EX-10.27



 





Exhibit 10.27




EXECUTION COPY




 


SECOND MEZZANINE LOAN AGREEMENT




Dated as of November 6, 2007




among




HRHH GAMING JUNIOR MEZZ, LLC,

as Gaming Mezz Borrower,




HRHH JV JUNIOR MEZZ, LLC,

as JV Borrower,




and




COLUMN FINANCIAL, INC.,

as Lender






 


 









 








TABLE OF CONTENTS




	 	 	 	 	 
	 	 	Page
	ARTICLE I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION
	 	 	2	 
	 
	 	 	 	 
	Section 1.1 Definitions
	 	 	2	 
	Section 1.2 Principles of Construction
	 	 	50	 
	 
	 	 	 	 
	ARTICLE II. GENERAL TERMS
	 	 	51	 
	 
	 	 	 	 
	Section 2.1 Loan Commitment; Disbursement to Borrowers
	 	 	51	 
	Section 2.2 Interest Rate
	 	 	51	 
	Section 2.3 Loan Payment
	 	 	58	 
	Section 2.4 Prepayments
	 	 	59	 
	Section 2.5 Release of Property
	 	 	71	 
	Section 2.6 Cash Management
	 	 	75	 
	Section 2.7 Extensions of the Initial Maturity Date
	 	 	77	 
	 
	 	 	 	 
	ARTICLE III. CONDITIONS PRECEDENT
	 	 	88	 
	 
	 	 	 	 
	Section 3.1 Conditions Precedent to Closing
	 	 	88	 
	Section 3.2 Submission of Construction Loan Advance Documents to Lender
	 	 	88	 
	Section 3.3 Delivery of Construction Completion Guaranty
	 	 	88	 
	 
	 	 	 	 
	ARTICLE IV. REPRESENTATIONS AND WARRANTIES
	 	 	91	 
	 
	 	 	 	 
	Section 4.1 Representations of Borrowers
	 	 	91	 
	Section 4.2 Survival of Representations
	 	 	107	 
	Section 4.3 Definition of Borrowers’ Knowledge
	 	 	107	 
	 
	 	 	 	 
	ARTICLE V. COVENANTS OF BORROWERS
	 	 	108	 
	 
	 	 	 	 
	Section 5.1 Affirmative Covenants
	 	 	108	 
	Section 5.2 Negative Covenants
	 	 	127	 
	 
	 	 	 	 
	ARTICLE VI. INSURANCE; CASUALTY; CONDEMNATION; RESTORATION
	 	 	138	 
	 
	 	 	 	 
	Section 6.1 Insurance
	 	 	138	 
	Section 6.2 Casualty
	 	 	139	 
	Section 6.3 Condemnation
	 	 	140	 
	Section 6.4 Restoration
	 	 	141	 
	Section 6.5 Rights of Lender
	 	 	141	 
	 
	 	 	 	 
	ARTICLE VII. RESERVE FUNDS
	 	 	141	 
	 
	 	 	 	 
	Section 7.1 Required Repair Fund
	 	 	141	 
	Section 7.2 Tax and Insurance Escrow Fund
	 	 	142	 
	Section 7.3 Replacement Reserve Fund
	 	 	142	 
	Section 7.4 Interest Reserve Fund
	 	 	143	 
	Section 7.5 Initial Renovation Reserve Fund
	 	 	143	 






 









 






	 	 	 	 	 
	 	 	Page
	Section 7.6 General Reserve Fund
	 	 	143	 
	Section 7.7 Construction Loan Reserve Fund
	 	 	144	 
	Section 7.8 Reserve Funds, Generally
	 	 	144	 
	Section 7.9 Transfer of Mortgage Reserve Funds
	 	 	146	 
	 
	 	 	 	 
	ARTICLE VIII. DEFAULTS
	 	 	146	 
	 
	 	 	 	 
	Section 8.1 Event of Default
	 	 	146	 
	Section 8.2 Remedies
	 	 	151	 
	Section 8.3 Right to Cure Defaults
	 	 	153	 
	 
	 	 	 	 
	ARTICLE IX. SPECIAL PROVISIONS
	 	 	154	 
	 
	 	 	 	 
	Section 9.1 Sale of Note and Securitization
	 	 	154	 
	Section 9.2 Re-Dating
	 	 	156	 
	Section 9.3 Securitization Indemnification
	 	 	156	 
	Section 9.4 Exculpation
	 	 	159	 
	Section 9.5 Matters Concerning Managers and Liquor Manager
	 	 	164	 
	Section 9.6 Matters Concerning Gaming Operator
	 	 	165	 
	Section 9.7 Servicer
	 	 	165	 
	 
	 	 	 	 
	ARTICLE X. MISCELLANEOUS
	 	 	166	 
	 
	 	 	 	 
	Section 10.1 Survival
	 	 	166	 
	Section 10.2 Lender’s Discretion
	 	 	166	 
	Section 10.3 Governing Law
	 	 	166	 
	Section 10.4 Modification, Waiver in Writing
	 	 	168	 
	Section 10.5 Delay Not a Waiver
	 	 	168	 
	Section 10.6 Notices
	 	 	168	 
	Section 10.7 Trial by Jury
	 	 	170	 
	Section 10.8 Headings
	 	 	171	 
	Section 10.9 Severability
	 	 	171	 
	Section 10.10 Preferences
	 	 	171	 
	Section 10.11 Waiver of Notice
	 	 	171	 
	Section 10.12 Remedies of Borrowers
	 	 	171	 
	Section 10.13 Expenses; Indemnity
	 	 	171	 
	Section 10.14 Schedules and Exhibits Incorporated
	 	 	173	 
	Section 10.15 Offsets, Counterclaims and Defenses
	 	 	173	 
	Section 10.16 No Joint Venture or Partnership; No Third Party Beneficiaries
	 	 	173	 
	Section 10.17 Publicity
	 	 	174	 
	Section 10.18 Waiver of Marshalling of Assets
	 	 	174	 
	Section 10.19 Waiver of Counterclaim
	 	 	174	 
	Section 10.20 Conflict; Construction of Documents; Reliance
	 	 	175	 
	Section 10.21 Brokers and Financial Advisors
	 	 	175	 
	Section 10.22 Prior Agreements
	 	 	175	 
	Section 10.23 Joint and Several Liability
	 	 	176	 
	Section 10.24 Certain Additional Rights of Lender (VCOC)
	 	 	176	 






 









 






	 	 	 	 	 
	 	 	Page
	ARTICLE XI. MORTGAGE LOAN AND MEZZANINE LOANS
	 	 	176	 
	 
	 	 	 	 
	Section 11.1 Mortgage Loan and Mezzanine Loan Deliveries
	 	 	176	 
	Section 11.2 Mortgage Loan and Mezzanine Loan Estoppels
	 	 	177	 
	Section 11.3 Mortgage Loan and First Mezzanine Loan Defaults
	 	 	180	 
	Section 11.4 Discussions with Mortgage Lender and First Mezzanine Lender
	 	 	180	 
	Section 11.5 Independent Approval Rights
	 	 	180	 
	Section 11.6 Intercreditor Agreement
	 	 	180	 
	 
	 	 	 	 
	ARTICLE XII. GAMING PROVISIONS
	 	 	181	 
	 
	 	 	 	 
	Section 12.1 Operation of Casino Component
	 	 	181	 
	Section 12.2 Gaming Liquidity Requirements
	 	 	184	 
	 
	 	 	 	 
	ARTICLE XIII. RIGHT OF FIRST OFFER
	 	 	184	 
	 
	 	 	 	 
	Section 13.1 Right of First Offer
	 	 	184	 
	Section 13.2 Right of First Offer Procedure
	 	 	184	 
	Section 13.3 Application to Credit Suisse
	 	 	185	 






	 	 	 	 	 
	SCHEDULES
	 	 	 	 
	Schedule I-A

	 	–
	 	Legal Description of Hotel/Casino Property
	Schedule I-B

	 	–
	 	Legal Description of Café Property
	Schedule I-C

	 	–
	 	Legal Description of Adjacent Property
	Schedule II

	 	–
	 	Description of Project
	Schedule III

	 	–
	 	Description of Pledged Interests
	Schedule IV

	 	–
	 	Allocated Loan Amounts
	Schedule V

	 	–
	 	Net Worth Requirements
	Schedule VI

	 	–
	 	Organizational Structure
	Schedule VII

	 	–
	 	IP
	Schedule VIII

	 	–
	 	Litigation
	Schedule IX

	 	–
	 	Operating Permits
	Schedule X

	 	–
	 	Rent Roll
	Schedule XI

	 	–
	 	List of Mortgage Loan Documents
	Schedule XII

	 	–
	 	List of First Mezzanine Loan Documents
	 
	 	 	 	 
	EXHIBITS
	 	 	 	 
	Exhibit A

	 	–
	 	Form of Second Mezzanine Construction Completion Guaranty







 









 









SECOND MEZZANINE LOAN AGREEMENT




     THIS SECOND MEZZANINE LOAN AGREEMENT, dated as of November 6, 2007 (as amended, restated,
replaced, supplemented or otherwise modified from time to time, this “Agreement”), among COLUMN
FINANCIAL, INC., a Delaware corporation, having an address at 11 Madison Avenue, New York, New York
10010 (together with its successors and assigns, “Lender”), HRHH GAMING JUNIOR MEZZ, LLC, a
Delaware limited liability company, having its principal place of business c/o Morgans Hotel Group
Co., 475 Tenth Avenue, New York, New York 10018, Attention: Marc Gordon, Chief Investment Officer
(“Gaming Mezz Borrower”) and HRHH JV JUNIOR MEZZ, LLC, a Delaware limited liability company, having
its principal place of business c/o Morgans Hotel Group Co., 475 Tenth Avenue, New York, New York
10018, Attention: Marc Gordon, Chief Investment Officer (“JV Borrower”; and each of Gaming Borrower
and JV Borrower, individually, a “Borrower”, and collectively, “Borrowers”), jointly and severally.



W
I  T N E S S E T H:




     WHEREAS, pursuant to that certain Loan Agreement, dated as of February 2, 2007 (the “Original
Mortgage Loan Agreement”), among Mortgage Lender and Mortgage Borrowers (as such terms are
hereinafter defined), Mortgage Lender made a loan to Mortgage Borrowers in the original principal
amount of up to $1,360,000,000.00 (the “Original Mortgage Loan”), subject to and in accordance with
the terms and conditions of the Original Mortgage Loan Agreement;



     WHEREAS, Mortgage Lender and Mortgage Borrowers have agreed that, as of the date hereof, (i)
Mortgage Borrowers shall prepay $350,000,000.00 of the Original Mortgage Loan from the proceeds of
three (3) mezzanine loans made to the direct and/or indirect owners of equity interests in Mortgage
Borrowers, and (ii) Mortgage Lender shall increase the maximum amount of the Original Mortgage Loan
by $20,000,000.00, resulting in the aggregate principal amount of $1,030,000,000.00, in accordance
with the terms and conditions of the Mortgage Loan Agreement (as such term is hereinafter defined),
and the original promissory note evidencing the Original Mortgage Loan shall be replaced by the
Mortgage Notes (as such term is hereinafter defined); and



     WHEREAS, in connection with the partial prepayment of the Original Mortgage Loan: (i) First
Mezzanine Lender is willing to make the First Mezzanine Loan to First Mezzanine Borrowers, subject
to and in accordance with the terms and conditions of the First Mezzanine Loan Agreement and the
other First Mezzanine Loan Documents (as such terms are hereinafter defined); (ii) Lender is
willing to make the Loan to Borrowers, subject to and in accordance with the terms and conditions
of this Agreement and the other Loan Documents; and (iii) Third Mezzanine Lender is willing to make
the Third Mezzanine Loan to Third Mezzanine Borrowers, subject to and in accordance with the terms
and conditions of the Third Mezzanine Loan Agreement and the other Third Mezzanine Loan Documents
(as such terms are hereinafter defined).



     NOW, THEREFORE, in consideration of the making of the Loan by Lender and the covenants,
agreements, representations and warranties set forth in this Agreement, and for Ten Dollars
($10.00) and other good and valuable consideration, the receipt and legal sufficiency of



 









 







which are hereby acknowledged, the parties hereto hereby covenant, agree, represent and
warrant as follows:



ARTICLE I.

DEFINITIONS; PRINCIPLES OF CONSTRUCTION





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



     “Acceptable Counterparty” shall mean any counterparty to the Interest Rate Cap Agreement that
has and shall maintain, until the expiration of the applicable Interest Rate Cap Agreement, a
long-term unsecured debt rating of at least “AA-” by S&P and “Aa3” from Moody’s, which rating shall
not include a “t” or otherwise reflect a termination risk.



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



     “Additional Non-Qualified Mandatory Prepayment” shall have the meaning set forth in
Section 2.4.2(c) hereof.



     “Additional Non-Qualified Prepayment Date” shall mean July 1, 2008.



     “Adjacent Borrower” shall mean HRHH Development, LLC, a Delaware limited liability company,
together with its successors and assigns.



     “Adjacent Parcel Purchaser” shall have the meaning set forth in Section 2.5.2(a)
hereof.



     “Adjacent Parcel Release Price” shall have the meaning assigned to such term in the Mortgage
Loan Agreement.



     “Adjacent Parcel Sale” shall have the meaning set forth in Section 2.5.2(a) hereof.



     “Adjacent Property” shall have the meaning assigned to such term in the Mortgage Loan
Agreement.



     “Adjacent Property IP License” shall have the meaning set forth in Section 5.1.26(b)
hereof.



     “Advance Request” shall have the meaning assigned to such term in the Mortgage Loan Agreement.



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



     “Affiliate Adjacent Parcel Purchaser” shall have the meaning set forth in Section
2.5.2(a) hereof.



2









 





     “Affiliate IP License” shall have the meaning set forth in Section 5.1.26(d) hereof.



     “Affiliate IP Purchaser” shall have the meaning set forth in Section 2.5.3(a) hereof.



     “Affiliate Release Parcel Purchaser” shall have the meaning set forth in Section
2.5.1(a) hereof.



     “Affiliated IP Party” shall mean (i) any subsidiary of any Loan Party hereafter formed with
Lender’s consent, (ii) HRHI, and (iii) any subsidiary of HRHI.



     “Affiliated Manager” shall mean any Manager in which any Loan Party or any Guarantor has,
directly or indirectly, any legal, beneficial or economic interest.



     “Aggregate Outstanding Principal Balance” shall mean, as of any date of determination, the sum
of the Outstanding Principal Balance, the Mortgage Loan Outstanding Principal Balance, the First
Mezzanine Loan Outstanding Principal Balance and the Third Mezzanine Loan Outstanding Principal
Balance.



     “Alteration Threshold Amount” shall have the meaning assigned to such term in the Mortgage
Loan Agreement.



     “Alternate Financing Percentages” shall mean the Loan Percentage, the Mortgage Reduced
Acquisition Loan Percentage, the First Mezzanine Loan Percentage and the Third Mezzanine Loan
Percentage.



     “Alternative Minimum Interest Reserve Amount” shall have the meaning assigned to such term in
the Mortgage Loan Agreement.



     “Alternative Minimum Mandatory Letter of Credit” shall have the meaning assigned to such term
in the Mortgage Loan Agreement.



     “Annual Budget” shall mean the operating budget, including all planned Capital Expenditures,
for all of the Properties, collectively, prepared by Mortgage Borrowers or the applicable
Manager(s) for the applicable Fiscal Year or other period.



     “Applicable Interest Rate” shall mean the rate or rates at which the Outstanding Principal
Balance bears interest from time to time in accordance with the provisions of Section 2.2.3
hereof.



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



     “Approved Bank” shall mean a bank or other financial institution which has a minimum long term
unsecured debt rating of at least “AA” by S&P and Fitch and “Aa2” by Moody’s.



     “Assignment of Leases” shall mean that certain first priority Assignment of Leases and Rents,
dated as of February 2, 2007, from Hotel/Casino Borrower, Café Borrower, Adjacent Borrower and
Gaming Borrower, as assignors, to Mortgage Lender, as assignee, assigning to



3









 







Mortgage Lender all of each such Mortgage Borrower’s right, title and interest in and to the
Leases and Rents of its Property as security for the Mortgage Loan, as amended by the Mortgage Loan
Document Modification Agreement and as the same may be further amended, restated, replaced,
supplemented or otherwise modified from time to time.



     “Assignment of Liquor Management Agreement” shall mean that certain Second Mezzanine
Assignment of Liquor Management and Employee Services Agreement and Subordination of Management
Fees, dated as of the date hereof, by Borrowers, as assignors, and Hotel/Casino Borrower, to
Lender, and consented and agreed to by HRHI, in its capacity as the Liquor Manager, as the same may
be amended, restated, replaced, supplemented or otherwise modified from time to time.



     “Assignment of Management Agreement (All Properties)” shall mean that certain Second Mezzanine
Assignment of Management Agreement and Subordination of Management Fees (All Properties), dated as
of the date hereof, by Borrowers, as assignors, Café Borrower, Hotel/Casino Borrower and Adjacent
Borrower, to Lender, and consented and agreed to by the Affiliated Manager of such Properties, as
the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.



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



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



     “Bankruptcy Code” shall mean 11 U.S.C. § 101 et seq., as the same may be amended from time to
time.



     “Bonafide Adjacent Parcel Purchaser” shall have the meaning set forth in Section
2.5.2(a) hereof.



     “Bonafide IP Purchaser” shall have the meaning set forth in Section 2.5.3(a) hereof.



     “Bonafide Release Parcel Purchaser” shall have the meaning set forth in Section
2.5.1(a) hereof.



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



4









 





     “Breakage Costs” shall have the meaning set forth in Section 2.2.3(h) hereof.



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



     “Café Borrower” shall mean HRHH Cafe, LLC, a Delaware limited liability company, together with
its successors and assigns.



     “Café Property” shall have the meaning assigned to such term in the Mortgage Loan Agreement.



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



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



     “Cash Management Agreement” shall mean that certain Cash Management Agreement (Second
Mezzanine Loan), dated as of the date hereof, by and among Borrowers, Mortgage Borrowers and
Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from
time to time.



     “Casino Account” shall mean, if and when Gaming Borrower becomes the Gaming Operator in
accordance with the terms of the Mortgage Loan Agreement, individually or collectively, one or more
accounts established and maintained from time to time by Gaming Borrower and reasonably approved by
Mortgage Lender; provided, however, that any such Casino Account shall be
established and maintained pursuant to, and in accordance with, all applicable Gaming Laws and
shall be subject to a security interest in favor of Mortgage Lender pursuant to the Mortgage Loan
Documents.



     “Casino Component” shall mean that portion of the Hotel/Casino Property devoted to the
operation of a casino gaming operation and, as of February 2, 2007, leased to HRHI pursuant to the
HRHI Lease and subleased to Gaming Operator pursuant to the Gaming Sublease, including, without
limitation, those areas devoted to the conduct of games of chance, facilities associated directly
with gaming operations, including, without limitation, casino support areas such as surveillance
and security areas, cash cages, counting and accounting areas and gaming back-of-the-house areas,
in each case, to the extent the operation thereof requires a Gaming License under applicable Gaming
Laws, as more particularly described and set forth in the HRHI Lease and the Gaming Sublease as the
“Premises”.



     “Casino Component Lease” shall have the meaning assigned to such term in the Mortgage Loan
Agreement.



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



5









 





     “Certificate of Occupancy” shall have the meaning assigned to such term in the Mortgage Loan
Agreement.



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



     “Closing Date” shall mean the date of this Agreement.



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



     “Collateral” shall mean (i) the Pledged Collateral and (ii) all other collateral for the Loan
granted in the Loan Documents.



     “Collateral Assignment of Interest Rate Cap Agreement” shall mean that certain Collateral
Assignment of Interest Rate Cap Agreement (Second Mezzanine Loan), dated as of the date hereof,
executed by Borrowers in connection with the Loan for the benefit of Lender, as the same may be
amended, restated, replaced, supplemented or otherwise modified from time to time.



     “Comparable Hotel/Casinos” shall mean hotel and casino resorts in Las Vegas, Nevada which are
of a similar nature, quality and scope as the hotel and casino resort being operated on the
Hotel/Casino Property as of February 2, 2007, including, without limitation, Mandalay Bay Resort
and Casino, MGM Grand Hotel and Casino, The Palms Casino Resort and Caesars Palace, in each of the
foregoing instances, as existing and being operated on the date hereof.



     “Component” shall have the meaning assigned to such term in the Mortgage Loan Agreement.



     “Component Percentages” shall have the meaning assigned to such term in the Mortgage Loan
Agreement.



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



     “Constituent Member” shall mean any direct member or partner in any Loan Party, any Mezzanine
Borrower or any Guarantor and any Person that, directly or indirectly through one or more other
partnerships, limited liability companies, corporations or other entities is a stockholder, member
or partner in any Loan Party, any Mezzanine Borrower or any Guarantor.



     “Construction Completion Guaranty” shall mean a Second Mezzanine Construction Guaranty of
Completion from Guarantors in favor of Lender in the form attached hereto as



6









 





     Exhibit A, as such agreement may be amended, restated, replaced, supplemented or
otherwise modified from time to time.



     “Construction Loan” shall have the meaning assigned to such term in the Mortgage Loan
Agreement.



     “Construction Loan Advance” shall have the meaning assigned to such term in the Mortgage Loan
Agreement.



     “Construction Loan Reserve Account” shall have the meaning assigned to such term in the
Mortgage Loan Agreement or such comparable account as shall be established under this Agreement in
accordance with Section 7.7 hereof.



     “Construction Qualification Date” shall mean May 1, 2008, subject to Excusable Delay not to
exceed fifteen (15) days.



     “Construction Schedule” shall have the meaning assigned to such term in the Mortgage Loan
Agreement.



     “Control” shall mean the possession, directly or indirectly, of the power to direct or cause
the direction of management, policies or activities of a Person, whether through ownership of
voting securities, by contract or otherwise. “Controlled” and “Controlling” shall have correlative
meanings.



     “Counterparty” shall mean, with respect to the Interest Rate Cap Agreement, Natixis Financial
Products Inc., and with respect to any Replacement Interest Rate Cap Agreement, any substitute
Acceptable Counterparty.



     “Credit Suisse” shall mean Credit Suisse Securities (USA) LLC and its successors in interest.



     “Deemed Relinquishment” shall have the meaning assigned to such term in the Mortgage Loan
Agreement.



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



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



     “Debt Service Coverage Ratio” shall mean, as of any date of determination, a ratio in which:




     (a) the numerator is the Pro-Forma Net Cash Flow as of such date of determination; and



7









 






     (b) the denominator is the aggregate amount of interest that is reasonably estimated by
Lender to be due and payable on the Outstanding Principal Balance, the Mortgage Loan
Outstanding Principal Balance, the First Mezzanine Loan Outstanding Principal Balance and
the Third Mezzanine Loan Outstanding Principal Balance as of such date of determination for
the following full twelve (12) calendar month period.



          “Debt Yield” shall mean:




     (a) for all calculations of Debt Yield except in connection with the Second Qualified
Extension Option, a ratio (expressed as a percentage) in which: (i) the numerator is the Net
Cash Flow for the trailing twelve (12) calendar month period ending with the last calendar
month prior to the date of determination for which financial reports have been delivered
under Section 5.1.11 of the Mortgage Loan Agreement and Section 5.1.11 hereof, as
reasonably determined by Mortgage Lender based on the financial statements delivered to
Mortgage Lender pursuant to Section 5.1.11 of the Mortgage Loan Agreement and to Lender
pursuant to Section 5.1.11 hereof, and (ii) the denominator is the Aggregate
Outstanding Principal Balance as of such date of determination, subject, however, to the
provisions of Section 2.7.3 of the Mortgage Loan Agreement and Section 2.7.3 hereof;
and




     (b) for the calculation of Debt Yield in connection with the Second Qualified Extension
Option, a ratio (expressed as a percentage) in which: (i) the numerator is the Net Cash Flow
for a period equal to the lesser of (A) the trailing twelve (12) calendar month period
ending with the last calendar month prior to the date of determination for which financial
reports have been delivered under Section 5.1.11 of the Mortgage Loan Agreement and
Section 5.1.11 hereof, or (B) the period commencing on the first (1st) day of the
First Full Operating Month through and including the last day of the last calendar month
prior to the date of determination for which financial reports have been delivered under
Section 5.1.11 of the Mortgage Loan Agreement and Section 5.1.11 hereof, with such
Net Cash Flow, in the case of the foregoing clause (B), then being reasonably
annualized by Mortgage Lender, and in each of the foregoing cases under clause (A)
or (B) above, as reasonably determined by Mortgage Lender based on the financial
statements delivered to Mortgage Lender pursuant to Section 5.1.11 of the Mortgage Loan
Agreement and to Lender pursuant to Section 5.1.11 hereof, and (ii) the denominator
is the Aggregate Outstanding Principal Balance as of such date of determination, subject,
however, to the provisions of Section 2.7.3 of the Mortgage Loan Agreement and Section
2.7.3 hereof.



     “Debt Yield Letter of Credit” shall have the meaning set forth in Section 2.7.3(b)
hereof.



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



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



8









 





     “Determination Date” shall mean, with respect to any Interest Period, the date that is two (2)
London Business Days prior to the fifteenth (15th) day of the calendar month in which such Interest
Period commences; provided, that with respect to the initial Interest Period, the
Determination Date was two (2) London Business Days prior to the Closing Date.



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



     “DLJ Entities” shall have the meaning set forth in Section 10.16(c) hereof.



     “DLJ Guarantor” shall mean DLJ MB IV HRH, LLC, a Delaware limited liability company, together
with its successors and permitted assigns.



     “DLJMB Commitment Letter” shall mean that certain Commitment Letter of the DLJMB Parties,
dated as of February 2, 2007, addressed to the DLJ Guarantor, as modified by that certain
Modification and Ratification of DLJMB Commitment Letter and Consent, dated as of the date hereof,
by the DLJMB Parties in favor of Lender, Mortgage Lender, First Mezzanine Lender and Third
Mezzanine Lender.



     “DLJMB Parties” shall have the meaning set forth in Section 9.4 hereof.



     “Draw Request” shall mean, with respect to each Construction Loan Advance, an Advance Request
together with all other documents required by the Mortgage Loan Agreement to be furnished to
Mortgage Lender as a condition to such Construction Loan Advance.



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



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



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



9









 





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



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



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



     “Excess Cash Flow” shall have the meaning assigned to such term in the Mortgage Loan
Agreement.



     “Excess Cash Termination Conditions” shall mean that (i) as of any Financial Determination
Date, the Properties have achieved and maintained a Debt Service Coverage Ratio of not less than
1.10 to 1.00 for the immediately preceding two (2) consecutive calendar quarters, and (ii) no Event
of Default, Mortgage Event of Default or any Mezzanine Event of Default shall have occurred and be
continuing.



     “Excess Fully Funded IP Release Proceeds” shall have the meaning set forth in Section
2.4.4(g) hereof.



     “Excess IP Release Price Proceeds” shall have the meaning set forth in Section
2.4.4(g) hereof.



     “Excess Non-Fully Funded IP Release Proceeds” shall have the meaning set forth in Section
2.4.4(g) hereof.



     “Exchange Act” shall have the meaning set forth in Section 9.3(a) hereof.



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



     “Excluded Taxes” shall mean, with respect to Lender or any other recipient of any payment to
be made by or on account of any obligation of Borrowers hereunder, (a) income or franchise taxes
imposed on (or measured by reference to) its net income by the United States of America, or by the
jurisdiction under the laws of which such recipient is organized or in which its principal office
is located or, in the case of any Lender, in which its applicable lending office is located, or any
other jurisdiction in which it is subject to tax solely as a result of any present or former
connection between Lender or other recipient, as applicable, and the jurisdiction imposing such tax
other than a present or former connection solely as a result of the activities and transactions
specifically contemplated by this Agreement, (b) any branch profits taxes imposed by the United
States of America or any similar tax imposed by any other jurisdiction described in clause
(a) of this definition, and (c) in the case of a Non-U.S. Lender, any withholding tax that is
imposed on amounts payable to such Non-U.S. Lender at the time such Non-U.S. Lender designates a
new lending office, unless the designation of such new lending office was at the request of
Borrowers, or is attributable to such Non-U.S. Lender’s failure to comply with Section
2.2.3(e)(iii) hereof, except to the extent that such Non-U.S. Lender was



10









 







entitled, at the time of designation of a new lending office, to receive additional amounts
from Borrowers with respect to such withholding tax pursuant to Section 2.2.3(e) hereof.



     “Excusable Delay” shall mean a delay due to acts of god, governmental restrictions, stays,
judgments, orders, decrees, enemy actions, civil commotion, fire, casualty, strikes, work
stoppages, shortages of labor or materials or other causes beyond the reasonable control of any
Loan Party and not arising out of (a) the negligence, willful misconduct or illegal act of any Loan
Party or any Affiliate of any Loan Party, or (b) any cause or circumstance resulting from the
insolvency, bankruptcy or lack of funds of any Loan Party, any Guarantor or any Affiliate of any
Loan Party or any Guarantor.



     “Existing FF&E Leases” shall have the meaning assigned to such term in the Mortgage Loan
Agreement.



     “Extended Maturity Date” shall mean, as applicable, either (a) the Qualified Extended Maturity
Date as set forth in Section 2.7.2 hereof, or (b) the Non-Qualified Extended Maturity Date
as set forth in Section 2.7.1 hereof.



     “Extension Debt Service Coverage Ratio” shall mean, with respect to any Extension Term, a
ratio for the applicable twelve (12) month period in which:



     (a) the numerator is the Projected Underwritten Net Cash Flow for such Extension Term; and



     (b) the denominator is the sum of:




     (i) the aggregate amount of interest that would be payable on the sum of the
Mortgage Outstanding Principal Balance as of the first day of such Extension Term
plus the amount of any anticipated Construction Loan Advances in accordance with the
Construction Schedule (excluding any Construction Loan Advances anticipated to be
made out of the Construction Loan Reserve Account pursuant to the Mortgage Loan
Agreement), if any, for the following full twelve (12) calendar month period at an
interest rate equal to the Strike Price applicable to such Extension Term plus the
applicable Mortgage Spread; plus




     (ii) the aggregate amount of interest that would be payable on the First
Mezzanine Loan Outstanding Principal Balance as of the first day of such Extension
Term for the following full twelve (12) calendar month period at an interest rate
equal to the Strike Price applicable to such Extension Term plus the First Mezzanine
Spread; plus




     (iii) the aggregate amount of interest that would be payable on the Outstanding
Principal Balance as of the first day of such Extension Term for the following full
twelve (12) calendar month period at an interest rate equal to the Strike Price
applicable to such Extension Term plus the Spread; plus




     (iv) the aggregate amount of interest that would be payable on the Third
Mezzanine Loan Outstanding Principal Balance as of the first day of such



11









 






Extension Term for the following full twelve (12) calendar month period at an
interest rate equal to the Strike Price applicable to such Extension Term plus the
Third Mezzanine Spread.



     “Extension Interest Shortfall” shall mean, with respect to each Extension Term, the difference
between: (a) the Required Net Cash Flow with respect to such Extension Term, less (b) the amount on
deposit in the Interest Reserve Fund as of the day immediately preceding the first (1st)
day of such Extension Term.



     “Extension Option” shall mean any Qualified Extension Option or Non-Qualified Extension
Option, as applicable.



     “Extension Term” shall mean any Qualified Extension Term or Non-Qualified Extension Term, as
applicable.



     “Extra Non-Accrued Interest” shall have the meaning set forth in Section 2.4.6 hereof.



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



     “FF&E” shall mean all furniture, furnishings, fixtures and equipment required for the
operation of any of the Properties, including, without limitation, (i) lobby furniture, carpeting,
draperies, paintings, bedspreads, television sets, office furniture and equipment such as safes,
cash registers, and accounting, duplicating and communication equipment, telephone systems, back
and front of the house computerized systems, guest room furniture, specialized hotel equipment such
as equipment required for the operation of kitchens, laundries, the front desk, dry cleaning
facilities, bar and cocktail lounges, restaurants, recreational facilities as they may exist from
time to time, and decorative lighting, material handling equipment and cleaning and engineering
equipment and all other fixtures, equipment, apparatus and personal property needed for such
purposes, (ii) Gaming Equipment which any Mortgage Borrower is lawfully permitted to own or lease,
and (iii) rock and roll memorabilia unique to the Hotel/Casino Property and similar in character to
the other rock and roll memorabilia displayed at the Hotel/Casino Property.



     “FF&E Expenditures” shall mean amounts expended for the purchase, replacement and/or
installation of FF&E at the Properties.



     “FF&E Expenditures Work” shall mean any labor performed or materials installed in connection
with any FF&E Expenditures.



     “Financial Determination Date” shall have the meaning set forth in Section 2.6.4
hereof.



     “Financing Percentages” shall mean the Loan Percentage, the Mortgage Loan Percentage, the
First Mezzanine Loan Percentage and the Third Mezzanine Loan Percentage.



     “First Anniversary” shall mean the first anniversary of the Closing Date.



12









 





     “First Full Operating Month” shall mean the calendar month following the month in which
Substantial Completion occurs.



     “First Mezzanine Borrower” and “First Mezzanine Borrowers” shall mean, individually or
collectively, as applicable, HRHH Gaming Senior Mezz, LLC, a Delaware limited liability company,
and HRHH JV Senior Mezz, LLC, a Delaware limited liability company, each in its capacity as a
borrower under the First Mezzanine Loan, together with its or their successors or permitted
assigns.



     “First Mezzanine Collateral” shall mean the “Collateral” as defined in the First Mezzanine
Loan Agreement.



     “First Mezzanine Debt” shall mean the “Debt” as defined in the First Mezzanine Loan Agreement.



     “First Mezzanine Default” shall mean a “Default” as defined in the First Mezzanine Loan
Agreement.



