the aggregate coverage afforded under the
Policies is increased such that after giving effect to such addition of any
other properties, the Policies continue to meet the requirements, and otherwise
comply with the terms and provisions, of Section 7.1.1 above and this Section
7.1.2.


 


7.2                               Casualty.


 


7.2.1                     Notice; Restoration.  If the Property is damaged or destroyed, in
whole or in part, by fire or other casualty (a “Casualty”), Borrower shall give prompt
notice thereof to Lender.  Following the
occurrence of a Casualty, subject to the requirements of the Senior Loan
Documents, Borrower, regardless of whether insurance proceeds are available
(unless Lender has breached its obligation (if any) to make such insurance
proceeds available pursuant to Section 7.4.1 hereof), shall promptly proceed to
restore, repair, replace or rebuild (or shall cause Owner to promptly proceed
to restore, repair, replace or rebuild) the Property in accordance with Legal
Requirements to be of at least equal value and of substantially the same
character as prior to such damage or destruction.  Concurrently with the delivery to Senior
Lender of any of the items required under Section 7.4.3 of the Senior Loan
Agreement in connection with a Restoration by Owner, Borrower shall cause such
items to be concurrently delivered to Lender for Lender’s prior approval.


 


7.2.2                     Settlement of Proceeds.  If a Casualty covered by any of the Policies
(an “Insured Casualty”)
occurs where the loss does not exceed $1,000,000, provided no Event of


 


56

















 


Default has occurred and is continuing, Borrower may cause Owner to
settle and adjust any claim without the prior consent of Lender; provided such
adjustment is carried out in a competent and timely manner, and Borrower is
hereby authorized to permit Owner to collect and receive the insurance proceeds
(the “Proceeds”).  In the event of an Insured Casualty where the
loss equals or exceeds $1,000,000, Borrower may settle and adjust any claim
with the prior consent of Lender (which consent shall not be unreasonably
withheld or delayed) unless an Event of Default has occurred and is continuing,
in which case Lender may, in its sole discretion but subject to the rights of
the Senior Lender, settle and adjust any claim without the consent of Borrower
or Owner and agree with the insurer(s) on the amount to be paid on the loss,
and the Proceeds shall, if required by Senior Lender, be due and payable solely
to Senior Lender and held by Senior Lender in accordance with the terms of the
Senior Loan Agreement.  The expenses
incurred by Lender in the adjustment and collection of the Proceeds shall
become part of the Debt and shall be reimbursed by Borrower to Lender within
ten (10) days of demand.


 


7.3                               Condemnation.


 


7.3.1                     Notice; Restoration.  Borrower shall promptly give Lender notice of
the actual or threatened commencement of any condemnation or eminent domain
proceeding affecting the Property (a “Condemnation”) and shall deliver to Lender
copies of any and all papers served in connection with such Condemnation.  Following the occurrence of a Condemnation,
Borrower, regardless of whether an Award is available (unless Lender has
breached its obligation (if any) to make such Award available pursuant to
Section 7.4.1 hereof), shall promptly proceed to restore, repair, replace or
rebuild (or cause Owner to promptly proceed to restore, repair, replace or
rebuild) the Property in accordance with Legal Requirements to the extent
practicable to be of at least equal value and of substantially the same
character (and to have the same utility) as prior to such Condemnation.


 


7.3.2                     Collection of Award.  Subject to the rights of Senior Lender, if a
Condemnation occurs where the award or payment in respect thereof (an “Award”) does not
exceed $1,000,000, provided no Event of Default has occurred and is continuing,
Borrower may make any compromise, adjustment or settlement in connection with
such Condemnation with the prior consent of Lender, not to be unreasonably
withheld, provided such adjustment is carried out in a competent and timely
manner, and Borrower is hereby authorized to collect and receive such Award.  In the event of a Condemnation where the
Award is in excess of $1,000,000, Lender may collect, receive and retain such
Award and make any compromise, adjustment or settlement in connection with such
Condemnation with the prior consent of Borrower (unless an Event of Default is
continuing, in which case, Borrower’s prior consent shall not be required, and
Lender is hereby irrevocably appointed as Borrower’s attorney-in-fact, coupled
with an interest, with exclusive power on behalf of Owner to take such actions
during the continuance of an Event of Default), not to be unreasonably withheld
(which shall be deemed consented to if Borrower fails to respond to any request
for consent therefor within ten (10) days of request)..  Notwithstanding any Condemnation (or any
transfer made in lieu of or in anticipation of such Condemnation), Borrower
shall continue to pay the Debt at the time and in the manner provided for in
the Loan Documents, and the Debt shall not be reduced unless and until any
Award shall have been actually received and applied by Lender to expenses of
collecting the Award and to discharge of the Debt. 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 in


 


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the Note.  If the Property is
sold, through foreclosure or otherwise, prior to the receipt by Lender of such
Award, Lender shall have the right, subject to the rights of Senior Lender and
whether or not a deficiency judgment on the Note shall be recoverable or shall
have been sought, recovered or denied, to receive all or a portion of the Award
sufficient to pay the Debt.  Borrower
shall cause any Award that is payable to Borrower pursuant to Owner’s operating
agreement to be paid directly to Lender, to be applied as provided in this
Agreement, subject to the rights of the Senior Lender under the Senior Loan
Documents.  The expenses incurred by Lender
in the adjustment and collection of the Proceeds shall become part of the Debt
and shall be reimbursed by Borrower to Lender upon demand.


 


7.4                               Application
of Proceeds or Award.  If,
pursuant to the terms of the Senior Loan Documents, Owner is ever entitled to
receive any portion of any Proceeds or Awards (i.e., such amounts are not
required to be used for Restoration or to be applied to repayment of the Senior
Loan), Borrower shall cause such portion of such Proceeds or Award to be
deposited into the Subordinate Deposit Account and all such amounts shall then
be applied to the payment of the Debt in accordance with Section 2.3.2.


 


8.                                      DEFAULTS


 


8.1                               Events
of Default.  An “Event of Default”
shall exist with respect to the Loan if any of the following shall occur:


 


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


 


(b)         any of the Taxes are not
paid when due, subject to Borrower’s and Owner’s right to contest Taxes in
accordance with Section 5.2 and the Senior Loan Documents, as applicable;


 


(c)          the Policies are not
kept in full force and effect, or are not delivered to Lender within ten (10)
days after request;


 


(d)         a Transfer other than a
Permitted Transfer occurs;


 


(e)          any representation or
warranty made by Borrower or Guarantor or in any Loan Document, or in any
report, certificate, financial statement or other instrument, agreement or
document furnished by Borrower or Guarantor in connection with any Loan
Document, shall be false or misleading in any material respect as of the date
the representation or warranty was made; provided that if such breach is
reasonably susceptible to cure, then no Event of Default shall exist so long as
Borrower shall cause such breach to be cured within thirty (30) days after
notice from Lender;


 


(f)            Borrower, or Sole
Member, Owner or Guarantor shall (i) make an assignment for the benefit of
creditors, or (ii) shall generally not be paying its debts as they become due;


 


(g)         a receiver, liquidator or
trustee shall be appointed for Borrower, Sole Member, Owner or Guarantor; or
Borrower, Sole Member, Owner or Guarantor shall be adjudicated a bankrupt or
insolvent; or 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


 


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to, or
acquiesced in by, Borrower, Sole Member, Owner or Guarantor, as the case may
be; or any proceeding for the dissolution or liquidation of Borrower, Sole
Member, Owner or Guarantor shall be instituted; provided, however, if such appointment,
adjudication, petition or proceeding was involuntary and not consented to by
Borrower, Sole Member, Owner or Guarantor, as the case may be, only upon the
same not being discharged, stayed or dismissed within 90 days;


 


(h)         Borrower breaches any covenant
contained in Sections 2.3.2(a), 5.12.1 (a) - (f), 5.13, 5.15, 5.22, 5.28
or 9.7;


 


(i)             except as expressly
permitted hereunder, the actual or threatened alteration, improvement,
demolition or removal of all or any of portion of any of the Improvements
without the prior written consent of Lender;


 


(j)             an Event of Default
as defined or described elsewhere in this Agreement or in any other Loan
Document occurs; or any other event shall occur or condition shall exist, if
the effect of such event or condition is to accelerate or to permit Lender to
accelerate the maturity of any portion of the Debt;


 


(k)          an Event of Default as
defined or described in the Senior Loan Documents occurs; or any other event
shall occur or condition shall exist, if the effect of such event or condition
is to accelerate or permit Senior Lender to accelerate the maturity of any
portion of the Senior Loan;


 


(l)             a default occurs
under any term, covenant or provision set forth herein or in any other Loan
Document which specifically contains a notice requirement or grace period and
such notice has been given and such grace period has expired;


 


(m)       any of the assumptions
contained in any substantive non-consolidation opinion, delivered to Lender by
Borrower’s counsel in connection with the Loan or otherwise hereunder, were not
true and correct in all material respects as of the date of such opinion or
thereafter became untrue or incorrect; provided that in either case, no Event
of Default shall be deemed to have occurred if such counsel reaffirms its
substantive non-consolidation opinion; or


 


(n)         a default shall be
continuing under any of the other terms, covenants or conditions of this
Agreement or any other Loan Document not otherwise specified in this
Section 8.1, for ten days after notice to Borrower (and Guarantor, if
applicable) from Lender, in the case of any default which can be cured by the
payment of a sum of money, or for 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 30-day period,
and Borrower (or Guarantor, if applicable) shall have commenced to cure such
default within such 30-day period and thereafter diligently and expeditiously
proceeds to cure the same, such 30-day period shall be extended for an
additional period of time as is reasonably necessary for Borrower (or
Guarantor, if applicable) in the exercise of due diligence to cure such
default, such additional period not to exceed 60 days.


 


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8.2                               Remedies.


 


8.2.1                     Acceleration.  Upon the occurrence of an Event of Default
(other than an Event of Default described in paragraph (f) or (g) of
Section 8.1) and at any time and from time to time thereafter, in addition
to any other rights or remedies available to it pursuant to the 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 declaring the Debt to be immediately
due and payable (including unpaid interest, Default Rate interest, Late Payment
Charges, Spread Maintenance Premium, Prepayment Premium, and any other amounts
owing by Borrower), without notice or demand; and upon any Event of Default
described in paragraph (f) or (g) of Section 8.1, the Debt (including
unpaid interest, Default Rate interest, Late Payment Charges, Spread
Maintenance Premium, any Prepayment Premium, and any other amounts owing by
Borrower) shall immediately and automatically become due and payable, without
notice or demand, and Borrower hereby expressly waives any such notice or
demand, anything contained in any Loan Document to the contrary
notwithstanding.


 


8.2.2                     Remedies Cumulative.  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 the Loan Documents 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, or be automatically, due and
payable, and whether or not Lender shall have commenced any foreclosure
proceeding or other action for the enforcement of its rights and remedies under
any of the Loan Documents.  Any such
actions taken by Lender shall be cumulative and concurrent and may be pursued
independently, singly, successively, together or otherwise, at such time and in
such order as Lender may determine in its 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 in the
Loan Documents.  Without limiting the
generality of the foregoing, Borrower agrees that if an Event of Default is
continuing, (i) to the extent permitted by applicable law, 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, the Pledge and other Security Documents have
been foreclosed, the Collateral has been sold and/or otherwise realized upon in
satisfaction of the Debt or the Debt has been paid in full.  To the extent permitted by applicable law,
nothing contained in any 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, and Lender may seek
satisfaction out of all or less than all of the Collateral, in its discretion.


 


8.2.3                     Severance.  Lender shall have the right from time to time
to sever the Note and the other Loan Documents into one or more separate notes,
pledge and security agreements and other security documents in such
denominations and priorities of payment and liens as Lender shall determine in
its discretion for purposes of evidencing and enforcing its rights and remedies.  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


 


60

















 


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 such severance, Borrower ratifying all that such attorney
shall do by virtue thereof.


 


8.2.4                     Delay.  No delay or omission to exercise any remedy,
right or power accruing upon an Event of Default, or the granting of any
indulgence or compromise by Lender shall impair any such remedy, right or power
hereunder or 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
shall not be construed to be a waiver of any subsequent Default or Event of
Default or to impair any remedy, right or power consequent thereon.  Notwithstanding any other provision of this
Agreement, Lender reserves the right to seek a deficiency judgment or preserve
a deficiency claim in connection with the foreclosure of the Collateral to the
extent necessary to foreclose on all or less than all of any portion of such
Collateral.


 


8.2.5                     Lender’s Right to Perform.  If Borrower fails to perform any covenant or
obligation contained herein and such failure shall continue for a period of
five Business Days after Borrower’s receipt of written notice thereof from
Lender, without in any way limiting Lender’s right to exercise any of its
rights, powers or remedies as provided hereunder, or under any of the other
Loan Documents, Lender may, but shall have no obligation to, perform, or cause
performance of, such covenant or obligation, and all costs, expenses, liabilities,
penalties and fines of Lender incurred or paid in connection therewith shall be
payable by Borrower to Lender upon demand and if not paid shall be added to the
Debt (and to the extent permitted under applicable laws, secured by the Pledge
and other Loan Documents) and shall bear interest thereafter at the Default
Rate.  Notwithstanding the foregoing,
Lender shall have no obligation to send notice to Borrower of any such failure.


 


9.                                      SENIOR
LOAN


 


9.1                               Compliance
with Senior Loan Documents. 
Borrower shall (or shall cause Owner to):  (a) pay all principal, interest and other
sums required to be paid by Owner under and pursuant to the provisions of the
Senior Loan Documents; (b) diligently perform and observe all of the terms,
covenants and conditions of the Senior Loan Documents on the part of Owner to
be performed and observed, unless such performance or observance shall be
waived in writing by Senior Lender; (c) promptly notify Lender of the giving of
any notice by Senior Lender to Owner or Borrower of any default by Owner in the
performance or observance of any of the terms, covenants or conditions of the
Senior Loan Documents on the part of Owner to be performed or observed and
deliver to Lender a true copy of each such notice; (d) deliver a true, correct
and complete copy of all notices, demands, requests or material correspondence
(including electronically transmitted items) given or received by Owner or
Guarantor to or from the Senior Lender or its agent; and (e) not enter into or
be bound by any Senior Loan Documents that are not approved by Lender.  Without limiting the foregoing, Borrower
shall cause Owner to fund all reserves required to be funded pursuant to the
Senior Loan Documents.  In the event of a
refinancing of the Senior Loan permitted by the terms of this Agreement,
Borrower will cause all reserves on deposit with Senior Lender to be utilized
by Owner to reduce the amount due and payable to the Senior Lender or
alternatively shall be remitted to Lender as a mandatory prepayment of the Loan.


 


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9.2                               Senior
Loan Defaults.


 


(a)          Without
limiting the generality of the other provisions of this Agreement, and without
waiving or releasing Borrower from any of its obligations hereunder, if there
shall occur any default under the Senior Loan Documents or if Owner fails to
extend its interest rate protection agreement pursuant to Section 2.8 of the
Senior Loan Agreement, Borrower hereby expressly agrees that Lender shall have
the immediate right, without prior notice to Borrower, but shall be under no
obligation:  (i) to pay all or any part
of the Senior Loan and any other sums that are then due and payable, and to
perform any act or take any action on behalf of Borrower and/or Owner as may be
appropriate, to cause all of the terms, covenants and conditions of the Senior
Loan Documents on the part of Owner to be performed or observed thereunder to
be promptly performed or observed; and (ii) to pay any other amounts and take
any other action as Lender, in its sole and absolute discretion, shall deem
advisable to protect or preserve the rights and interests of Lender in the Loan
and/or the Collateral.  All sums so paid
and the costs and expenses incurred by Lender in exercising rights under this
Section 9.2 (including attorneys’ fees) (i) shall constitute additional
advances of the Loan to Borrower, (ii) shall increase the then unpaid
Principal, (iii) shall bear interest at the Default Rate for the period
from the date that such costs or expenses were incurred to the date of payment
to Lender, (iv) shall constitute a portion of the Debt, and (v) shall
be secured by the Pledge.


 


(b)         Borrower
hereby indemnifies Lender from and against all liabilities, obligations,
losses, damages, penalties, assessments, actions, or causes of action,
judgments, suits, claims, demands, costs, expenses (including attorneys’ and
other professional fees, whether or not suit is brought, and settlement costs)
and disbursements of any kind or nature whatsoever which may be imposed on,
incurred by or asserted against Lender as a result of the foregoing
actions.  Lender shall have no obligation
to Borrower, Sole Member, Owner or any other party to make any such payment or
performance.  Borrower shall not impede,
interfere with, hinder or delay, and shall not permit Owner to impede,
interfere with, hinder or delay, any effort or action on the part of Lender to
cure any default or asserted default under the Senior Loan, or to otherwise
protect or preserve Lender’s interests in the Loan and the Collateral following
a default or asserted default under the Senior Loan.


 


(c)          Any
default or breach by Owner under the Senior Loan Documents which is not cured
prior to the expiration of any applicable grace, notice or cure period afforded
to Owner under the Senior Loan Documents shall constitute an Event of Default,
without regard to any subsequent payment or performance of any such obligations
by Lender.  Borrower hereby grants Lender
and any person designated by Lender the right to enter upon the Property at any
time following the occurrence and during the continuance of any default, or the
assertion by Senior Lender that a default has occurred under the Senior Loan
Documents, for the purpose of taking any such action or to appear in, defend or
bring any action or proceeding to protect Borrower’s, Owner’s and/or Lender’s
interest.  Lender may take such action as
Lender deems reasonably necessary or desirable to carry out the intents and
purposes of this subsection (including communicating with Senior Lender with
respect to any Senior Loan defaults), without prior notice to, or consent from,
Borrower.  Lender shall have no
obligation to complete any cure or attempted cure undertaken or commenced by
Lender.