     “First Mezzanine Event of Default” shall mean an “Event of Default” as defined in the First
Mezzanine Loan Agreement.



     “First Mezzanine Lender” shall mean Column Financial, Inc., in its capacity as holder of the
First Mezzanine Loan, together with its successors and assigns.



     “First Mezzanine Loan” shall mean the loan in the original principal amount of Two Hundred
Million and No/100 Dollars ($200,000,000), made by First Mezzanine Lender to First Mezzanine
Borrowers pursuant to the First Mezzanine Loan Agreement.



     “First Mezzanine Loan Agreement” shall mean that certain First Mezzanine Loan Agreement, dated
as of the date hereof, among First Mezzanine Lender and First Mezzanine Borrowers, as the same may
be amended, restated, replaced, supplemented or otherwise modified from time to time subject to the
terms of the Intercreditor Agreement.



     “First Mezzanine Loan Documents” shall mean the First Mezzanine Loan Agreement and all other
documents evidencing and/or securing the First Mezzanine Loan, as the same may be amended,
restated, replaced, supplemented or otherwise modified from time to time subject to the terms of
the Intercreditor Agreement.



     “First Mezzanine Loan Outstanding Principal Balance” shall mean the “Outstanding Principal
Balance” as defined in the First Mezzanine Loan Agreement.



     “First Mezzanine Loan Percentage” shall mean, as of any date of determination and prior to the
application of the principal amount with respect to which the Financing Percentages or the
Alternate Financing Percentages are then being calculated, the ratio, expressed as a percentage,
the numerator of which is an amount equal to the First Mezzanine Loan Outstanding Principal Balance
on such date of determination and the denominator of which is an amount equal to the Aggregate
Outstanding Principal Balance on such date of determination.



13









 





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



     “First Mezzanine Spread” shall mean the “Spread” as defined in the First Mezzanine Loan
Agreement.



     “First Non-Qualified Extended Maturity Date” shall mean February 9, 2010.



     “First Non-Qualified Extension Option” shall have the meaning set forth in Section
2.7.1(a) hereof.



     “First Non-Qualified Extension Term” shall have the meaning set forth in Section
2.7.1(a) hereof.



     “First Qualified Extended Maturity Date” shall mean February 9, 2011.



     “First Qualified Extension Option” shall have the meaning set forth in Section
2.7.2(a) hereof.



     “First Qualified Extension Term” shall have the meaning set forth in Section 2.7.2(a)
hereof.



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



     “Fitch” shall mean Fitch, Inc.



     “Fully Prepaid IP Sale” shall have the meaning set forth in Section 2.4.4(g) hereof.



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



     “Gaming Assets” shall have the meaning set forth in the Gaming Sublease.



     “Gaming Assets Note” shall mean that certain Gaming Asset Note, dated as February 2, 2007,
made by the Gaming Operator to HRHI, as the same may be amended, restated, replaced, supplemented
or otherwise modified from time to time.



     “Gaming Authority” shall mean any of the Nevada Gaming Commission, the Nevada State Gaming
Control Board, the Clark County Liquor and Gaming Licensing Board and any other Governmental
Authority and/or regulatory authority or body or any agency which has, or may at any time after the
Closing Date have, jurisdiction over the gaming activities or the sale or distribution of liquor at
any of the Properties, or any successor to any such authority.



     “Gaming Borrower” shall mean HRHH Gaming, LLC, a Nevada limited liability company, together
with its successors and assigns.



     “Gaming Employees” shall have the meaning set forth in the Gaming Sublease.



14









 





     “Gaming Equipment” shall mean any and all gaming devices (as defined in NRS 463.0155), gaming
device parts, inventory and other related gaming equipment and supplies used in connection with the
operation of a casino, including, without limitation, slot machines, gaming tables, cards, dice,
chips, tokens (including slot machine tokens not currently in circulation, and “reserve” chips, if
any, not currently in circulation), player tracking systems, cashless wagering systems (as defined
in NRS 463.014) and associated equipment (as defined in NRS 463.0136), which are located at any
Property, are owned or leased by any Borrower and are used or useable exclusively in the present or
future operation of slot machines and live games at any Property, together with all improvements
and/or additions thereto, mobile gaming systems (as defined in Regulation 14.010(11) under NRS
Chapter 463), all contracts necessary to own or operate any of the Gaming Equipment and/or to
conduct gaming operations for the Casino Component, all assignable manufacturers and other
warranties applicable to the Gaming Equipment, all computer hardware and software used to operate
the Gaming Equipment and/or to conduct gaming operations for the Casino Component.



     “Gaming Laws” shall mean the provisions of the Nevada Gaming Control Act, codified as NRS
Chapter 463, as amended from time to time, all regulations of the Gaming Authorities promulgated
thereunder, as amended from time to time, the provisions of the Clark County Code, as amended from
time to time, and all other laws, statutes, rules, rulings, orders, ordinances, regulations and
other Legal Requirements of any Gaming Authority.



     “Gaming Letter of Credit” shall have the meaning assigned to such term in the Mortgage Loan
Agreement.



     “Gaming License” shall mean any license, qualification, franchise, accreditation, approval,
registration, permit, finding of suitability or other authorization relating to gaming, the gaming
business or the operation of a casino under the Gaming Laws or required by any Gaming Authority or
otherwise necessary under any Gaming Laws for the operation of gaming, the gaming business or a
resort casino at the Hotel/Casino Property.



     “Gaming Liquidity Requirement” shall mean, if and when Gaming Borrower becomes the Gaming
Operator in accordance with the terms of the Mortgage Loan Agreement, the minimum bankroll
requirements for cash and cash equivalents required to be maintained by Gaming Borrower pursuant to
the Gaming Laws in an amount no greater than is mandated by Nevada Gaming Commission Regulation
6.150.



     “Gaming Member” shall mean HRHH Gaming Member, LLC, a Delaware limited liability company.



     “Gaming Operating Condition” shall mean that the gaming operations at the Hotel/Casino
Property are being operated by a Qualified Gaming Operator pursuant to either (i) the Gaming
Sublease and the Gaming Recognition Agreement or (ii) one or more other written agreements
previously approved by Lender.



     “Gaming Operating Reserve” shall mean, if and when Gaming Borrower becomes the Gaming Operator
in accordance with the terms of the Mortgage Loan Agreement, such cash funds and reserves that are
held and maintained by Gaming Borrower, in its capacity as the duly



15









 







licensed operator of the Casino Component under applicable Gaming Laws, either on-site at the
Hotel/Casino Property or in the Casino Account, including, without limitation, casino chips,
tokens, checks and markers; provided that all such Gaming Operating Reserves (i) are
established and maintained solely for use in the day-to-day operation and management of the Casino
Component in the ordinary course of business, and (ii) are funded and maintained in accordance with
the requirements of all applicable Gaming Laws and are in the amounts that are reasonable and
customary for casino operations at Comparable Hotel/Casinos (it being agreed that 110% of statutory
or regulatory minimums shall be deemed a reasonable and customary minimum amount for these
purposes).



     “Gaming Operator” shall mean (i) subject to clause (ii) below, for so long as the
Gaming Sublease is in effect and all required Gaming Licenses are maintained in accordance with
applicable Gaming Laws, Golden HRC, LLC, a Nevada limited liability company, the subtenant under
the Gaming Sublease, (ii) if Navegante HR, LLC, a Nevada limited liability company, replaces Golden
HRC, LLC as the subtenant under the Gaming Sublease pursuant to the Navegante Agreement, for so
long as the Gaming Sublease is in effect and all required Gaming Licenses are maintained in
accordance with applicable Gaming Laws, Navegante HR, LLC, as replacement subtenant under the
Gaming Sublease, and (iii) during any time when the Gaming Sublease is not in effect, a Qualified
Gaming Operator who is supervising, managing and operating all gaming activities at the
Hotel/Casino Property.



     “Gaming Recognition Agreement” shall mean that certain Recognition Agreement, dated as of
February 2, 2007, executed by Mortgage Lender, Hotel/Casino Borrower, HRHI and Golden HRC, LLC in
connection with the Gaming Sublease, as the same may be amended, restated, replaced, supplemented
or otherwise modified from time to time.



     “Gaming Shortfall Notes” shall mean the “Shortfall Notes” as defined in the Gaming Sublease.



     “Gaming Sublease” shall mean that certain Casino Sublease, dated as of November 6, 2006, by
and among MHG HR Acquisition Corp., as sublandlord, Morgans Hotel Group Co., and Golden HRC, LLC,
as subtenant (it being acknowledged and agreed that, upon consummation of the transactions under
the Merger Agreement, HRHI succeeded to the interests of MHG HR Acquisition Corp. thereunder),
covering the Casino Component of the Hotel/Casino Property as more particularly described therein,
as such Casino Sublease was modified by that certain First Amendment to Casino Sublease, dated as
of January 9, 2007 and by the Gaming Recognition Agreement, and as the same may hereafter be
amended, restated, replaced, supplemented or otherwise modified from time to time.



     “Gaming Surplus Fund Reserve” shall mean the “Surplus Fund Reserve” as defined in the Gaming
Sublease.



     “Gaming Working Capital Note” shall mean the “Working Capital Note” as defined in the Gaming
Sublease.



16









 





     “General Reserve Account” shall have the meaning assigned to such term in the Mortgage Loan
Agreement or such comparable account as shall be established under this Agreement in accordance
with Section 7.6 hereof.



     “General Reserve Fund” shall have the meaning assigned to such term in the Mortgage Loan
Agreement or such comparable fund as shall be established under this Agreement in accordance with
Section 7.6 hereof.



     “Governmental Approvals” shall mean all approvals, consents, waivers, orders, acknowledgments,
authorizations, permits and licenses required under applicable Legal Requirements to be obtained
from any Governmental Authority for the construction of any and all of the Project and/or the use,
occupancy and operation following completion of construction, as the context requires.



     “Governmental Authority” shall mean any court, board, agency, commission, office or other
authority of any nature whatsoever for any governmental unit (federal, state, county, district,
municipal, city or otherwise) whether now or hereafter in existence, including, without limitation,
any Gaming Authority.



     “Gross Income from Operations” shall mean, for any period, all Rents and all other income and
proceeds (whether in cash or on credit, and computed in accordance with GAAP and, to the extent
applicable with respect to the Hotel/Casino Property, the Uniform System of Accounts), received by
any Mortgage Borrower or by any Manager (on behalf of any Mortgage Borrower) or by Sub-Manager (on
behalf of any Mortgage Borrower or any Manager) for the use, occupancy or enjoyment of any of the
Properties, or any part thereof, or received by any Mortgage Borrower or any Manager or Sub-Manager
for the sale of any goods, services or other items sold on or provided from any of the Properties
in the ordinary course of such Property’s operation, including, without limitation: (a) all income
and proceeds received under Leases, including, without limitation, the HRHI Lease; (b) all income
and proceeds received from rental of rooms and commercial, meeting, conference and/or banquet space
within any of the Properties including net parking revenue; (c) all income and proceeds received
from food and beverage operations and from catering services conducted from any of the Properties
even though rendered outside of any of the Properties; (d) without duplication of the foregoing
clause (a) or the following clause (e), all income, proceeds and other amounts
received by any Mortgage Borrower under the Gaming Sublease; (e) without duplication of the
foregoing clauses (a) or (d), all income, proceeds and revenue generated from gaming
activities at any Property; (f) any payments received by or on behalf of any Mortgage Borrower
under the Gaming Assets Note, the Gaming Shortfall Notes or the Working Capital Note or from the
Surplus Fund Reserve; (g) all income and proceeds from business interruption, rental interruption
and use and occupancy insurance with respect to the operation of any of the Properties (after
deducting therefrom all necessary costs and expenses incurred in the adjustment or collection
thereof); (h) all Awards for temporary use (after deducting therefrom all costs incurred in the
adjustment or collection thereof and in Restoration of any of the Properties); (i) all income and
proceeds from judgments, settlements and other resolutions of disputes with respect to matters
which would be includable in this definition of “Gross Income from Operations” if received in the
ordinary course of any of the Properties’ operation (after deducting therefrom all necessary costs
and expenses incurred in the adjustment or collection thereof); (j) interest on credit accounts,
rent concessions or credits,



17









 







and other required pass-throughs and interest on Reserve Funds; and (k) deposits received for
rental of rooms; and “Gross Income from Operations” shall also include all licensing fees and other
income and receipts generated by the IP; but “Gross Income from Operations” shall exclude (1) gross
receipts received by lessees, licensees or concessionaires of any of the Properties (but not any
percentage rents or similar payments derived therefrom); (2) income and proceeds from the sale or
other disposition of goods, FF&E, capital assets and other items not in the ordinary course of the
operation of the applicable Property; (3) federal, state and municipal excise, sales and use taxes
collected directly from customers, patrons or guests of any of the Properties as a part of or based
on the sales price of any goods, services or other items, such as gross receipts, room, admission,
cabaret or equivalent taxes; (4) Awards (except to the extent provided in clause (h)
above); (5) refunds, rebates, discounts and other similar credits of amounts not included in
Operating Expenses at any time and uncollectible accounts; (6) gratuities collected by the
employees at any of the Properties; (7) the proceeds of any financing, refinancing or sale of any
of the Properties (or all of the membership interests in any Mortgage Borrower) or the FF&E; (8)
other non-recurring income or proceeds resulting other than from the use or occupancy of any of the
Properties, or any part thereof, or other than from the sale of goods, services or other items sold
on or provided from any of the Properties in the ordinary course of business; (9) any credits or
refunds made to customers, guests or patrons in the form of allowances or adjustments to previously
recorded revenues; (10) deposits received for rental of banquet space or business or conference
meeting rooms; (11) security deposits received under any Leases, unless and until the same shall be
applied in accordance with the terms of the applicable Lease(s); (12) all proceeds from insurance
to the extent not included in income pursuant to clause (g) above; and (13) any
disbursements to (i) any Mortgage Borrower from any of the Mortgage Reserve Funds, (ii) any First
Mezzanine Borrower from any of the First Mezzanine Reserve Funds, or (iii) any Borrower from any of
the Reserve Funds, as applicable, and any interest earned thereon.



     “Guaranties” shall mean, collectively, the Non-Recourse Guaranty, the Non-Qualified Prepayment
Guaranty, the Closing Completion Guaranty, the Construction Completion Guaranty (if and when
executed and delivered in accordance with the terms of this Agreement), and the HRHI Guaranty.



     “Guarantor” shall mean each of the Morgans Guarantor and the DLJ Guarantor.



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



     “Hotel/Casino Borrower” shall mean HRHH Hotel/Casino, LLC, a Delaware limited liability
company, together with its successors and assigns.



     “Hotel/Casino Property” shall have the meaning assigned to such term in the Mortgage Loan
Agreement.



     “HRHI” shall mean Hard Rock Hotel, Inc., a Nevada corporation, together with its successors
and permitted assigns.



     “HRHI Gaming Agreement” shall mean that certain HRHI Gaming Agreement, dated as of February 2,
2007, executed by Mortgage Lender, Hotel/Casino Borrower and HRHI in



18









 







connection with the Gaming Sublease and the gaming operations at the Hotel/Casino Property, as
amended by the Mortgage Loan Document Modification Agreement and the HRHI Modification Agreement
and as the same may be further amended, restated, replaced, supplemented or otherwise modified from
time to time.



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



     “HRHI Lease” shall mean that certain Lease, dated as of February 2, 2007, between Hotel/Casino
Borrower, as landlord, and HRHI, as tenant, covering the Casino Component of the Hotel/Casino
Property as more particularly described therein, as the same may be amended, restated, replaced,
supplemented or otherwise modified from time to time.



     “HRHI Modification Agreement” shall mean that certain Modification of HRHI Loan Documents and
Ratification of HRHI Guaranty, dated as of the date hereof, by and among HRHI and Mortgage Lender.



     “HRHI Security Agreement” shall mean that certain Second Mezzanine HRHI Security Agreement,
dated as of the date hereof, from HRHI in favor of Lender, securing the HRHI Guaranty and covering
certain assets of HRHI described therein, including, without limitation, all of HRHI’s right, title
and interest in and to the Gaming Assets Note, the Gaming Shortfall Notes, the Gaming Surplus Fund
Reserve and the Gaming Working Capital Note, as such HRHI Security Agreement may be amended,
restated, replaced, supplemented or otherwise modified from time to time.



     “HR Holdings” shall mean Hard Rock Hotel Holdings, LLC, a Delaware limited liability company.



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



     “Indebtedness” of a Person, at a particular date, means the sum (without duplication) at such
date of (a) all indebtedness or liability of such Person (including, without limitation, amounts
for borrowed money and indebtedness in the form of mezzanine debt and preferred equity); (b)
obligations evidenced by bonds, debentures, notes, or other similar instruments; (c) obligations
for the deferred purchase price of property or services (including trade obligations for which such
Person or its assets are liable); (d) obligations under letters of credit (for which such Person is
liable if such amounts were advanced thereunder or for which such Person is liable to reimburse);
(e) obligations under acceptance facilities; (f) all guaranties, endorsements (other than for
collection or deposit in the ordinary course of business) and other contingent obligations to
purchase, to provide funds for payment, to supply funds, to invest in any Person or entity, or
otherwise to assure a creditor against loss for which funds are required to be paid; and (g)
obligations secured by any Liens, for which such Person or its assets are liable.



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



     “Indemnified Person” shall have the meaning set forth in Section 9.3(b) hereof.



19









 





     “Indemnified Taxes” shall mean taxes other than Excluded Taxes.



     “Independent Director” or “Independent Manager” shall mean a Person who is not at the time of
initial appointment, or at any time while serving as a director or manager, as applicable, and has
not been at any time during the preceding five (5) years: (a) a stockholder, director (with the
exception of serving as the Independent Director or Independent Manager of a Borrower), officer,
employee, partner, member (other than a “special member” or “springing member”), manager, attorney
or counsel of any Loan Party, any Mezzanine Borrower, Gaming Member, HRHI or any Affiliate of any
of them; (b) a customer, supplier or other person who derives any of its purchases or revenues from
its activities with any Loan Party, any Mezzanine Borrower, Gaming Member, HRHI or any Affiliate of
any of them; (c) a Person Controlling or under common Control with any such stockholder, director,
officer, employee, partner, member, manager, customer, supplier or other Person; or (d) a member of
the immediate family of any such stockholder, director, officer, employee, partner, member,
manager, customer, supplier or other Person. A natural Person who satisfies the foregoing
definition other than clause (b) shall not be disqualified from serving as an Independent
Director or Independent Manager of a Borrower if such natural Person is an independent director or
independent manager provided by a nationally recognized company that provides professional
independent directors or independent managers and that also provides other corporate services in
the ordinary course of its business. A natural Person who otherwise satisfies the foregoing
definition except for being the independent director or independent manager of a “special purpose
entity” affiliated with any Borrower that does not own a direct or indirect equity interest in any
Borrower shall not be disqualified from serving as an Independent Director or Independent Manager
of a Borrower if such individual is at the time of initial appointment, or at any time while
serving as a Independent Director of a Borrower, an Independent Director or Independent Manager of
a “special purpose entity” affiliated with a Borrower (other than any Person that owns a direct or
indirect equity interest in any Borrower) if such natural Person is an independent director or
independent manager provided by a nationally-recognized company that provides professional
independent directors or independent managers.



     “Initial Construction Loan Advance” shall have the meaning assigned to such term in the
Mortgage Loan Agreement.



     “Initial Maturity Date” shall mean, as applicable, either (a) the Qualified Initial Maturity
Date, in the event the Qualification Conditions have been satisfied on or prior to the Construction
Qualification Date, or (b) the Non-Qualified Initial Maturity Date, in the event the Qualification
Conditions have not been satisfied on or prior to the Construction Qualification Date.



     “Initial Renovation Reserve Account” shall have the meaning assigned to such term in the
Mortgage Loan Agreement or such comparable account as shall be established under this Agreement in
accordance with Section 7.5 hereof.



     “Initial Renovation Reserve Fund” shall have the meaning assigned to such term in the Mortgage
Loan Agreement or such comparable fund as shall be established under this Agreement in accordance
with Section 7.5 hereof.



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     “Insolvency Opinion” shall mean that certain non-consolidation opinion letter dated the date
hereof delivered by Latham & Watkins LLP in connection with the Loan.



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



     “Insurance Proceeds” shall have the meaning assigned to such term in the Mortgage Loan
Agreement.



     “Intellectual Property Security Agreement” shall mean that certain Second Mezzanine
Intellectual Property Security Agreement, dated as of the date hereof, by HRHI in favor of Lender,
as the same may be amended, restated, replaced, supplemented or otherwise modified from time to
time.



     “Intercreditor Agreement” shall mean that certain Intercreditor Agreement, dated as of the
date hereof, by and among Lender, Mortgage Lender, First Mezzanine Lender and Third Mezzanine
Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from
time to time in accordance with the terms thereof.



     “Interest Period” shall mean, with respect to any Payment Date, the period commencing on the
ninth (9th) day of the preceding calendar month and terminating on and including the eighth (8th)
day of the calendar month in which such Payment Date occurs; provided, however,
that no Interest Period shall end later than the Maturity Date (other than for purposes of
calculating interest at the Default Rate), and the initial Interest Period shall begin on and
include the Closing Date and shall end on and include November 8, 2007.



     “Interest Rate Cap Agreement” shall mean, as applicable, an interest rate cap agreement
(together with the confirmation and schedules relating thereto) in form and substance reasonably
satisfactory to Lender by and among Borrowers and an Acceptable Counterparty or a Replacement
Interest Rate Cap Agreement.



     “Interest Reserve Account” shall have the meaning assigned to such term in the Mortgage Loan
Agreement or such comparable account as shall be established under this Agreement in accordance
with Section 7.4 hereof.



     “Interest Reserve Fund” shall have the meaning assigned to such term in the Mortgage Loan
Agreement or such comparable fund as shall be established under this Agreement in accordance with
Section 7.4 hereof.



     “Interest Shortfall” shall mean, as of any applicable Payment Date, the amount by which the
Monthly Interest Payment due on such Payment Date exceeds the sum of the funds available in the
Mortgage Cash Management Account on such Payment Date after satisfying the items in clauses
(i) through (ix) inclusive of Section 2.6.2(b) of the Mortgage Loan Agreement.



     “Internal Approvals” shall have the meaning set forth in Section 13.2(b) hereof.



     “IP” shall have the meaning set forth in Section 4.1.37(a) hereof.



21









 





     “IP Agreements” shall have the meaning set forth in Section 4.1.37(a) hereof.



     “IP Borrower” shall mean HRHH IP, LLC, a Delaware limited liability company, together with its
successors and assigns.



     “IP License” shall have the meaning set forth in Section 5.1.26(a) hereof.



     “IP Material Adverse Effect” shall have the meaning set forth in Section 4.1.37(d)
hereof.



     “IP Release Price” shall have the meaning assigned to such term in the Mortgage Loan
Agreement.



     “IP Sale” shall have the meaning set forth in Section 2.5.3(a) hereof.



     “Lease” shall mean any lease, sublease or subsublease, letting, license, concession or other
agreement (whether written or oral and whether now or hereafter in effect) pursuant to which any
Person is granted a possessory interest in, or right to use or occupy all or any portion of any
space in any Property, including, without limitation, the HRHI Lease, and (a) every modification,
amendment or other agreement relating to such lease, sublease, subsublease, or other agreement
entered into in connection with such lease, sublease, subsublease, or other agreement, and (b)
every guarantee of the performance and observance of the covenants, conditions and agreements to be
performed and observed by the other party thereto. The foregoing definition expressly excludes
ordinary course hotel room rentals.



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



     “Lender” shall have the meaning set forth in the introductory paragraph hereto.



     “Lender’s Rejection Notice” shall have the meaning set forth in Section 13.2(c)
hereof.



     “Letter of Credit” shall mean an irrevocable, unconditional (other than ministerial
conditions), transferable, clean sight draft letter of credit, as the same may be replaced, split,
substituted, modified, amended, supplemented, assigned or otherwise restated from time to time,
(either an evergreen letter of credit or a letter of credit which does not expire until at least
two (2) Business Days after the Maturity Date or such earlier date as such Letter of Credit is no
longer



22









 







required pursuant to the terms of this Agreement) in favor of Lender and entitling Lender to
draw thereon based solely on a statement purportedly executed by an officer of Lender stating that
it has the right to draw thereon, and issued by a (i) domestic Approved Bank or the U.S. agency or
branch of a foreign Approved Bank, or if there are no domestic Approved Banks or U.S. agencies or
branches of a foreign Approved Bank then issuing letters of credit, then such letter of credit may
be issued by a domestic bank, the long term unsecured debt rating of which is the highest such
rating then given by the Rating Agency or Rating Agencies, as applicable, to a domestic commercial
bank, or (ii) Credit Suisse, Cayman Islands Branch so long as it has and maintains a minimum long
term unsecured debt rating of at least “A+” by S&P and Fitch and “A1” by Moody’s.



     “Liabilities” shall have the meaning set forth in Section 9.3(b) hereof.



     “LIBOR” shall mean, with respect to each Interest Period, the rate (expressed as a percentage
per annum and rounded upward, if necessary, to the next nearest 1/100,000th of 1% (0.00001%)) for
deposits in U.S. dollars, for a one-month period, that appears on Telerate Page 3750 (or the
successor thereto) as of 11:00 a.m., London time, on the related Determination Date. If such rate
does not appear on Telerate Page 3750 as of 11:00 a.m., London time, on such Determination Date,
LIBOR shall be the arithmetic mean of the offered rates (expressed as a percentage per annum) for
deposits in U.S. dollars for a one-month period that appear on the Reuters Screen Libor Page as of
11:00 a.m., London time, on such Determination Date, if at least two such offered rates so appear.
If fewer than two such offered rates appear on the Reuters Screen Libor Page as of 11:00 a.m.,
London time, on such Determination Date, Lender shall request the principal London office of any
four major reference banks in the London interbank market selected by Lender in its reasonable
discretion to provide such bank’s offered quotation (expressed as a percentage per annum) to prime
banks in the London interbank market for deposits in U.S. dollars for a one-month period as of
11:00 a.m., London time, on such Determination Date for amounts of not less than U.S. $1,000,000.
If at least two such offered quotations are so provided, LIBOR shall be the arithmetic mean of such
quotations. If fewer than two such quotations are so provided, Lender shall request any three
major banks in New York City selected by Lender in its reasonable discretion to provide such bank’s
rate (expressed as a percentage per annum) for loans in U.S. dollars to leading European banks for
a one-month period as of approximately 11:00 a.m., New York City time on the applicable
Determination Date for amounts of not less than U.S. $1,000,000. If at least two such rates are so
provided, LIBOR shall be the arithmetic mean of such rates. LIBOR shall be determined conclusively
by Lender or its agent, absent manifest error.



     “LIBOR Loan” shall mean the Loan at such time as interest thereon accrues at a rate of
interest based upon LIBOR.



     “Licensed IP” shall have the meaning set forth in Section 4.1.37(b) hereof.



     “Lien” shall mean any mortgage, deed of trust, lien, pledge, hypothecation, assignment,
security interest, put, call, option, warrant, proxy, voting agreement or any other encumbrance,
charge or transfer of, on or affecting any Loan Party, any of the Properties, the First Mezzanine
Collateral, the Collateral or any portion of any of the foregoing or any interest therein,
including, without limitation, any conditional sale or other title retention agreement, any
financing lease



23









 







having substantially the same economic effect as any of the foregoing, the filing of any
financing statement, and mechanic’s, materialmen’s and other similar liens and encumbrances. For
the avoidance of doubt, “Lien” shall not be deemed to include any Permitted IP Encumbrances.



     “Liquidation Event” shall have the meaning set forth in Section 2.4.3(a) hereof.



     “Liquor Management Agreement” shall mean, with respect to the Hotel/Casino Property and, if
applicable, the Adjacent Property, that certain Liquor Management and Employee Services Agreement,
dated as of February 2, 2007, between Hotel/Casino Borrower and HRHI, in its capacity as the Liquor
Manager, as the same may be amended, modified or supplemented from time to time, pursuant to which
the Liquor Manager shall manage all alcoholic beverage services at the Hotel/Casino Property and,
if applicable, the Adjacent Property, or, if the context requires, a Replacement Liquor Management
Agreement.



     “Liquor Manager” shall mean, with respect to the Hotel/Casino Property, HRHI, or, if the
context requires, another Qualified Liquor Manager.



     “Loan” shall mean the loan made by Lender to Borrowers pursuant to this Agreement in a maximum
principal amount of One Hundred Million and No/100 Dollars ($100,000,000), which shall be evidenced
by the Note.



     “Loan Budget” shall mean the budget for total estimated Project Costs prepared by Mortgage
Borrowers and approved by Mortgage Lender in its reasonable discretion, which shall detail all
items of direct and indirect costs estimated to be incurred in connection with the construction of
the Project, and all amendments and modifications thereto approved by Mortgage Lender in accordance
with the Mortgage Loan Agreement.



     “Loan Documents” shall mean, collectively, this Agreement, the Note, the Pledge Agreement, the
Environmental Indemnity, the Assignment of Management Agreement (All Properties), the Assignment of
Liquor Management Agreement, the Intellectual Property Security Agreement, the Non-Recourse
Guaranty, the Non-Qualified Prepayment Guaranty, the Closing Completion Guaranty, the Construction
Completion Guaranty (if and when executed and delivered in accordance with the terms of this
Agreement), the HRHI Guaranty, the HRHI Security Agreement, the Cash Management Agreement, the
Collateral Assignment of Interest Rate Cap Agreement and all other documents executed and/or
delivered in connection with the Loan, as any of the foregoing hereafter may be amended, restated,
replaced, supplemented or otherwise modified from time to time.



     “Loan Party” shall mean any of Borrowers and/or any of Mortgage Borrowers and/or any of First
Mezzanine Borrowers and “Loan Parties” shall refer collectively to all of them.



     “Loan Percentage” shall mean, as of any date and prior to the application of the principal
amount with respect to which the Financing Percentages or the Alternate Financing Percentages are
then being calculated, the ratio, expressed as a percentage, the numerator of which is an amount
equal to the Outstanding Principal Balance on such date and the denominator of which is an amount
equal to the Aggregate Outstanding Principal Balance on such date.



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



24









 





     “Lockbox Bank” shall mean Wells Fargo Bank, National Association, or any successor or
permitted assigns thereof.



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



     “Major Lease” shall have the meaning assigned to such term in the Mortgage Loan Agreement.



     “Management Agreement” shall mean, with respect to each Property, the property management
agreement entered into by and between the applicable Mortgage Borrower or Mortgage Borrowers and
the applicable Manager, as the same has been and may be amended, modified or supplemented from time
to time, pursuant to which such Manager is to provide property management and other services with
respect to the Property owned by such Mortgage Borrower, or, if the context requires, a Replacement
Management Agreement; provided, however, that the foregoing definition shall
expressly exclude the Sub-Management Agreement.



     “Manager” shall mean Morgans Hotel Group Management LLC or, if the context requires, a
Qualified Manager who is managing any of the Properties, it being understood that the foregoing
definition shall expressly exclude the Sub-Manager.



     “Material Economic Terms” shall have the meaning set forth in Section 13.1 hereof.



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



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



     “Merger Agreement” shall mean that certain Agreement and Plan of Merger, dated as of May 11,
2006, by and among Morgans Hotel Group Co., MHG HR Acquisition Corp., Hard Rock Hotel, Inc. and
Peter A. Morton, as amended by that certain First Amendment to Agreement and Plan of Merger, dated
as of January 30, 2007.



     “Mezzanine Borrower” or “Mezzanine Borrowers” shall mean, individually or collectively, as the
context may require, First Mezzanine Borrowers and Third Mezzanine Borrowers.



     “Mezzanine Default” shall mean any First Mezzanine Default and/or Third Mezzanine Default, as
applicable.



     “Mezzanine Event of Default” shall mean any First Mezzanine Event of Default and/or Third
Mezzanine Event of Default, as applicable.



25









 





     “Mezzanine Lender” or “Mezzanine Lenders” shall mean, individually or collectively, as the
context may require, First Mezzanine Lender and Third Mezzanine Lender, and each of First Mezzanine
Lender and/or Third Mezzanine Lender.



     “Mezzanine Loan” or “Mezzanine Loans” shall mean, individually or collectively, as the context
may require, the First Mezzanine Loan and the Third Mezzanine Loan, and each of the First Mezzanine
Loan and/or the Third Mezzanine Loan, individually, a “Mezzanine Loan”.



     “Mezzanine Loan Documents” shall mean all documents evidencing and/or securing the Mezzanine
Loans and all documents executed and/or delivered in connection therewith, as any of the same may
be amended, restated, replaced, supplemented or otherwise modified from time to time subject to the
terms of the Intercreditor Agreement.



     “Minimum Mandatory Amount” shall mean, as of any date of determination, (a) if one or more
Release Parcel Sales have not resulted in Release Parcel Release Prices paid to Mortgage Lender in
an aggregate amount of at least $40,000,000.00 prior to such date of determination, then the
Minimum Mandatory Amount shall mean $110,000,000.00, or (b) if one or more Release Parcel Sales
have resulted in Release Parcel Release Prices paid to Mortgage Lender in an aggregate amount in
excess of $40,000,000.00 prior to such date of determination, then the Minimum Mandatory Amount
shall mean an amount equal to the difference between (i) $110,000,000.00 and (ii) the aggregate
amount of Release Parcel Release Prices paid to Mortgage Lender prior to such date of
determination, but in no event shall such calculation result in a negative number.



     “Minimum Mandatory Prepayment” shall have the meaning set forth in Section 2.4.2(a)(i)
hereof.



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



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



     “Monthly Gaming Requirement Certificate” shall have the meaning set forth in Section
12.2 hereof.



     “Morgans Guarantor” shall mean Morgans Group LLC, a Delaware limited liability company,
together with its successors and permitted assigns.



     “Morgans Parent” shall mean Morgans Hotel Group Co., a Delaware corporation, together with its
successors and permitted assigns.



     “Mortgage” shall mean that certain first priority Construction Deed of Trust, Assignment of
Leases and Rents, Security Agreement and Financing Statement (Fixture Filing), dated as of February
2, 2007, from Mortgage Borrowers to Mortgage Lender, as amended by the Mortgage Loan Document
Modification Agreement and as the same may be further amended, restated, replaced, supplemented or
otherwise modified from time to time.



     “Mortgage Applicable Interest Rate” shall mean the “Applicable Interest Rate” as defined in
the Mortgage Loan Agreement.



26









 





     “Mortgage Borrower” shall mean any of Hotel/Casino Borrower, Café Borrower, Adjacent Borrower,
IP Borrower and Gaming Borrower, and “Mortgage Borrowers” shall refer collectively to all of them.



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



     “Mortgage Cash Management Agreement” shall mean the “Cash Management Agreement” as defined in
the Mortgage Loan Agreement.



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



     “Mortgage Default” shall mean a “Default” under and as defined in the Mortgage Loan Agreement.



     “Mortgage Distributions” shall have the meaning set forth in Section 5.2.14(a) hereof.



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



     “Mortgage Lender” shall mean Column Financial, Inc., in its capacity as holder of the Mortgage
Loan, together with its successors and assigns.



     “Mortgage Lender Successor Owner” shall have the meaning set forth in Section 5.1.23
hereof.



     “Mortgage Loan” shall mean the loan in a maximum principal amount of up to One Billion Thirty
Million and No/100 Dollars ($1,030,000,000), made by Mortgage Lender to Mortgage Borrowers pursuant
to the Mortgage Loan Agreement, comprised of (i) the Reduced Acquisition Loan and (ii) the
Construction Loan (as such terms are defined in the Mortgage Loan Agreement).



     “Mortgage Loan Agreement” shall mean that certain Loan Agreement dated as of February 2, 2007,
as amended and restated by the Amended and Restated Loan Agreement dated as of the date hereof,
each among Mortgage Lender and Mortgage Borrowers, as the same may be further amended, restated,
replaced, supplemented or otherwise modified from time to time subject to the terms of the
Intercreditor Agreement.



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



     “Mortgage Loan Document Modification Agreement” shall mean that certain Modification of
Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing
Statement (Fixture Filing), dated as of the date hereof, by and among Mortgage Borrowers and
Mortgage Lender.



27









 





     “Mortgage Loan Outstanding Principal Balance” shall mean the “Outstanding Principal Balance”
as defined in the Mortgage Loan Agreement.



     “Mortgage Loan Percentage” shall mean, as of any date of determination and prior to the
application of the principal amount with respect to which the Financing Percentages are then being
calculated, the ratio, expressed as a percentage, the numerator of which is an amount equal to the
Mortgage Loan Outstanding Principal Balance on such date of determination and the denominator of
which is an amount equal to the Aggregate Outstanding Principal Balance on such date of
determination.



     “Mortgage Note” and “Mortgage Notes” shall mean, individually or collectively, as applicable,
(i) that certain Replacement Reduced Acquisition Loan Promissory Note, dated the date hereof, in
the principal amount of Four Hundred Ten Million and No/100 Dollars ($410,000,000), made by
Mortgage Borrowers in favor of Mortgage Lender, as the same may be further replaced, amended,
restated, supplemented or otherwise modified from time to time, and (ii) that certain Replacement
Construction Loan Promissory Note, dated the date hereof, in the principal amount of Six Hundred
Twenty Million and No/100 Dollars ($620,000,000), made by Mortgage Borrowers in favor of Mortgage
Lender, as the same may be further replaced, amended, restated, supplemented or otherwise modified
from time to time.



     “Mortgage Reduced Acquisition Loan Percentage” shall mean the “Reduced Acquisition Loan
Percentage” as defined in the Mortgage Loan Agreement.



     “Mortgage Reserve Funds” shall mean, collectively, the Tax and Insurance Escrow Fund, the
Replacement Reserve Fund, the Required Repair Fund, the Initial Renovation Reserve Fund, the
Interest Reserve Fund, the General Reserve Fund, any funds on deposit in the Construction Loan
Reserve Account, any Shortfall Funds and any other escrow fund established pursuant to the Mortgage
Loan Documents.



     “Mortgage Spread” shall mean the “Reduced Acquisition Loan Spread” and/or the “Construction
Loan Spread” each as defined in the Mortgage Loan Agreement.



     “Morton” shall mean Peter A. Morton.



     “Morton Assigned IP” shall have the meaning set forth in Section 4.1.37(b) hereof.



     “Morton Indemnification” shall mean that certain Indemnification Agreement, dated as of May
11, 2006, between Morgans Hotel Group Co., the indirect parent of each of Mortgage Borrowers, and
Morton, as the same has been and may be amended, modified or supplemented from time to time.



     “Named Knowledge Parties” shall have the meaning set forth in Section 4.3 hereof.



     “Navegante Agreement” shall mean that certain Agreement, dated as of October 31, 2007, by and
among Navegante HR, LLC, Morgans Parent, HRHI, Mortgage Lender and Navegante Gaming, LLC, as the
same may be amended, restated, replaced, supplemented or otherwise modified from time to time.



28









 





     “Net Cash Flow” shall have the meaning assigned to such term in the Mortgage Loan Agreement.



     “Net Liquidation Proceeds After Debt Service” shall mean, with respect to any Liquidation
Event, all amounts paid to or received by or on behalf of any Loan Party in connection with such
Liquidation Event after payment of all amounts then due to Mortgage Lender, and then, First
Mezzanine Lender, and then, Lender, including, without limitation, proceeds resulting from
any Casualty to or Condemnation of any Property and proceeds of any sale, refinancing or other
disposition or liquidation, less (without duplication of amounts already paid to or
retained by Mortgage Lender, First Mezzanine Lender or Lender) (a) in the event of a Liquidation
Event consisting of a Casualty or Condemnation, Mortgage Lender’s, First Mezzanine Lender’s and/or
Lender’s reasonable costs incurred in connection with the recovery thereof; (b) in the event of a
Liquidation Event consisting of a Casualty or Condemnation, the costs incurred by any Mortgage
Borrower in connection with a Restoration of all or any portion of any Property made in accordance
with the Mortgage Loan Documents; (c) in the event of a Liquidation Event consisting of a Casualty
or Condemnation or a Transfer, amounts required or permitted to be deducted therefrom and amounts
paid pursuant to the Mortgage Loan Documents to Mortgage Lender; (d) in the event of a Liquidation
Event consisting of a Casualty or Condemnation, those proceeds paid to any Mortgage Borrower
pursuant to Section 6.4(c)(vii) of the Mortgage Loan Agreement; (e) in the case of a foreclosure
sale, disposition or transfer of any Property in connection with realization thereon following a
Mortgage Event of Default, such reasonable and customary costs and expenses of sale or other
disposition (including attorneys’ fees and brokerage commissions); (f) in the case of a foreclosure
sale, disposition or transfer of the First Mezzanine Collateral in connection with realization
thereon following a First Mezzanine Event of Default, such reasonable and customary costs and
expenses of sale or other disposition (including attorneys’ fees and brokerage commissions); (g) in
the case of a foreclosure sale, disposition or transfer of the Collateral in connection with
realization thereon following an Event of Default, such reasonable and customary costs and expenses
of sale or other disposition (including attorneys’ fees and brokerage commissions); (h) in the case
of a foreclosure sale, such costs and expenses incurred by (i) Mortgage Lender under the Mortgage
Loan Documents as Mortgage Lender shall be entitled to receive reimbursement for under the terms of
the Mortgage Loan Documents, (ii) First Mezzanine Lender under the First Mezzanine Loan Documents
as First Mezzanine Lender shall be entitled to receive reimbursement for under the terms of the
First Mezzanine Loan Documents, and/or (iii) Lender under the Loan Documents as Lender shall be
entitled to receive reimbursement for under the terms of the Loan Documents; (i) in the case of a
refinancing of the Mortgage Loan, the First Mezzanine Loan or the Loan, such costs and expenses
(including attorneys’ fees) of such refinancing; and (j) the amount of any prepayments required
pursuant to the Mortgage Loan Documents, the First Mezzanine Loan Documents and/or the Loan
Documents in connection with any such Liquidation Event.



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



     “Net Proceeds” shall have the meaning assigned to such term in the Mortgage Loan Agreement.




29











 





     “Net Worth Requirements” shall mean those requirements set forth on Schedule V
attached hereto and made a part hereof.



     “Non-Fully Prepaid IP Sale” shall have the meaning set forth in Section 2.4.4(g)
hereof.



     “Non-Qualified Extended Maturity Date” shall have the meaning set forth in Section
2.7.1 hereof.



     “Non-Qualified Extension Option” shall have the meaning set forth in Section 2.7.1
hereof.



     “Non-Qualified Extension Term” shall have the meaning set forth in Section 2.7.1
hereof.



     “Non-Qualified Initial Maturity Date” shall mean February 9, 2009.



     “Non-Qualified Mandatory Prepayment” shall have the meaning set forth in Section
2.4.2(b) hereof.



     “Non-Qualified Prepayment Guaranty” shall mean that certain Second Mezzanine Guaranty
Agreement (Non-Qualified Mandatory Prepayment), dated as of the date hereof, from Guarantors to
Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from
time to time.



     “Non-Qualified Prepayment Letter of Credit” shall have the meaning assigned to such term in
the Mortgage Loan Agreement.



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



     “Non-U.S. Lender” shall mean any Lender that is organized under the laws of a jurisdiction
other than laws of the United States of America, any State thereof or the District of Columbia.



     “Note” shall mean that certain Second Mezzanine Promissory Note, dated the date hereof, in the
principal amount of One Hundred Million and No/100 Dollars ($100,000,000), made by Borrowers in
favor of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified
from time to time.



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



     “NRS” shall mean the Nevada Revised Statutes, as amended from time to time.



     “O&M Agreement” shall mean an Operations and Maintenance Agreement, dated as of February 2,
2007, by and among a Mortgage Borrower and Mortgage Lender given in connection with the Mortgage
Loan, as amended by the Mortgage Loan Document Modification Agreement and as the same may be
further amended, restated, replaced, supplemented or otherwise modified



30









 




from time to time. On February 2, 2007, O&M Agreements were entered into by each of
Hotel/Casino Borrower and Mortgage Lender and Adjacent Borrower and Mortgage Lender.




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



     “Officer’s Certificate” shall mean a certificate delivered to Lender by a Borrower or a
Guarantor, as applicable, which is signed by an authorized officer or manager of such Borrower or
Guarantor or a Constituent Member thereof, as applicable, which shall in all events be subject to
Section 9.4 hereof.



     “Operating Expenses” shall mean, for any period, the total of all expenditures, computed in
accordance with GAAP, of whatever kind during such period relating to the operation, maintenance
and/or management of any of the Properties that are incurred on a regular monthly or other periodic
basis, including without limitation, utilities, ordinary repairs, maintenance, environmental and
engineering (but excluding utilities) (which ordinary repairs, maintenance, environmental and
engineering (but excluding utilities) for the purposes of this definition shall be no less than an
assumed expense of $400,000.00 per month, and following the First Full Operating Month, such
assumed expense shall increase to $600,000.00 per month, insurance, license fees, property taxes
and assessments, advertising expenses, base and incentive management fees, payroll and related
taxes, computer processing charges, tenant improvements and leasing commissions, operational
equipment or other lease payments as approved by Lender, and other similar costs, but excluding
depreciation and amortization with respect to the Properties, Debt Service, debt service under the
Mortgage Loan, debt service under each of the Mezzanine Loans, Capital Expenditures, items that
would otherwise constitute Project Costs, Extraordinary Expenses, the cost of any items incurred at
any Manager’s expense pursuant to any Management Agreement or at the Sub-Manager’s expense pursuant
to the Sub-Management Agreement, non-recurring expenses and contributions to any of the Mortgage
Reserve Funds, the First Mezzanine Reserve Funds or the Reserve Funds, as applicable. Operating
Expenses shall also include the cost (computed in accordance with GAAP) of any complimentary food,
beverages, hotel room and/or other amenities provided to any customers or guests of the
Hotel/Casino Property, including, without limitation, under the Gaming Sublease, under the Liquor
Management Agreement and/or under any Management Agreement.



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



     “Optional IP Release Payment” shall have the meaning set forth in Section 2.4.4(g)
hereof.



     “Original Mortgage Loan” shall have the meaning set forth in the recitals hereof.



     “Original Mortgage Loan Agreement” shall have the meaning set forth in the recitals hereof.



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



31









 





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



     “Other Taxes” means any and all stamp or documentary taxes or any other excise or property
taxes, or similar governmental charges or levies imposed, enacted or to become effective after the
date hereof, arising from any payment made hereunder or from the execution, delivery or enforcement
of, or otherwise with respect to, this Agreement. Other Taxes shall not include Excluded Taxes.



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



     “Owned IP” shall have the meaning set forth in Section 4.1.37(b) hereof.



     “Partial Adjacent Parcel” shall have the meaning set forth in Section 2.5.2(a) hereof.



     “Partial Release Parcel” shall have the meaning set forth in Section 2.5.1(a) hereof.



     “Payment Date” shall mean the ninth (9th) day of each calendar month during the term of the
Loan or, if such day is not a Business Day, the immediately preceding Business Day. The first
Payment Date shall be November 9, 2007.



     “Permitted Adjacent/Café Uses” shall have the meaning set forth in Section 4.1.11
hereof.



     “Permitted Encumbrances” shall mean, with respect to a Property, collectively (a) the Liens
and security interests created by the Mortgage Loan Documents, the Loan Documents and the Mezzanine
Loan Documents, (b) all Liens, encumbrances and other matters disclosed in the Title Insurance
Policy relating to such Property, (c) Liens, if any, for Taxes imposed by any Governmental
Authority not yet delinquent, (d) such other title and survey exceptions, documents, agreements or
instruments as Mortgage Lender has approved or may approve in writing in Mortgage Lender’s
reasonable discretion, (e) easements, restrictions, covenants and/or reservations which are
necessary for the operation of such Property that do not and would not have a material adverse
effect on (i) the business operations, economic performance, assets, financial condition, equity,
contingent liabilities, material agreements or results of operations of any Loan Party, any
Guarantor or any Property or (ii) the value of, or cash flow from, any Property, (f) zoning
restrictions and/or laws affecting such Property that do not and would not have a material adverse
effect on (i) the business operations, economic performance, assets, financial condition, equity,
contingent liabilities, material agreements or results of operations of any Loan Party, any
Guarantor or any Property or (ii) the value of, or cash flow from, any Property, (g) the Liens
securing any Existing FF&E Leases and/or any Permitted Future FF&E Leases, and (h) any other Liens
which are being duly contested in accordance with the provisions of Section 5.1.1 or
5.1.2 hereof or Section 3.6(b) of the Mortgage, but only for so long as such contest shall
be permitted pursuant to said Section 5.1.1 or 5.1.2 hereof or Section 3.6(b) of
the Mortgage, as applicable.



32









 





     “Permitted Future FF&E Leases” shall have the meaning assigned to such term in the Mortgage
Loan Agreement.



     “Permitted Investment Fund” shall have the meaning set forth in the definition of “Qualified
Guarantor Transferee” set forth below.



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



     “Permitted IP Encumbrances” shall mean, with respect to the IP, collectively (a) the Liens and
security interests created by the Mortgage Loan Documents, the Loan Documents and the Mezzanine
Loan Documents, (b) such other Liens or security interests as Lender may approve in writing in
Lender’s sole discretion, (c) the Liens on the IP set forth on Schedule VII hereto, which
were extinguished on or prior to the Closing Date, and (d) any IP Agreements permitted under this
Agreement.



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



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



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



     “Pink Taco IP” shall have the meaning set forth in Section 4.1.37(b) hereof.



     “Pink Taco License” shall have the meaning set forth in Section 4.1.37(b) hereof.



     “Plans and Specifications” shall mean the plans and specifications for the Project prepared by
the Architect and reasonably approved by Mortgage Lender in accordance with the terms of the
Mortgage Loan Agreement, as the same may be amended and supplemented from time to time in
accordance with the terms of the Mortgage Loan Agreement.



     “Pledge Agreement” shall mean that certain Second Mezzanine Pledge and Security Agreement,
dated as of the date hereof, executed and delivered by Borrowers to Lender as security for the
Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time
to time.



     “Pledged Collateral” shall mean the “Collateral” as defined in the Pledge Agreement.



     “Pledged Interests” shall mean all membership and manager interests in each of First Mezzanine
Borrowers, as described on Schedule III attached hereto.



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     “Policies” shall have the meaning assigned to such term in the Mortgage Loan Agreement.



     “Pre-Construction Budget” shall mean a budget, prepared by Mortgage Borrowers and approved by
Mortgage Lender in its reasonable discretion, which shall identify the costs and expenses for which
the proceeds of any Pre-Construction Advance may be used, and all amendments and modifications
thereto reasonably approved by Mortgage Lender.



     “Prepayment Fee” shall mean an amount equal to the following:




     (i) two percent (2.0%) of each of the Minimum Mandatory Prepayment (or any partial
payment on account thereof), each Release Parcel Release Price, each Adjacent Parcel Release
Price and the IP Release Price, if any of the foregoing are due and payable in accordance
with the terms of this Agreement after the Closing Date through, but excluding, May 9, 2007;




     (ii) one and one-half percent (1.5%) of each of the Minimum Mandatory Prepayment (or
any partial payment on account thereof), each Release Parcel Release Price, each Adjacent
Parcel Release Price and the IP Release Price, if any of the foregoing are due and payable
in accordance with the terms of this Agreement on or after May 9, 2007 through, but
excluding, December 9, 2007; and




     (iii) one percent (1.0%) of each of the Minimum Mandatory Prepayment (or any partial
payment on account thereof), each Release Parcel Release Price, each Adjacent Parcel Release
Price and the IP Release Price, if any of the foregoing are due and payable in accordance
with the terms of this Agreement on or after December 9, 2007 through, but excluding, the
Prepayment Fee Release Date.



     “Prepayment Fee-Generating Prepayment” shall have the meaning set forth in Section
2.4.7 hereof.



     “Prepayment Fee Release Date” shall mean May 9, 2008.



     “Prescribed Laws” shall mean, collectively, (a) the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law
107-56) (The USA PATRIOT Act), (b) Executive Order No. 13224 on Terrorist Financing, effective
September 24, 2001, and relating to Blocking Property and Prohibiting Transactions With Persons Who
Commit, Threaten to Commit, or Support Terrorism, (c) the International Emergency Economic Power
Act, 50 U.S.C. §1701 et. seq., and (d) all other Legal Requirements relating to money laundering or
terrorism.



     “Prime Rate” shall mean the annual rate of interest publicly announced by Citibank, N.A. in
New York, New York, as its base rate, as such rate shall change from time to time. If Citibank,
N.A. ceases to announce a base rate, Prime Rate shall mean the rate of interest published in
The Wall Street Journal from time to time as the “Prime Rate”. If more than one “Prime
Rate” is published in The Wall Street Journal for a day, the average of such “Prime Rates”
shall be used, and such average shall be rounded up to the nearest one-hundredth (100th) of one
percent (1%). If The Wall Street Journal ceases to publish the “Prime Rate”, Lender shall



34









 




select an equivalent publication that publishes such “Prime Rate”, and if such “Prime Rates”
are no longer generally published or are limited, regulated or administered by a governmental or
quasigovernmental body, then Lender shall select a comparable interest rate index.




     “Prime Rate Loan” shall mean the Loan at such time as interest thereon accrues at a rate of
interest based upon the Prime Rate.



     “Prime Rate Spread” shall mean the difference (expressed as the number of basis points)
between (a) LIBOR plus the Spread on the date LIBOR was last applicable to the Loan and (b) the
Prime Rate on the date that LIBOR was last applicable to the Loan; provided,
however, in no event shall such difference be a negative number.



     “Pro-Forma Net Cash Flow” shall mean, as of any date of determination, (i) Gross Income from
Operations collected for the trailing three (3) month period ending with the last calendar month
for which financial reports are then required to have been delivered under Section 5.1.11
hereof, multiplied by four (4), less (ii) actual Operating Expenses for the
trailing twelve (12) month period ending with such last calendar month for which financial reports
are then required to have been delivered under Section 5.1.11 hereof, as adjusted by Lender
to reflect any actual increases to Operating Expenses then known to Lender (i.e., real
estate taxes and insurance premiums) as reflected in the Approved Annual Budget in effect.



     “Project” shall mean those renovations and improvements (exclusive of the Initial Renovations)
expected to be constructed and performed on the Hotel/Casino Property and the Adjacent Property in
accordance with the terms of the Mortgage Loan Agreement and the other Mortgage Loan Documents,
including, without limitation, a parking facility, an expansion of the hotel and casino on the
Hotel/Casino Property and the construction of an approximately 440 room hotel facility, as
generally described on Schedule II attached hereto and as more particularly described in
the Plans and Specifications.



     “Project Costs” shall have the meaning assigned to such term in the Mortgage Loan Agreement.



     “Projected Underwritten Net Cash Flow” shall have the meaning assigned to such term in the
Mortgage Loan Agreement.



     “Property” and “Properties” shall mean, individually and collectively, each and every one of
the Hotel/Casino Property, the Café Property and the Adjacent Property that, as of any particular
date, is subject to the terms of the Mortgage Loan Agreement, the Mortgage and the other Mortgage
Loan Documents.



     “Provided Information” shall mean any and all financial and other information prepared and
provided by any Loan Party, any Manager, Sub-Manager, HRHI or any Guarantor or under the
supervision or control of any Loan Party, any Manager, Sub-Manager, HRHI or any Guarantor (but
excluding third party independent reports) with respect to one or more of the Properties, the IP,
the Collateral, any Loan Party, any Mezzanine Borrower, any Manager, Sub-Manager, HRHI and/or any
Guarantor.



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     “Publicly Traded Company” shall mean any Person with a class of securities traded on a
national or international securities exchange and/or registered under Section 12(b) or 12(g) of the
Securities Exchange Act or 1934.



     “PWR/RWB Escrow Agreement” shall mean that certain Escrow Agreement, dated as of May 11, 2006,
between PM Realty, LLC, Red, White and Blue Pictures, Inc., Morton, 510 Development Corporation,
Morgans Hotel Group Co., the indirect parent of each of Mortgage Borrowers, Morgans Group LLC and
Chicago Title Agency of Nevada, Inc., as the same has been and may be amended, modified or
supplemented from time to time.



     “Qualification Conditions” shall have the meaning assigned to such term in the Mortgage Loan
Agreement.



     “Qualified Extended Maturity Date” shall have the meaning set forth in Section 2.7.2
hereof.



     “Qualified Extension Option” shall have the meaning set forth in Section 2.7.2 hereof.



     “Qualified Extension Term” shall have the meaning set forth in Section 2.7.2 hereof.



     “Qualified Gaming Operator” shall mean (a) Golden HRC, LLC, (b) Gaming Borrower, if and when
Gaming Borrower shall become the Gaming Operator for the Hotel/Casino Property in accordance with
the provisions of Article XII hereof, (c) Navegante HR, LLC, if and when Navegante HR, LLC
shall become the Gaming Operator for the Hotel/Casino Property in accordance with the provisions of
the Navegante Agreement, or (d) a reputable and experienced gaming operator (which may be an
Affiliate of any Mortgage Borrower) possessing experience in supervising, operating and managing
gaming activities at properties similar in size, scope, use and value as the Hotel/Casino Property;
provided, that with respect to any Person under any of the foregoing clauses (a), (b),
(c) or (d), such Person shall have, at all times during its engagement as Gaming
Operator, all required approvals and licenses from all applicable Governmental Authorities,
including, without limitation, all Gaming Authorities, and provided, further, that
with respect to the foregoing clause (d): (i) such Person shall be reasonably acceptable to
Mortgage Lender and such Person shall agree to operate the gaming operations at the Hotel/Casino
Property pursuant to one or more written agreements previously approved by Mortgage Lender in its
reasonable discretion (including, by way of example but without limitation, a new lease and/or
sublease and related recognition agreement), (ii) after a Securitization has occurred, Loan Parties
shall have obtained prior written confirmation from the applicable Rating Agencies that the
supervision, operation and management of the gaming activities at the Hotel/Casino Property by such
Person will not cause a downgrade, withdrawal or qualification of the then current ratings of the
Securities or any class thereof, and (iii) if such Person is an Affiliate of any Loan Party, (A) if
such Affiliate was covered in the Insolvency Opinion or in any subsequent Additional Insolvency
Opinion, Loan Parties shall have obtained and delivered to Lender an update of such Insolvency
Opinion or Additional Insolvency Opinion, as applicable, which addresses the new relationship
between such Affiliate and Loan Parties, or (B) if such Affiliate was not covered in the Insolvency
Opinion or in any subsequent Additional Insolvency Opinion, Loan Parties shall have obtained



36









 




and delivered to Lender an Additional Insolvency Opinion with respect to such Affiliate and
Loan Parties.




     “Qualified Guarantor Transferee” shall mean any one or more of the following:



     (i) an investment trust, bank, saving and loan association, insurance company, trust company,
commercial credit corporation, pension plan, pension fund or pension advisory firm, mutual fund,
government entity or plan;



     (ii) an investment company, money management firm or “qualified institutional buyer” within
the meaning of Rule 144A under the Securities Act, as amended, or an entity that is an “accredited
investor” within the meaning of Regulation D under the Securities Act, as amended;



     (iii) an institution substantially similar to any of the entities described in the foregoing
clause (i) or (ii);



     (iv) any entity Controlling or Controlled by or under common Control with any of the entities
described in the foregoing clause (i) or (ii);



     (v) any Person (a) with a long-term unsecured debt rating from the Rating Agencies of at least
Investment Grade or (b) who, together with its Affiliates, (A) (x) owns in its entirety, or (y)
owns a general partnership interest, managing membership interest or other equivalent ownership and
management interest in, an entity that owns, or (z) operates, at least ten (10) full service hotels
exclusive of the Properties totaling in the aggregate no less than 3,500 rooms; or



     (vi) any other Person (including opportunity funds) that has been approved as a Qualified
Guarantor Transferee by the Rating Agencies.



     “Qualified Initial Maturity Date” shall mean February 9, 2010.



     “Qualified Liquor Manager” shall mean either (a) HRHI, (b) Gaming Borrower, (c) Hotel Casino
Borrower, (d) Golden HRC, LLC, or (e) a reputable and experienced liquor management organization
(which may be an Affiliate of any Mortgage Borrower) possessing experience in managing all or
substantially all alcoholic beverage services at properties similar in size, scope, use and value
as the Hotel/Casino Property, provided, that (i) any Person referred to in the foregoing
clause (a) through (e) shall have, at all times during its engagement as the Liquor
Manager, all Governmental Approvals necessary to provide all alcoholic beverage services at the
Hotel/Casino Property, and (ii) with respect to clause (e) above, (A) after a
Securitization has occurred, Loan Parties shall have obtained prior written confirmation from the
applicable Rating Agencies that management of all alcoholic beverage services at the Hotel/Casino
Property by such Person will not cause a downgrade, withdrawal or qualification of the then current
ratings of the Securities or any class thereof, and (B) if such Person is an Affiliate of any Loan
Party, (1) if such Affiliate was covered in the Insolvency Opinion or in any subsequent Additional
Insolvency Opinion, Loan Parties shall have obtained and delivered to Lender an update of such
Insolvency Opinion or Additional Insolvency Opinion, as applicable, which addresses the new
relationship between such Affiliate and Loan Parties, or (2) if such Affiliate was not covered in
the Insolvency Opinion or in any subsequent Additional Insolvency



37









 




Opinion, Loan Parties shall have obtained and delivered to Lender an Additional Insolvency
Opinion with respect to such Affiliate and Loan Parties.




     “Qualified Manager” shall mean either (a) any Manager with respect to the Property it is
managing on the date hereof, or (b) in the reasonable judgment of Lender, a reputable and
experienced property management organization (which may be an Affiliate of any Mortgage Borrower or
Guarantor) possessing experience in managing properties similar in size, scope, use and value as
the applicable Property, provided, that with respect to clause (b) above, (i) after
a Securitization has occurred, Loan Parties shall have obtained prior written confirmation from the
applicable Rating Agencies that management of the applicable Property by such Person will not cause
a downgrade, withdrawal or qualification of the then current ratings of the Securities or any class
thereof, and (ii) if such Person is an Affiliate of any Loan Party, (A) if such Affiliate was
covered in the Insolvency Opinion or in any subsequent Additional Insolvency Opinion, Loan Parties
shall have obtained and delivered to Lender an update of such Insolvency Opinion or Additional
Insolvency Opinion, as applicable, which addresses the new relationship between such Affiliate and
Loan Parties, or (B) if such Affiliate was not covered in the Insolvency Opinion or in any
subsequent Additional Insolvency Opinion, Loan Parties shall have obtained and delivered to Lender
an Additional Insolvency Opinion with respect to such Affiliate and Loan Parties.



     “Qualified Real Estate Guarantor” shall mean (i) Morgans Group LLC or (ii) a Qualified
Guarantor Transferee that (i) is regularly engaged in the business of making or owning commercial
real estate loans (including mezzanine loans with respect to commercial real estate), (ii)
operating hospitality properties, or (iii) employing executive level employees with at least ten
(10) years of experience with regard to the same as part of a business segment or business sector
of a Qualified Guarantor Transferee.



     “Rank” shall have the meaning set forth in Section 4.1.37(b) hereof.



     “Rank IP” shall have the meaning set forth in Section 4.1.37(b) hereof.



     “Rank License” shall have the meaning set forth in Section 4.1.37(b) hereof.



     “Rating Agencies” shall mean, prior to the final Securitization of the Loan, each of S&P,
Moody’s and Fitch, or any other nationally recognized statistical rating agency which has been
designated by Lender and, after the final Securitization of the Loan, shall mean any of the
foregoing that have rated any of the Securities.



     “Re-Dating” shall have the meaning set forth in Section 9.2 hereof.



     “Reduced Acquisition Loan” shall have the meaning assigned to such term in the Mortgage Loan
Agreement.



     “Refinancing Loan” shall mean a loan or loans (i) the proceeds of which is/are used in whole
or in part to refinance the Loan, and/or (ii) is/are secured by a lien on any of the Properties
and/or the IP and/or the direct or indirect ownership interests in one or more Borrowers.



38









 





     “Registered” with respect to any IP, means any IP issued by, registered with, renewed by or
the subject of a pending application before, any Governmental Authority or Internet domain name
registrar.



     “Regulation AB” shall mean Regulation AB under the Securities Act and the Exchange Act, as
such Regulation may be amended from time to time.



     “Related Loan” shall mean a loan to an Affiliate of any Borrower or secured by a Related
Property, that is included in a Securitization with the Loan.



     “Related Property” shall mean a parcel of real property, together with improvements thereon
and personal property related thereto, that is “related” within the meaning of the definition of
Significant Obligor, to any Property.



     “Release Parcel” shall have the meaning assigned to such term in the Mortgage Loan Agreement.



     “Release Parcel Purchaser” shall have the meaning set forth in Section 2.5.1(a)
hereof.



     “Release Parcel Release Price” shall have the meaning assigned to such term in the Mortgage
Loan Agreement.



     “Release Parcel Sale” shall have the meaning set forth in Section 2.5.1(a) hereof.



     “Relinquishment Notice” shall have the meaning assigned to such term in the Mortgage Loan
Agreement.



     “Remaining Adjacent Property” shall mean that portion of the Adjacent Property that does not
constitute the Release Parcel.



     “Rents” shall mean, with respect to each Property, all rents (including, without limitation,
percentage rents), rent equivalents, moneys payable as damages (including payments by reason of the
rejection of a Lease in a Bankruptcy Action) or in lieu of rent or rent equivalents, royalties
(including, without limitation, all oil and gas or other mineral royalties and bonuses), income,
receivables, receipts, revenues (including liquor revenues), deposits (including, without
limitation, security deposits, utility deposits and deposits for rental of rooms, but excluding
deposits for rental of banquet space or business or conference meeting rooms), accounts, cash,
issues, profits, charges for services rendered, all other amounts payable as rent under any Lease
or other agreement relating to any Property (including without limitation the Liquor Management
Agreement or Replacement Liquor Management Agreement), and other payments and consideration of
whatever form or nature received by or paid to or for the account of or benefit of any Mortgage
Borrower, any Manager, Sub-Manager or any of their respective agents or employees from any and all
sources arising from or attributable to any Property and/or the Improvements thereon, and proceeds,
if any, from business interruption or other loss of income insurance, including, without
limitation, all hotel receipts, revenues and net credit card receipts collected from guest rooms,
restaurants, bars, meeting rooms, banquet rooms and recreational facilities, revenues from
telephone services, internet services, laundry services and television, all receivables, customer
obligations, installment payment obligations and other



39









 




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 any Property or
rendering of services by any Mortgage Borrower or any operator or manager of the hotel or the
commercial space located in any of the Improvements or acquired from others (including, without
limitation, from the rental of any office space, retail space, guest rooms or other space, halls,
stores, and offices, and deposits securing reservations of such space), net license, lease,
sublease and net concession fees and rentals, health club membership fees, food and beverage
wholesale and retail sales, service charges and vending machine sales.




     “Replacement Interest Rate Cap Agreement” shall mean an interest rate cap agreement from an
Acceptable Counterparty with terms substantially identical to the Interest Rate Cap Agreement
except that the same shall be effective in connection with replacement of the Interest Rate Cap
Agreement following a downgrade of the long-term unsecured debt rating of the Counterparty;
provided, that with respect to any Replacement Interest Rate Cap Agreement to be delivered
by Borrowers to Lender in connection with Borrowers’ exercise of any Extension Option, the strike
price shall be the Strike Price applicable to such Extension Option being exercised; and,
provided, further, that to the extent any such interest rate cap agreement does not
meet the foregoing requirements, a “Replacement Interest Rate Cap Agreement” shall be such interest
rate cap agreement reasonably approved in writing by Lender.