 


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(d)         If
Lender shall receive a copy of any notice of default under the Senior Loan
Documents sent by Senior Lender to Owner, such notice shall constitute full
protection to Lender for any action taken or omitted to be taken by Lender, in
good faith, in reliance thereon.  As a
material inducement to Lender’s making the Loan, Borrower hereby absolutely and
unconditionally releases and waives all claims against Lender arising out of
Lender’s exercise of its rights and remedies provided in this Section 9.2,
except for Lender’s gross negligence or willful misconduct.  In the event that Lender makes any payment in
respect of the Senior Loan, Lender shall be subrogated to all of the rights of
Senior Lender under the Senior Loan Documents against the Property, in addition
to all other rights it may have under the Loan Documents.


 


9.3                               Senior
Loan Estoppels.  Borrower shall
(or shall cause Owner to), from time to time, use reasonable efforts to obtain
from Senior Lender such certificates of estoppel with respect to compliance by
Owner with the terms of the Senior Loan Documents as may be reasonably
requested by Lender.  In the event or to
the extent that Senior Lender is not legally obligated to deliver such
certificates of estoppel and is unwilling to deliver the same, or is legally
obligated to deliver such certificates of estoppel but breaches such
obligation, then Borrower shall not be in breach of this provision so long as
Borrower furnishes to Lender an estoppel executed by Borrower and Owner
expressly representing to Lender the information requested by Lender regarding
compliance by Owner with the terms of the Senior Loan Documents.  Borrower hereby indemnifies Lender from and
against all liabilities, obligations, losses, damages, penalties, assessments,
actions, or causes of action, judgments, suits, claims, demands, costs,
expenses (including attorneys’ and other professional fees, whether or not suit
is brought and settlement costs) and disbursements of any kind or nature
whatsoever which may be imposed on, incurred by, or asserted against Lender
based in whole or in part upon any fact, event, condition, or circumstances
relating to the Senior Loan which was misrepresented in, or which warrants
disclosure and was omitted from such estoppel executed by Borrower and Owner.


 


9.4                               No
Amendments to Senior Loan Documents. 
Without obtaining the prior written consent of Lender, Borrower shall
not cause or permit Owner to (i) enter into any amendment or modification
of any of the Senior Loan Documents, (ii) grant to Senior Lender any
consent or waiver or (iii) exercise any remedy available to Owner under
the Senior Loan Documents or any right or election under the Senior Loan
Documents.  Borrower shall cause Owner to
provide Lender with a copy of any amendment or modification to the Senior Loan
Documents within five days after the execution thereof.


 


9.5                               Acquisition
of the Senior Loan.  Neither
Borrower, Sole Member or Owner or any Affiliate of any of them shall acquire or
agree to acquire the Senior Loan, or any portion thereof or any interest
therein, or any direct or indirect ownership interest in the holder of the
Senior Loan, via purchase, transfer, exchange or otherwise, and any breach or
attempted breach of this provision shall constitute an Event of Default
hereunder.  If, solely by operation of
applicable subrogation law, Borrower, Sole Member or Owner or any Affiliate of
any of them shall have failed to comply with the foregoing, then Borrower:  (i) shall immediately notify Lender of
such failure; (ii) shall cause any and all such prohibited parties
acquiring any interest in the Senior Loan Documents:  (A) not to enforce the Senior Loan
Documents; and (B) upon the request of Lender, to the extent any of such
prohibited parties has or have the power or authority to do so, to
promptly:  (1) cancel the promissory
note evidencing the Senior Loan, (2) reconvey and


 


63

















 


release the lien securing the
Senior Loan and any other collateral under the Senior Loan Documents, and
(3) discontinue and terminate any enforcement proceeding(s) under the
Senior Loan Documents.


 


9.6                               Deed
in Lieu of Foreclosure.  Without
the express prior written consent of Lender, Borrower shall not, and Borrower
shall not cause, suffer or permit Owner to, enter into any deed-in-lieu or
consensual foreclosure with or for the benefit of Senior Lender or any of its
affiliates.  Without the express prior
written consent of Lender, Borrower shall not, and Borrower shall not cause,
suffer or permit Owner to, enter into any consensual sale or other transaction
in connection with the Senior Loan which could diminish, modify, terminate,
impair or otherwise adversely affect the interests of Lender or Borrower, the
Collateral or any portion thereof or any interest therein or of Owner in the
Property or portion thereof or any interest therein.


 


9.7                               Refinancing
or Prepayment of the Senior Loan. 
Except as may be required under the Senior Loan Documents, neither
Borrower, nor Sole Member nor Owner shall make any partial or full prepayments
of amounts owing under the Senior Loan or refinance the Senior Loan without the
prior written consent of Lender, unless such refinancing results in the
concurrent payment in full of the Debt.


 


9.8                               Intercreditor
Agreement.  Borrower hereby
acknowledges and agrees that any intercreditor agreement entered into between
Lender and Senior Lender (the “Intercreditor Agreement”) will be solely for the
benefit of Lender and Senior Lender, and that Borrower and Owner shall not be
intended third-party beneficiaries of any of the provisions therein, shall have
no rights thereunder and shall not be entitled to rely on any of the provisions
contained therein.  Lender and Senior
Lender shall have no obligation to disclose to Borrower the contents of the
intercreditor agreement.  Borrower’s
obligations hereunder are and will be independent of such intercreditor
agreement and shall remain unmodified by the terms and provisions thereof.


 


10.                               SPECIAL PROVISIONS


 


10.1                        Sale of
Note and Secondary Market Transaction.


 


10.1.1              General; Borrower
Cooperation.  Lender shall have
the right at any time and from time to time (i) to sell or otherwise
transfer the Loan or any portion thereof or the Loan Documents or any interest
therein to one or more investors, (ii) to sell participation interests in
the Loan to one or more investors or (iii) to securitize the Loan or any
portion thereof in a single asset securitization or a pooled loan
securitization of rated single or multi-class securities (the “Securities”) secured
by or evidencing ownership interests in the Note and the Security Documents
(each such sale, assignment, participation and/or securitization is referred to
herein as a “Secondary
Market Transaction”).  In
connection with any Secondary Market Transaction, Borrower shall, at no
out-of-pocket cost to Borrower (other than the fees and expenses of Borrower’s
attorneys, accountants and consultants), use all reasonable efforts and
cooperate fully and in good faith with Lender and otherwise assist Lender in
satisfying the market standards to which Lender customarily adheres or which
may be reasonably required in the marketplace or by the Rating Agencies in
connection with any such Secondary Market Transactions, including:  (a) to (i) provide such financial
and other information with respect to Borrower, the Property, the Collateral,
Owner, Guarantor and their Affiliates, Manager and any tenants of the Property,



 


64

















 


(ii) provide business
plans and budgets relating to the Property and (iii) perform or permit or
cause to be performed or permitted such site inspection, appraisals, surveys,
market studies, environmental reviews and reports, engineering reports and
other due diligence investigations of the Property, as may be reasonably
requested from time to time by Lender, prospective investors or the Rating
Agencies or as may be necessary or appropriate in connection with a Secondary
Market Transaction or Exchange Act requirements (the items provided to Lender
pursuant to this paragraph (a) being called the “Provided Information”),
together, if customary, with appropriate verification of and/or consents to the
Provided Information through letters of auditors or opinions of counsel of
independent attorneys acceptable to Lender and the Rating Agencies; (b) at
Borrower’s expense, cause counsel to render updates to opinions as to
non-consolidation and any other opinions delivered in connection with the Loan
with respect to the Property, Borrower, Guarantor and their Affiliates, which
updates to opinions shall be reasonably satisfactory to Lender and the Rating
Agencies; (c) make such representations and warranties as of the closing
date of any Secondary Market Transaction with respect to the Collateral, the
Property, Borrower, Owner, Guarantor and the Loan Documents as are customarily provided
in such transactions and as may be reasonably requested by Lender, prospective
investors or the Rating Agencies and consistent with the facts covered by such
representations and warranties as they exist on the date thereof, including the
representations and warranties made in the Loan Documents; (d) provide
current certificates of good standing and qualification with respect to
Borrower, Sole Member and Owner from appropriate Governmental Authorities; and
(e) execute such amendments to the Loan Documents and Borrower’s
organizational documents, as may be requested by Lender or the Rating Agencies
or otherwise to effect a Secondary Market Transaction, provided that nothing
contained in this subsection (e) shall result in any economic change
in the transaction or increase Borrower’s obligations under the Loan
Documents.  Borrower’s cooperation
obligations set forth herein shall continue until the Loan has been paid in
full.


 


10.1.2              Use of
Information.  Borrower
understands that all or any portion of the Provided Information and the
Required Records may be included in disclosure documents in connection with a
Secondary Market Transaction, including a prospectus or private placement
memorandum (each, a “Disclosure
Document”) 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 or other parties
relating to the Secondary Market Transaction. 
If the Disclosure Document is required to be revised, Borrower shall
cooperate with Lender in updating the Provided Information or Required Records
for inclusion or summary in the Disclosure Document or for other use reasonably
required in connection with a Secondary Market Transaction by providing all
current information pertaining to Borrower, Owner, Guarantor, Manager, the
Collateral and the Property necessary to keep the Disclosure Document accurate
and complete in all material respects with respect to such matters.