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



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



40









 





     “Replacement Reserve Account” shall have the meaning assigned to such term in the Mortgage
Loan Agreement or such comparable account as shall be established under this Agreement in
accordance with Section 7.3 hereof.



     “Replacement Reserve Fund” shall have the meaning assigned to such term in the Mortgage Loan
Agreement or such comparable fund as shall be established under this Agreement in accordance with
Section 7.3 hereof.



     “Required Equity Amount” shall have the meaning assigned to such term in the Mortgage Loan
Agreement.



     “Required Net Cash Flow” shall mean, with respect to each Extension Term, the amount of Net
Cash Flow that will need to be generated during such Extension Term in order to achieve an
Extension Debt Service Coverage Ratio of 1.05 to 1.00.



     “Required Repair Account” shall have the meaning assigned to such term in the Mortgage Loan
Agreement or such comparable account as shall be established under this Agreement in accordance
with Section 7.1 hereof.



     “Required Repair Fund” shall have the meaning assigned to such term in the Mortgage Loan
Agreement or such comparable fund as shall be established under this Agreement in accordance with
Section 7.1 hereof.



     “Reserve Funds” shall mean, collectively, the Tax and Insurance Escrow Fund, the Replacement
Reserve Fund, the Required Repair Fund, the Initial Renovation Reserve Fund, the Interest Reserve
Fund, the General Reserve Fund, any funds on deposit in the Construction Loan Reserve Account, any
Shortfall Funds and any other escrow fund established pursuant to the Loan Documents.



     “Restoration” shall have the meaning assigned to such term in the Mortgage Loan Agreement.



     “Restoration Threshold” shall mean Ten Million Dollars ($10,000,000.00).



     “Restoration Value Threshold” shall mean that (i) in the case of a Condemnation, the Net
Proceeds are less than 15% of the then current fair market value of the applicable Property, and
(ii) in the case of a Casualty, the Net Proceeds are less than 30% of the then current fair market
value of the applicable Property.



     “Restricted Party” shall mean, collectively, each Loan Party, each Mezzanine Borrower, HRHI,
HR Holdings and each Guarantor.



     “Right of First Offer” shall have the meaning set forth in Section 13.1 hereof.



     “Right of First Offer Notice” shall have the meaning set forth in Section 13.1 hereof.



     “Right of First Offer Information and Materials” shall have the meaning set forth in
Section 13.2(b) hereof.



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     “ROFO Term Sheet” shall have the meaning set forth in Section 13.2(d) hereof.



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



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



     “Sale Request” shall have the meaning assigned to such term in the Mortgage Loan Agreement.



     “Second Non-Qualified Extended Maturity Date” shall mean February 9, 2011.



     “Second Non-Qualified Extension Option” shall have the meaning set forth in Section
2.7.1(b) hereof.



     “Second Non-Qualified Extension Term” shall have the meaning set forth in Section
2.7.1(b) hereof.



     “Second Qualified Extended Maturity Date” shall mean February 9, 2012.



     “Second Qualified Extension Option” shall have the meaning set forth in Section
2.7.2(b) hereof.



     “Second Qualified Extension Term” shall have the meaning set forth in Section 2.7.2(b)
hereof.



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



     “Securities Act” shall have the meaning set forth in Section 9.3(a) hereof.



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



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



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



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



     “Significant Obligor” shall have the meaning set forth in Item 1101(k) of Regulation AB under
the Securities Act.



     “Special Purpose Entity” shall mean a limited partnership or limited liability company that
since the date of its formation and at all times on and after the date thereof, has complied with
and shall at all times comply with the following requirements:



     (a) was, is and will be organized solely for the purpose of (i) (A) acquiring, owning,
holding, selling, transferring, managing and operating the Collateral, (B) entering into this



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Agreement with Lender, (C) refinancing the Collateral in connection with repayment of the
Loan, and/or (D) transacting lawful business that is incident, necessary and appropriate to
accomplish any of the foregoing; or (ii) acting as a general partner of the limited partnership
that owns the Collateral or managing member of the limited liability company that owns the
Collateral;




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



     (c) has not had, does not have, and will not have, any assets other than those related to the
Collateral, or, if such entity is a general partner in a limited partnership, its general
partnership interest in the limited partnership that owns the Collateral, or, if such entity is a
managing member of a limited liability company, its membership interest in the limited liability
company that owns the Collateral;



     (d) has not engaged, sought or consented to, and to the fullest extent permitted by law, will
not engage in, seek or consent to, any: (i) dissolution, winding up, liquidation, consolidation,
merger or sale of all or substantially all of its assets outside of its ordinary course of business
and other than as expressly permitted in this Agreement; (ii) other than as expressly permitted in
this Agreement, transfer of partnership or membership interests (if such entity is a general
partner in a limited partnership or a managing member in a limited liability company); or (iii)
amendment of its limited partnership agreement, articles of organization, certificate of formation
or operating agreement (as applicable) with respect to the matters set forth in this definition
unless Lender issues its prior written consent, which consent shall not be unreasonably withheld,
and, after the occurrence of a Securitization, the confirmation in writing from the applicable
Rating Agencies that such amendment will not, in and of itself, result in a downgrade, withdrawal
or qualification of the then current ratings assigned to any Securities or any class thereof in
connection with any Securitization;



     (e) if such entity is a limited partnership, has had, now has, and will have, as its only
general partners, Special Purpose Entities that are limited liability companies;



     (f) if such entity is a limited liability company with more than one member, has had, now has
and will have at least one member that is a Special Purpose Entity that is a corporation that has
at least two (2) Independent Directors or a limited liability company that has at least two (2)
Independent Managers and that, in either instance, owns at least one-tenth of one percent (.10%) of
the equity of the limited liability company;



     (g) if such entity is a limited liability company with only one member, has been, now is, and
will be, a limited liability company organized in the State of Delaware that (i) has as its only
member a non-managing member; (ii) has at least two (2) Independent Managers and has not caused or
allowed and will not cause or allow the taking of any “Material Action” (as defined in such
entity’s operating agreement) without the unanimous affirmative vote of one hundred percent (100%)
of the member and such entity’s two (2) Independent Managers; (iii) at least one (1) springing
member (or two (2) springing members if such springing members are natural



43









 




persons who will replace a member of such entity seriatim not simultaneously) that will become
a member of such entity upon the occurrence of an event causing the member to cease to be a member
of such limited liability company; and (iv) whose membership interests constitute and will
constitute “certificated securities” (as defined in the Uniform Commercial Code of the States of
New York and Delaware);




     (h) if such entity is (i) a limited liability company, has had, now has and will have an
operating agreement, or (ii) a limited partnership, has had, now has and will have a limited
partnership agreement, that, in each case, provides that such entity will not: (A) to the fullest
extent permitted by law, take any actions described in clause (d)(i) above; (B) engage in
any other business activity, or amend its organizational documents with respect to the matters set
forth in this definition, in each instance, without the prior written consent of Lender, which
consent shall not be unreasonably withheld, and, after the occurrence of a Securitization,
confirmation in writing from the applicable Rating Agencies that engaging in such other business
activity or such amendment, as applicable, will not, in and of itself, result in a downgrade,
withdrawal or qualification of the then current ratings assigned to any Securities or any class
thereof in connection with any Securitization; or (C) without the affirmative vote of two (2)
Independent Managers and of all the partners or members of such entity, as applicable (or the vote
of two (2) Independent Managers of its general partner or managing member, if applicable), file a
bankruptcy or insolvency petition or otherwise institute insolvency proceedings with respect to
itself or to any other entity in which it has a direct or indirect legal or beneficial ownership
interest;



     (i) has been, is and will remain solvent and has paid and will pay its debts and liabilities
(including, as applicable, shared personnel and overhead expenses) from its assets as the same have
or shall become due, and has maintained, is maintaining and will maintain adequate capital for the
normal obligations reasonably foreseeable in a business of its size and character and in light of
its contemplated business operations; provided, however, this provision shall not
require the equity owner(s) of such entity to make any additional capital contributions;



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



     (k) other than as provided in the Cash Management Agreement with respect to one or more other
Borrowers, has maintained and will maintain its accounts, books and records separate from any other
Person (except other Borrowers) and has filed and will file its own tax returns, except to the
extent that it has been or is (i) required to file consolidated tax returns by law; or (ii) treated
as a “disregarded entity” for tax purposes and is not required to file tax returns under applicable
law;



     (l) has maintained and will maintain its own (except with other Borrowers) records, books,
resolutions (if any) and agreements;



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



44









 





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



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



     (p) has maintained and will maintain its financial statements, accounting records and other
entity documents separate from any other Person and has not permitted and will not permit its
assets to be listed as assets on the financial statement of any other entity except as required by
GAAP (or such other accounting basis acceptable to Lender); provided, however, that
a Borrower’s assets may be included in a consolidated financial statement of its Affiliate,
provided that such assets shall also be listed on such Special Purpose Entity’s own separate
balance sheet;



     (q) has paid and will pay its own liabilities and expenses, including the salaries of its own
employees (if any), out of its own funds and assets, and has maintained and will maintain, or will
enter into a contract with an Affiliate to maintain, which contract shall be reasonably
satisfactory to Lender in form and substance and shall be subject to the requirements of clause
(dd) below, a sufficient number of employees (if any) in light of its contemplated business
operations; provided, however, this provision shall not require the equity owner(s)
of such entity to make any additional capital contributions;



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



     (s) has not incurred and will not incur any Indebtedness other than (i) the Debt, and (ii)
unsecured trade payables and operational debt not evidenced by a note and in an aggregate amount
not exceeding $50,000; provided that any Indebtedness incurred pursuant to subclause
(ii) shall be (A) paid within sixty (60) days of the date incurred (other than attorneys’ and
other professional fees) and (B) incurred in the ordinary course of business;



     (t) has not assumed or guaranteed or become obligated for, and will not assume or guarantee or
become obligated for, the debts of any other Person and has not held out and will not hold out its
credit as being available to satisfy the obligations of any other Person except as permitted
pursuant to this Agreement; except, if such entity is a general partner of a limited partnership,
in such entity’s capacity as general partner of such limited partnership or a member of a limited
liability company, in such entity’s capacity as a member of such limited liability company;



     (u) has not acquired and will not acquire obligations or securities of its partners, members
or shareholders or any other Affiliate except with respect to the ownership of the limited
liability company interests or partnership interests (as applicable) of the Special Purpose
Entities as shown on the organizational chart attached to this Agreement as Schedule VI;



     (v) has allocated and will allocate fairly and reasonably any overhead expenses that are
shared with any Affiliate, including, but not limited to, paying for shared office space and



45









 




services performed by any employee of an Affiliate; provided, however, to the
extent invoices for such services are not allocated and separately billed to each entity, there is
a system in place that provides that the amount thereof that is to be allocated among the relevant
parties will be reasonably related to the services provided to each such party;




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



     (x) except as provided in the Third Mezzanine Loan Documents, has not pledged and will not
pledge its assets to secure the obligations of any other Person;



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



     (z) except as provided in the Cash Management Agreement, 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;



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



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



     (cc) except for capital contributions and capital distributions expressly permitted under the
terms and conditions of its organizational documents and properly reflected in its books and
records, 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 commercially reasonable and are no less favorable to it than
would be obtained in a comparable arm’s length transaction with an unrelated third party;



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



46









 





     (ee) does not and will not have any of its obligations guaranteed by any Affiliate except for
(i) Guarantors pursuant to the Non-Recourse Guaranty, the Non-Qualified Prepayment Guaranty, the
Closing Completion Guaranty and the Construction Completion Guaranty, and (ii) HRHI pursuant to the
HRHI Guaranty; provided, that if such entity is a limited partnership, such entity’s
general partner will be generally liable for its obligations; and



     (ff) has complied and will comply with all of the terms and provisions contained in its
organizational documents.



     “Spread” shall mean, subject to application of the Default Rate, 7.2000000000%;
provided, however, that (a) subject to the following clause (b), if
Substantial Completion has not occurred on or before the date which is twenty-four (24) months from
the date of the Initial Construction Loan Advance, the Spread shall increase to 8.0470588235% from
and including such date which is twenty-four (24) months from the date of the Initial Construction
Loan Advance through but excluding the first Payment Date following Substantial Completion,
following which the Spread shall again be 7.2000000000%, and (b) if the Second Non-Qualified
Extension Term is exercised in accordance with the terms of Section 2.7.1 hereof, the
Spread in effect from time to time pursuant to the foregoing clause (a) shall increase by
0.4235294118% throughout the Second Non-Qualified Extension Term and thereafter until the
Obligations are paid in full.



     “Spread Maintenance Premium” shall mean, with respect to any prepayment of the Outstanding
Principal Balance prior to the Spread Maintenance Release Date, other than any prepayment from the
proceeds of any Minimum Mandatory Prepayment (or any partial payment on account thereof),
Non-Qualified Mandatory Prepayment, Additional Non-Qualified Mandatory Prepayment, Release Parcel
Release Price, Adjacent Parcel Release Price and/or IP Release Price, an amount equal to the
product of (a) the principal amount of such prepayment, multiplied by (b) the Spread, and
multiplied by (c) a fraction, the numerator of which shall equal the actual number of days
from the date of such payment through the Spread Maintenance Release Date and the denominator of
which is 360; provided, however, if any such prepayment shall occur on a day other
than a Payment Date, the numerator of such fraction shall equal the actual number of days from the
next succeeding ninth (9th) day of a calendar month through the Spread Maintenance Release Date.



     “Spread Maintenance Release Date” shall mean , as applicable, either (i) May 9, 2008, in the
event the Qualification Conditions have not been satisfied on or prior to the Construction
Qualification Date, or (ii) August 9, 2008, in the event the Qualification Conditions have been
satisfied on or prior to the Construction Qualification Date.



     “State” shall mean the State of Nevada.



     “Strike Price” shall mean, as applicable, with respect to:



     (i) the period commencing on the Closing Date through and including the Initial Maturity Date,
five and one-half percent (5.5%) per annum; and



47









 





     (ii) for each Extension Term, a rate to be selected by Borrowers no later than ten (10) days
prior to the first day of such Extension Term, which shall in no event exceed one percent (1%) in
excess of LIBOR as of the most recent Determination Date.



     “Sub-Management Agreement” shall mean that certain Paradise Bay Club Apartments Management
Agreement, dated as of September 17, 2004, between PM Realty LLC (predecessor-in-interest to
Adjacent Borrower) and Sub-Manger, with respect to the Adjacent Property, as the same has been and
may be amended, modified or supplemented from time to time.



     “Sub-Manager” shall mean, with respect to the Adjacent Property, ConAm Management Corporation.



     “Subsequent Required Equity Amount” shall have the meaning assigned to such term in the
Mortgage Loan Agreement.



     “Subsidiary Transferee” shall have the meaning assigned to such term in the Mortgage Loan
Agreement.



     “Substantial Completion” shall have the meaning assigned to such term in the Mortgage Loan
Agreement.



     “Survey” shall mean a current survey of each of the Properties, certified to the Title Company
and Mortgage Lender and their successors and assigns, in form and content reasonably satisfactory
to Mortgage Lender.



     “Tax and Insurance Escrow Fund” shall have the meaning assigned to such term in the Mortgage
Loan Agreement or such comparable fund as shall be established under this Agreement in accordance
with Section 7.2 hereof.



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



     “Third Mezzanine Borrower” and “Third Mezzanine Borrowers” shall mean, individually or
collectively, as applicable, HRHH Gaming Junior Mezz Two, LLC, a Delaware limited liability
company, and HRHH JV Junior Mezz Two, LLC, a Delaware limited liability company, each in its
capacity as a borrower under the Third Mezzanine Loan, together with its or their successors or
permitted assigns.



     “Third Mezzanine Debt” shall mean the “Debt” as defined in the Third Mezzanine Loan Agreement.



     “Third Mezzanine Default” shall mean a “Default” as defined in the Third Mezzanine Loan
Agreement.



     “Third Mezzanine Event of Default” shall mean an “Event of Default” as defined in the Third
Mezzanine Loan Agreement.



48









 





     “Third Mezzanine Lender” shall mean Column Financial, Inc., in its capacity as holder of the
Third Mezzanine Loan, together with its successors and assigns.



     “Third Mezzanine Loan” shall mean the loan in the original principal amount of up to Sixty
Five Million and No/100 Dollars ($65,000,000), made by Third Mezzanine Lender to Third Mezzanine
Borrowers pursuant to the Third Mezzanine Loan Agreement.



     “Third Mezzanine Loan Agreement” shall mean that certain Third Mezzanine Loan Agreement, dated
as of the date hereof, among Third Mezzanine Lender and Third Mezzanine Borrowers, as the same may
be amended, restated, replaced, supplemented or otherwise modified from time to time subject to the
terms of the Intercreditor Agreement.



     “Third Mezzanine Loan Documents” shall mean the Third Mezzanine Loan Agreement and all other
documents evidencing and/or securing the Third Mezzanine Loan, as the same may be amended,
restated, replaced, supplemented or otherwise modified from time to time subject to the terms of
the Intercreditor Agreement.



     “Third Mezzanine Loan Outstanding Principal Balance” shall mean the “Outstanding Principal
Balance” as defined in the Third Mezzanine Loan Agreement.



     “Third Mezzanine Loan Percentage” shall mean, as of any date of determination and prior to the
application of the principal amount with respect to which the Financing Percentages or the
Alternate Financing Percentages are then being calculated, the ratio, expressed as a percentage,
the numerator of which is an amount equal to the Third Mezzanine Loan Outstanding Principal Balance
on such date of determination and the denominator of which is an amount equal to the Aggregate
Outstanding Principal Balance on such date of determination.



     “Third Mezzanine Obligations” shall mean the “Obligations” as defined in the Third Mezzanine
Loan Agreement.



     “Third Mezzanine Spread” shall mean the “Spread” as defined in the Third Mezzanine Loan
Agreement.



     “Third Party IP License” shall have the meaning set forth in Section 5.1.26(c) hereof.



     “Third Party Lenders” shall mean third party institutional lenders which are in the business
of providing loans similar to the Refinancing Loans



     “Title Company” shall mean First American Title Insurance Company, or any successor title
company reasonably acceptable to Mortgage Lender and licensed to issue title insurance in the State
of Nevada.



     “Title Insurance Policy” shall have the meaning assigned to such term in the Mortgage Loan
Agreement.



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




49












 





     “Transfer Restricted Party” shall mean, collectively, each Loan Party, each Mezzanine
Borrower, each Constituent Member of each Loan Party, HRHI, HR Holdings and each Guarantor.



     “Trust” shall have the meaning set forth in Section 10.25(a) hereof.



     “UCC” or “Uniform Commercial Code” shall mean the Uniform Commercial Code as in effect in the
State of Nevada, the State of New York or the State of Delaware, as applicable.



     “UCC Financing Statements” shall mean the UCC Financing Statement executed in connection with
the Pledge Agreement and the other Loan Documents and filed in the applicable filing offices.



     “UCC Insurance Policy” shall have the meaning set forth in Section 3.1.2(b) hereof.



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



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



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



               (b) With respect to terms defined by cross-reference to the Mortgage Loan Documents, the First
Mezzanine Loan Documents and/or the Third Mezzanine Loan Documents, as applicable, such defined
terms shall have the definitions set forth in the Mortgage Loan Documents, the First Mezzanine Loan
Documents and/or the Third Mezzanine Loan Documents as of the date hereof, and no modifications to
the Mortgage Loan Documents, the First Mezzanine Loan Documents and/or the Third Mezzanine Loan
Documents, as the case may be, shall have the effect of changing such definitions for the purpose
of this Agreement unless Lender expressly agrees that such definitions as used in this Agreement
have been revised or Lender consents to the modification documents. With respect to any provisions
incorporated by reference herein from the Mortgage Loan Agreement and/or the First Mezzanine Loan
Agreement, as applicable, such provisions shall be deemed a part of this Agreement



50









 







notwithstanding the fact that the Mortgage Loan and/or the First Mezzanine Loan, as the case
may be, shall no longer be effective for any reason.



               (c) The words “Borrowers shall cause First Mezzanine Borrowers to” or “Borrowers shall cause
First Mezzanine Borrowers not to” (or words of similar meaning) shall mean Borrowers, as the sole
members of First Mezzanine Borrowers, shall cause First Mezzanine Borrowers to so act or not to so
act, as applicable. The words “Borrowers shall cause Mortgage Borrowers to” or “Borrowers shall
cause Mortgage Borrowers not to” (or words of similar meaning) shall mean Borrowers, as the sole
members of First Mezzanine Borrowers, shall cause First Mezzanine Borrowers, as the direct or
indirect sole members of Mortgage Borrowers, to cause Mortgage Borrowers to so act or not to so
act, as applicable.



ARTICLE II.

GENERAL TERMS




     Section 2.1 Loan Commitment; Disbursement to Borrowers.



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



          2.1.2 Loan. (a) The Loan is evidenced by the Note and this Agreement, is secured by
the Pledge Agreement and the other Loan Documents and shall be repaid with interest, costs and
charges as more particularly set forth in the Note, this Agreement, the Pledge Agreement and the
other Loan Documents. Principal amounts of the Loan which are repaid for any reason may not be
reborrowed. Lender shall not fund any portion of the Loan from any account holding “plan assets”
of one or more plans within the meaning of 29 C.F.R. 2510.3-101 unless such Loan will not
constitute a non-exempt prohibited transaction under ERISA.



               (b) Borrowers shall use the proceeds of the Loan to make a contribution to First Mezzanine
Borrowers, and then shall cause First Mezzanine Borrowers to make a contribution to
Mortgage Borrowers for use by Mortgage Borrowers to partially prepay the principal balance of the
Original Mortgage Loan.



     Section 2.2 Interest Rate.



          2.2.1 Interest Generally. Interest on the Outstanding Principal Balance shall accrue
from the Closing Date to but excluding the Maturity Date at the Applicable Interest Rate.
Borrowers shall pay to Lender on each Payment Date the interest accrued on the Loan for the
preceding Interest Period.



          2.2.2 Interest Calculation. Interest on the Outstanding Principal Balance shall be
calculated by multiplying (a) the actual number of days elapsed in the period for which the
calculation is being made by (b) a daily rate based on a three hundred sixty (360) day year by (c)
the Outstanding Principal Balance. If, at any time, Lender or Borrowers determine that Lender has
miscalculated the Applicable Interest Rate (whether because of a miscalculation of LIBOR or
otherwise), such party shall notify the other of the necessary correction. Upon the agreement of
the parties as to the correction, if the corrected Applicable Interest Rate represents an increase



51









 







in the applicable monthly payment, Borrowers shall, within ten (10) days after receipt of
notice from Lender, pay to Lender the corrected amount. Upon the agreement of the parties as to
the correction, if the corrected Applicable Interest Rate represents an overpayment by Borrowers to
Lender and no Event of Default then exists, Lender shall promptly refund the overpayment to
Borrowers or, at Borrowers’ option, credit such amounts against Borrowers’ payment next due
hereunder.



          2.2.3 Determination of Interest Rate. (a) The Applicable Interest Rate with respect
to the Loan shall be: (i) LIBOR plus the Spread with respect to the applicable Interest Period for
a LIBOR Loan or (ii) the Prime Rate plus the Prime Rate Spread for a Prime Rate Loan if the Loan is
converted to a Prime Rate Loan pursuant to the provisions of Section 2.2.3(c) or
(f) hereof.



               (b) Subject to the terms and conditions of this Section 2.2.3, the Loan shall be a
LIBOR Loan and Borrowers shall pay interest on the Outstanding Principal Balance at LIBOR plus the
Spread for the applicable Interest Period. Any change in the Applicable Interest Rate hereunder
due to a change in LIBOR shall become effective as of the opening of business on the first day of
the applicable Interest Period.



               (c) In the event that Lender shall have determined in good faith (which determination shall be
conclusive and binding upon Borrowers’ absent manifest error) that by reason of circumstances
affecting the interbank eurodollar market, adequate and reasonable means do not exist for
ascertaining LIBOR, then Lender shall forthwith give notice by telephone of such determination,
confirmed in writing, to Borrowers at least one (1) Business Day prior to the last day of the
related Interest Period. If such notice is given, the related outstanding LIBOR Loan shall be
converted, on the first day of the next occurring Interest Period, to a Prime Rate Loan.



               (d) If, pursuant to the terms of this Agreement, any portion of the Loan has been converted to
a Prime Rate Loan and Lender shall determine in good faith (which determination shall be conclusive
and binding upon Borrowers absent manifest error) that the event(s) or circumstance(s) which
resulted in such conversion shall no longer be applicable, Lender shall give notice by telephone of
such determination, confirmed in writing, to Borrowers at least one (1) Business Day prior to the
last day of the related Interest Period. If such notice is given, the related outstanding Prime
Rate Loan shall be converted to a LIBOR Loan on the first day of the next occurring Interest
Period.



               (e) (i) Except as otherwise expressly provided in this Section 2.2.3(e), with respect
to a LIBOR Loan, all payments made by Borrowers hereunder shall be made free and clear of, and
without reduction for or on account of, any Indemnified Taxes or Other Taxes; provided that
if Borrowers shall be required to deduct any Indemnified Taxes or Other Taxes from such payments,
then (A) the sum payable shall be increased as necessary so that after making all such 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, (B) Borrowers shall make such deductions, and (C) Borrowers shall pay the full amount
deducted to the relevant Governmental Authority in accordance with applicable law. If Lender gives
Borrowers written notice that any such amounts are payable by



52









 







Borrowers, Borrowers shall pay all such amounts to the relevant Governmental Authority in
accordance with applicable Legal Requirements by the later of (1) five (5) Business Days after
receipt of demand from Lender and (2) their due date, and, as promptly as possible thereafter,
Borrowers shall send to Lender an original official receipt, if available, or certified copy
thereof showing payment of such Indemnified Taxes or Other Taxes.



               (ii) Without duplication of any additional amounts paid pursuant to this Section
2.2.3(e), each Borrower shall indemnify Lender, within ten (10) days after written demand
therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes
or Other Taxes imposed or asserted on or attributable to amounts payable under this Section
2.2.3) paid by Lender, and any penalties, interest and reasonable expenses arising therefrom or
with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or
legally imposed or asserted by the relevant Governmental Authority, provided that, if
Borrowers determine that any such Indemnified Taxes or Other Taxes were not correctly or legally
imposed or asserted, Lender shall, upon payment by Borrowers of the full amount of any Indemnified
Taxes or Other Taxes, allow Borrowers to contest (and shall cooperate in such contest), the
imposition of such tax upon the reasonable request of Borrowers and at Borrowers’ expense;
provided, however, that Lender shall not be required to participate in any contest
that would, in its reasonable judgment, expose it to a material commercial disadvantage or require
it to disclose any information it considers confidential or proprietary. A certificate as to the
amount of such payment or liability delivered to Borrowers by Lender (together with any supporting
detail reasonably requested by Borrowers), shall be conclusive, provided that such amounts
are determined on a reasonable basis.



               (iii) Any Non-U.S. Lender that is entitled to an exemption from or reduction of withholding
tax under U.S. law, the law of the jurisdiction in which Borrowers are located (if other than the
U.S.), or any treaty to which such jurisdiction is a party, with respect to payments under this
Agreement shall deliver to Borrowers, at the time or times prescribed by applicable law, or as
reasonably requested by Borrowers, such properly completed and executed documentation prescribed by
applicable law or reasonably requested by Borrowers as will permit such payments to be made without
withholding or at a reduced rate of withholding. Each Non-U.S. Lender shall deliver to Borrowers
(or, in the case of a participant, to the Lender from which the related participation shall have
been purchased), on or before the date that such Non-U.S. Lender becomes a party to this Agreement,
two (2) properly completed and duly executed copies of U.S. Internal Revenue Service Form W-8BEN,
Form W-8IMY, Form W-8EXP or Form W-8ECI, as applicable (or successor forms thereto), claiming a
complete exemption from, or reduction of, U.S. federal withholding tax on all payments by Borrowers
under this Agreement. Each Non-U.S. Lender shall promptly provide such forms upon becoming aware
of the obsolescence, expiration or invalidity of any form previously delivered by such Non-U.S.
Lender (unless it is legally unable to do so as a result of a change in law) and shall promptly
notify Borrowers at any time it determines that any previously delivered forms are no longer valid.



               (iv) Lender or any successor and/or assign of Lender that is incorporated under the laws of
the United States of America or a state thereof agrees that, on or before it becomes a party to
this Agreement and from time to time thereafter before the expiration or obsolescence of the
previously delivered form, it will deliver to Borrowers a United States Internal Revenue Service
Form W-9 or successor applicable form, as the case may be, to



53









 







establish exemption from United States backup withholding tax. If required by applicable law,
Borrowers are hereby authorized to deduct from any payments due to Lender pursuant to Section
2.2.3 hereof the amount of any withholding taxes resulting from Lender’s failure to comply with
this Section 2.2.3(e)(iv).



               (v) If Lender determines, in its reasonable discretion, that it has received a refund of or
will receive a credit for Indemnified Taxes or Other Taxes with respect to which Borrowers have
paid additional amounts pursuant to this Section 2.2.3(e), it shall pay over to Borrowers
an amount equal to the additional amounts paid by Borrowers under this Section 2.2.3(e)
(with respect to the Indemnified Taxes or Other Taxes giving rise to such refund or credit), net of
all out-of-pocket expenses of Lender and without interest (other than any interest paid by the
relevant Governmental Authority with respect to such refund); provided, that Borrowers,
upon the request of Lender, agrees to repay the amount paid over to Borrowers (plus any interest to
the extent accrued from the date such refund is paid over to Borrowers) to Lender in the event
Lender is required to repay such refund to such Governmental Authority or is unable to claim the
credit. This Section 2.2.3(e)(v) shall not be construed to require Lender to make
available its tax returns (or any other information relating to its taxes which it deems
confidential) to Borrowers or any other Person.



               (f) Except as otherwise expressly provided in Section 2.2.3(e) hereof, if any
requirement of law or any change therein or in the interpretation or application thereof, shall
hereafter make it unlawful for Lender to make or maintain a LIBOR Loan as contemplated hereunder
(i) the obligation of Lender hereunder to make a LIBOR Loan or to convert a Prime Rate Loan to a
LIBOR Loan shall be canceled forthwith and (ii) any outstanding LIBOR Loan shall be converted
automatically to a Prime Rate Loan on the next succeeding Payment Date or within such earlier
period as required by law. Borrowers hereby agree promptly to pay Lender, upon demand, any
additional amounts necessary to compensate Lender for any actual out-of-pocket costs incurred by
Lender in making any conversion in accordance with this Agreement, including, without limitation,
any interest or fees payable by Lender to lenders of funds obtained by it in order to make or
maintain the LIBOR Loan hereunder; provided that such additional amount is generally charged by
Lender to other borrowers with loans similar to the Loan.



               (g) Except as otherwise expressly provided in Section 2.2.3(e) hereof, in the event
that any change in any requirement of law or in the interpretation or application thereof, or
compliance by Lender with any request or directive having the force of law hereafter issued from
any central bank or other Governmental Authority:




     (i) shall hereafter impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by, or deposits
or other liabilities in or for the account of, advances or loans by, or other credit
extended by, or any other acquisition of funds by, any office of Lender which is not
otherwise included in the determination of LIBOR hereunder;




     (ii) shall hereafter have the effect of reducing the rate of return on Lender’s
capital as a consequence of its obligations hereunder to a level below that which
Lender could have achieved but for such adoption, change or



54









 







compliance (taking into consideration Lender’s policies with respect to capital
adequacy) by any material amount; or




     (iii) shall hereafter impose on Lender any other condition and the result of
any of the foregoing is to increase the actual out-of-pocket cost to Lender of
maintaining loans or extensions of credit or to reduce any amount receivable
hereunder;


then, in any such case, Borrowers shall promptly pay Lender, upon demand, any additional amounts
necessary to compensate Lender for such additional cost or reduced amount receivable;
provided that such additional amount is generally charged by Lender to other borrowers with
loans similar to the Loan. If Lender becomes entitled to claim any additional amounts pursuant to
this Section 2.2.3(g), Lender shall provide Borrowers with not less than ninety (90) days
notice specifying in reasonable detail the event by reason of which it has become so entitled and
the additional amount required to fully compensate Lender for such additional cost or reduced
amount.




               (h) Each Borrower agrees to pay to Lender and to hold Lender harmless from any actual
out-of-pocket expense which Lender sustains or incurs as a consequence of (i) any default by
Borrowers in payment of the principal of or interest on a LIBOR Loan, including, without
limitation, any such loss or expense arising from interest or fees payable by Lender to lenders of
funds obtained by it in order to maintain a LIBOR Loan hereunder, (ii) any prepayment (whether
voluntary or mandatory) of the LIBOR Loan on a day that (A) is not the Payment Date immediately
following the last day of an Interest Period with respect thereto or (B) is the Payment Date
immediately following the last day of an Interest Period with respect thereto if Borrowers did not
give the prior notice of such prepayment required pursuant to the terms of this Agreement,
including, without limitation, such loss or expense arising from interest or fees payable by Lender
to lenders of funds obtained by it in order to maintain the LIBOR Loan hereunder, and (iii) the
conversion (for any reason whatsoever, whether voluntary or involuntary) of the Applicable Interest
Rate from LIBOR plus the Spread to the Prime Rate plus the Prime Rate Spread with respect to any
portion of the Outstanding Principal Balance then bearing interest at LIBOR plus the Spread on a
date other than the Payment Date immediately following the last day of an Interest Period,
including, without limitation, such actual out-of-pocket expenses arising from interest or fees
payable by Lender to lenders of funds obtained by it in order to maintain a LIBOR Loan hereunder
(the amounts referred to in clauses (i), (ii) and (iii) are herein referred to
collectively as the “Breakage Costs”); provided, however, that Borrowers shall not
indemnify Lender from any loss or expense arising from Lender’s willful misconduct, fraud, illegal
acts or gross negligence. No Breakage Costs shall be due or payable if, in connection with any
prepayment of the Loan by Borrowers, Borrowers pay interest through the next Payment Date as
provided in Section 2.4.1 hereof.