 


10.1.3              Borrower’s
Obligations Regarding Disclosure Documents.  In connection with a Disclosure Document,
Borrower shall: (a) if requested by Lender, certify in writing that Borrower
has carefully examined those portions of such Disclosure Document, pertaining
to Borrower, Owner, Guarantor, the Collateral, the Property, Manager and the
Loan, and that such portions 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 


 


65

















 


under which they were made, not
misleading; and (b) indemnify (in a separate instrument of indemnity, if so
requested by Lender) (i) any underwriter, syndicate member or placement
agent (collectively, the “Underwriters”)
retained by Lender or its issuing company affiliate (the “Issuer”) in
connection with a Secondary Market Transaction, (ii) Lender and
(iii) the Issuer that is named in the Disclosure Document or registration
statement relating to a Secondary Market Transaction (the “Registration Statement”),
and each of the Issuer’s directors, each of its officers who have signed the
Registration Statement and each person or entity who controls the Issuer or the
Lender within the meaning of Section 15 of the Securities Act or
Section 30 of the Exchange Act (collectively within (iii), the “GCM Group”), and
each of its directors and each person who controls each of the Underwriters,
within the meaning of Section 15 of the Securities Act and Section 20
of the Exchange Act (collectively, the “Underwriter Group”) for any losses, claims,
damages or liabilities (the “Liabilities”) to which Lender, the GCM Group or the
Underwriter Group may become subject (including reimbursing all of them for any
legal or other expenses actually incurred in connection with investigating or
defending the Liabilities) insofar as the Liabilities arise out of or are based
upon any untrue statement of any material fact contained in any of the Provided
Information or in any of the applicable portions of such sections of the
Disclosure Document applicable to Borrower, Manager, Owner, Guarantor, the
Collateral, the Property or the Loan, or arise out of or are based upon the
omission to state therein a material fact required to be stated in the
applicable portions of such sections or necessary in order to make the statements
in the applicable portions of such sections in light of the circumstances under
which they were made, not misleading, provided, however, that Borrower shall
not be required to indemnify Lender for any Liabilities relating to untrue
statements or omissions which Borrower identified to Lender in writing at the
time of Borrower’s examination of such Disclosure Document.


 


10.1.4              Borrower
Indemnity Regarding Filings.  In
connection with filings under the Exchange Act, Borrower shall
(i) indemnify Lender, the GCM Group and the Underwriter Group for any
Liabilities to which Lender, the GCM Group or the Underwriter Group may become
subject insofar as the Liabilities arise out of or are based upon the omission
to state in the Provided Information a material fact required to be stated in
the Provided Information in order to make the statements in the Provided
Information, in light of the circumstances under which they were made not
misleading and (ii) reimburse Lender, the GCM Group or the Underwriter Group
for any legal or other expenses actually incurred by Lender, GCM Group or the
Underwriter Group in connection with defending or investigating the
Liabilities.


 


10.1.5              Indemnification
Procedure.  Promptly after
receipt by an indemnified party under Section 10.1.3 or 10.1.4 of notice
of the commencement of any action for which a claim for indemnification is to
be made against Borrower, such indemnified party shall notify Borrower in
writing of such commencement, but the omission to so notify Borrower will not relieve
Borrower from any liability that it may have to any indemnified party hereunder
except to the extent that failure to notify causes prejudice to Borrower.  If any action is brought against any
indemnified party, and it notifies Borrower of the commencement thereof,
Borrower will be entitled, jointly with any other indemnifying party, to
participate therein and, to the extent that it (or they) may elect by written
notice delivered to the indemnified party promptly after receiving the
aforesaid notice of commencement, to assume the defense thereof with counsel
satisfactory to such indemnified party in its discretion.  After notice from Borrower to such
indemnified party 


 


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under this Section 10.1.5,
Borrower shall not be responsible for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation; provided, however, if the defendants in
any such action include both Borrower and an indemnified party, and any
indemnified party shall have reasonably concluded that there are any legal
defenses available to it and/or other indemnified parties that are different
from or additional to those available to Borrower, then the indemnified party
or parties 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 party or parties. 
Borrower shall not be liable for the expenses of more than one separate
counsel unless there are legal defenses available to it that are different from
or additional to those available to another indemnified party.


 


10.1.6              Contribution.  In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Section 10.1.3 or 10.1.4 is for any reason held to be unenforceable by an
indemnified party in respect of any Liabilities (or action in respect thereof)
referred to therein which would otherwise be indemnifiable under
Section 10.1.3 or 10.1.4, Borrower shall contribute to the amount paid or
payable by the indemnified party as a result of such Liabilities (or action in
respect thereof); provided, however, that no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any Person not guilty of such
fraudulent misrepresentation.   In
determining the amount of contribution to which the respective parties are
entitled, the following factors shall be considered:  (i) the GCM Group’s and Borrower’s
relative knowledge and access to information concerning the matter with respect
to which the claim was asserted; (ii) the opportunity to correct and
prevent any statement or omission; and (iii) any other equitable
considerations appropriate in the circumstances.  Lender and Borrower hereby agree that it may
not be equitable if the amount of such contribution were determined by pro rata
or per capita allocation.


 


10.1.7              Rating
Surveillance.  Lender will retain
the Rating Agencies to provide rating surveillance services on Securities.  The expenses of such surveillance will be
paid for by Lender.


 


10.1.8              Severance of Loan.  Lender shall have the right, at no
out-of-pocket cost to Borrower (other than the fees and expenses of Borrower’s
attorneys, accountants and consultants), at any time (whether prior to, in
connection with, or after any Secondary Market Transaction), with respect to
all or any portion of the Loan, to modify, split and/or sever all or any
portion of the Loan as hereinafter provided. 
Without limiting the foregoing, Lender may (i) cause the Note and the
Pledge to be split into a first and second loan, (ii) create one or more senior
and subordinate notes (i.e., an
A/B or A/B/C structure) or (iii) create multiple components of the Note or
Notes (and allocate or reallocate the principal balance of the Loan among such
components), in each such case, in whatever proportion and whatever priority
Lender determines; provided, however, in each such instance the outstanding
principal balance of all the Notes evidencing the Loan (or components of such
Notes) immediately after the effective date of such modification equals the
outstanding principal balance of the Loan immediately prior to such
modification and the weighted average of the interest rates for all such Notes
(or components of such Notes) immediately after the effective date of such
modification equals the interest rate of the original Note immediately prior to
such modification.  If requested by
Lender, Borrower (and 


 


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Borrower’s constituent members,
if applicable, and Guarantor) shall execute within five (5) Business Days after
such request, such documentation as Lender may reasonably request to evidence
and/or effectuate any such modification or severance, provided that no such
severance shall result in any economic change in the transaction or increase
Borrower’s obligations under the Loan Documents.


 


11.                               MISCELLANEOUS


 


11.1                        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 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 and rights under the Loan Documents, or in all or any
portion of the Collateral; 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,
and Lender shall not sue for, seek or demand any deficiency judgment against
Borrower in any such action or proceeding under or by reason of or under or in
connection with any Loan Document.  The
provisions of this Section shall not, however, (i) constitute a
waiver, release or impairment of any obligation evidenced or secured by any
Loan Document; (ii) impair the right of Lender to name Borrower as a party
defendant in any action or suit any of the Security Documents;
(iii) affect the validity or enforceability of any of the Loan Documents
or any guaranty made in connection with the Loan or any of the rights and
remedies of Lender thereunder; (iv) impair the right of Lender to obtain
the appointment of a receiver; (v) constitute a prohibition against Lender
to commence any other appropriate action or proceeding in order for Lender to
fully realize the security granted by the Pledge or the other Security
Documents or to exercise its remedies against all or any portion of the
Collateral; or (vi) 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 (all such
liability and obligation of Borrower for any or all of the following being
referred to herein as “Borrower’s
Recourse Liabilities”):


 


(a)                                  fraud
or intentional misrepresentation by Borrower, Sole Member, Owner or Guarantor
in connection with obtaining the Loan;


 


(b)                                 physical
waste of the Property or any portion thereof, or after an Event of Default the
removal or disposal of any portion of the Property;


 


(c)                                  any
Proceeds paid by reason of any Insured Casualty or any Award received in
connection with a Condemnation or other sums or payments attributable to the
Property not applied in accordance with the provisions of the Loan Documents
and the Senior Loan Documents (except to the extent that Borrower or Owner did
not have the legal right, because of a bankruptcy, receivership or similar
judicial proceeding, to direct disbursement of such sums or payments);


 


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(d)                                 all
Rents of the Property received or collected by or on behalf of Borrower or
Owner after an Event of Default and not applied to payment of Principal and
interest due under the Note, and to the payment of actual and reasonable
operating expenses of the Property, as they become due or payable (except to
the extent that such application of such funds is prevented by bankruptcy,
receivership, or similar judicial proceeding in which Borrower or Owner is
legally prevented from directing the disbursement of such sums);


 


(e)                                  misappropriation
(including failure to turn over to Lender on demand following an Event of
Default) of tenant security deposits and rents collected in advance, or of
funds held by Borrower or Owner for the benefit of another party;


 


(f)                                    the
failure by Borrower or Owner to pay Taxes;


 


(g)                                 the
breach of any representation, warranty, covenant or indemnification in any Loan
Document concerning Environmental Laws or Hazardous Substances, including
Sections 4.21 and 5.8, and clauses (viii) through (xi) of Section
5.30;


 


(h)                                 the
failure by Borrower to cause Owner to deposit with Senior Lender all Rents, as
required under Article 3 of the Senior Loan Agreement;


 


(i)                                     the
failure by Borrower to cause Owner to use any funds released by Senior Lender
from any subaccount provided for in the Senior Loan Agreement for Approved
CapEx/FF&E Expenses, Approved Operating Expenses, as applicable, or for any
other intended use therefor, as more particularly provided for in the Senior
Loan Agreement or


 


(j)                                     any
cost or expense incurred by Lender in connection with the enforcement of its
rights and remedies hereunder or any other Loan Document.