               (i) Subject to Section 2.2.3(e) above, Lender shall not be entitled to claim
compensation pursuant to this Section 2.2.3 for any Indemnified Taxes or Other Taxes,
increased cost or reduction in amounts received or receivable hereunder, or any reduced rate of
return, which was incurred or which accrued more than ninety (90) days before the date Lender
notified Borrowers in writing of the change in law or other circumstance on which such claim of



55









 







compensation is based and delivered to Borrowers a written statement setting forth in
reasonable detail the basis for calculating the additional amounts owed to Lender under this
Section 2.2.3, which statement, made in good faith, shall be conclusive and binding upon
all parties hereto absent manifest error.



          2.2.4 Additional Costs. Lender will use reasonable efforts (consistent with legal and
regulatory restrictions) to maintain the availability of the LIBOR Loan and to avoid or reduce any
increased or additional costs payable by Borrowers under Section 2.2.3 hereof, including,
if requested by Borrowers, a transfer or assignment of the Loan to a branch, office or Affiliate of
Lender in another jurisdiction, or a redesignation of its lending office with respect to the Loan,
in order to maintain the availability of the LIBOR Loan or to avoid or reduce such increased or
additional costs, provided that the transfer or assignment or redesignation (a) would not result in
any additional costs, expenses or risk to Lender that are not separately agreed to by Borrowers to
be reimbursed by Borrowers and (b) would not be disadvantageous in any other material respect to
Lender as determined by Lender in its reasonable discretion.



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



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



          2.2.7 Interest Rate Cap Agreement. (a) Prior to or contemporaneously with the Closing
Date, Borrowers shall enter into one or more Interest Rate Cap Agreements with a blended LIBOR
strike price equal to the Strike Price. Each Interest Rate Cap Agreement (i) shall be in a form
and substance reasonably acceptable to Lender, (ii) shall be with an Acceptable Counterparty, (iii)
shall direct such Acceptable Counterparty to deposit directly into the Cash Management Account any
amounts due Borrowers under such Interest Rate Cap Agreement so long as any portion of the Debt
exists, provided that the Debt shall be deemed to exist even if one or more of the Properties, the
IP or the Collateral is transferred by judicial or non-judicial foreclosure or deed-in-lieu
thereof, (iv) shall be for a period equal to the current term of the



56









 







Loan, and (v) when aggregated with all other Interest Rate Cap Agreements, shall have an
initial notional amount equal to the outstanding principal balance of the Loan as of the Closing
Date. Borrowers shall collaterally assign to Lender, pursuant to the Collateral Assignment of
Interest Rate Cap Agreement, all of its right, title and interest to receive any and all payments
under all Interest Rate Cap Agreements, and shall deliver to Lender an executed counterpart of such
Interest Rate Cap Agreements (which shall, by their respective terms, authorize the assignment to
Lender and require that payments be deposited directly into the Cash Management Account).



               (b) Borrowers shall comply with all of their obligations under the terms and provisions of
each Interest Rate Cap Agreement. All amounts paid by the Counterparty under each Interest Rate
Cap Agreement to Borrowers or Lender shall be deposited immediately into the Cash Management
Account. Borrowers shall take all actions reasonably requested by Lender to enforce Lender’s
rights under each Interest Rate Cap Agreement in the event of a default by the Counterparty and
shall not waive, amend or otherwise modify any of its rights thereunder.



               (c) In the event of any downgrade of the rating of the Acceptable Counterparty below “AA-” by
S&P or “Aa3” by Moody’s, Borrowers shall replace the applicable Interest Rate Cap Agreement(s) with
one or more Replacement Interest Rate Cap Agreements not later than ten (10) Business Days
following receipt of notice from Lender of such downgrade.



               (d) In the event that Borrowers fail to purchase and deliver to Lender any Interest Rate Cap
Agreement or fail to maintain each Interest Rate Cap Agreement in accordance with the terms and
provisions of this Agreement, after ten (10) Business Days notice to Borrowers and Borrowers’
failure to cure, Lender may purchase the required Interest Rate Cap Agreement(s) and the actual
out-of-pocket cost incurred by Lender in purchasing such Interest Rate Cap Agreement(s) shall be
paid by Borrowers to Lender with interest thereon at the Default Rate from the date such cost was
incurred by Lender until such actual out-of-pocket cost is reimbursed by Borrowers to Lender.



               (e) In connection with each Interest Rate Cap Agreement, Borrowers shall obtain and deliver to
Lender an opinion from counsel (which counsel may be in-house counsel for the Counterparty) for the
Counterparty (upon which Lender and its successors and assigns may rely) which shall provide, in
relevant part, that:




     (i) the Counterparty 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, such
Interest Rate Cap Agreement;




     (ii) the execution and delivery of such Interest Rate Cap Agreement by the
Counterparty, and any other agreement which the Counterparty has executed and
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



57









 







equivalent organizational documents) or any law, regulation or contractual
restriction binding on or affecting it or its property;




     (iii) all consents, authorizations and approvals required for the execution and
delivery by the Counterparty of such Interest Rate Cap Agreement, and any other
agreement which the Counterparty 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




     (iv) such Interest Rate Cap Agreement, and any other agreement which the
Counterparty has executed and delivered pursuant thereto, has been duly executed and
delivered by the Counterparty and constitutes the legal, valid and binding
obligation of the Counterparty, enforceable against the Counterparty 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).



               (f) At such time as the Loan is repaid in full, all of Lender’s right, title and interest in
all Interest Rate Cap Agreements shall terminate and Lender shall, at Borrowers’ reasonable
expense, promptly execute and deliver such documents as may be reasonably required and prepared by
the Counterparty and/or Borrowers to evidence release of each Interest Rate Cap Agreement.



     Section 2.3 Loan Payment.



          2.3.1 Payments Generally. Borrowers shall pay to Lender on each Payment Date the
interest accrued on the Loan for the preceding Interest Period (the “Monthly Interest Payment”),
except that Borrowers shall pay to Lender an amount equal to the interest accrued on the
Outstanding Principal Balance for the initial Interest Period on the Closing Date. For purposes of
making payments hereunder, but not for purposes of calculating Interest Periods, if the day on
which such payment is due is not a Business Day, then amounts due on such date shall be due on the
immediately preceding Business Day. With respect to payments of principal due on the Maturity
Date, interest shall be payable at the Applicable Interest Rate or the Default Rate, as the case
may be, through and including the day immediately preceding such Maturity Date. All amounts due
pursuant to this Agreement and the other Loan Documents shall be payable without setoff,
counterclaim, defense or any other deduction whatsoever, except as otherwise expressly provided in
Section 2.2.3(e) hereof.



     Lender shall have the right from time to time, in its sole discretion, upon not less than ten
(10) days prior written notice to Borrowers, to change the monthly Payment Date to a different
calendar day and to correspondingly adjust the Interest Period and Lender and Borrowers shall
promptly execute an amendment to this Agreement to evidence any such changes.



58









 





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



          2.3.3 Late Payment Charge. If any principal, interest or any other sums due under
the Loan Documents (other than the payment of principal due on the Maturity Date) is not paid by
Borrowers by the date on which it is due, Borrowers shall pay to Lender upon demand an amount
equal to the lesser of (a) four percent (4%) of such unpaid sum or (b) the maximum amount
permitted by applicable law, in order to defray the expense incurred by Lender in handling and
processing such delinquent payment and to compensate Lender for the loss of the use of such
delinquent payment. Any such amount shall be secured by the Pledge Agreement and the other Loan
Documents to the extent permitted by applicable law.



          2.3.4 Method and Place of Payment. Except as otherwise specifically provided
herein, all payments and prepayments under this Agreement and the Note shall be made to Lender
not later than 2:00 P.M., New York City time, on the date when due and shall be made in lawful
money of the United States of America in immediately available funds at Lender’s office at 11
Madison Avenue, New York, New York 10010, Attention: Edmund Taylor, or as otherwise directed by
Lender, and any funds received by Lender after such time shall, for all purposes hereof, be
deemed to have been paid on the next succeeding Business Day.



     Section 2.4 Prepayments.



          2.4.1 Voluntary Prepayments. From and after the date hereof, so long as no Event
of Default has occurred and is continuing, Borrowers may, at their option and upon at least ten
(10) days prior written notice to Lender (or such shorter period as may be permitted by Lender),
prepay the Debt in whole or in part, but in no event shall any partial prepayment be less than
$5,000,000.00; provided that any prepayment is accompanied by (a) if such prepayment
occurs on a date other than a Payment Date, all interest which would have accrued on the amount
of the Loan to be paid through, but not including, the next succeeding ninth (9th) day of a
calendar month, or, if such prepayment occurs on a Payment Date, through and including the last
day of the Interest Period immediately prior to the applicable Payment Date; (b) if such
prepayment occurs prior to the Spread Maintenance Release Date, the Spread Maintenance Premium
due with respect to the amount prepaid, if any; and (c) all other sums due and payable under
this Agreement, the Note, and the other Loan Documents, including, but not limited to, the
Breakage Costs, if any, the applicable Prepayment Fee, if any, and all of Lender’s costs and
expenses (including reasonable attorney’s fees and disbursements) incurred by Lender in
connection with such prepayment. No Spread Maintenance Premium or, subject to the proviso at
the end of this sentence, any other prepayment premium or fee shall be due in connection with
any prepayment of the Loan (i) made after the Spread Maintenance Release Date, or (ii) made from
the proceeds of any Minimum Mandatory Prepayment (or any partial payment on account thereof),
Non-Qualified Mandatory Prepayment, Additional Non-Qualified Mandatory Prepayment, Release
Parcel Release Price, Adjacent Parcel Release Price and/or IP Release Price; provided,
however, that the applicable Prepayment Fee shall be due in connection with any



59









 







prepayment of the Loan made from the proceeds of any Minimum Mandatory Prepayment (or any
partial payment on account thereof), Release Parcel Release Price, Adjacent Parcel Release Price
and/or IP Release Price if any such prepayment shall occur prior to the Prepayment Fee Release
Date. If a notice of prepayment is given by Borrowers to Lender pursuant to this Section
2.4.1, the amount designated for prepayment and all other sums required under this
Section 2.4 shall be due and payable on the proposed prepayment date; provided,
however, Borrowers shall have the right to postpone or revoke such prepayment upon
written notice to Lender not less than two (2) Business Days prior to the date such prepayment
is due so long as Borrowers pay Lender and/or Servicer all actual out-of-pocket third party
costs and expenses incurred by Lender and/or Servicer in connection with such postponement or
revocation.



          2.4.2 Mandatory Prepayments.



               (a) Minimum Mandatory Prepayment and Alternative Minimum Mandatory Letter of Credit.



               (i) Section 2.4.2(b) of the Mortgage Loan Agreement contains provisions requiring Mortgage
Borrowers to either (A) pay to Mortgage Lender a mandatory prepayment of the Aggregate Outstanding
Principal Balance in the Minimum Mandatory Amount (the “Minimum Mandatory Prepayment”), or (B)
deliver to Mortgage Lender the Alternative Minimum Mandatory Letter of Credit and the Alternative
Minimum Interest Reserve Amount, in each case, in the event that the entire Release Parcel has not
been sold pursuant to one or more Release Parcel Sales consummated in accordance with the
provisions of Section 2.5.1 of the Mortgage Loan Agreement, including, without limitation,
the payment of the Release Parcel Release Price(s) resulting from any such Release Parcel Sale(s),
on or prior to the First Anniversary, subject to extension upon satisfaction of certain conditions
as set forth in Section 2.4.2(b) of the Mortgage Loan Agreement.



               (ii) Lender hereby consents to the payment of any Minimum Mandatory Prepayment or delivery of
the Alternative Minimum Mandatory Letter of Credit and the Alternative Minimum Interest Reserve
Amount by Mortgage Borrowers in accordance with the terms of Section 2.4.2(b) and Section 2.4.2(e)
of the Mortgage Loan Agreement provided that:




          (A) Borrowers shall deliver, or shall cause Mortgage Borrowers to deliver,
to Lender a copy of all requests and other notices relating to such Minimum
Mandatory Prepayment or Alternative Minimum Mandatory Letter of Credit delivered
to Mortgage Lender concurrently with delivery of the same to Mortgage Lender;




          (B) all certifications made by Mortgage Borrowers in connection with such
Minimum Mandatory Prepayment or Alternative Minimum Mandatory Letter of Credit
also run for the benefit of Lender; and




          (C) Borrowers shall cause Mortgage Borrowers to deposit directly into the
Mortgage Cash Management Account an amount equal to the



60









 







sum of the Minimum Mandatory Prepayment (or deliver an Alternative Minimum
Mandatory Letter of Credit in lieu thereof) determined in accordance with the
Mortgage Loan Agreement, which funds shall be applied by Mortgage Lender as
provided in Section 2.4.3(b) of the Mortgage Loan Agreement and Section
2.4.4(b) hereof, plus (1) if such Minimum Mandatory Prepayment (or a
partial payment on account thereof) occurs on a date other than a Payment Date,
all interest which would have accrued on the amount of the Mortgage Loan, the
Loan and the Mezzanine Loans to be prepaid through, but not including, the next
succeeding ninth (9th) day of a calendar month (subject to Section 2.4.6
hereof), or, if such Minimum Mandatory Prepayment (or a partial payment on
account thereof) occurs on a Payment Date, through and including the last day of
the Interest Period immediately prior to the applicable Payment Date, (2) the
applicable Prepayment Fee, and (3) all other sums due and payable under this
Agreement, the Note, and the other Loan Documents, including, but not limited to
the Breakage Costs, if any, and all of Lender’s costs and expenses (including
reasonable attorney’s fees and disbursements) incurred by Lender in connection
with such Minimum Mandatory Prepayment (or such partial payment on account
thereof), but Lender acknowledges and agrees that no Spread Maintenance Premium
shall be due at any time in connection with the Minimum Mandatory Prepayment (or
any partial payment on account thereof).



               (iii) Pursuant to Section 2.4.2(e) of the Mortgage Loan Agreement, upon the occurrence and
during the continuance of a Mortgage Event of Default, Mortgage Lender has the right, at its
option, to draw on any Alternative Minimum Mandatory Letter of Credit and to apply all or any part
of the proceeds thereof in accordance with the provisions of Section 2.4.3(b) of the Mortgage Loan
Agreement and Section 2.4.4(b) hereof applicable to a prepayment following the occurrence
and during the continuance of a Mortgage Event of Default.



               (iv) Upon repayment in full of the Mortgage Loan and the First Mezzanine Loan, if the Loan or
any portion thereof is then outstanding, the provisions of Section 2.4.2(b) and Section 2.4.2(e) of
the Mortgage Loan Agreement and all related definitions shall be incorporated into this Agreement
in their entirety, but the terms used therein shall mean and refer to the correlative terms defined
herein.



               (b) Non-Qualified Mandatory Prepayment.



               (i) Section 2.4.2(c) of the Mortgage Loan Agreement contains provisions requiring Mortgage
Borrowers to either (A) pay to Mortgage Lender on or prior to the Construction Qualification Date a
mandatory prepayment of the Aggregate Outstanding Principal Balance in the amount of $50,000,000.00
(the “Non-Qualified Mandatory Prepayment”), or (B) deliver to Mortgage Lender the Non-Qualified
Prepayment Letter of Credit, in each case, in the event that Mortgage Borrowers shall deliver a
Relinquishment Notice or in the event that a Deemed Relinquishment shall occur, and whether or not
the entire Release Parcel shall have been sold pursuant to one or more Release Parcel Sales in
accordance with the provisions of Section 2.5.1 of the Mortgage Loan Agreement.



61









 





               (ii) Lender hereby consents to the payment of any Non-Qualified Mandatory Prepayment or
delivery of the Non-Qualified Prepayment Letter of Credit by Mortgage Borrowers in accordance with
the terms of Section 2.4.2(c) and Section 2.4.2(e) of the Mortgage Loan Agreement provided that:




          (A) Borrowers shall deliver, or shall cause Mortgage Borrowers to deliver, to
Lender a copy of all requests and other notices (including any Relinquishment
Notice) relating to such Non-Qualified Mandatory Prepayment or Non-Qualified
Prepayment Letter of Credit delivered to Mortgage Lender concurrently with delivery
of the same to Mortgage Lender;




          (B) all certifications made by Mortgage Borrowers in connection with such
Non-Qualified Mandatory Prepayment or Non-Qualified Prepayment Letter of Credit
also run for the benefit of Lender; and




          (C) Borrowers shall cause Mortgage Borrowers to deposit directly into the
Mortgage Cash Management Account an amount equal to the sum of the Non-Qualified
Mandatory Prepayment (or deliver a Non-Qualified Prepayment Letter of Credit in lieu
thereof) determined in accordance with the Mortgage Loan Agreement, which funds
shall be applied by Mortgage Lender as provided in Section 2.4.3(b) of the Mortgage
Loan Agreement and Section 2.4.4(b) hereof, plus (1) if such
Non-Qualified Mandatory Prepayment occurs on a date other than a Payment Date, all
interest which would have accrued on the amount of the Mortgage Loan, the Loan and
the Mezzanine Loans to be prepaid through, but not including, the next succeeding
ninth (9th) day of a calendar month (subject to Section 2.4.6 hereof), or,
if such Non-Qualified Mandatory Prepayment occurs on a Payment Date, through and
including the last day of the Interest Period immediately prior to the applicable
Payment Date, and (2) all other sums due and payable under this Agreement, the Note,
and the other Loan Documents, including, but not limited to the Breakage Costs, if
any, and all of Lender’s costs and expenses (including reasonable attorney’s fees
and disbursements) incurred by Lender in connection with such Non-Qualified
Mandatory Prepayment, but Lender acknowledges and agrees that (x) no Spread
Maintenance Premium shall be due at any time in connection with the Non-Qualified
Mandatory Prepayment, and (y) no Prepayment Fee shall be due at any time in
connection with the Non-Qualified Mandatory Prepayment.



               (iii) Pursuant to Section 2.4.2(e) of the Mortgage Loan Agreement, upon the occurrence and
during the continuance of a Mortgage Event of Default, Mortgage Lender has the right, at its
option, to draw on any Non-Qualified Prepayment Letter of Credit and to apply all or any part of
the proceeds thereof in accordance with the provisions of Section 2.4.3(b) of the Mortgage Loan
Agreement and Section 2.4.4(b) hereof applicable to a prepayment following the occurrence
and during the continuance of a Mortgage Event of Default.



               (iv) Upon repayment in full of the Mortgage Loan and the First Mezzanine Loan, if the Loan or
any portion thereof is then outstanding, the provisions of Section



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2.4.2(c) and Section 2.4.2(e) of the Mortgage Loan Agreement and all related definitions shall
be incorporated into this Agreement in their entirety, but the terms used therein shall mean and
refer to the correlative terms defined herein.




               (c) Additional Non-Qualified Mandatory Prepayment.



               (i) Section 2.4.2(d) of the Mortgage Loan Agreement contains provisions requiring Mortgage
Borrowers to pay to Mortgage Lender on the Additional Non-Qualified Prepayment Date an additional
mandatory prepayment of the Aggregate Outstanding Principal Balance in the amount of $75,000,000.00
(the “Additional Non-Qualified Mandatory Prepayment”), in accordance with the provisions of Section
2.4.2(d) of the Mortgage Loan Agreement.



               (ii) Lender hereby consents to the payment of any Additional Non-Qualified Mandatory
Prepayment by Mortgage Borrowers in accordance with the terms of Section 2.4.2(d) of the Mortgage
Loan Agreement provided that:




          (A) Borrowers shall deliver, or shall cause Mortgage Borrowers to
deliver, to Lender a copy of all requests and other notices relating to such
Additional Non-Qualified Mandatory Prepayment delivered to Mortgage Lender
concurrently with delivery of the same to Mortgage Lender;




          (B) all certifications made by Mortgage Borrowers in connection with
such Additional Non-Qualified Mandatory Prepayment also run for the benefit
of Lender; and




          (C) Borrowers shall cause Mortgage Borrowers to deposit directly into
the Mortgage Cash Management Account an amount equal to the sum of the
Additional Non-Qualified Mandatory Prepayment determined in accordance with
the Mortgage Loan Agreement, which funds shall be applied by Mortgage Lender
as provided in Section 2.4.3(b) of the Mortgage Loan Agreement and
Section 2.4.4(b) hereof, plus (1) if such Additional
Non-Qualified Mandatory Prepayment occurs on a date other than a Payment
Date, all interest which would have accrued on the amount of the Mortgage
Loan, the Loan and the Mezzanine Loans to be prepaid through, but not
including, the next succeeding ninth (9th) day of a calendar month (subject
to Section 2.4.6 hereof), or, if such Additional Non-Qualified
Mandatory Prepayment occurs on a Payment Date, through and including the
last day of the Interest Period immediately prior to the applicable Payment
Date, and (2) all other sums due and payable under this Agreement, the Note,
and the other Loan Documents, including, but not limited to the Breakage
Costs, if any, and all of Lender’s costs and expenses (including reasonable
attorney’s fees and disbursements) incurred by Lender in connection with
such Additional Non-Qualified Mandatory Prepayment, but Lender acknowledges
and agrees that (x) no Spread Maintenance Premium shall be due at any time
in connection with



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the Additional Non-Qualified Mandatory Prepayment, and (y) no
Prepayment Fee shall be due at any time in connection with the Additional
Non-Qualified Mandatory Prepayment.



               (iii) Upon repayment in full of the Mortgage Loan and the First Mezzanine Loan, if the Loan or
any portion thereof is then outstanding, the provisions of Section 2.4.2(d) of the Mortgage Loan
Agreement and all related definitions shall be incorporated into this Agreement in their entirety,
but the terms used therein shall mean and refer to the correlative terms defined herein.



          2.4.3 Prepayment Upon Occurrence of Liquidation Events.



               (a) In the event of (i) any Casualty to all or any portion of the Property, (ii) any
Condemnation of all or any portion of any Property, (iii) a Transfer of any Property in connection
with realization thereon by Mortgage Lender following a Mortgage Event of Default, including,
without limitation, a foreclosure sale, or (iv) any refinancing of any Property or the Mortgage
Loan (each, a “Liquidation Event”), Borrowers shall cause the related Net Liquidation Proceeds
After Debt Service to be deposited with Lender or directly into the Cash Management Account. On
each date on which Lender actually receives a distribution of Net Liquidation Proceeds After Debt
Service, if such date is a Payment Date, such Net Liquidation Proceeds After Debt Service shall be
applied to the Outstanding Principal Balance in an amount equal to one hundred percent (100%) of
such Net Liquidation Proceeds After Debt Service and all other sums then due to prepay the Loan.
In the event Lender receives a distribution of Net Liquidation Proceeds After Debt Service on a
date other than a Payment Date, such amounts shall be held by Lender as collateral security for the
Loan in an interest bearing account, with such interest accruing to the benefit of Borrowers, and
shall be applied by Lender on the next Payment Date. Any such prepayment shall be applied to all
accrued and unpaid interest amounts and other amounts then due to Lender under this Agreement or
any of the other Loan Documents and then to the Outstanding Principal Balance.



               (b) Borrowers shall immediately notify Lender of any Liquidation Event once any Borrower has
knowledge of such event. Borrowers shall be deemed to have knowledge of (i) a sale (other than a
foreclosure sale) of any 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 binding commitment for such refinancing is
entered into and a closing date for the funding of such refinancing has been scheduled. The
provisions of this Section 2.4.3 shall not be construed to contravene in any manner either
(i) the restrictions and other provisions regarding refinancing of the Mortgage Loan or Transfer of
any Property set forth in this Agreement, any other Loan Document or any Mortgage Loan Document,
whether or not notice is given pursuant to this Section 2.4.3 or (ii) Borrowers’ right to
prepay set forth in this Agreement and the other Loan Documents or the Mortgage Loan Documents.



               (c) Upon payment in full of the Debt and all other Obligations, Lender shall disburse any Net
Liquidation Proceeds After Debt Service to:




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     (i) in the event the Third Mezzanine Loan is outstanding, to Third Mezzanine
Lender; and




     (ii) in the event the Third Mezzanine Loan has been paid in full, to Borrowers.



          2.4.4 Application of Payments of Principal. Notwithstanding anything to the contrary
contained in this Agreement, the following principal payments shall be allocated among the Loan,
the Mortgage Loan and the Mezzanine Loans as follows:




               (a) so long as no Mortgage Event of Default shall have occurred and be continuing, any
voluntary prepayment, including, without limitation, any prepayment pursuant to Section
2.7.3(a) or 2.7.3(b)(i) hereof or Section 3.2(h), 3.2(h)(A) or 3.3(d) of the Mortgage
Loan Agreement (but expressly excluding (1) any prepayment pursuant to Section 3.17.2 of the
Mortgage Loan Agreement, which shall be governed by the provisions of Section 2.4.3(j) thereof and
Section 2.4.4(j) below; (2) any prepayment pursuant to Section 3.1(e) of the Mortgage Loan
Agreement, which shall be governed by the provisions of Section 2.4.3(i) thereof and Section
2.4.4(i) below; (3) any prepayment pursuant to Section 3.17.5(a) of the Mortgage Loan
Agreement, which shall be governed by the provisions of Section 2.4.3(i) thereof and Section
2.4.4(i) below; and (4) any prepayment pursuant to Section 3.22(a)(iii)(A) of the Mortgage Loan
Agreement, which shall be governed by the provisions of Section 2.4.3(i) thereof and Section
2.4.4(i) below), shall be applied, pro rata in accordance with the Financing Percentages, to
(i) the Mortgage Debt, pro rata between the Components in accordance with the Component
Percentages, (ii) the First Mezzanine Debt, (iii) the Debt and (iv) the Third Mezzanine Debt, until
the Mortgage Debt, the First Mezzanine Debt, the Debt and the Third Mezzanine Debt are paid in
full, which Financing Percentages and Component Percentages shall be calculated as of the date of
such prepayment; provided, however, that upon the occurrence and during the
continuance of a Mortgage Event of Default, Mortgage Lender shall apply any voluntary prepayment
first, to payment of the Mortgage Debt, pro rata between the Components in accordance with
the Component Percentages (as calculated as of the date of such prepayment), and applied to each
Component in any order, priority and proportions as Mortgage Lender shall elect in its sole
discretion from time to time, until the Mortgage Debt is paid in full, and shall then
disburse any remainder, as a distribution permitted under applicable law, (i) to First Mezzanine
Lender for application in accordance with the terms of the First Mezzanine Loan Documents if the
First Mezzanine Debt (or any portion thereof) is then outstanding, until the First Mezzanine Debt
is paid in full, and then (ii) to Lender for application in accordance with the terms of
the Loan Documents if the Debt (or any portion thereof) is then outstanding, until the Debt is paid
in full, and then (iii) to Third Mezzanine Lender for application in accordance with the
terms of the Third Mezzanine Loan Documents if the Third Mezzanine Debt (or any portion thereof) is
then outstanding, until the Third Mezzanine Debt is paid in full, and then (iv) any balance
to Mortgage Borrowers;



               (b) so long as no Mortgage Event of Default shall have occurred and be continuing, any Minimum
Mandatory Prepayment (or any partial payment on account thereof), Non-Qualified Mandatory
Prepayment and/or Additional Non-Qualified Mandatory Prepayment shall be applied, pro rata in
accordance with the Financing Percentages, to (i) the Mortgage Debt, pro rata between the
Components in accordance with the Component



65









 




Percentages, (ii) the First Mezzanine Debt, (iii) the Debt and (iv) the Third Mezzanine Debt,
until the Mortgage Debt, the First Mezzanine Debt, the Debt and the Third Mezzanine Debt are paid
in full, which Financing Percentages and Component Percentages shall be calculated as of the date
of such prepayment; provided, however, that upon the occurrence and during the
continuance of a Mortgage Event of Default, Mortgage Lender shall apply any Minimum Mandatory
Prepayment (or any partial payment on account thereof), Non-Qualified Mandatory Prepayment and/or
Additional Non-Qualified Mandatory Prepayment first, to payment of the Mortgage Debt, pro
rata between the Components in accordance with the Component Percentages (as calculated as of the
date of such prepayment), and applied to each Component in any order, priority and proportions as
Mortgage Lender shall elect in its sole discretion from time to time, until the Mortgage Debt is
paid in full, and shall then disburse any remainder, as a distribution permitted under
applicable law, (i) to First Mezzanine Lender for application in accordance with the terms of the
First Mezzanine Loan Documents if the First Mezzanine Debt (or any portion thereof) is then
outstanding, until the First Mezzanine Debt is paid in full, and then (ii) to Lender for
application in accordance with the terms of the Loan Documents if the Debt (or any portion thereof)
is then outstanding, until the Debt is paid in full, and then (iii) to Third Mezzanine
Lender for application in accordance with the terms of the Third Mezzanine Loan Documents if the
Third Mezzanine Debt (or any portion thereof) is then outstanding, until the Third Mezzanine Debt
is paid in full, and then (iv) any balance to Mortgage Borrowers;




          (c) all Net Proceeds not required to be made available for Restoration, and as to which
Mortgage Lender has not otherwise elected in its sole discretion to make available for Restoration,
shall be applied first, to the Mortgage Debt, pro rata between the Components in accordance
with the Component Percentages (as calculated as of the date of such prepayment), and applied to
each Component in any order, priority and proportions as Mortgage Lender shall elect in its sole
discretion from time to time, until the Mortgage Debt is paid in full, and then, as a
distribution permitted under applicable law, (i) disbursed to First Mezzanine Lender for
application in accordance with the terms of the First Mezzanine Loan Documents if the First
Mezzanine Debt (or any portion thereof) is then outstanding, until the First Mezzanine Debt is paid
in full, and then (ii) disbursed to Lender for application in accordance with the terms of
the Loan Documents if the Debt (or any portion thereof) is then outstanding, until the Debt is paid
in full, and then (iii) disbursed to Third Mezzanine Lender for application in accordance
with the terms of the Third Mezzanine Loan Documents if the Third Mezzanine Debt (or any portion
thereof) is then outstanding, until the Third Mezzanine Debt is paid in full, and then (iv)
the balance disbursed to Mortgage Borrowers;




          (d) any Mortgage Reserve Funds or other cash collateral held by or on behalf of Mortgage
Lender, whether in the Mortgage Cash Management Account or any of the Mortgage Reserve Funds, or
otherwise, including, without limitation, any Net Proceeds and/or any Excess Cash Flow then being
held by Mortgage Lender, shall, upon the occurrence and during the continuance of a Mortgage Event
of Default, be applied by Mortgage Lender as follows or may continue to be held by Mortgage Lender
as additional collateral for the Mortgage Loan, all in Mortgage Lender’s sole discretion:
first, to the Mortgage Debt, pro rata between the Components in accordance with the
Component Percentages (as calculated as of the date of such prepayment), and applied to each
Component in any order, priority and proportions as Mortgage Lender shall elect in its sole
discretion from time to time, until the Mortgage Debt is paid in full, and then, as a
distribution permitted under applicable law, (i) disbursed to First Mezzanine



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Lender for application in accordance with the terms of the First Mezzanine Loan Documents if
the First Mezzanine Debt (or any portion thereof) is then outstanding, until the First Mezzanine
Debt is paid in full, and then (ii) disbursed to Lender for application in accordance with
the terms of the Loan Documents if the Debt (or any portion thereof) is then outstanding, until the
Debt is paid in full, and then (iii) disbursed to Third Mezzanine Lender for application in
accordance with the terms of the Third Mezzanine Loan Documents if the Third Mezzanine Debt (or any
portion thereof) is then outstanding, until the Third Mezzanine Debt is paid in full, and
then (iv) the balance disbursed to Mortgage Borrowers;




          (e) subject to Section 2.5.4 of the Mortgage Loan Agreement and Section 2.5.4 hereof,
the proceeds of any Release Parcel Release Price shall be allocated, pro rata in accordance with
the Financing Percentages, among (i) the Mortgage Loan, pro rata between the Components in
accordance with the Component Percentages, (ii) the First Mezzanine Loan, (iii) the Loan and (iv)
the Third Mezzanine Loan, which Financing Percentages and Component Percentages shall be calculated
as of the date of payment of such Release Parcel Release Price;




          (f) subject to Section 2.5.4 of the Mortgage Loan Agreement and Section 2.5.4 hereof,
the proceeds of any Adjacent Parcel Release Price shall be allocated, pro rata in accordance with
the Financing Percentages, among (i) the Mortgage Loan, pro rata between the Components in
accordance with the Component Percentages, (ii) the First Mezzanine Loan, (iii) the Loan and (iv)
the Third Mezzanine Loan, which Financing Percentages and Component Percentages shall be calculated
as of the date of payment of such Adjacent Parcel Release Price;