 


Notwithstanding anything to the contrary in this Agreement 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 or to require that all collateral shall continue to secure
all of the Debt in accordance with the Loan Documents, and (B) Lender’s
agreement not to pursue personal liability of Borrower as set forth above SHALL
BECOME NULL AND VOID and shall be of no further force and effect, and the Debt
shall be fully recourse to Borrower in the event that one or more of the
following occurs (each, a “Springing
Recourse Event”):


 


(i)                                     an
Event of Default described in Section 8.1(d) shall have occurred or


 


(ii)                                  a
breach of the covenants set forth in Section 5.13, or


 


(iii)                               the
occurrence of any condition or event described in either Section
8.1(f)(i) or Section 8.1(g) and, with respect to such condition or
event described in Section 8.1(g), either (A) Borrower, Sole Member, Owner,
Guarantor or any Person owning a 


 


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Controlling interest (directly
or indirectly) in Borrower, Sole Member, Owner or Guarantor consents to,
aids, solicits, supports, or otherwise cooperates or colludes to cause such
condition or (B) the entity against which the condition or event described in
Section 8.1(g) has been filed or any Person which Controls (in the sense of
clause (ii) of the defined term “Control”) such entity fails to contest such
condition or event.


 


11.2                        Brokers
and Financial Advisors. 
(a) Borrower hereby represents that it has dealt with no financial
advisors, brokers, underwriters, placement agents, agents or finders in
connection with the Loan.  Borrower shall
indemnify and hold Lender harmless from and against any and all claims,
liabilities, costs and expenses (including attorneys’ fees, whether incurred in
connection with enforcing this indemnity or defending claims of third parties)
of any kind in any way relating to or arising from a claim by any Person
(including any broker) that such Person acted on behalf of Borrower in
connection with the transactions contemplated herein.  The provisions of this Section 11.2
shall survive the expiration and termination of this Agreement and the
repayment of the Debt.


 


(b)         Notwithstanding
anything in Section 11.2(a) above to the contrary, Borrower hereby acknowledges
that (i) at Lender’s sole discretion, a broker may receive consideration
from Lender relating to the Loan or any other matter for which Lender may elect
to compensate a broker pursuant to a separate agreement between Lender and such
broker and (ii) Lender shall have no obligation to disclose to Borrower
the existence of any such agreement or the amount of any such additional
consideration paid or to be paid to any broker whether in connection with the
Loan or otherwise.


 


11.3                        Retention
of Servicer.  Lender reserves the
right to retain the Servicer to act as its agent hereunder with such powers as
are specifically delegated to the Servicer by Lender, whether pursuant to the
terms of this Agreement, any pooling and servicing agreement or similar
agreement entered into as a result of a Secondary Market Transaction, the
Deposit Account Agreement or otherwise, together with such other powers as are
reasonably incidental thereto.  Borrower
shall pay any reasonable fees and expenses of the Servicer (i) in
connection with a release of the Collateral (or any portion thereof),
(ii) from and after a transfer of the Loan to any “master servicer” or
“special servicer” for any reason, including without limitation, as a result of
a decline in the occupancy level of the Property, (iii) in connection with
an assumption or modification of the Loan, (iv) in connection with the
enforcement of the Loan Documents or (v) in connection with any other
action or approval taken by Servicer hereunder on behalf of Lender.


 


11.4                        Survival.  This Agreement and all covenants, agreements,
representations and warranties made herein and in the certificates delivered
pursuant hereto shall, unless otherwise expressly stated herein, survive the
making by Lender of the Loan and the execution and delivery to Lender of the
Note, and shall continue in full force and effect so long as any of the Debt is
unpaid or such longer period if expressly set forth in this Agreement.  All Borrower’s covenants and agreements in this
Agreement shall inure to the benefit of the respective legal representatives,
successors and assigns of Lender.


 


11.5                        Lender’s
Discretion.  Whenever pursuant to
this Agreement or any other Loan Document, Lender exercises any right given to
it to approve or disapprove, or consent or 


 


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withhold consent, or any
arrangement or term is to be satisfactory to Lender or is to be in Lender’s
discretion, the decision of Lender to approve or disapprove, to consent or
withhold consent, or to decide whether arrangements or terms are satisfactory
or not satisfactory, or acceptable or unacceptable or in Lender’s discretion
shall (except as is otherwise specifically herein provided) be in the sole
discretion of Lender and shall be final and conclusive.


 


11.6                        Governing
Law.


 


(a)          THIS
AGREEMENT WAS NEGOTIATED IN THE STATE OF NEW YORK AND THE PROCEEDS OF THE NOTE
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
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE
OBLIGATIONS ARISING HEREUNDER 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 AND ANY APPLICABLE LAW OF THE UNITED STATES OF
AMERICA.  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 AND THE
NOTE, AND THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK PURSUANT TO § 5-1401 OF THE
NEW YORK GENERAL OBLIGATIONS LAW.


 


(b)         ANY
LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR BORROWER ARISING OUT OF OR
RELATING TO THIS AGREEMENT SHALL BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN
NEW YORK COUNTY, NEW YORK AND BORROWER WAIVES ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE 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 MORGANS HOTEL GROUP CO., 475 TENTH AVENUE,
11TH FLOOR, NEW YORK, NEW YORK 10018, 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 WRITTEN NOTICE OF SAID SERVICE OF BORROWER MAILED OR DELIVERED TO BORROWER
IN THE MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE
OF PROCESS UPON BORROWER (UNLESS LOCAL LAW REQUIRES ANOTHER METHOD OF SERVICE),
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 OFFICE SHALL BE DESIGNATED AS THE
ADDRESS FOR SERVICE OF 


 


71

















 


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.


 


11.7                        Modification,
Waiver in Writing.  No
modification, amendment, extension, discharge, termination or waiver of any
provision of this Agreement 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. 
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 any other
Loan Document, 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 any 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 the Loan Documents, or
to declare an Event of Default for failure to effect prompt payment of any such
other amount.


 


11.8                        Trial
by Jury.  BORROWER AND LENDER
HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY
JURY, AND WAIVE 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. 
EITHER PARTY IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN
ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY THE OTHER.


 


11.9                        Headings/Exhibits.  The Section headings in this Agreement
are included herein for convenience of reference only and shall not constitute
a part of this Agreement for any other purpose. 
The Exhibits attached hereto, are hereby incorporated by reference as a
part of the Agreement with the same force and effect as if set forth in the
body hereof.


 


11.10                 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.


 


11.11                 Preferences.  Upon the occurrence and continuance of an
Event of Default, 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
Debt.  To the extent Borrower makes a
payment to 


 


72

















 


Lender, or Lender receives
proceeds of any collateral, which is in whole or part 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 Debt 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. 
This provision shall survive the expiration or termination of this
Agreement and the repayment of the Debt.


 


11.12                 Waiver of
Notice.  Borrower shall not be
entitled to any notices of any nature whatsoever from Lender except with
respect to matters for which this Agreement or any other Loan Document
specifically and expressly requires 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.  Borrower hereby expressly waives the right to
receive any notice from Lender with respect to any matter for which no Loan
Document specifically and expressly requires the giving of notice by Lender to
Borrower.


 


11.13                 Remedies of
Borrower.  If a claim or
adjudication is made that Lender or any of its agents, including Servicer, has
acted unreasonably or unreasonably delayed acting in any case where by law or
under any Loan Document, Lender or any such agent, as the case may be, has an
obligation to act reasonably or promptly, Borrower agrees that neither Lender
nor its agents, including Servicer, shall be liable for any monetary damages,
and Borrower’s sole remedy shall be to commence an action seeking injunctive
relief or declaratory judgment.  Any
action or proceeding to determine whether Lender has acted reasonably shall be
determined by an action seeking declaratory judgment.  Borrower specifically waives any claim
against Lender and its agents, including Servicer, with respect to actions
taken by Lender or its agents on Borrower’s behalf.


 


11.14                 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, understandings and negotiations among or between such
parties, whether oral or written, are superseded by the terms of this Agreement
and the other Loan Documents.


 


11.15                 Offsets,
Counterclaims and Defenses. 
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, including Servicer, or otherwise offset any obligations
to make payments required under the Loan Documents.  Any assignee of Lender’s interest in and to
the Loan Documents shall take the same free and clear of all offsets,
counterclaims or defenses which Borrower may otherwise have (including with
respect to any Future Funding Obligation or any default or dispute relating
thereto) against any assignor of such documents, and no such offset,
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 offset, counterclaim or defense in
any such action or proceeding is hereby expressly waived by Borrower.