          (g) subject to Section 2.5.4 of the Mortgage Loan Agreement and Section 2.5.4 hereof,
(i) the proceeds of any IP Release Price which is less than or equal to $80,000,000 and arises from
an IP Sale (a “Non-Fully Prepaid IP Sale”) occurring at any time when Mortgage Borrowers have not
paid in full the Minimum Mandatory Prepayment, the Non-Qualified Mandatory Prepayment and the
Additional Non-Qualified Mandatory Prepayment, shall be allocated, pro rata in accordance with the
Financing Percentages, among (I) the Mortgage Loan, pro rata between the Components in accordance
with the Component Percentages, (II) the First Mezzanine Loan, (III) the Loan and (IV) the Third
Mezzanine Loan, which Financing Percentages and Component Percentages shall be calculated as of the
date of payment of such IP Release Price; (ii) the proceeds of any IP Release Price which is less
than or equal to $60,000,000 and arises from an IP Sale (a “Fully Prepaid IP Sale”) occurring at
any time after Mortgage Borrowers have paid in full the Minimum Mandatory Prepayment, the
Non-Qualified Mandatory Prepayment and the Additional Non-Qualified Mandatory Prepayment, shall be
allocated, pro rata in accordance with the Financing Percentages, among (I) the Mortgage Loan, pro
rata between the Components in accordance with the Component Percentages, (II) the First Mezzanine
Loan, (III) the Loan and (IV) the Third Mezzanine Loan, which Financing Percentages and Component
Percentages shall be calculated as of the date of payment of such IP Release Price; and (iii) the
proceeds of any IP Release Price in excess of $80,000,000 which arise from a Non-Fully Prepaid IP
Sale (the “Excess Non-Fully Funded IP Release Proceeds”) or the proceeds of any IP Release Price in
excess of $60,000,000 which arise from a Fully Prepaid IP Sale (“Excess Fully Funded IP Release
Proceeds”; and whichever of the Excess Fully Funded IP Release Proceeds or the Excess Non-Fully
Funded IP




67









 




Release Proceeds is applicable, the “Excess IP Release Price Proceeds”), shall, at Mortgage
Borrowers’ option, either (A) be deposited in the General Reserve Account and thereafter constitute
a part of the General Reserve Fund for all purposes under the Mortgage Loan Agreement, to be held
and disbursed by Mortgage Lender as set forth in Section 7.6 thereof, or (B) applied as follows, in
such amounts as Mortgage Borrowers shall elect: (1) up to fifty percent (50%) of such Excess IP
Release Price Proceeds shall be applied to satisfy any Required Equity Amount or Subsequent
Required Equity Amount then due and payable, and/or (2) the balance of such Excess IP Release Price
Proceeds after application in accordance with the foregoing clause (1), but in no event
less than fifty percent (50%) thereof, to repayment, pro rata in accordance with the Financing
Percentages, of (w) the Mortgage Loan, pro rata between the Components in accordance with the
Component Percentages, (x) the First Mezzanine Loan, (y) the Loan and (z) the Third Mezzanine Loan,
which Financing Percentages and Component Percentages shall be calculated as of the date of payment
of such IP Release Price (any repayment of the Mortgage Loan, the First Mezzanine Loan, the Loan
and the Third Mezzanine Loan pursuant to this Section 2.4.3(g)(iii)(B)(2) paid out of
Excess Non-Fully Funded IP Release Proceeds being referred to as the “Optional IP Release
Payment”);




          (h) all Rents received by Mortgage Lender upon the occurrence and during the continuance of a
Mortgage Event of Default pursuant to Section 3.1 of the Assignment of Leases shall be applied by
Mortgage Lender as follows or may continue to be held by Mortgage Lender as additional collateral
for the Mortgage Loan, all in Mortgage Lender’s sole discretion: first, (i) to the expenses
of managing and securing any of the Properties, as contemplated by clause (a) of said Section 3.1
of the Assignment of Leases, and/or (ii) to the Mortgage Debt, pro rata between the Components in
accordance with the Component Percentages (as calculated as of the date of such prepayment), and
applied to each Component in any order, priority and proportions as Mortgage Lender shall elect in
its sole discretion from time to time, until the Mortgage Debt is paid in full, and then
(A) disbursed to First Mezzanine Lender for application in accordance with the terms of the First
Mezzanine Loan Documents if the First Mezzanine Debt (or any portion thereof) is then outstanding,
until the First Mezzanine Debt is paid in full, and then (B) disbursed to Lender for
application in accordance with the terms of the Loan Documents if the Debt (or any portion thereof)
is then outstanding, until the Debt is paid in full, and then (C) disbursed to Third
Mezzanine Lender for application in accordance with the terms of the Third Mezzanine Loan Documents
if the Third Mezzanine Debt (or any portion thereof) is then outstanding, until the Third Mezzanine
Debt is paid in full, and then (D) the balance disbursed to Mortgage Borrowers;




          (i) so long as no Mortgage Event of Default shall have occurred and be continuing, any
voluntary prepayment pursuant to Section 3.1(e), 3.17.5(a) or 3.22(a)(iii)(A) of the Mortgage Loan
Agreement shall be applied as follows: (A) first, to the Construction Loan until the
Construction Loan is repaid in full, and then (B) second, out of any remaining balance of
such voluntary prepayment, $10,000,000 thereof shall be applied to the Third Mezzanine Debt
provided that the Third Mezzanine Construction Funds (as such term is defined in the Mortgage Loan
Agreement) were previously delivered to Mortgage Lender for deposit into the Construction Loan
Reserve Account pursuant to Section 3.4.2 of the Third Mezzanine Loan Agreement, and then (C)
third, any remaining balance of such voluntary prepayment shall be applied, pro rata in
accordance with the Alternate Financing Percentages, to (i) the Reduced Acquisition Loan, (ii) the
First Mezzanine Debt, (iii) the Debt and (iv) the Third Mezzanine




68









 




Debt, until the Reduced Acquisition Loan, the First Mezzanine Debt, the Debt and the Third
Mezzanine Debt are paid in full, which Alternate Financing Percentages shall be calculated as of
the date of such prepayment and taking into account the prepayments made pursuant to the foregoing
clauses (A) and (B); provided, however, that upon the occurrence
and during the continuance of a Mortgage Event of Default, Mortgage Lender shall apply any
voluntary prepayment pursuant to Section 3.1(e), 3.17.5(a) or 3.22(a)(iii)(A) of the Mortgage Loan
Agreement first, to payment of the Construction Loan, to be applied in any order, priority
and proportions as Mortgage Lender shall elect in its sole discretion from time to time, until the
Construction Loan is paid in full, and then second, to payment of the Reduced Acquisition
Loan, to be applied in any order, priority and proportions as Mortgage Lender shall elect in its
sole discretion from time to time, until the Reduced Acquisition Loan is paid in full, and shall
then disburse any remainder, as a distribution permitted under applicable law, (1) to First
Mezzanine Lender for application in accordance with the terms of the First Mezzanine Loan Documents
if the First Mezzanine Debt (or any portion thereof) is then outstanding, until the First Mezzanine
Debt is paid in full, and then (2) to Lender for application in accordance with the terms
of the Loan Documents if the Debt (or any portion thereof) is then outstanding, until the Debt is
paid in full, and then (3) to Third Mezzanine Lender for application in accordance with the
terms of the Third Mezzanine Loan Documents if the Third Mezzanine Debt (or any portion thereof) is
then outstanding, until the Third Mezzanine Debt is paid in full, and then (4) any balance
to Mortgage Borrowers; and




          (j) so long as no Mortgage Event of Default shall have occurred and be continuing, any
voluntary prepayment pursuant to Section 3.17.2 of the Mortgage Loan Agreement shall be applied as
follows: (A) first, to the Construction Loan until the Construction Loan is repaid in full,
and then (B) second, any remaining balance of such voluntary prepayment shall be applied,
pro rata in accordance with the Alternate Financing Percentages, to (i) the Reduced Acquisition
Loan, (ii) the First Mezzanine Debt, (iii) the Debt and (iv) the Third Mezzanine Debt, until the
Reduced Acquisition Loan, the First Mezzanine Debt, the Debt and the Third Mezzanine Debt are paid
in full, which Alternate Financing Percentages shall be calculated as of the date of such
prepayment and taking into account the prepayment made pursuant to the foregoing clause
(A); provided, however, that upon the occurrence and during the continuance of
a Mortgage Event of Default, Mortgage Lender shall apply any voluntary prepayment pursuant to
Section 3.17.2 of the Mortgage Loan Agreement first, to payment of the Construction Loan,
to be applied in any order, priority and proportions as Mortgage Lender shall elect in its sole
discretion from time to time, until the Construction Loan is paid in full, and then second,
to payment of the Reduced Acquisition Loan, to be applied in any order, priority and proportions as
Mortgage Lender shall elect in its sole discretion from time to time, until the Reduced Acquisition
Loan is paid in full, and shall then disburse any remainder, as a distribution permitted
under applicable law, (1) to First Mezzanine Lender for application in accordance with the terms of
the First Mezzanine Loan Documents if the First Mezzanine Debt (or any portion thereof) is then
outstanding, until the First Mezzanine Debt is paid in full, and then (2) to Lender for
application in accordance with the terms of the Loan Documents if the Debt (or any portion thereof)
is then outstanding, until the Debt is paid in full, and then (3) to Third Mezzanine Lender
for application in accordance with the terms of the Third Mezzanine Loan Documents if the Third
Mezzanine Debt (or any portion thereof) is then outstanding, until the Third Mezzanine Debt is paid
in full, and then (4) any balance to Mortgage Borrowers.




69









 





          2.4.5 Prepayments After Default. If during the continuance of an Event of Default
payment of all or any part of the Debt is tendered by Borrowers or otherwise recovered by Lender
(including through application of any Reserve Funds or any Net Liquidation Proceeds After Debt
Service), (a) such tender or recovery shall be deemed made on the next occurring Payment Date
together with the monthly Debt Service amount calculated at the Default Rate from and after the
date of such Event of Default, (b) if such tender or recovery occurs on or prior to the Spread
Maintenance Release Date, Borrowers shall pay, in addition to the Debt, the Spread Maintenance
Premium due on the amount of the Loan being prepaid or satisfied, and (c) Borrower shall also pay
an amount equal to one percent (1%) of the amount of the Loan being prepaid or satisfied.




          2.4.6 Prepayments Made on Dates Other Than Payment Dates. With respect to any
provision herein or in any other Loan Document providing that if a payment or prepayment of the
Loan is made on a date other than a Payment Date such payment or prepayment shall be accompanied by
all interest which would have accrued on the amount of the Loan so paid or prepaid through, but not
including, the next succeeding ninth (9th) day of a calendar month, Borrowers shall be entitled to
a credit toward the following month’s Monthly Interest Payment or any other amounts due under the
Loan in an amount equal to the amount of interest actually earned by Lender on the portion of such
interest payment in excess of the amount of interest actually accrued on the date of such payment
or prepayment (the “Extra Non-Accrued Interest”). In order to effectuate the foregoing, upon any
prepayment resulting in any Extra Non-Accrued Interest pursuant to the terms hereof, Lender shall
deposit such Extra Non-Accrued Interest in an interest-bearing account for the benefit of Lender
until the next Payment Date in order to determine the credit against the next Monthly Interest
Payment due to Borrowers under this Section 2.4.6, following which Payment Date (a) Lender
may withdraw such Extra Non-Accrued Interest, together with all interest accrued thereon, from such
account and apply the amount of the interest accrued on such Extra Non-Accrued Interest to amounts
due and payable to Lender on such Payment Date, (b) such Extra Non-Accrued Interest, together with
all interest accrued thereon, shall constitute the sole and exclusive property of Lender, and (c)
Lender shall have no further obligations to Borrowers with respect to such Extra Non-Accrued
Interest and/or the interest accrued thereon. Lender shall not be responsible for obtaining any
particular interest rate with respect to any Extra Non-Accrued Interest.




          2.4.7 Application of Prepayment Fee. Any Prepayment Fee received by Mortgage Lender in
connection with the Minimum Mandatory Prepayment (or any partial payment on account thereof), any
Release Parcel Release Price, any Adjacent Parcel Release Price or the IP Release Price (any of the
foregoing, a “Prepayment Fee-Generating Prepayment”) shall be allocated among the Mortgage Loan
(and the Components thereof), the First Mezzanine Loan, the Loan and the Third Mezzanine Loan based
on the following formula: Mortgage Lender, First Mezzanine Lender, Lender and/or Third Mezzanine
Lender, as applicable, shall be entitled to an amount equal to the product resulting from
multiplying (a) the amount of the applicable Prepayment Fee, by (b) a fraction, the numerator of
which is the amount of the applicable Prepayment Fee-Generating Prepayment allocated to the
Mortgage Loan (or the applicable Component thereof), the First Mezzanine Loan, the Loan or the
Third Mezzanine Loan, as applicable, pursuant to the applicable provision of Section 2.4.3 of the
Mortgage Loan Agreement and Section 2.4.4 hereof, and the denominator of which is the total
amount of the applicable Prepayment Fee-Generating Prepayment.




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



          2.5.1 Releases of Release Parcel.




               (a) Section 2.5.1 of the Mortgage Loan Agreement contains provisions permitting Adjacent
Borrower to (i) sell one or more portions of the Release Parcel (each, including the entire Release
Parcel, a “Partial Release Parcel”) either to a bonafide third party purchaser (a “Bonafide Release
Parcel Purchaser”) or to an Affiliate of Mortgage Borrower or any other Restricted Party (an
“Affiliate Release Parcel Purchaser”; and together with a Bonafide Release Parcel Purchaser,
individually, a “Release Parcel Purchaser”), or (2) refinance one or more Partial Release Parcels
(each of the foregoing, including a sale or refinancing of the entire Release Parcel, a “Release
Parcel Sale”), and obtain a release of such Partial Release Parcel from the Liens of the Mortgage
upon satisfaction of certain conditions and requirements set forth in Section 2.5.1 of the Mortgage
Loan Agreement.



               (b) Lender hereby consents to any Release Parcel Sale conducted in accordance with the terms
of Section 2.5.1 of the Mortgage Loan Agreement provided that:




     (i) Borrowers deliver to Lender a copy of all requests and other notices
relating to such Release Parcel Sale (including the Sale Request) delivered to
Mortgage Lender concurrently with delivery of the same to Mortgage Lender;




     (ii) all certifications made by Adjacent Borrower in connection with such
Release Parcel Sale also run for the benefit of Lender;




     (iii) contemporaneously with such Release Parcel Sale, Borrowers shall cause
Adjacent Borrower to deposit directly into the Mortgage Cash Management Account an
amount equal to the sum of (A) the Release Parcel Release Price for the applicable
Parcel determined in accordance with the Mortgage Loan Agreement, which funds shall
be applied by Mortgage Lender as provided in Section 2.4.3(e) of the Mortgage Loan
Agreement and Section 2.4.4(e) hereof, plus (B) all accrued and
unpaid interest on said amount prepaid in accordance with the terms of this
Agreement and the Mortgage Loan Agreement, plus (C) if such prepayment
occurs on a day other than a Payment Date, interest on the Release Parcel Release
Price to, but not including, the next succeeding ninth (9th) day of a
calendar month, plus (D) the Prepayment Fee, if any;




     (iv) Borrowers shall have paid all of the actual out-of-pocket reasonable third
party legal fees and actual out-of pocket reasonable third party expenses incurred
by Lender, if any, in connection with (A) reviewing and processing any Sale Request
with respect to a Release Parcel Sale, whether or not the Release Parcel Sale which
is the subject of a Sale Request actually closes, (B) the satisfaction of any of
the conditions set forth in Section 2.5.1(a) of the Mortgage Loan Agreement, and (C)
providing all release documents in



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connection with any Release Parcel Sale as provided in Section 2.5.1(d) of the
Mortgage Loan Agreement; and




     (v) No monetary Default, monetary Mortgage Default or any monetary Mezzanine
Default, and no Event of Default, Mortgage Event of Default or any Mezzanine Event
of Default, shall have occurred and be continuing at the time of the submission by
Adjacent Borrower of a Sale Request or at the time of the closing of such Release
Parcel Sale.



               (c) Upon repayment in full of the Mortgage Loan and the First Mezzanine Loan, if the Loan or
any portion thereof is then outstanding, the provisions of Section 2.5.1 of the Mortgage Loan
Agreement and all related definitions shall be incorporated into this Agreement in their entirety,
but the terms used therein shall mean and refer to the correlative terms defined herein.



          2.5.2 Releases of Remaining Adjacent Parcel.




               (a) Section 2.5.2 of the Mortgage Loan Agreement contains provisions permitting Adjacent
Borrower to (1) sell one or more portions of the Remaining Adjacent Parcel (each, including the
entire Remaining Adjacent Parcel, a “Partial Adjacent Parcel”) either to a bonafide third party
purchaser (a “Bonafide Adjacent Parcel Purchaser”) or to an Affiliate of Borrower or any other
Restricted Party (an “Affiliate Adjacent Parcel Purchaser”; and together with a Bonafide Adjacent
Parcel Purchaser, individually, an “Adjacent Parcel Purchaser”), or (2) refinance one or more
Partial Adjacent Parcels (each of the foregoing, including a sale or refinancing of the entire
Remaining Adjacent Parcel, an “Adjacent Parcel Sale”), and obtain a release of such Partial
Adjacent Parcel from the Liens of the Mortgage upon satisfaction of certain conditions and
requirements set forth in Section 2.5.2 of the Mortgage Loan Agreement.



               (b) Lender hereby consents to any Adjacent Parcel Sale conducted in accordance with the terms
of Section 2.5.2 of the Mortgage Loan Agreement provided that:




     (i) Borrowers deliver to Lender a copy of all requests and other notices
relating to such Adjacent Parcel Sale delivered to Mortgage Lender concurrently with
delivery of the same to Mortgage Lender;




     (ii) all certifications made by Adjacent Borrower in connection with such
Adjacent Parcel Sale also run for the benefit of Lender;




     (iii) contemporaneously with such Adjacent Parcel Sale, Borrowers shall cause
Adjacent Borrower to deposit directly into the Mortgage Cash Management Account an
amount equal to the sum of (A) the Adjacent Parcel Release Price for the applicable
Parcel determined in accordance with the Mortgage Loan Agreement, which funds shall
be applied by Mortgage Lender as provided in Section 2.4.3(f) of the Mortgage Loan
Agreement and Section 2.4.4(f) hereof, plus (B) all accrued and
unpaid interest on said amount prepaid in accordance with the terms of this
Agreement and the Mortgage Loan Agreement, plus (C) if such prepayment
occurs on a day other than a Payment Date, interest



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on the Adjacent Parcel Release Price to, but not including, the next succeeding
ninth (9th) day of a calendar month, plus (D) the Prepayment Fee,
if any;




     (iv) Borrowers shall have paid all of the actual out-of-pocket reasonable third
party legal fees and actual out-of pocket reasonable third party expenses incurred
by Lender, if any, in connection with (A) reviewing and processing any Sale Request
with respect to an Adjacent Parcel Sale, whether or not the Adjacent Parcel Sale
which is the subject of a Sale Request actually closes, (B) the satisfaction of any
of the conditions set forth in Section 2.5.2(a) of the Mortgage Loan Agreement, and
(C) providing all release documents in connection with any Adjacent Parcel Sale as
provided in Section 2.5.2(d) of the Mortgage Loan Agreement; and




     (v) No monetary Default, monetary Mortgage Default or any monetary Mezzanine
Default, and no Event of Default, Mortgage Event of Default or any Mezzanine Event
of Default, shall have occurred and be continuing at the time of the submission by
Adjacent Borrower of a sale request or at the time of the closing of such Adjacent
Parcel Sale.



               (c) Upon repayment in full of the Mortgage Loan and the First Mezzanine Loan, if the Loan or
any portion thereof is then outstanding, the provisions of Section 2.5.2 of the Mortgage Loan
Agreement and all related definitions shall be incorporated into this Agreement in their entirety,
but the terms used therein shall mean and refer to the correlative terms defined herein.



          2.5.3 Release of IP.




               (a) Section 2.5.3 of the Mortgage Loan Agreement contains provisions permitting IP Borrower to
sell the IP (in whole but not in part) (an “IP Sale”), to either a bonafide third party purchaser
(a “Bonafide IP Purchaser”) or to an Affiliate of Borrower or any other Restricted Party (an
“Affiliate IP Purchaser”; and together with a Bonafide IP Purchaser, individually, an “IP
Purchaser”), and obtain a release of the IP from the Liens of the Mortgage upon satisfaction of
certain conditions and requirements set forth in Section 2.5.3 of the Mortgage Loan Agreement.



               (b) Lender hereby consents to any IP Sale conducted in accordance with the terms of Section
2.5.3 of the Mortgage Loan Agreement provided that:




     (i) Borrowers deliver to Lender a copy of all requests and other notices
relating to such IP Sale delivered to Mortgage Lender concurrently with delivery of
the same to Mortgage Lender;




     (ii) all certifications made by IP Borrower in connection with such IP Sale
also run for the benefit of Lender;




     (iii) contemporaneously with such IP Sale, Borrowers shall cause IP Borrower to
deposit directly into the Mortgage Cash Management Account an amount equal to the
sum of (A) the IP Release Price determined in accordance



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with the Mortgage Loan Agreement, which funds shall be applied by Mortgage
Lender as provided in Section 2.4.3(g) of the Mortgage Loan Agreement and
Section 2.4.4(g) hereof, plus (B) all accrued and unpaid interest on
said amount prepaid in accordance with the terms of this Agreement and the Mortgage
Loan Agreement, plus (C) if such prepayment occurs on a day other than a
Payment Date, interest on the IP Release Price to, but not including, the next
succeeding ninth (9th) day of a calendar month, plus (D) the
Prepayment Fee, if any;




     (iv) Borrowers shall have paid all of the actual out-of-pocket reasonable third
party legal fees and actual out-of pocket reasonable third party expenses incurred
by Lender, if any, in connection with (A) reviewing and processing any Sale Request
with respect to an IP Sale, whether or not the IP Sale which is the subject of a
Sale Request actually closes, (B) the satisfaction of any of the conditions set
forth in Section 2.5.3(a) of the Mortgage Loan Agreement, and (C) providing all
release documents in connection with any IP Sale as provided in Section 2.5.3(d) of
the Mortgage Loan Agreement; and




     (v) No monetary Default, monetary Mortgage Default or any monetary Mezzanine
Default, and no Event of Default, Mortgage Event of Default or any Mezzanine Event
of Default, shall have occurred and be continuing at the time of the submission by
IP Borrower of a sale request or at the time of the closing of such IP Sale.



               (c) Upon repayment in full of the Mortgage Loan and the First Mezzanine Loan, if the Loan or
any portion thereof is then outstanding, the provisions of Section 2.5.3 of the Mortgage Loan
Agreement and all related definitions shall be incorporated into this Agreement in their entirety,
but the terms used therein shall mean and refer to the correlative terms defined herein.



          2.5.4 Sale of Properties or IP during Event of Default. Notwithstanding the
provisions of the foregoing Sections 2.5.1, 2.5.2 and 2.5.3 or any other provision
to the contrary in this Agreement or the other Loan Documents, it is expressly acknowledged and
agreed by Borrowers that, upon the occurrence and during the continuance of an Event of Default:
(i) no Borrower shall have any right to cause any Mortgage Borrower to sell any Property or any
portion thereof or any IP without, in each instance, Lender’s prior written consent, which consent
may be given or withheld in Lender’s sole discretion, (ii) any such sale of one or more of the
Properties or any portion thereof and/or any IP shall be on such terms and conditions as to which
Lender and Borrowers shall agree, Lender, however, having the right to impose such terms and
conditions as it shall elect in its sole discretion, (iii) the provisions of this Section
2.5 (other than this Section 2.5.4) shall not be applicable to any such sale of one or
more of the Properties or any portion thereof and/or any IP consented to by Lender as aforesaid,
Borrowers expressly acknowledging and agreeing that neither Lender nor any Mezzanine Lender shall
be entitled to any Release Parcel Release Price, Adjacent Parcel Release Price or IP Release Price
or any portion of any of the foregoing or any proceeds of any of the foregoing unless and until the
Mortgage Debt has been paid in full, and (iv) in the event that, following any such sale of one or
more of the Properties or any portion thereof and/or any IP, the Mortgage Debt and the First
Mezzanine Debt shall have been paid in full, Borrowers shall cause Mortgage Borrowers and/or



74









 






Mortgage Lender, as applicable, to distribute to Lender any remaining proceeds thereof to be
applied as provided in this Agreement, and thereafter, in the event that the Debt shall have been
paid in full, Lender shall distribute (i) to Third Mezzanine Lender any remaining proceeds thereof
to be applied as provided in the Third Mezzanine Loan Agreement, and thereafter, (ii) in the event
that the Third Mezzanine Debt shall have been paid in full, Third Mezzanine Lender shall distribute
any remaining proceeds to Mortgage Borrowers.




     2.5.5 Release on Payment in Full. Upon the written request and payment by Borrowers
of the customary recording fees and the actual out-of-pocket third-party costs and expenses of
Lender and upon payment in full of all principal and interest due on the Loan and all other amounts
due and payable under the Loan Documents in accordance with the terms and provisions of the Note
and this Agreement, Lender shall release the Lien of the Pledge Agreement and the other Loan
Documents.



     Section 2.6 Cash Management.



          2.6.1 Lockbox Account.




               (a) During the term of the Loan, Borrowers shall cause Mortgage Borrowers to establish and
maintain a segregated Eligible Account (the “Lockbox Account”) with Lockbox Bank in trust for the
benefit of Mortgage Lender, which Lockbox Account shall be under the sole dominion and control of
Mortgage Lender pursuant to and in accordance with the Mortgage Loan Documents and shall comply
with all of the terms and conditions set forth in Section 2.6.1 of the Mortgage Loan Agreement.



               (b) Borrowers shall cause each Mortgage Borrower and its Manager and/or Sub-Manager, as
applicable, to deposit all amounts received by such Mortgage Borrower or Manager and/or Sub-Manager
constituting Rents into the Lockbox Account in accordance with the terms of Section 2.6.1(b) of the
Mortgage Loan Agreement.



               (c) In the event (i) Mortgage Lender waives the requirements of Mortgage Borrowers to maintain
the Lockbox Account pursuant to the terms of Section 2.6.1 of the Mortgage Loan Agreement, or (ii)
the Mortgage Loan has been repaid in full, Lender shall have the right to require Borrowers to
establish and maintain an account that would operate in the same manner as the Lockbox Account in
Section 2.6.1 of the Mortgage Loan Agreement and the provisions of Section 2.6.1 of the Mortgage
Loan Agreement shall be incorporated herein by reference.



          2.6.2 Mortgage Cash Management Account.




               (a) During the term of the Loan, Borrowers shall cause Mortgage Borrowers to establish and
maintain a segregated Eligible Account (the “Mortgage Cash Management Account”), which Mortgage
Cash Management Account shall be under the sole dominion and control of Mortgage Lender and shall
comply with all of the terms and conditions set forth in Section 2.6.2 of the Mortgage Loan
Agreement.



               (b) Borrowers shall direct or cause Mortgage Borrowers to direct that all cash contributions
from the Lockbox Account and the Mortgage Cash Management Account



75









 




to be paid to or for the benefit of Lender in accordance with the Mortgage Loan Agreement and
the Mortgage Cash Management Agreement shall be deposited into the Cash Management Account
maintained in accordance with this Agreement and the Cash Management Agreement. Lender agrees that
it shall deliver to Mortgage Lender, not less than five (5) days prior to each Payment Date, a
written notice setting forth (i) the amount of the Monthly Interest Payment that will be due on the
next Payment Date, and (ii) an itemized list of any other amounts that will be due on such next
Payment Date pursuant to the terms of this Agreement and/or the other Loan Documents.




               (c) In the event (i) Mortgage Lender waives the requirements of Mortgage Borrowers to maintain
the Mortgage Cash Management Account pursuant to the terms of Section 2.6.2 of the Mortgage Loan
Agreement, or (ii) the Mortgage Loan has been repaid in full, Lender shall have the right to
require Borrowers to establish and maintain an account that would operate in the same manner as the
Mortgage Cash Management Account in Section 2.6.2 of the Mortgage Loan Agreement and the provisions
of Section 2.6.2 of the Mortgage Loan Agreement shall be incorporated herein by reference;
provided, however, that references to “Lender,” “Cash Management Account,” and
other applicable terms shall be deemed to refer to the Lender, Cash Management Account and other
applicable terms hereunder.



          2.6.3 Cash Management Account.




               (a) There shall be established and maintained a segregated Eligible Account (the “Cash
Management Account”) to be held by Servicer in trust for the benefit of Lender, which Cash
Management Account shall be under the sole dominion and control of Lender. The Cash Management
Account shall be entitled “Column Financial, Inc., its successors and/or assigns – Hard Rock Second
Mezzanine Cash Management Account” or such other title as shall be reasonably acceptable to Lender
and the bank holding the Cash Management Account. Each Borrower hereby grants to Lender a first
priority security interest in the Cash Management Account and all deposits at any time contained
therein and the proceeds thereof, and will take all actions requested by Lender that are necessary
to maintain in favor of Lender a perfected first priority security interest in the Cash Management
Account, including, without limitation, executing and filing UCC-1 Financing Statements and
continuations thereof. Lender and Servicer shall have the sole right to make withdrawals from the
Cash Management Account for application pursuant to the terms of this Agreement and the other Loan
Documents and all reasonable costs and expenses for establishing and maintaining the Cash
Management Account shall be paid by Borrowers.



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



               (c) Provided no Event of Default shall have occurred and be continuing, all funds on deposit
in the Cash Management Account shall be applied by Lender in accordance with the terms of this
Agreement (including, without limitation, Section 2.4.3 and Section 2.4.4 hereof)
and the Cash Management Agreement.



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          2.6.4 Financial Determination Dates. Borrowers shall provide, or shall cause Mortgage
Borrowers to provide, evidence to Lender of (i) the Debt Service Coverage Ratio for the Properties,
and (ii) for purposes of determining whether the General Reserve Excess Cash Conditions have been
satisfied, the results of operations at the Properties for the preceding calendar month, within
thirty (30) days after the end of each calendar month (the “Financial Determination Date”). All
calculations of Debt Service Coverage Ratio and results of operations shall be subject to
verification by Mortgage Lender.




     Section 2.7 Extensions of the Initial Maturity Date.



          2.7.1 Non-Qualified Extensions. As provided in this Section 2.7.1, in the
event the Qualification Conditions have not been satisfied on or prior to the Construction
Qualification Date, Borrowers shall have the option (each, a “Non-Qualified Extension Option”) to
extend the term of the Loan beyond the Non-Qualified Initial Maturity Date for two (2) successive
terms (each, a “Non-Qualified Extension Term”) of one (1) year each (the Non-Qualified Initial
Maturity Date following the exercise of each Non-Qualified Extension Option being the
“Non-Qualified Extended Maturity Date”).




               (a) First Non-Qualified Extension Option. Borrowers shall have the right to extend
the Non-Qualified Initial Maturity Date to the First Non-Qualified Extended Maturity Date (the
“First Non-Qualified Extension Option”; and the period commencing on the first (1st) day following
the Non-Qualified Initial Maturity Date and ending on the First Non-Qualified Extended Maturity
Date being referred to herein as the “First Non-Qualified Extension Term”), provided that
all of the following conditions are satisfied:




     (i) no monetary Default, Event of Default, monetary Mortgage Default, Mortgage
Event of Default, any monetary Mezzanine Default or any Mezzanine Event of Default
shall have occurred and be continuing at the time the First Non-Qualified Extension
Option is exercised or on the date that the First Non-Qualified Extension Term
commences;




     (ii) Borrowers shall notify Lender of their irrevocable election to exercise
the First Non-Qualified Extension Option not earlier than six (6) months, and not
later than thirty (30) days, prior to the Non-Qualified Initial Maturity Date;




     (iii) if the Interest Rate Cap Agreement is scheduled to mature prior to the
First Non-Qualified Extended Maturity Date, Borrowers shall obtain and deliver to
Lender not later than one (1) Business Day immediately preceding the first day of
the First Non-Qualified Extension Term, one or more Replacement Interest Rate Cap
Agreements (or extension(s) of the existing Interest Rate Cap Agreement(s)) from an
Acceptable Counterparty, which Replacement Interest Rate Cap Agreement(s) (or
extension(s) of the existing Interest Rate Cap Agreement(s)) shall (i) be effective
commencing on the first day of the First Non-Qualified Extension Term, (ii) have a
LIBOR strike price equal to the applicable Strike Price, and (iii) have a maturity
date not earlier than the First Non-Qualified Extended Maturity Date;



77









 






     (iv) not later than one (1) Business Day immediately preceding the first day of
the First Non-Qualified Extension Term, all accrued and unpaid interest and any
unpaid or unreimbursed amounts in respect of the Loan and any other sums then due to
Lender hereunder or under any of the other Loan Documents shall have been paid in
full;




     (v) not later than one (1) Business Day immediately preceding the first day of
the First Non-Qualified Extension Term, Borrowers shall have caused Mortgage
Borrowers to deposit with Mortgage Lender in immediately available funds, for
deposit by Mortgage Lender into the Interest Reserve Account, an amount equal to the
Extension Interest Shortfall with respect to the First Non-Qualified Extension Term,
if any, which amount thereafter shall constitute a part of the Interest Reserve Fund
and shall be held and disbursed by Mortgage Lender as set forth in Section 7.4 of
the Mortgage Loan Agreement (or, if the Mortgage Loan and the First Mezzanine Loan
have been paid in full, Borrowers shall have deposited such amount with Lender for
deposit into the Interest Reserve Account to be held and disbursed by Lender as set
forth in Section 7.4 hereof);




     (vi) not later than one (1) Business Day immediately preceding the first day of
the First Non-Qualified Extension Term, Borrowers shall have caused Mortgage
Borrowers to deposit with Mortgage Lender in immediately available funds, for
deposit by Mortgage Lender into the applicable Mortgage Reserve Fund(s), any
shortfalls in such Mortgage Reserve Fund(s) with respect to the First Non-Qualified
Extension Term, if any, as reasonably estimated and underwritten by Mortgage Lender
based on (A) the Approved Annual Budget then in effect and (B) underwriting criteria
consistent with that used by Mortgage Lender to determine the amount of the deposit
to the applicable Mortgage Reserve Fund(s) on the Closing Date (and throughout the
term of the Loan), which amount thereafter shall constitute a part of the applicable
Mortgage Reserve Fund(s) and shall be held and disbursed by Mortgage Lender as set
forth in Article VII of the Mortgage Loan Agreement (or, if the Mortgage Loan and
the First Mezzanine Loan have been paid in full, Borrowers shall have deposited such
amount with Lender for deposit into the applicable Reserve Fund(s) to be held and
disbursed by Lender as set forth in Article VII hereof);




     (vii) not later than one (1) Business Day immediately preceding the first day
of the First Non-Qualified Extension Term, Borrowers shall have caused Mortgage
Borrowers to deposit with Mortgage Lender in immediately available funds, for
deposit by Mortgage Lender into one or more new Mortgage Reserve Funds, such other
reserves as Mortgage Lender shall reasonably require in order to cover reasonably
anticipated Operating Expense shortfalls during the First Non-Qualified Extension
Term, if any, which amount thereafter shall constitute a part of the Mortgage
Reserve Funds and shall be held and disbursed by Mortgage Lender as set forth in
Article VII of the Mortgage Loan Agreement (or, if the Mortgage Loan and the First
Mezzanine Loan have been paid in full, Borrowers shall have deposited such amount
with Lender for deposit into one more new Reserve Funds to be held and disbursed by
Lender as set forth in Article VII



78









 







hereof) and/or in an amendment to this Agreement reasonably negotiated and
executed by Borrowers and Lender at such time and as a condition to the exercise of
the First Non-Qualified Extension Option;




     (viii) the maturity date of the Mortgage Loan, if the Mortgage Loan is then
outstanding, shall be extended to not earlier than the First Non-Qualified Extended
Maturity Date on the same terms and conditions as in effect on the date hereof;




     (ix) the maturity date of the First Mezzanine Loan, if the First Mezzanine Loan
is then outstanding, shall be extended to not earlier than the First Non-Qualified
Extended Maturity Date on the same terms and conditions as in effect on the date
hereof;




     (x) the maturity date of the Third Mezzanine Loan, if the Third Mezzanine Loan
is then outstanding, shall be extended to not earlier than the First Non-Qualified
Extended Maturity Date on the same terms and conditions as in effect on the date
hereof;




     (xi) the Debt Yield immediately preceding the commencement of the First
Non-Qualified Extension Term shall be equal to or greater than 10.25%; and




     (xii) Borrowers shall have reimbursed Lender for all costs reasonably incurred
by Lender in processing the extension request, including, without limitation,
reasonable legal fees and expenses; provided, however, that in no
event shall Borrowers be required to pay any such fees, costs or expenses in excess
of Five Thousand Dollars ($5,000).



               (b) Second Non-Qualified Extension Option. Borrowers shall have the right to extend
the First Non-Qualified Extended Maturity Date to the Second Non-Qualified Extended Maturity Date
(the “Second Non-Qualified Extension Option”; and the period commencing on the first (1st) day
following the First Non-Qualified Extended Maturity Date and ending on the Second Non-Qualified
Extended Maturity Date being referred to herein as the “Second Non-Qualified Extension Term”),
provided that all of the following conditions are satisfied:




     (i) no monetary Default, Event of Default, monetary Mortgage Default, Mortgage
Event of Default, any monetary Mezzanine Default or any Mezzanine Event of Default
shall have occurred and be continuing at the time the Second Non-Qualified Extension
Option is exercised or on the date that the Second Non-Qualified Extension Term
commences;




     (ii) Borrowers shall notify Lender of their irrevocable election to exercise
the Second Non-Qualified Extension Option not earlier than six (6) months, and not
later than thirty (30) days, prior to the First Non-Qualified Extended Maturity
Date;



79









 






     (iii) if the Interest Rate Cap Agreement is scheduled to mature prior to the
Second Non-Qualified Extended Maturity Date, Borrowers shall obtain and deliver to
Lender not later than one (1) Business Day immediately preceding the first day of
the Second Non-Qualified Extension Term, one or more Replacement Interest Rate Cap
Agreements (or extension(s) of the existing Interest Rate Cap Agreement(s)) from an
Acceptable Counterparty, which Replacement Interest Rate Cap Agreement(s) (or
extension(s) of the existing Interest Rate Cap Agreement(s)) shall (i) be effective
commencing on the first day of the Second Non-Qualified Extension Term, (ii) have a
LIBOR strike price equal to the applicable Strike Price, and (iii) have a maturity
date not earlier than the Second Non-Qualified Extended Maturity Date;




     (iv) not later than one (1) Business Day immediately preceding the first day of
the Second Non-Qualified Extension Term, all accrued and unpaid interest and any
unpaid or unreimbursed amounts in respect of the Loan and any other sums then due to
Lender hereunder or under any of the other Loan Documents shall have been paid in
full;




     (v) not later than one (1) Business Day immediately preceding the first day of
the Second Non-Qualified Extension Term, Borrowers shall have caused Mortgage
Borrowers to deposit with Mortgage Lender in immediately available funds, for
deposit by Mortgage Lender into the Interest Reserve Account, an amount equal to the
Extension Interest Shortfall with respect to the Second Non-Qualified Extension
Term, if any, which amount thereafter shall constitute a part of the Interest
Reserve Fund and shall be held and disbursed by Mortgage Lender as set forth in
Section 7.4 of the Mortgage Loan Agreement (or, if the Mortgage Loan and the First
Mezzanine Loan have been paid in full, Borrowers shall have deposited such amount
with Lender for deposit into the Interest Reserve Account to be held and disbursed
by Lender as set forth in Section 7.4 hereof);




     (vi) not later than one (1) Business Day immediately preceding the first day of
the Second Non-Qualified Extension Term, Borrowers shall have caused Mortgage
Borrowers to deposit with Mortgage Lender in immediately available funds, for
deposit by Mortgage Lender into the applicable Mortgage Reserve Fund(s), any
shortfalls in such Mortgage Reserve Fund(s) with respect to the Second Non-Qualified
Extension Term, if any, as reasonably estimated and underwritten by Mortgage Lender
based on (A) the Approved Annual Budget then in effect and (B) underwriting criteria
consistent with that used by Lender to determine the amount of the deposit to the
applicable Mortgage Reserve Fund(s) on the Closing Date (and throughout the term of
the Loan), which amount thereafter shall constitute a part of the applicable
Mortgage Reserve Fund(s) and shall be held and disbursed by Mortgage Lender as set
forth in Article VII of the Mortgage Loan Agreement (or, if the Mortgage Loan and
the First Mezzanine Loan have been paid in full, Borrowers shall have deposited such
amount with Lender for deposit into the applicable Reserve Fund(s) to be held and
disbursed by Lender as set forth in Article VII hereof);



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     (vii) not later than one (1) Business Day immediately preceding the first day
of the Second Non-Qualified Extension Term, Borrowers shall have caused Mortgage
Borrowers to deposit with Mortgage Lender in immediately available funds, for
deposit by Mortgage Lender into one or more new Mortgage Reserve Funds, such other
reserves as Mortgage Lender shall reasonably require in order to cover reasonably
anticipated Operating Expense shortfalls during the Second Non-Qualified Extension
Term, if any, which amount thereafter shall constitute a part of the Mortgage
Reserve Funds and shall be held and disbursed by Mortgage Lender as set forth in
Article VII of the Mortgage Loan Agreement (or, if the Mortgage Loan and the First
Mezzanine Loan have been paid in full, Borrowers shall have deposited such amount
with Lender for deposit into one more new Reserve Funds to be held and disbursed by
Lender as set forth in Article VII hereof) and/or in an amendment to this
Agreement reasonably negotiated and executed by Borrowers and Lender at such time
and as a condition to the exercise of the Second Non-Qualified Extension Option;




     (viii) the maturity date of the Mortgage Loan, if the Mortgage Loan is then
outstanding, shall be extended to not earlier than the Second Non-Qualified Extended
Maturity Date on the same terms and conditions as in effect on the date hereof;




     (ix) the maturity date of the First Mezzanine Loan, if the First Mezzanine Loan
is then outstanding, shall be extended to not earlier than the Second Non-Qualified
Extended Maturity Date on the same terms and conditions as in effect on the date
hereof;




     (x) the maturity date of the Third Mezzanine Loan, if the Third Mezzanine Loan
is then outstanding, shall be extended to not earlier than the Second Non-Qualified
Extended Maturity Date on the same terms and conditions as in effect on the date
hereof;




     (xi) the Debt Yield immediately preceding the commencement of the Second
Non-Qualified Extension Term shall be equal to or greater than 11.25%; and




     (xii) Borrowers shall have reimbursed Lender for all costs reasonably incurred
by Lender in processing the extension request, including, without limitation,
reasonable legal fees and expenses; provided, however, that in no
event shall Borrowers be required to pay any such fees, costs or expenses in excess
of Five Thousand Dollars ($5,000).



          2.7.2 Qualified Extensions. As provided in this Section 2.7.2, in the event
the Qualification Conditions have been satisfied on or prior to the Construction Qualification
Date, Borrowers shall have the option (each, a “Qualified Extension Option”) to extend the term of
the Loan beyond the Qualified Initial Maturity Date for two (2) successive terms (each, a
“Qualified Extension Term”) of one (1) year each (the Qualified Initial Maturity Date



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following the exercise of each Qualified Extension Option being the “Qualified Extended
Maturity Date”).




               (a) First Qualified Extension Option. Borrowers shall have the right to extend the
Qualified Initial Maturity Date to the First Qualified Extended Maturity Date (the “First Qualified
Extension Option”; and the period commencing on the first (1st) day following the Qualified Initial
Maturity Date and ending on the First Qualified Extended Maturity Date being referred to herein as
the “First Qualified Extension Term”), provided that all of the following conditions are
satisfied:




     (i) no monetary Default, Event of Default, monetary Mortgage Default, Mortgage
Event of Default, any monetary Mezzanine Default or any Mezzanine Event of Default
shall have occurred and be continuing at the time the First Qualified Extension
Option is exercised or on the date that the First Qualified Extension Term
commences;




     (ii) Borrowers shall notify Lender of their irrevocable election to exercise
the First Qualified Extension Option not earlier than six (6) months, and not later
than thirty (30) days, prior to the Qualified Initial Maturity Date;




     (iii) if the Interest Rate Cap Agreement is scheduled to mature prior to the
First Qualified Extended Maturity Date, Borrowers shall obtain and deliver to Lender
not later than one (1) Business Day immediately preceding the first day of the First
Qualified Extension Term, one or more Replacement Interest Rate Cap Agreements (or
extension(s) of the existing Interest Rate Cap Agreement(s)) from an Acceptable
Counterparty, which Replacement Interest Rate Cap Agreement(s) (or extension(s) of
the existing Interest Rate Cap Agreement(s)) shall (i) be effective commencing on
the first day of the First Qualified Extension Term, (ii) have a LIBOR strike price
equal to the applicable Strike Price, and (iii) have a maturity date not earlier
than the First Qualified Extended Maturity Date;




     (iv) not later than one (1) Business Day immediately preceding the first day of
the First Qualified Extension Term, all accrued and unpaid interest and any unpaid
or unreimbursed amounts in respect of the Loan and any other sums then due to Lender
hereunder or under any of the other Loan Documents shall have been paid in full;




     (v) not later than one (1) Business Day immediately preceding the first day of
the First Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers
to deposit with Mortgage Lender in immediately available funds, for deposit by
Mortgage Lender into the Interest Reserve Account, an amount equal to the Extension
Interest Shortfall with respect to the First Qualified Extension Term, if any, which
amount thereafter shall constitute a part of the Interest Reserve Fund and shall be
held and disbursed by Mortgage Lender as set forth in Section 7.4 of the Mortgage
Loan Agreement (or, if the Mortgage Loan and the First Mezzanine Loan have been paid
in full, Borrowers shall have deposited such



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amount with Lender for deposit into the Interest Reserve Account to be held and
disbursed by Lender as set forth in Section 7.4 hereof);




     (vi) not later than one (1) Business Day immediately preceding the first day of
the First Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers
to deposit with Mortgage Lender in immediately available funds, for deposit by
Mortgage Lender into the applicable Mortgage Reserve Fund(s), any shortfalls in such
Mortgage Reserve Fund(s) with respect to the First Qualified Extension Term, if any,
as reasonably estimated and underwritten by Mortgage Lender based on (A) the
Approved Annual Budget then in effect and (B) underwriting criteria consistent with
that used by Mortgage Lender to determine the amount of the deposit to the
applicable Mortgage Reserve Fund(s) on the Closing Date (and throughout the term of
the Loan), which amount thereafter shall constitute a part of the applicable
Mortgage Reserve Fund(s) and shall be held and disbursed by Mortgage Lender as set
forth in Article VII of the Mortgage Loan Agreement (or, if the Mortgage Loan and
the First Mezzanine Loan have been paid in full, Borrowers shall have deposited such
amount with Lender for deposit into the applicable Reserve Fund(s) to be held and
disbursed by Lender as set forth in Article VII hereof);




     (vii) not later than one (1) Business Day immediately preceding the first day
of the First Qualified Extension Term, Borrowers shall have caused Mortgage
Borrowers to deposit with Mortgage Lender in immediately available funds, for
deposit by Mortgage Lender into one or more new Mortgage Reserve Funds, such other
reserves as Mortgage Lender shall reasonably require in order to cover reasonably
anticipated Operating Expense shortfalls during the First Qualified Extension Term,
if any, which amount thereafter shall constitute a part of the Mortgage Reserve
Funds and shall be held and disbursed by Mortgage Lender as set forth in Article VII
of the Mortgage Loan Agreement (or, if the Mortgage Loan and the First Mezzanine
Loan have been paid in full, Borrowers shall have deposited such amount with Lender
for deposit into one more new Reserve Funds to be held and disbursed by Lender as
set forth in Article VII hereof) and/or in an amendment to this Agreement
reasonably negotiated and executed by Borrowers and Lender at such time and as a
condition to the exercise of the First Qualified Extension Option;




     (viii) the maturity date of the Mortgage Loan, if the Mortgage Loan is then
outstanding, shall be extended to not earlier than the First Qualified Extended
Maturity Date on the same terms and conditions as in effect on the date hereof;




     (ix) the maturity date of the First Mezzanine Loan, if the First Mezzanine Loan
is then outstanding, shall be extended to not earlier than the First Qualified
Extended Maturity Date on the same terms and conditions as in effect on the date
hereof;



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     (x) the maturity date of the Third Mezzanine Loan, if the Third Mezzanine Loan
is then outstanding, shall be extended to not earlier than the First Qualified
Extended Maturity Date on the same terms and conditions as in effect on the date
hereof;




     (xi) there shall exist no Shortfall as of the Business Day immediately
preceding the first day of the First Qualified Extension Term; and




     (xii) Borrowers shall have reimbursed Lender for all costs reasonably incurred
by Lender in processing the extension request, including, without limitation,
reasonable legal fees and expenses; provided, however, that in no event shall
Borrowers be required to pay any such fees, costs or expenses in excess of Five
Thousand Dollars ($5,000).



               (b) Second Qualified Extension Option. Borrowers shall have the right to extend the
First Qualified Extended Maturity Date to the Second Qualified Extended Maturity Date (the “Second
Qualified Extension Option”; and the period commencing on the first (1st) day following the First
Qualified Extended Maturity Date and ending on the Second Qualified Extended Maturity Date being
referred to herein as the “Second Qualified Extension Term”), provided that all of the
following conditions are satisfied:




     (i) no monetary Default, Event of Default, monetary Mortgage Default, Mortgage
Event of Default, any monetary Mezzanine Default or any Mezzanine Event of Default
shall have occurred and be continuing at the time the Second Qualified Extension
Option is exercised or on the date that the Second Qualified Extension Term
commences;




     (ii) Borrowers shall notify Lender of their irrevocable election to exercise
the Second Qualified Extension Option not earlier than six (6) months, and not later
than thirty (30) days, prior to the First Qualified Extended Maturity Date;




     (iii) if the Interest Rate Cap Agreement is scheduled to mature prior to the
Second Qualified Extended Maturity Date, Borrowers shall obtain and deliver to
Lender not later than one (1) Business Day immediately preceding the first day of
the Second Qualified Extension Term, one or more Replacement Interest Rate Cap
Agreements (or extension(s) of the existing Interest Rate Cap Agreement(s)) from an
Acceptable Counterparty, which Replacement Interest Rate Cap Agreement(s) (or
extension(s) of the existing Interest Rate Cap Agreement(s)) shall (i) be effective
commencing on the first day of the Second Qualified Extension Term, (ii) have a
LIBOR strike price equal to the applicable Strike Price, and (iii) have a maturity
date not earlier than the Second Qualified Extended Maturity Date;




     (iv) not later than one (1) Business Day immediately preceding the first day of
the Second Qualified Extension Term, all accrued and unpaid interest and any unpaid
or unreimbursed amounts in respect of the Loan and any other sums



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then due to Lender hereunder or under any of the other Loan Documents shall
have been paid in full;




     (v) not later than one (1) Business Day immediately preceding the first day of
the Second Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers
to deposit with Mortgage Lender in immediately available funds, for deposit by
Mortgage Lender into the Interest Reserve Account, an amount equal to the Extension
Interest Shortfall with respect to the Second Qualified Extension Term, if any,
which amount thereafter shall constitute a part of the Interest Reserve Fund and
shall be held and disbursed by Mortgage Lender as set forth in Section 7.4 of the
Mortgage Loan Agreement (or, if the Mortgage Loan and the First Mezzanine Loan have
been paid in full, Borrowers shall have deposited such amount with Lender for
deposit into the Interest Reserve Account to be held and disbursed by Lender as set
forth in Section 7.4 hereof);




     (vi) not later than one (1) Business Day immediately preceding the first day of
the Second Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers
to deposit with Mortgage Lender in immediately available funds, for deposit by
Mortgage Lender into the applicable Mortgage Reserve Fund(s), any shortfalls in such
Mortgage Reserve Fund(s) with respect to the Second Qualified Extension Term, if
any, as reasonably estimated and underwritten by Mortgage Lender based on (A) the
Approved Annual Budget then in effect and (B) underwriting criteria consistent with
that used by Mortgage Lender to determine the amount of the deposit to the
applicable Mortgage Reserve Fund(s) on the Closing Date (and throughout the term of
the Loan), which amount thereafter shall constitute a part of the applicable
Mortgage Reserve Fund(s) and shall be held and disbursed by Mortgage Lender as set
forth in Article VII of the Mortgage Loan Agreement (or, if the Mortgage Loan and
the First Mezzanine Loan have been paid in full, Borrowers shall have deposited such
amount with Lender for deposit into the applicable Reserve Fund(s) to be held and
disbursed by Lender as set forth in Article VII hereof);




     (vii) not later than one (1) Business Day immediately preceding the first day
of the Second Qualified Extension Term, Borrowers shall have caused Mortgage
Borrowers to deposit with Mortgage Lender in immediately available funds, for
deposit by Mortgage Lender into one or more new Mortgage Reserve Funds, such other
reserves as Mortgage Lender shall reasonably require in order to cover reasonably
anticipated Operating Expense shortfalls during the Second Qualified Extension Term,
if any, which amount thereafter shall constitute a part of the Mortgage Reserve
Funds and shall be held and disbursed by Mortgage Lender as set forth in Article VII
of the Mortgage Loan Agreement (or, if the Mortgage Loan and the First Mezzanine
Loan have been paid in full, Borrowers shall have deposited such amount with Lender
for deposit into one more new Reserve Funds to be held and disbursed by Lender as
set forth in Article VII hereof) and/or in an amendment to this Agreement
reasonably negotiated and executed by Borrowers and Lender at such time and as a
condition to the exercise of the Second Qualified Extension Option;



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     (viii) the maturity date of the Mortgage Loan, if the Mortgage Loan is then
outstanding, shall be extended to not earlier than the Second Qualified Extended
Maturity Date on the same terms and conditions as in effect on the date hereof;




     (ix) the maturity date of the First Mezzanine Loan, if the First Mezzanine Loan
is then outstanding, shall be extended to not earlier than the Second Qualified
Extended Maturity Date on the same terms and conditions as in effect on the date
hereof;




     (x) the maturity date of the Third Mezzanine Loan, if the Third Mezzanine Loan
is then outstanding, shall be extended to not earlier than the Second Qualified
Extended Maturity Date on the same terms and conditions as in effect on the date
hereof;




     (xi) there shall exist no Shortfall as of the Business Day immediately
preceding the first day of the Second Qualified Extension Term;




     (xii) the Debt Yield immediately preceding the commencement of the Second
Qualified Extension Term shall be equal to or greater than 13%;




     (xiii) Borrowers shall have paid to Lender an extension fee equal to
one-quarter of one percent (0.25%) of the Outstanding Principal Balance not later
than one (1) Business Day immediately preceding the first day of the Second
Qualified Extension Term; and




     (xiv) Borrowers shall have reimbursed Lender for all costs reasonably incurred
by Lender in processing the extension request, including, without limitation,
reasonable legal fees and expenses; provided, however, that in no
event shall Borrowers be required to pay any such fees, costs or expenses in excess
of Five Thousand Dollars ($5,000).



          2.7.3 Achieving Required Debt Yields.




               (a) Lender hereby acknowledges and agrees that nothing herein contained shall prohibit
Borrowers, in accordance with the provisions of Section 2.4.1 hereof, and provided that no
Event of Default, Mortgage Event of Default or any Mezzanine Event of Default shall have occurred
and be continuing, from satisfying any Debt Yield requirement set forth in Section 2.7.1 or
2.7.2 hereof by partially prepaying the Mortgage Loan, the Loan or the Mezzanine Loans
prior to the commencement of the First Non-Qualified Extension Term, the Second Non-Qualified
Extension Term or the Second Qualified Extension Term, as applicable, which prepayment shall be
applied in accordance with Section 2.4.4(a) hereof.



               (b) Without limiting the generality of the foregoing Section 2.7.3(a), Mortgage
Borrowers shall also have the right to satisfy any Debt Yield requirement set forth in Section
2.7.1 or 2.7.2 hereof by delivering to Mortgage Lender (for the benefit of Mortgage
Lender, Lender and Mezzanine Lenders) a Letter of Credit in an amount equal to the principal
repayment of the Aggregate Outstanding Principal Balance that would be required in order to



86









 







achieve the applicable required Debt Yield (each, a “Debt Yield Letter of Credit”). If
Mortgage Borrowers elect to deliver any Debt Yield Letter of Credit, the following shall apply to
each such Debt Yield Letter of Credit:




     (i) Borrowers shall cause Mortgage Borrowers to pay to Mortgage Lender all of
Mortgage Lender’s reasonable out-of-pocket costs and expenses in connection
therewith, including, without limitation, any costs or expenses incurred in drawing
down on such Debt Yield Letter of Credit. Mortgage Borrowers shall not be entitled
to draw from any such Debt Yield Letter of Credit. Upon five (5) days notice to
Lender and Mortgage Lender and provided that no Event of Default, Mortgage Event of
Default or any Mezzanine Event of Default shall have occurred and be continuing,
Mortgage Borrowers may replace such Debt Yield Letter of Credit with a partial
prepayment of the Mortgage Loan, the Loan and the Mezzanine Loans in an aggregate
amount equal to such Debt Yield Letter of Credit, which prepayment shall be applied
in accordance with Section 2.4.3(a) of the Mortgage Loan Agreement and Section
2.4.4(a) hereof, following which prepayment, Mortgage Lender shall promptly
return such Debt Yield Letter of Credit to Mortgage Borrowers.




     (ii) Each Debt Yield Letter of Credit delivered under this Agreement shall be
additional security for the payment of the Mortgage Debt. Upon the occurrence and
during the continuance of a Mortgage Event of Default, Mortgage Lender shall have
the right, at its option, to draw on any Debt Yield Letter of Credit and to apply
all or any part of the proceeds thereof in accordance with the provisions of Section
2.4.3(a) of the Mortgage Loan Agreement and Section 2.4.4(a) hereof
applicable to a prepayment following the occurrence and during the continuance of a
Mortgage Event of Default.




     (iii) In addition to any other right Mortgage Lender may have to draw upon a
Debt Yield Letter of Credit pursuant to the terms and conditions of the Mortgage
Loan Agreement, Mortgage Lender shall have the additional rights to draw in full on
any Debt Yield Letter of Credit: (A) with respect to any evergreen Debt Yield
Letter of Credit, if Mortgage Lender has received a notice from the issuing bank
that such Debt Yield Letter of Credit will not be renewed and a substitute Debt
Yield Letter of Credit is not provided at least ten (10) Business Days prior to the
date on which the outstanding Debt Yield Letter of Credit is scheduled to expire;
(B) with respect to any Debt Yield Letter of Credit with a stated expiration date,
if Mortgage Lender has not received a notice from the issuing bank that it has
renewed such Debt Yield Letter of Credit at least ten (10) Business Days prior to
the date on which such Debt Yield Letter of Credit is scheduled to expire and a
substitute Debt Yield Letter of Credit is not provided at least ten (10) Business
Days prior to the date on which the outstanding Debt Yield Letter of Credit is
scheduled to expire; (C) upon receipt of notice from the issuing bank that such Debt
Yield Letter of Credit will be terminated and a substitute Debt Yield Letter of
Credit is not provided at least ten (10) Business Days prior to the date on which
the outstanding Debt Yield Letter of Credit is scheduled to be terminated; or (D) if
Mortgage Lender has received notice that the bank issuing



87









 







any Debt Yield Letter of Credit shall cease to be an Eligible Institution and
within ten (10) Business Days after Mortgage Lender notifies Mortgage Borrowers in
writing of such circumstance, Mortgage Borrowers shall fail to deliver to Mortgage
Lender a substitute Debt Yield Letter of Credit issued by an Eligible Institution.
Notwithstanding anything to the contrary contained in the above, Mortgage Lender is
not obligated to draw upon any Debt Yield Letter of Credit upon the happening of an
event specified in clause (A), (B), (C) or (D) above and shall not
be liable for any losses sustained by Mortgage Borrowers due to the insolvency of
the bank issuing any such Debt Yield Letter of Credit if Mortgage Lender has not
drawn upon such Debt Yield Letter of Credit.



ARTICLE III.

CONDITIONS PRECEDENT.




     Section 3.1 Conditions Precedent to Closing. Lender’s obligation to make the Loan
shall be subject to the satisfaction or Lender’s waiver in writing of the following conditions
precedent no later than the Closing Date:



          3.1.1 Loan Agreement and Note. Lender shall have received a counterpart original of
this Agreement and the Note, in each case, duly executed and delivered on behalf of Borrowers.




          3.1.2 Delivery of Loan Documents; UCC Insurance; Reports.




               (a) Loan Documents. Lender shall have received from Borrowers fully executed and
acknowledged counterparts of the Pledge Agreement and authority to file UCC Financing Statements
and such other documents required pursuant to the Pledge Agreement, in the reasonable judgment of
Lender, so as to effectively create valid and enforceable first priority Liens upon the Pledged
Collateral in favor of Lender, subject to no Liens or encumbrances. Lender shall have also
received from Borrowers and Guarantors fully executed counterparts of the other Loan Documents.



               (b) UCC Insurance. Lender shall have received a UCC insurance policy (the “UCC
Insurance Policy”) issued by the Title Company and dated as of the Closing Date, which UCC
Insurance Policy shall (i) provide coverage in an amount equal to the original principal amount of
the Loan, (ii) insure Lender that the Pledge Agreement and the documents executed and delivered in
connection therewith create a valid first priority lien on the Pledged Collateral, free and clear
of all exceptions from coverage and subject only to the standard exceptions and exclusions from
coverage, as modified by the terms of any endorsements, as shall be reasonably required by Lender,
including, without limitation, coverage with respect to the validity of the lien on the Pledged
Collateral and ability to exercise rights and remedies with respect thereto, (iii) contain such
endorsements and affirmative coverages as Lender may reasonably request, and (iv) name Lender and
its successors and assigns as the insured. The UCC Insurance Policy shall be assignable with an
assignment of the Loan. Lender also shall have received evidence that all premiums in respect of
the UCC Insurance Policy have been paid.



88









 





               (c) Mezzanine Lender Endorsement. Borrowers shall have caused Mortgage Borrowers to
obtain as part of their owners’ title insurance policy, a so-called “Endorsement 16 (Mezzanine
Financing)” for the benefit of Lender in form and substance, and providing coverage in amounts,
that are satisfactory to Lender, and that shall name Lender and its successors and assigns as the
beneficiary of such endorsement. Mortgage Borrowers’ owners’ title insurance policy shall provide
that such “Endorsement 16 (Mezzanine Financing)” shall be assignable with an assignment of the
Loan. Lender also shall have received evidence that all premiums in respect of Mortgage Borrowers’
owners’ title insurance policy have been paid;



               (d) Insurance. Lender shall have received (i) valid certificates of insurance for the
Policies required hereunder, satisfactory to Lender in its sole discretion, (ii) evidence of the
payment of all Insurance Premiums payable for the existing policy period and (iii) evidence that
Lender has been included as an “additional insured” under such Policies;



               (e) Environmental Reports. Lender shall have received copies of the Phase I
environmental reports (and, if recommended by the Phase I environmental report, Phase II
environmental reports) in respect of the Properties, as delivered to Mortgage Lender, satisfactory
in form and substance to Lender; and



               (f) Encumbrances. Borrowers shall have taken or caused to be taken such actions in
such a manner so that Lender has a valid and perfected first priority Lien as of the Closing Date
on the Pledged Collateral, subject only to such Liens as are permitted pursuant to the Loan
Documents, and Lender shall have received satisfactory evidence thereof.



          3.1.3 Amendments to Mortgage Loan Documents. The Amended and Restated Mortgage Loan
Agreement shall have been duly authorized, executed and delivered by all parties thereto and Lender
shall have received and approved certified copies of said documents.




          3.1.4 Mezzanine Loan Documents. The Mezzanine Loan Documents shall have been duly
authorized, executed and delivered by all parties thereto and Lender shall have received copies of
said Mezzanine Loan Documents.




          3.1.5 Pre-Construction Budget; Loan Budget and Annual Budget. Borrowers shall have
delivered to Lender (i) the Pre-Construction Budget; (ii) the Loan Budget, to the extent required
under the Mortgage Loan Agreement; and (iii) the Annual Budget for the current Fiscal Year.




          3.1.6 Required Equity Amount. Borrowers shall have furnished to Lender evidence in
form and content reasonably satisfactory to Lender that Borrowers have contributed the Required
Equity Amount.




          3.1.7 Delivery of Organizational Documents.




               (a) Borrowers shall deliver or cause to be delivered to Lender copies certified by Borrowers
of all organizational documentation related to Borrowers and/or their formation, structure,
existence, good standing and/or qualification to do business, as Lender may request in its sole
discretion, including, without limitation, good standing certificates,



89









 







qualifications to do business in the appropriate jurisdictions, resolutions authorizing the
entering into of the Loan and incumbency certificates as may be requested by Lender.



               (b) Borrowers shall deliver or cause to be delivered to Lender copies certified by Borrowers
or the respective entity, as applicable, of all organizational documentation related to each of the
Loan Parties, Guarantors, and other direct or indirect members and/or partners of Borrowers, and/or
the formation, structure, existence, good standing and/or qualifications to do business of any of
the foregoing, as Lender may request in its sole discretion, including, without limitation, good
standing certificates, qualifications to do business in the appropriate jurisdictions, authorizing
resolutions and incumbency certificates as may be requested by Lender.



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




          3.1.9 Performance; No Monetary Default or Event of Default. Borrowers shall have
performed and complied with all terms and conditions herein required to be performed or complied
with by them at or prior to the Closing Date, and on the Closing Date, there shall exist no
monetary Default or any Event of Default.




          3.1.10 Representations and Warranties. All representations and warranties made by
Borrowers and/or Guarantors in the Loan Documents or otherwise made by or on behalf of Borrowers
and/or Guarantors in connection therewith shall be true and correct in all material respects on and
as of the Closing Date with the same effect as if made on and as of such date (except to the extent
of changes in circumstances or conditions which are not otherwise prohibited by this Agreement).




          3.1.11 Proceedings and Documents. All proceedings in connection with the transactions
contemplated by this Agreement and the other Loan Documents shall be satisfactory to Lender and
Lender’s counsel in form and substance, and Lender shall have received all information and such
counterpart originals or certified copies of such documents and such other certificates, opinions
or documents as Lender and Lender’s counsel may require.




     Section 3.2 Submission of Construction Loan Advance Documents to Lender. Borrowers
shall submit, or shall cause Mortgage Borrowers to submit, to Lender, contemporaneously with any
submission thereof by Mortgage Borrowers to Mortgage Lender, a copy of each Draw Request related to
each Construction Loan Advance and all documents required to be delivered by Mortgage Borrowers to
Mortgage Lender in connection therewith pursuant to Article III of the Mortgage Loan Agreement;
provided, however, that any breach of this provision shall not constitute an Event
of Default hereunder.




     Section 3.3 Delivery of Construction Completion Guaranty. Borrowers shall deliver to
Lender, contemporaneously with the submission thereof by Mortgage Borrowers to




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Mortgage Lender pursuant to Section 3.2(f) of the Mortgage Loan Agreement, two (2) fully-executed
originals of the Construction Completion Guaranty in favor of Lender.




ARTICLE IV.

REPRESENTATIONS AND WARRANTIES.




     Section 4.1 Representations of Borrowers. Each Borrower represents and warrants as to
itself that as of the Closing Date:



          4.1.1 Organization.




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



               (b) Such Borrower has the power and authority and the requisite ownership interests to control
the actions of the relevant First Mezzanine Borrower and, in turn, the relevant Mortgage Borrower
and upon the realization of the Pledged Collateral under the Pledge Agreement, Lender or any other
party succeeding to such Borrower’s interest in the Pledged Collateral described in the Pledge
Agreement would have such control. Without limiting the foregoing, such Borrower has sufficient
control over the relevant First Mezzanine Borrower and, in turn, the relevant Mortgage Borrower to
cause such Mortgage Borrower to (i) take any action on Mortgage Borrower’s part required by the
Mortgage Loan Documents and (ii) refrain from taking any action prohibited by the Mortgage Loan
Documents.