 


11.16                 Publicity.  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 


 


73

















 


Documents, the Loan, Lender or
any member of the GCM Group, a Loan purchaser, the Servicer or the trustee in a
Secondary Market Transaction, shall be subject to the prior written approval of
Lender, provided Borrower shall not be restricted from the same to the extent a
disclosure or announcement is required by law. 
Lender shall have the right to issue any of the foregoing without
Borrower’s approval.


 


11.17                 No Usury.  Borrower and Lender intend at all times to
comply with applicable state law or applicable United States federal law (to
the extent that it permits Lender to contract for, charge, take, reserve or
receive a greater amount of interest than under state law) and that this
Section 11.17 shall control every other agreement in the Loan Documents.  If the applicable law (state or federal) is
ever judicially interpreted so as to render usurious any amount called for
under the Note or any other Loan Document, or contracted for, charged, taken,
reserved or received with respect to the Debt, or if Lender’s exercise of the
option to accelerate the maturity of the Loan or any prepayment by Borrower
results in Borrower having paid any interest in excess of that permitted by
applicable law, then it is Borrower’s and Lender’s express intent that all
excess amounts theretofore collected by Lender shall be credited against the
unpaid Principal and all other Debt (or, if the Debt has been or would thereby
be paid in full, refunded to Borrower), and the provisions of the Loan
Documents immediately be deemed reformed and the amounts thereafter collectible
thereunder reduced, without the necessity of the execution of any new document,
so as to comply with applicable law, but so as to permit the recovery of the
fullest amount otherwise called for thereunder. 
All sums paid or agreed to be paid to Lender for the use, forbearance or
detention of 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 Debt does not exceed the maximum lawful rate from time to time
in effect and applicable to the Debt for so long as the Debt is
outstanding.  Notwithstanding anything to
the contrary contained in any Loan Document, it is not the intention of Lender
to accelerate the maturity of any interest that has not accrued at the time of
such acceleration or to collect unearned interest at the time of such
acceleration.


 


11.18                 Conflict;
Construction of Documents.  In
the event of any conflict between the provisions of this Agreement and any of
the other Loan Documents, the provisions of this Agreement shall control.  The parties hereto acknowledge that each is
represented by separate counsel in connection with the negotiation and drafting
of the Loan Documents and that the Loan Documents shall not be subject to the
principle of construing their meaning against the party that drafted them.


 


11.19                 No Third Party
Beneficiaries.  The Loan
Documents are solely for the benefit of Lender and Borrower and nothing
contained in any Loan Document shall be deemed to confer upon anyone other than
the Lender and Borrower any right to insist upon or to enforce the performance
or observance of any of the obligations contained therein.


 


11.20                 Spread
Maintenance Premium/Prepayment Premium. 
Borrower acknowledges that (a) Lender is making the Loan in
consideration of the receipt by Lender of all interest and other benefits
intended to be conferred by the Loan Documents and (b) if payments of
Principal are made to Lender prior to the Stated Maturity Date, for any reason
whatsoever, whether voluntary, as a result of Lender’s acceleration of the Loan
after an Event of Default (or as a result of the application by Lender of any
amounts in any Cash Management Account are 


 


74

















 


applied to Principal by reason
of an Event of Default), by operation of law or otherwise, Lender will not
receive all such interest and other benefits and may, in addition, incur costs.
 For these reasons, and to induce Lender
to make the Loan, Borrower agrees that, except as expressly provided in
Articles 2 and 7, all such prepayments, if any, whether voluntary or
involuntary, will be accompanied by the Spread Maintenance Premium or the applicable
Prepayment Premium, as applicable.  Such
Spread Maintenance Premium or Prepayment Premium, as applicable, shall be
required whether payment is made by Borrower, by a Person on behalf of
Borrower, or by the purchaser at any foreclosure sale, and may be included in
any bid by Lender at such sale.  Borrower
further acknowledges that (A) it is a knowledgeable real estate developer
and/or investor; (B) it fully understands the effect of the provisions of
this Section 10.20, as well as the other provisions of the Loan Documents;
(C) the making of the Loan by Lender at the Interest Rate and other terms
set forth in the Loan Documents are sufficient consideration for Borrower’s
obligation to pay a Spread Maintenance Premium or Prepayment Premium, as applicable
(if required); and (D) Lender would not make the Loan on the terms set
forth herein without the inclusion of such provisions.  Borrower also acknowledges that the
provisions of this Agreement limiting the right of prepayment and providing for
the payment of the Spread Maintenance Premium or Prepayment Premium, as
applicable and other charges specified herein were independently negotiated and
bargained for, and constitute a specific material part of the consideration
given by Borrower to Lender for the making of the Loan except as expressly
permitted hereunder.


 


11.21                 Assignment.  The Loan, the Note, the Loan Documents and/or
Lender’s rights, title, obligations and interests therein may be assigned by
Lender and any of its successors and assigns to any Person at any time in its
discretion, in whole or in part, whether by operation of law (pursuant to a
merger or other successor in interest) or otherwise.  Upon such assignment, all references to
Lender in this Loan Agreement and in any Loan Document shall be deemed to refer
to such assignee or successor in interest and such assignee or successor in
interest shall thereafter stand in the place of Lender.  Borrower may not assign its rights, title,
interests or obligations under this Loan Agreement or under any of the Loan
Documents.  Lender shall provide Borrower
with a notice of any assignment pursuant to this Section 11.21, provided the
failure to do so shall not subject Lender to any liability to Borrower or any
other Person and shall not otherwise affect Borrower’s obligations or
liabilities under the Loan Documents, or give rise to any claim defense or
right of offset with respect to the Loan.


 


11.22                 Proofs of
Claim In the case of any receivership, insolvency, bankruptcy,
reorganization, arrangement, adjustment, composition or other proceedings
affecting Borrower, Owner, Sole Member or Guarantor, or any of their respective
creditors or property, Lender, to the extent permitted by law, shall be
entitled to file such proofs of claim and other documents as may be necessary
or advisable in order to have the claims of Lender allowed in such proceedings
for the entire Debt at the date of the institution of such proceedings and for
any additional amount which may become due and payable by Borrower hereunder
after such date.


 


11.23                 Waiver of Stay.  Borrower agrees (to the extent that it
may lawfully do so) that it will not at any time insist upon, or plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury or other law wherever enacted, now or at any time
hereafter in force, which would prohibit or forgive Borrower from paying all or
any portion of the Debt or which may affect the covenants or the performance of
this Agreement; and 


 


75

















 


Borrower (to the extent that it
may lawfully do so) hereby expressly waives all benefit or advantage of any
such law, and covenants that it will not hinder, delay or impede the execution
of any power herein granted to the holders, but will suffer and permit the
execution of every such power as though no such law had been enacted.


 


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


 


(i)                                     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 on a
regular basis (no less frequently than quarterly) with Lender having the right
to call special meetings at any reasonable times;


 


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


 


(iii)                               the
right, in accordance with Article 6 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;


 


(iv)                              the
right, in accordance with the terms of this Agreement, to restrict financing to
be obtained with respect to the Collateral so long as any portion of the Debt
remains outstanding;


 


(v)                                 the
right, in accordance with the terms of this Agreement and the other Loan
Documents (including any similar right), to restrict, upon the occurrence of an
Event of Default, Borrower’s and Owner’s payments of management, consulting,
director or similar fees to Affiliates of Borrower or Owner;


 


(vi)                              the
right, in accordance with Article 6 hereof (including any similar right), to
approve any operating budget and/or capital budget of Borrower or Owner;


 


(vii)                           in
accordance with the terms of this Agreement, to approve any acquisition by
Borrower or Owner of any other significant property (other than personal
property required for the day to day operation of the Property); and


 


(viii)                        the
right, in accordance with the terms of Lender under this Agreement, to restrict
the transfer of interests in Borrower held by its members, and the right to
restrict the transfer of interests in such member, except for any transfer that
is a Permitted Transfer.


 


The rights described above may be exercised directly or indirectly by
any Person who has the authority to act of behalf of Lender.


 


76

















 


11.25                 Future Funding
Obligations Notwithstanding anything to the contrary contained herein
(including the provisions of Sections 10.1.8, 11.19 and 11.21 hereof), the
parties acknowledge that the obligations of the Lender hereunder to fund the
Additional Advances (the “Future
Funding Obligations”) will be solely the obligation of Greenwich
Capital Financial Products, Inc. and, in connection with a Secondary Market
Transaction, will not be transferred or assigned to any subsequent holder of
the Note (the “Holder”),
including the Servicer and any trust or trustee or substituted or successor trustee
established in connection with a Secondary Market Transaction.  Greenwich Capital Financial Products, Inc.
will have a participation interest in the Note to the extent of any funds
advanced pursuant to the Future Funding Obligations.   Any funds advanced pursuant to a Future
Funding Obligation shall be owing to Greenwich Capital Financial Products,
Inc., but in the event that Borrower has insufficient funds to pay both the
Holder and Greenwich Capital Financial Products, Inc., the Holder shall have a prior
right to such payment and a prior lien on the Collateral.


 


11.26                 Set-Off.  In addition
to any rights and remedies of Lender provided by this Loan Agreement and by
law, Lender shall have the right, without prior notice to Borrower, any such
notice being expressly waived by Borrower to the extent permitted by applicable
law, upon any amount becoming due and payable by Borrower hereunder (whether at
the stated maturity, by acceleration or otherwise) to set-off and appropriate
and apply against such amount any and all deposits (general or special, time or
demand, provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by Lender or any Affiliate thereof to or for the credit or the account of
Borrower.  Lender agrees promptly to
notify Borrower after any such set-off and application made by Lender; provided
that the failure to give such notice shall not affect the validity of such
set-off and application.


 


11.27                 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.


 


[Remainder
of Page Intentionally Left Blank; Signature Page Follows]


 


77

















 


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


 


	
   

  	
  MONDRIAN SCOTTSDALE MEZZ HOLDING 

  COMPANY LLC, a Delaware limited liability company

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Morgans Group LLC, a Delaware limited liability 

  company, its sole member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  Morgans Hotel Group Co., a Delaware 

  corporation, its managing member

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name: Marc Gordon

  
	
   

  	
   

  	
   

  	
   

  	
  Title: Chief Investment Officer

  



 


 


	
   

  	
  GREENWICH CAPITAL FINANCIAL PRODUCTS,

  INC., a Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  



 

















 


Schedule 1


 


Exceptions to Representations and Warranties


 


Section 4.12: The following are the only service, maintenance or repair
contracts affecting the Property that are not terminable on one (1) month’s
notice or less without cause and without penalty or premium:


 


Arcadia
Self Storage


Compax


Fleetwood
Financial Services


NXTV


Hoover’s


Moss
Creative Advertising Agency


Proclean
Pest Elimination


Littleton
Marketing Group LLC d/b/a Returnity


Safeguard
Security Communications


Thyssenkrupp
Elevator Co.


Travel
Click


Waste
Management


World
Cinema


 

















 


Schedule 2


 


Intentionally Reserved


 

















 


Schedule 3


 


Organization of Borrower


 


[see attached]


 

















 


Schedule 4


 


Definition of Special Purpose Bankruptcy
Remote Entity


 


A “Special
Purpose Bankruptcy Remote Entity” means (x) with respect to
Owner only, a Special Purpose Bankruptcy Remote Entity as defined in the Senior
Loan Agreement, (y) a limited liability company that is a Single Member
Bankruptcy Remote LLC or (z) a corporation, limited partnership or limited liability
company which at all times since its formation and at all times thereafter


 


(i)                                     was
and will be organized solely for the purpose of (A) owning the Property or
(B) acting as a general partner of the limited partnership that owns the
Property or member of the limited liability company that owns the Property;


 


(ii)                                  has
not engaged and will not engage in any business unrelated to (A) the
ownership of the Property, (B) acting as general partner of the limited
partnership that owns the Property or (C) acting as a member of the
limited liability company that owns the Property, as applicable;


 


(iii)                               has
not had and will not have any assets other than those related to the Property
or its partnership or member interest in the limited partnership or limited liability
company that owns the Property, as applicable;


 


(iv)                              has
not engaged, sought or consented to and will not engage in, seek or consent to
any dissolution, winding up, liquidation, consolidation, merger, asset sale
(except as expressly permitted by this Agreement), transfer of partnership or
membership interests or the like, or amendment of its limited partnership
agreement, articles of incorporation, articles of organization, certificate of
formation or operating agreement (as applicable);


 


(v)                                 if
such entity is a limited partnership, has and will have, as its only general
partners, Special Purpose Bankruptcy Remote Entities that are corporations;


 


(vi)                              if
such entity is a corporation, has and will have at least one Independent
Director, 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 100% of the members of its board of directors unless all of
the directors and all Independent Directors shall have participated in such
vote;


 


(vii)                           if
such entity is a limited liability company, has and will have at least one
member that has been and will be a Special Purpose Bankruptcy Remote Entity
that has been and will be a corporation and such corporation is the managing
member of such limited liability company;


 


(viii)                        if
such entity is a limited liability company, has and will have articles of
organization, a certificate of formation and/or an operating agreement, as
applicable, providing that (A) such entity will dissolve only upon the
bankruptcy of the managing member, (B) the vote of a majority-in-interest
of the remaining members is sufficient to 


 

















 


continue the
life of the limited liability company in the event of such bankruptcy of the
managing member and (C) if the vote of a majority-in-interest of the
remaining members to continue the life of the limited liability company
following the bankruptcy of the managing member is not obtained, the limited
liability company may not liquidate the Property without the consent of the
applicable Rating Agencies for as long as the Loan is outstanding;


 


(ix)                                has
not, and without the unanimous consent of all of its partners, directors or
members (including all Independent Directors), as applicable, will not, with respect
to itself or to any other entity in which it has a direct or indirect legal or
beneficial ownership interest (A) file a bankruptcy, insolvency or
reorganization petition or otherwise institute insolvency proceedings or
otherwise seek any relief under any laws relating to the relief from debts or
the protection of debtors generally, (B) seek or consent to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator,
custodian or any similar official for such entity or for all or any portion of
such entity’s properties, (C) make any assignment for the benefit of such
entity’s creditors or (D) take any action that might cause such entity to
become insolvent;


 


(x)                                   has
remained and will remain solvent and has maintained and will maintain adequate
capital in light of its contemplated business operations;


 


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


 


(xii)                             has
maintained and will maintain its accounts, books and records separate from any
other Person and will file its own tax returns;


 


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


 


(xiv)                         has
not commingled and will not commingle its funds or assets with those of any
other Person;


 


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


 


(xvi)                         has
conducted and will conduct its business in its name;


 


(xvii)                      has
maintained and will maintain its financial statements, accounting records and
other entity documents separate from any other Person;


 


(xviii)                   has
paid and will pay its own liabilities, including the salaries of its own
employees, out of its own funds and assets;


 


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


 


(xx)                              has
maintained and will maintain an arm’s-length relationship with its Affiliates;


 


2

















 


(xxi)                           (a) with
respect to Owner, has and will have no indebtedness other than the Senior Loan
and unsecured trade payables in the ordinary course of business relating to the
ownership and operation of Property which (1) do not exceed, at any time,
a maximum amount of 1% of the original amount of the Principal of the Senior
Loan and (2) are paid within thirty (30) days of the date incurred,
or (b) with respect to Borrower, has and will have no indebtedness other
than unsecured trade payables in the ordinary course of business relating to
acting as the sole member of the Senior Borrower which (1) do not exceed,
at any time, $10,000 and (2) are paid within thirty (30) days of the
date incurred, or (c) with respect to any other entity, has and will have
no indebtedness other than unsecured trade payables in the ordinary course of
its business which (1) do not exceed, at any time, $10,000 and
(2) are paid within thirty (30) days of the date incurred;


 


(xxii)                        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 for the Loan;


 


(xxiii)                     has
not and will not acquire obligations or securities of its partners, members or
shareholders;


 


(xxiv)                    has
allocated and will allocate fairly and reasonably shared expenses, including
shared office space, and uses separate stationery, invoices and checks;


 


(xxv)                       except
in connection with the Loan, has not pledged and will not pledge its assets for
the benefit of any other Person;


 


(xxvi)                    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 and not as a
division or part of any other Person;


 


(xxvii)                 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;


 


(xxviii)              has
not made and will not make loans to any Person;


 


(xxix)                      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;


 


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


 


(xxxi)                      has
and will have no obligation to indemnify its partners, officers, directors, members
or Special Members, as the case may be, or has such an obligation that is fully
subordinated to the Debt and will not constitute a claim against it if cash
flow 


 


3

















 


in excess of
the amount required to pay the Debt is insufficient to pay such obligation; and


 


(xxxii)                   will
consider the interests of its creditors in connection with all corporate,
partnership or limited liability actions, as applicable.


 


“Independent
Director” means (x) in the case of a Single Member
Bankruptcy Remote LLC:  a natural person
selected by Borrower and reasonably satisfactory to Lender who shall not have
been at the time of such individual’s appointment as an Independent Director of
the Single Member Bankruptcy Remote LLC, does not thereafter become while
serving as an Independent Director (except pursuant to an express provision in
the Single Member Bankruptcy Remote LLC’s limited liability company agreement
providing for the Independent Director to become a Special Member (defined
below) upon the sole member of such Single Member Bankruptcy Remote LLC ceasing
to be a member in such Single Member Bankruptcy Remote LLC) and shall not have
been at any time during the preceding five (5) years (i) a
shareholder/partner/member of, or an officer or employee of, Borrower or any of
its shareholders, subsidiaries or Affiliates, (ii) a director (other than
as an Independent Director or similar capacity of any Person that does not own
any direct or indirect equity interest in Borrower) of any shareholder,
subsidiary or Affiliate of Borrower, (iii) a customer of, or supplier to,
Borrower or any of its shareholders, subsidiaries or Affiliates, (iv) a
Person who Controls any such shareholder, supplier or customer, or (v) a
member of the immediate family of any such shareholder/
director/partner/member, officer, employee, supplier or customer or of any
director of Borrower (other than as an Independent Director or similar capacity
of any Person that does not own any direct or indirect equity interest in
Borrower); and (y) in the case of a corporation, an individual selected by
Borrower and reasonably satisfactory to Lender who shall not have been at the
time of such individual’s appointment as a director, does not thereafter become
while serving as an Independent Director and shall not have been at any time
during the preceding five (5) years (i) a shareholder/partner/member of,
or an officer, employee, consultant, agent or advisor of, Borrower or any of
its shareholders, subsidiaries, members or Affiliates, (ii) a director
(other than as an Independent Director or similar capacity of any Person that
does not own any direct or indirect interest in Borrower or Borrower’s general
partner or managing member) of any shareholder, subsidiary, member, or Affiliate
of Borrower other than Borrower’s general partner or managing member,
(iii) a customer of, or supplier to, Borrower or any of its shareholders,
subsidiaries or Affiliates that derives more than 10% of its purchases or
income from its activities with Borrower or any Affiliate of Borrower,
(iv) a Person who Controls any such shareholder, supplier or customer, or
(v) a member of the immediate family (including a grandchild or sibling)
of any such shareholder/director/partner/member, officer, employee, supplier or
customer or of any other director of Borrower’s general partner or managing
member (other than as an Independent Director or similar capacity of any Person
that does not own any direct or indirect interest in Borrower or Borrower’s
general partner or managing member).


 


“Single Member
Bankruptcy Remote LLC” means a limited liability company
organized under the laws of the State of Delaware which at all times since its
formation and at all times thereafter (i) complies with the following
clauses of the definition of Special Purpose Bankruptcy Remote Entity
above:  (i)(A), (ii)(A), (iii), (iv),
(ix), (x), (xi) and (xiii) through (xxxii); (ii) has maintained and will
maintain its accounts, books and records separate from any other person;
(iii) has and will have an operating agreement which provides that the
business and affairs of 


 


4

















 


Borrower shall be managed by or under the direction of a board of one
or more directors designated by Sole Member, and at all times there shall be at
least two duly appointed Independent Directors on the board of directors, and
the board of directors will not take any action requiring the unanimous
affirmative vote of 100% of the members of its board of directors unless, at
the time of such action there are at least two members of the board of
directors who are Independent Directors, and all of the directors and all
Independent Directors shall have participated in such vote; (iv)  has and
will have an operating agreement which provides that, as long as any portion of
the Debt remains outstanding, (A) upon the occurrence of any event that causes
Sole Member to cease to be a member of Borrower (other than (x) upon an
assignment by Sole Member of all of its limited liability company interest in
Borrower and the admission of the transferee, if permitted pursuant to the
organizational documents of Borrower and the Loan Documents, or (y) the
resignation of Sole Member and the admission of an additional member of
Borrower, if permitted pursuant to the organizational documents of Borrower and
the Loan Documents), the person acting as an Independent Director of Borrower
shall, without any action of any Person and simultaneously with Sole Member
ceasing to be a member of Borrower, automatically be admitted as the sole
member of Borrower (the “Special
Member”) and shall preserve and continue the existence of
Borrower without dissolution, (B) no Special Member may resign or transfer its
rights as Special Member unless (x) a successor Special Member has been
admitted to Borrower as a Special Member, and (y) such successor Special Member
has also accepted its appointment as an Independent Director and (C) except as
expressly permitted pursuant to the terms of this Agreement, Sole Member may not
resign and no additional member shall be admitted to Borrower; (v) has and
will have an operating agreement which provides that, as long as any portion of
the Debt remains outstanding, (A) Borrower shall be dissolved, and its affairs
shall be would up only upon the first to occur of the following: (x) the
termination of the legal existence of the last remaining member of Borrower or
the occurrence of any other event which terminates the continued membership of
the last remaining member of Borrower in Borrower unless the business of
Borrower is continued in a manner permitted by its operating agreement or the
Delaware Limited Liability Company Act (the “Act”) or (y) the entry of a decree of
judicial dissolution under Section 18-802 of the Act; (B) upon the
occurrence of any event that causes the last remaining member of Borrower to
cease to be a member of Borrower or that causes Sole Member to cease to be a
member of Borrower (other than (x) upon an assignment by Sole Member of
all of its limited liability company interest in Borrower and the admission of
the transferee, if permitted pursuant to the organizational documents of
Borrower and the Loan Documents, or (y) the resignation of Sole Member and the
admission of an additional member of Borrower, if permitted pursuant to the
organizational documents of Borrower and the Loan Documents), to the fullest
extent permitted by law, the personal representative of such member shall be
authorized to, and shall, within 90 days after the occurrence of the event that
terminated the continued membership of such member in Borrower, agree in
writing to continue the existence of Borrower and to the admission of the
personal representative or its nominee or designee, as the case may be, as a
substitute member of Borrower, effective as of the occurrence of the event that
terminated the continued membership of such member in Borrower; (C) the
bankruptcy of Sole Member or a Special Member shall not cause such member or
Special Member, respectively, to cease to be a member of Borrower and upon the
occurrence of such an event, the business of Borrower shall continue without
dissolution; (D) in the event of dissolution of Borrower, Borrower shall
conduct only such activities as are necessary to wind up its affairs (including
the sale of the assets of Borrower in an 


 


5

















 


orderly manner), and the assets of Borrower shall be applied in the
manner, and in the order of priority, set forth in Section 18-804 of the
Act; and (E) to the fullest extent permitted by law, each of Sole Member and
the Special Members shall irrevocably waive any right or power that they might
have to cause Borrower or any of its assets to be partitioned, to cause the
appointment of a receiver for all or any portion of the assets of Borrower, to
compel any sale of all or any portion of the assets of Borrower pursuant to any
applicable law or to file a complaint or to institute any proceeding at law or
in equity to cause the dissolution, liquidation, winding up or termination of
Borrower.


 


6

















 


Schedule 5


 


Approved Operating Budget


 

















 


Schedule 6


 


Initial Renovation Work


 


[see attached]


 

















 


Schedule 7


 


Form of Request for Additional Advance


 


                    ,
2006


 


 


 


 


 


Ladies and Gentlemen:


 


We refer to the Loan Agreement dated as of May [   ],
2006 (as amended or otherwise modified from time to time, the “Loan
Agreement”), between the undersigned (“Borrower”) and Greenwich
Capital Financial Products, Inc. (“Lender”).


 


Capitalized terms used herein without definition shall have the
meanings ascribed to them in the Loan Agreement.


 


Borrower hereby gives Lender notice pursuant to Section 2.9.1 of the
Loan Agreement that Borrower requests an Additional Advance under the Loan Agreement
and in connection therewith sets forth below the information relating to such
proposed borrowing (the “Proposed
Borrowing”) as required by Article 2 of the Loan Agreement.


 


(i)                                     The
aggregate principal amount of the Proposed Borrowing is $[              ],
which, together with the aggregate principal amount of all prior Additional
Advances will not exceed $[               ].


 


(ii)                                  Borrower
hereby authorizes Lender to disburse to itself out of the Proposed Borrowing an
advance fee equal to 1% of the amount of the Proposed Borrowing in accordance
with Section 2.7.1 of the Loan Agreement.


 


(iii)                               The
Business Day of the Proposed Borrowing is                      ,
2006.


 


(iv)                              The
Additional Advance should be disbursed to the following account(s):


 


	
  Amount

  	
   

  	
  Wiring Instructions

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  



 


The undersigned hereby certifies to Lender that to his/her knowledge as
of the date set forth above, and as of the date of the Proposed Borrowing, (i)
both immediately prior to the date of the Proposed Borrowing and also after
giving effect thereto, no Default or Event of Default has occurred and is
continuing, and (ii) to the best knowledge of the undersigned, each
representation and warranty of Borrower in Article 4 of the Loan Agreement and
in the other 


 

















 


Loan Documents is true and
complete in all material respects on and as of the date of the Proposed
Borrowing with the same force and effect as though made on and as of such date.


 


Additionally, the undersigned hereby certifies to Lender that to
his/her knowledge that:


 


(i) the funds from the Proposed Borrowing will be used only to pay (or
reimburse Borrower for) Approved Renovation/Re-Branding Expenses and, attached
hereto as Exhibit A, is a description of all such Approved
Renovation/Re-Branding Expenses;


 


(ii) all outstanding payables (other than those to be paid from
the requested disbursement or those constituting Permitted Indebtedness (as
such term is defined in Section 5.22 of the Loan Agreement)) have been (or,
simultaneously with the funding of the Proposed Borrowing, will be) paid in
full;


 


(iii) the same has not been the subject of a previous
disbursement;


 


(iv) all previous disbursements have been used only to pay (or
reimburse Borrower for) the previously identified Approved
Renovation/Re-Branding Expenses;


 


(v) all work relating to work performed on or prior to the date hereof
has been completed in a good and workmanlike manner in accordance with all
Legal Requirements and substantially in accordance with the plans and
specifications approved by Lender (if required pursuant to the terms of the
Loan Agreement)


 


(vi) attached hereto as Exhibit B is a list identifying each
Person that supplied labor or materials with respect to the requested
disbursement, and each such Person has been or upon receipt of the Proposed
Borrowing will be paid in full for work for which such Proposed Borrowing (or
any previous Proposed Borrowing) has been made or is being requested;


 


 


Very truly
yours,


 


2

















 


Schedule 8


 


Approved Renovation/Re-Branding Budget


 


[see attached]