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




          4.1.3 No Conflicts. The execution, delivery and performance of this Agreement and the
other Loan Documents by such Borrower will not materially conflict with or result in a material
breach of any of the terms or provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance (other than pursuant to the Loan
Documents) upon any of the property or assets of such Borrower pursuant to the terms of any
indenture, mortgage, deed of trust, loan agreement, partnership agreement, management agreement or
other agreement or instrument to which such Borrower is a party or by which any



91









 






of such Borrower’s property or assets is subject, nor will such action result in any violation
of the provisions of any statute or any order, rule or regulation of any Governmental Authority
having jurisdiction over such Borrower or any of such Borrower’s properties or assets, and any
consent, approval, authorization, order, registration or qualification of or with any such
Governmental Authority necessary to permit the execution, delivery and performance by such Borrower
of this Agreement or any other Loan Documents has been obtained and is in full force and effect.




          4.1.4 Litigation. Except as set forth on Schedule VIII attached hereto:




               (a) There is no action, suit, claim, proceeding or investigation pending against any Loan
Party, HRHI or any Guarantor or, to such Borrower’s actual knowledge, pending against any Property,
the IP, the First Mezzanine Collateral or the Collateral or, to such Borrower’s actual knowledge,
threatened in writing against any Loan Party, HRHI or any Guarantor, or any Property, the IP, the
First Mezzanine Collateral or the Collateral in any court or by or before any other Governmental
Authority that would have a material adverse effect on (i) the business operations, economic
performance, assets, financial condition, equity, contingent liabilities, material agreements or
results of operations of such Loan Party, HRHI, any Guarantor, any Property, the IP, the First
Mezzanine Collateral or the Collateral, (ii) the enforceability or validity of any Loan Document,
the perfection or priority of any Lien created under any Loan Document or the remedies of Lender
under any Loan Document, (iii) the ability of any Loan Party, HRHI or any Guarantor to perform, in
all material respects, its respective obligations under each of the Mortgage Loan Documents, the
First Mezzanine Loan Documents or the Loan Documents, as applicable, or (iv) the value of, or cash
flow from, any Property, the IP, the First Mezzanine Collateral or the Collateral.



               (b) There is no proceeding, investigation or disciplinary action (including, without
limitation, before any Gaming authority, under any Gaming Law or under any Gaming License or other
Operating Permit) pending or, to Borrower’s actual knowledge, threatened in writing, either (i) in
connection with, or that seeks to restrain, enjoin, prevent the consummation of or otherwise
challenge, any of the Loan Documents, the First Mezzanine Loan Documents or the Mortgage Loan
Documents or any of the transactions contemplated therein, or (ii) to Borrower’s actual knowledge,
that, either singly or in the aggregate, could reasonably be expected to have an adverse effect on
any Gaming License currently in effect with respect to the Casino Component, including, without
limitation, any such proceeding, investigation or disciplinary action pending or, threatened
against Gaming Operator, any Loan Party or any of their respective directors, members, managers,
officers, key personnel or Persons holding a five percent (5%) or greater direct or indirect equity
or economic interest in such Borrower or any Loan Party. Additionally, there is no proceeding
(including, without limitation, before any Gaming Authority, under any Gaming Law or under any
Gaming License or other Operating Permit) pending or, to Borrowers’ actual knowledge, threatened in
writing that could reasonably be expected to have a material adverse effect on any application for
a Gaming License or other Operating Permit by Gaming Borrower or any Affiliate thereof or any
officer, director, employee or agent of any Loan Party or any Affiliate of any Loan Party.



          4.1.5 Agreements. Such Borrower is not a party to any agreement or instrument or
subject to any restriction which would be reasonably likely to materially and adversely affect any
Loan Party, any Property, the IP, the First Mezzanine Collateral or the



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Collateral, or such Borrower’s business, properties or assets, operations or condition,
financial or otherwise. To the best of such Borrower’s actual knowledge, no Loan Party is in
default in any material respect in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any agreement, license or instrument to which it
is a party or by which such Loan Party or any of the Properties, the IP, the First Mezzanine
Collateral or the Collateral are bound. Such Borrower has no material financial obligation under
any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which
such Borrower is a party or by which such Borrower or its properties or assets is otherwise bound,
other than (a) obligations incurred in the ordinary course of business relating to such Borrower’s
ownership and operation of the Collateral permitted pursuant to clause (s) of the
definition of “Special Purpose Entity” set forth in Section 1.1 hereof, (b) obligations
incurred in the ordinary course of the business relating to Mortgage Borrowers’ ownership and
operation of the Properties as permitted pursuant to clause (s) of the definition of
“Special Purpose Entity” set forth in Section 1.1 of the Mortgage Loan Agreement as in effect on
the date hereof, (c) obligations incurred in the ordinary course of business relating to First
Mezzanine Borrowers’ ownership and operation of the First Mezzanine Collateral permitted pursuant
to clause (s) of the definition of “Special Purpose Entity” set forth in Section 1.1 of the
First Mezzanine Loan Agreement as in effect on the date hereof, and (d) obligations under the Loan
Documents.




          4.1.6 Title.




               (a) Such Borrower is the record and beneficial owner of, and has good and valid title to, its
Pledged Interests, free and clear of all Liens, except those Liens granted to Lender under the Loan
Documents. The Pledge Agreement, together with the UCC Financing Statements relating to the
Pledged Collateral when properly filed in the appropriate records, will create a valid, perfected
first priority security interest in and to the portion of the Pledged Collateral covered thereby,
all in accordance with the terms thereof for which a Lien can be perfected by filing a UCC
Financing Statement. For so long as the Lien of the Pledge Agreement is outstanding, such Borrower
shall forever warrant, defend and preserve such title and the validity and priority of the Lien of
the Pledge Agreement and shall forever warrant and defend such title, validity and priority to
Lender against the claims of all persons whomsoever.



               (b) Each Mortgage Borrower has good, marketable and insurable fee simple title to the real
property comprising part of its Property and good title to the balance of such Property, free and
clear of all Liens whatsoever except the Permitted Encumbrances, such other Liens as are permitted
pursuant to the Mortgage Loan Documents and the Liens created by the Mortgage Loan Documents.



               (c) First Mezzanine Borrowers are the record and beneficial owners of, and have good and
marketable title to, the First Mezzanine Collateral, free and clear of all Liens whatsoever, except
for the Liens contemplated by the First Mezzanine Loan Documents.



               (d) To the best of each Borrower’s actual knowledge, the Permitted Encumbrances in the
aggregate do not materially and adversely affect the operation or use of the Properties (as
currently used) or (i) such Borrower’s ability to repay the Loan, (ii) Mortgage Borrowers’ ability
to repay the Mortgage Loan, or (iii) First Mezzanine Borrowers’ ability to repay the First
Mezzanine Loan.



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               (e) To such Borrower’s actual knowledge after due inquiry, there are no claims for payment for
work, labor or materials affecting any of the Properties that are or may become a Lien prior to, or
of equal priority with, the Liens created by the Mortgage Loan Documents, except any Lien then
being contested pursuant to, and in accordance with, Section 3.6(b) of the Mortgage.



          4.1.7 Solvency. Borrowers have (a) not entered into the transaction or executed the
Note, this Agreement or any other Loan Documents with the actual intent to hinder, delay or defraud
any creditor and (b) received reasonably equivalent value in exchange for their obligations under
such Loan Documents. Taking into account the Loan, the aggregate fair saleable value of Borrowers’
assets collectively exceeds and will exceed Borrowers’ total aggregate liabilities, including,
without limitation, subordinated, unliquidated, disputed and contingent liabilities. Taking into
account the Loan, the aggregate fair saleable value of Borrowers’ assets collectively is and will
be greater than Borrowers’ probable aggregate liabilities, including the maximum amount of their
contingent liabilities on its debts as such debts become absolute and matured. Taking into account
the Loan, each Borrower’s assets do not and will not constitute unreasonably small capital to carry
out its business as conducted or as proposed to be conducted. Borrowers do not intend to, and do
not believe that they will, incur Indebtedness and liabilities (including contingent liabilities
and other commitments) beyond their respective abilities to pay such Indebtedness and liabilities
as they mature (taking into account the timing and amounts of cash to be received by each Borrower
and the amounts to be payable on or in respect of obligations of each Borrower). No petition in
bankruptcy has been filed against any Loan Party, HRHI or any Guarantor, and none of the Loan
Parties, HRHI nor any Guarantor has ever made an assignment for the benefit of creditors or taken
advantage of any insolvency act for the benefit of debtors. None of the Loan Parties, HRHI nor any
Guarantor are contemplating either the filing of a petition by it under any state or federal
bankruptcy or insolvency laws or the liquidation of all or a major portion of its assets or
properties, and no Borrower has any actual knowledge of any Person contemplating the filing of any
such petition against any Loan Party, HRHI or any Guarantor.




          4.1.8 Full and Accurate Disclosure. To such Borrower’s actual knowledge, no statement
of fact made by any Borrower in this Agreement or in any of the other Loan Documents contains any
untrue statement of a material fact or omits to state any material fact necessary to make
statements contained herein or therein not misleading. There is no fact or circumstance presently
known to such Borrower which has not been disclosed to Lender and which will have a material
adverse effect on (a) the use and operation of any of the Properties, the IP, the First Mezzanine
Collateral or the Collateral, (b) the enforceability or validity of any Loan Document, the
perfection or priority of any Lien created under any Loan Document or the remedies of Lender under
any Loan Document, or (c) the ability of such Borrower, any other Loan Party, HRHI or any Guarantor
to perform, in all material respects, its respective obligations under each of the Loan Documents,
the Mortgage Loan Documents or the First Mezzanine Loan Documents, as applicable.




          4.1.9 No Plan Assets. As of the date hereof and throughout the term of the Loan (a)
no Borrower is nor will any Borrower be an “employee benefit plan,” as defined in Section 3(3) of
ERISA, subject to Title I of ERISA, (b) none of the assets of any Borrower constitutes or will
constitute “plan assets” of one or more such plans within the meaning of 29





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C.F.R. Section 2510.3-101, (c) no Borrower is nor will any Borrower be a “governmental plan” within
the meaning of Section 3(32) of ERISA, and (d) none of the assets of any Borrower constitute “plan
assets” of a governmental plan within the meaning of 29 C.F.R. Section 2510.3-101 for purposes of
any state law provisions regulating investments of, or fiduciary obligations with respect to,
governmental plans.




          4.1.10 Compliance. Except as set forth in the applicable Zoning Report, each Loan
Party and, to the best of such Borrower’s actual knowledge after due inquiry, the Land and
Improvements (including the use thereof) comply in all material respects with all applicable Legal
Requirements, including, without limitation, building and zoning ordinances and codes and
Prescribed Laws. No Loan Party is in default or violation of any order, writ, injunction, decree
or demand of any Governmental Authority. There has not been committed by any Loan Party or, to any
Borrower’s actual knowledge, any other Person in occupancy of or involved with the operation or use
of any of the Properties, the First Mezzanine Collateral or the Collateral any act or omission
affording the federal government or any other Governmental Authority the right of forfeiture as
against any Property, the First Mezzanine Collateral, the Collateral or any part of any of the
foregoing or any monies paid in performance of (i) any Mortgage Borrower’s obligations under any of
the Mortgage Loan Documents, (ii) any First Mezzanine Borrower’s obligations under any of the First
Mezzanine Loan Documents, or (iii) any Borrower’s obligations under any of the Loan Documents.




          4.1.11 Financial Information. To such Borrower’s actual knowledge, all historical
financial data, including, without limitation, the statements of cash flow and income and operating
expense, that have been delivered to Lender in connection with the Loan (i) are true, complete and
correct in all material respects, (ii) accurately represent in all material respects the financial
condition of the Properties (and each Property) and the Collateral, as applicable, as of the date
of such reports, and (iii) to the extent prepared or audited by an independent certified public
accounting firm, have been prepared in accordance with the Uniform System of Accounts and
reconciled with GAAP throughout the periods covered, except as disclosed therein. Except for
Permitted Encumbrances and except as referred to or reflected in said financial statements
previously delivered to Lender in connection with the Loan, no Loan Party has any contingent
liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or
anticipated losses from any unfavorable commitments that are known to any Borrower and are
reasonably likely to have a materially adverse effect on the Collateral, the First Mezzanine
Collateral or any Property or (a) the operation of the Hotel/Casino Property as a hotel and casino
at a standard at least equal to Comparable Hotel/Casinos, including, without limitation, comparable
food and beverage outlets and other amenities, and/or (b) the operation of the Café Property and
the Adjacent Property for a use or uses that is/are consistent with the operation of the
Hotel/Casino Property as a hotel and casino at a standard at least equal to Comparable
Hotel/Casinos, which use may include, without limitation, expansion of the Hotel/Casino Property,
restaurants, retail and residential complexes (the “Permitted Adjacent/Café Uses”). Since the date
of such financial statements, there has been no material adverse change in the financial condition,
operation or business of any Loan Party or, to each Borrower’s actual knowledge after due inquiry,
to the Collateral and, to the
extent not prohibited by the Merger Agreement, any Property from that set forth in said
financial statements.




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          4.1.12 Condemnation. No Condemnation or other proceeding has been commenced or, to
each Borrower’s actual knowledge, is threatened in writing received by such Borrower or
contemplated with respect to all or any portion of any Property or for the relocation of any
roadway providing direct access to any Property.




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




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




          4.1.15 Not a Foreign Person. No Borrower is a “foreign person” within the meaning of
§1445(f)(3) of the Code.




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




          4.1.17 Assessments. Except as disclosed in the Title Insurance Policy, to each
Borrower’s actual knowledge, there are no pending or proposed special or other assessments for
public improvements or otherwise affecting any Property, nor are there any contemplated improvements
to any Property that may result in such special or other assessments.




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




          4.1.19 No Prior Assignment. Other than under the Mortgage Loan Documents, there are
no prior assignments by Mortgage Borrowers of the Leases or any portion of the Rents due and
payable or to become due and payable which are presently outstanding.
There are no



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prior
assignments of the Collateral which are presently outstanding except in accordance with the Loan
Documents.




          4.1.20 Insurance. Mortgage Borrowers have obtained and Borrowers have delivered to
Lender certified copies of all Policies (or “Accord” certificates evidencing coverage thereof)
reflecting the insurance coverages, amounts and other requirements set forth in this Agreement. No
claims have been made under any such Policies, and no Person, including any Loan Party, has done,
by act or omission, anything which would impair the coverage of any such Policies.




          4.1.21 Use of the Properties. (a) The Hotel/Casino Property is used exclusively as a
hotel and casino at a standard at least equal to Comparable Hotel/Casinos, including, without
limitation, comparable food and beverage outlets and other amenities, and otherwise as a top-end
hotel and other appurtenant and related uses, and (b) the Café Property and the Adjacent Property
are used for Permitted Adjacent/Café Uses and other appurtenant and related uses.




          4.1.22 Certificate of Occupancy; Operating Permits. To the best of each Borrower’s
actual knowledge after due inquiry, all certifications, permits, licenses and approvals, including,
without limitation, certificates of completion and occupancy permits, all environmental, health and
safety licenses, gaming licenses and permits and any applicable liquor license necessary to permit
the legal use, occupancy and operation of (a) the Hotel/Casino Property as a hotel and casino at a
standard at least equal to Comparable Hotel/Casinos, including, without limitation, comparable food
and beverage outlets and other amenities, and (b) the Café Property and the Adjacent Property as
currently operated on the date hereof, or, subsequent to the date hereof, for Permitted
Adjacent/Café Uses (collectively, the “Operating Permits”), have been obtained and are in full
force and effect. Each Borrower shall cause Mortgage Borrowers to keep and maintain, or cause
to be kept and maintained, all Operating Permits necessary for the operation of (i) the
Hotel/Casino Property as a hotel and casino at a standard at least equal to Comparable
Hotel/Casinos, and (ii) the Café Property and the Adjacent Property for one or more Permitted
Adjacent/Café Purposes. To the best of each Borrower’s actual knowledge after due inquiry, the use
being made of each Property is in conformity with the Certificate(s) of Occupancy issued for such
Property. Attached hereto as Schedule IX is, to the best of each Borrower’s actual knowledge after
due inquiry, a true and complete list of all current Operating Permits and those which are subject
to renewal.




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




          4.1.24 Physical Condition. Except as provided in the Physical Conditions Reports, to
each Borrower’s actual knowledge after due inquiry, (a) each Property, including, without
limitation, all buildings, improvements, parking facilities, sidewalks, storm drainage systems,
roofs, plumbing systems, HVAC systems, fire protection systems, electrical systems, equipment,
elevators, exterior sidings and doors, landscaping, irrigation systems and all structural
components, are in good condition, order and repair in all material respects; (b) there exists no
material structural or other material defects or damages in any Property, whether latent




97









 







or
otherwise; and (c) no Loan Party has received notice from any insurance company or bonding company
of any defects or inadequacies in any Property, or any part thereof, which would adversely affect
the insurability of the same or cause the imposition of extraordinary premiums or charges thereon
or of any termination or threatened termination of any policy of insurance or bond.




          4.1.25 Boundaries. Except as disclosed on the Surveys, to each Borrower’s actual
knowledge, all of the Improvements which were included in determining the appraised value of each
Property lie wholly within the boundaries and building restriction lines of such Property, and no
improvements on adjoining properties encroach upon such Property, and no easements or other
encumbrances upon any Property encroach upon any of the Improvements, so as to materially and
adversely affect the value or marketability of such Property except those which are insured against
by the applicable Title Insurance Policy for such Property.




          4.1.26 Leases. To each Borrower’s actual knowledge after due inquiry and except as
set forth on Schedule X attached hereto or as otherwise disclosed in the estoppel
certificates delivered to Lender in connection with the closing of the Loan, (a) the Properties are
not subject to any Leases other than the HRHI Lease and the other Leases described in said
Schedule X, (b) each Mortgage Borrower is the owner and lessor of the landlord’s interest
in each such Lease affecting its Property, (c) no Person has any possessory interest in any
Property or any right to
occupy the same except under and pursuant to the provisions of such Leases, (d) all commercial
Leases are in full force and effect and there are no material defaults thereunder by either party
and there are no conditions that, with the passage of time or the giving of notice, or both, would
constitute material defaults thereunder, (e) the copies of the commercial Leases delivered to
Lender are true and complete, and there are no oral agreements with respect thereto, (f) no Rent
(including security deposits) has been paid more than one (1) month in advance of its due date, (g)
all work to be performed by the landlord under each Lease has been performed as required in such
Lease and has been accepted by the applicable tenant, and any payments, free rent, partial rent,
rebate of rent or other payments, credits, allowances or abatements required to be given by any
Mortgage Borrower to any tenant has already been received by such tenant, (h) there has been no
prior sale, transfer or assignment, hypothecation or pledge of any Lease or of the Rents received
therein which is still in effect, (i) no commercial tenant listed on Schedule X has
assigned its Lease or sublet all or any portion of the premises demised thereby, no such commercial
tenant holds its leased premises under assignment or sublease, nor does anyone except such
commercial tenant and its employees occupy such leased premises, (j) no tenant under any Lease has
a right or option pursuant to such Lease or otherwise to purchase all or any part of the Property
of which the leased premises are a part, and (k) no tenant under any Lease has any right or option
for additional space in the Improvements.




          4.1.27 Affiliates. Such Borrower does not own any equity interests in any other
Person other than the related Pledged Interests.




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



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          4.1.29 Filing and Recording Taxes. All transfer taxes, deed stamps, intangible taxes
or other amounts in the nature of transfer taxes required to be paid by any Person under applicable
Legal Requirements currently in effect in connection with the transfer of the Properties and/or the
IP to Mortgage Borrowers and/or the transfer of the First Mezzanine Collateral to First Mezzanine
Borrowers and/or the transfer of the Collateral to Borrowers have been paid as of the Closing Date.
Borrowers and each of their Affiliates have filed or caused to be filed all reports relating to
gaming taxes or fees to any Gaming Authority required to be filed by them on or prior to the date
hereof. All mortgage, mortgage recording, stamp, intangible or other similar tax required to be
paid by any Person under applicable Legal Requirements currently in effect in connection with the
execution, delivery, recordation, filing, registration, perfection or enforcement of any of the
Mortgage Loan Documents, including, without limitation, the Mortgage, or of any of the Loan
Documents, including, without limitation, the Pledge Agreement and the related UCC Financing
Statements, have been paid as of the Closing Date. The Pledge Agreement and the other Loan
Documents are enforceable against Borrowers in accordance with their respective terms by Lender (or
any subsequent holder thereof), subject to principles of equity and bankruptcy,
insolvency and other laws generally applicable to creditors’ rights and the enforcement of
debtors’ obligations.




          4.1.30 Special Purpose Entity/Separateness. (a) Until the Debt has been paid in full
and the obligations under the Mortgage Loan Documents, the Loan Documents and the Mezzanine Loan
Documents have been paid in full, each Borrower hereby represents, warrants and covenants that (i)
such Borrower is, shall be and shall continue to be a Special Purpose Entity, (ii) each Mortgage
Borrower is, shall be and shall continue to be a “Special Purpose Entity” (as such term is defined
in Section 1.1 of the Mortgage Loan Agreement as in effect on the date hereof), and (iii) each
First Mezzanine Borrower is, shall be and shall continue to be a “Special Purpose Entity” (as such
term is defined in Section 1.1 of the First Mezzanine Loan Agreement as in effect on the date
hereof).




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



               (c) All of the assumptions made in the Insolvency Opinion, including, but not limited to, any
exhibits attached thereto, are true and correct in all respects. Each Borrower has complied and
will comply with all of the assumptions made with respect to such Borrower in the Insolvency
Opinion.



               (d) Each Borrower hereby covenants and agrees that (i) any assumptions made in any subsequent
non-consolidation opinion required to be delivered in connection with the Loan Documents (an
"Additional Insolvency Opinion”), including, but not limited to, any exhibits attached thereto,
shall be true and correct in all respects, (ii) each Borrower will comply with all of the
assumptions made with respect to each Borrower in any Additional Insolvency Opinion, and (iii) each
Person other than any Borrower with respect to which an assumption shall be made in any Additional
Insolvency Opinion will comply with all of the assumptions made with respect to it in any
Additional Insolvency Opinion.



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               (e) Mortgage Borrowers and First Mezzanine Borrowers have complied, and each Borrower will
cause Mortgage Borrowers and First Mezzanine Borrowers, as applicable, to comply, with all of the
assumptions made with respect to Mortgage Borrowers and First Mezzanine Borrowers, as applicable,
in the Insolvency Opinion and each Borrower will cause Mortgage Borrowers and First Mezzanine
Borrowers, as applicable, to comply with all of the assumptions made with respect to Mortgage
Borrowers and First Mezzanine Borrowers, as applicable, in any Additional Insolvency Opinion.



          4.1.31 Management Agreements; Liquor Management Agreement.




               (a) Each of the Management Agreements is in full force and effect and there is no default
thereunder by any party thereto and no event has occurred that, with the passage of time and/or the
giving of notice would constitute a default thereunder. Following the date hereof, there shall be
no material default thereunder.



               (b) The Sub-Management Agreement is in full force and effect and there is no material default
thereunder by any party thereto and no event has occurred that, with the passage of time and/or the
giving of notice would constitute a material default thereunder.



               (c) The Liquor Management Agreement is in full force and effect and there is no default
thereunder by any party thereto and no event has occurred that, with the passage of time and/or the
giving of notice would constitute a default thereunder.



          4.1.32 Illegal Activity. No portion of any Property, the IP or the Collateral has
been or will be purchased by any Loan Party or any other Restricted Party with proceeds of any
illegal activity.




          4.1.33 No Change in Facts or Circumstances; Disclosure. To each Borrower’s actual
knowledge, all material information submitted by any Borrower or Mortgage Borrower to Lender and in
all financial statements, rent rolls, reports, certificates and other documents submitted in
connection with the Loan or in satisfaction of the terms thereof and all statements of fact made by
any Borrower in this Agreement or in any other Loan Document, and, to the knowledge of each
Borrower, all statements of fact made by Mortgage Borrowers in the Mortgage Loan Agreement or in
any other Mortgage Loan Document, are accurate, complete and correct in all material respects. To
each Borrower’s actual knowledge, there has been no material adverse change in any condition, fact,
circumstance or event that would make any such information inaccurate, incomplete or otherwise
misleading in any material respect or that otherwise materially and adversely impairs, or is
reasonably likely to do so after the date hereof, the use or operation of the Properties, the IP or
the Collateral or the business operations or the financial condition of any Loan Party. Each
Borrower has disclosed to Lender all material facts actually known to such Borrower and has not
failed to disclose any material fact actually known to such Borrower that could cause any Provided
Information or representation or warranty made herein to be materially misleading.




          4.1.34 Investment Company Act. No Borrower is (a) an “investment company” or a
company “controlled” by an “investment company,” within the meaning of the Investment



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Company Act
of 1940, as amended; or (b) subject to any other federal or state law or regulation which purports
to restrict or regulate its ability to borrow money.




          4.1.35 Embargoed Person. At all times throughout the term of the Loan, including
after giving effect to any Transfers permitted pursuant to the Loan Documents, (a) none of the
funds or other assets of any Loan Party, HRHI or any Guarantor shall constitute property of, or
shall be beneficially owned, directly or indirectly, by, any Person subject to trade restrictions
under United States law, including, but not limited to, the International Emergency Economic Powers
Act, 50 U.S.C. § 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any
Executive Orders or regulations promulgated under any such United States laws (each, an “Embargoed
Person”), with the result that the Loan made by Lender is or would be in violation of law; (b) no
Embargoed Person shall have any interest of any nature whatsoever in any Loan Party, HRHI or
any Guarantor, as applicable, with the result that the Loan is or would be in violation of law; and
(c) none of the funds of any Loan Party, HRHI or any Guarantor, as applicable, shall be derived
from any unlawful activity with the result that the Loan is or would be in violation of law;
provided, however, that Borrowers’ representation in this clause (c) shall
not extend to gaming revenues generated at the Hotel/Casino Property from the general public unless
any Loan Party or any other Restricted Party has actual knowledge that such revenues are derived
from any unlawful activity.




          4.1.36 Cash Management Account. (a) This Agreement, together with the other Loan
Documents, creates a valid and continuing security interest (as defined in the Uniform Commercial
Code of the State of New York) in the Cash Management Account in favor of Lender, which security
interest is prior to all other Liens and is enforceable as such against creditors of and purchasers
from any Borrower. Other than in connection with the Loan Documents, no Borrower has sold or
otherwise conveyed the Cash Management Account;




               (b) The Cash Management Account constitutes a “deposit account” within the meaning of the
Uniform Commercial Code of the State of New York; and



               (c) The Cash Management Account is not in the name of any Person other than Borrowers, as
pledgors, or Lender, as pledgee.



          4.1.37 Intellectual Property.




               (a) The Intellectual Property Security Agreement creates a valid and continuing security
interest (as defined in the Uniform Commercial Code of the State of New York) in all of HRHI’s
rights, title and interest in and to all of the following (collectively, the “IP”):




          (i) all trademarks, service marks, domain names, trademark registrations,
service mark registrations, domain name registrations, applications for trademark
registrations, applications for service mark registrations, applications for domain
name registrations, trade names, brand names, product names and common law marks,
and the renewals thereof owned or used by any Loan Party or any Affiliated IP Party
in connection with the operation and/or use



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of one or more of the Properties,
including for each such trademark, service mark or domain name the registration
number or application number and country;




     (ii) all copyrights, and the renewals thereof, owned or used by any Loan Party
or any Affiliated IP Party in connection with the operation and/or use of one or
more of the Properties, including for each such copyright the registration number or
application number and country;




     (iii) all trade secrets, discoveries, formulae, proprietary processes,
improvements and inventions for which no patent applications are pending and all
other industrial property rights presently owned, in whole or in part, or used, by
any Loan Party or any Affiliated IP Party in connection with the ownership,
operation and/or use of one or more of the Properties; and




     (iv) all trademark licenses, service mark licenses, copyright licenses, royalty
agreements, assignments, grants and contracts with employees or others relating in
whole or in part to any of the foregoing IP to which any Loan Party and/or any
Affiliated IP Party is a party, which is related to the ownership, operation and/or
use of one or more of the Properties (collectively, the “IP Agreements”).



          (b) Schedule VII attached hereto is a true, correct and complete list of all the
Registered IP used by any Loan Party in connection with the ownership, operation and/or use of one
or more of the Properties. Part I of said Schedule VII is a true, correct and complete
list of all Registered IP owned by IP Borrower or any Affiliated IP Party, including Registered IP
and that has been assigned to IP Borrower by Morton pursuant to that certain Trademark Assignment
dated as of February 2, 2007 from Morton in favor of IP Borrower (the “Morton Assigned IP”; and all
of the foregoing, collectively, the “Owned IP”). Part II of said Schedule VII is a true,
correct and complete list of all Registered IP that is licensed from Rank Licensing, Inc. (“Rank”)
to Morton pursuant to that certain Trademark License and Cooperation Agreement, dated June 7, 1996,
between Rank and Morton and which has been assigned from Morton to IP Borrower pursuant to that
certain Assignment and Assumption Agreement dated as of February 2, 2007 (the “Rank License”) from
Morton in favor of IP Borrower (all such IP listed on Part II of said Schedule VII, the
"Rank IP”). Part III of said Schedule VII is a true, correct and complete list of all
Registered IP that is licensed from Morton to IP Borrower pursuant to that certain License
Agreement, dated as of February 2, 2007 (the “Pink Taco License”) from Morton in favor of IP
Borrower (all such IP listed on Part IV of said Schedule VII, the “Pink Taco IP”; and the
Pink Taco IP, together with the Rank IP, the “Licensed IP”).



          (c) Intentionally Omitted.



          (d) Except as set forth on Part IV of Schedule VII, Mortgage Borrowers or an
Affiliated IP Party owns or possesses licenses or other rights in or under all patents, trademarks,
service marks, trade names, domain names, copyrights and any other IP, which is necessary for the
use, ownership, management, promotion and operation of its Property and associated merchandising as
currently so used, except where the failure to so own or possess



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such IP, licenses or other rights
could not reasonably be expected to have a material adverse effect on such use, ownership or
operations (a “IP Material Adverse Effect”).





     (e) Part V of said Schedule VII hereto sets forth:




     (i) any written communications from any Loan Party or any Affiliate thereof to
one or more third parties, or from one or more third parties to any Loan Party or
any Affiliate thereof, alleging infringement by any third party or any Loan Party or
any Affiliate thereof, of any of the IP or alleging related acts of
unfair competition or activities or actions of any anti-competitive nature,
together with all responses to such communications and a description of the status
of each such alleged infringement, in each case, which the failure to resolve such
alleged infringement or competition could reasonably be expected to have a IP
Material Adverse Effect; and




     (ii) a complete list of any goods and/or services sold by any Person other than
any Loan Party and of whom any Loan Party has actual knowledge, which in the opinion
of any Loan Party infringes upon any IP listed in said Schedule VII hereof.




     (f) Except as disclosed in said Schedule VII:




     (i) IP Borrower or an Affiliated IP Party owns the Owned IP, and IP Borrower
has a valid and enforceable license to use the Licensed IP, in each case free and
clear of any Liens other than the Permitted IP Encumbrances;




     (ii) no Loan Party or an Affiliated IP Party has granted nor is obligated to
grant any other Person any rights (including, without limitation licenses) with
respect to any of the IP other than the Permitted IP Encumbrances;




     (iii) to Borrowers’ actual knowledge, the trademarks, service marks, domain
names and copyrights included in the Owned IP and in the Licensed IP are valid;




     (iv) to Borrowers’ actual knowledge, the trademark registrations, service mark
registrations, domain name registrations and copyright registrations included in the
Owned IP and Licensed IP have been duly issued and have not been canceled, abandoned
or otherwise terminated;




     (v) to Borrowers’ actual knowledge, the trademark applications, service mark
applications, domain name applications and copyright applications included in the
Owned IP have been duly filed; and




     (vi) to Borrowers’ actual knowledge, all material IP Agreements are valid and
binding in accordance with their terms (except as the enforceability thereof may be
limited by any applicable bankruptcy, reorganization, insolvency or other laws
affecting creditors’ rights generally or by general principles of equity) and are in
full force and effect.



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               (g) To Borrowers’ actual knowledge, no Loan Party or Affiliated IP Party is obligated to
disclose any of the IP to any other Person.



               (h) To Borrowers’ actual knowledge, except for the Licensed IP, no Loan Party requires a
license or right under or in respect of any intellectual property of any other Person (except
another Loan Party) to conduct such Loan Party’s business as presently conducted and no substantial
part of such business is carried on under the agreement or consent
of any other Person nor is there any agreement to which any Loan Party is a party which
significantly restricts the fields in which such business may be carried on.



               (i) To Borrowers’ actual knowledge, there are and have been no proceedings, actions or claims
and no proceedings, actions or claims are pending or threatened, impugning the title, validity or
enforceability of any of the IP.



               (j) To Borrowers’ actual knowledge, none of the processes currently used by any Loan Party or
any Affiliated IP Party or any of the properties or products currently sold by any Loan Party or
any Affiliated IP Party, and none of the IP or Licensed IP, infringes the patent, industrial
property, trademark, trade name, domain name, label, other mark, right or copyright or any other
similar right of any other Person, except where such infringement could not reasonably be expected
to have an IP Material Adverse Effect.



               (k) To Borrowers’ actual knowledge, no basis exists for any adverse claim by any third party
with respect to any of the IP, and no act has been done or has been omitted to be done by any Loan
Party or any Affiliate thereof to entitle any Person to make such a claim or to cancel, forfeit or
modify any of the IP.



               (l) Except the Licensed IP, no Loan Party requires a license or right under or in respect of
any intellectual property of any other Person (except another Loan Party) to conduct such Loan
Party’s business as presently conducted and no substantial part of such business is carried on
under the agreement or consent of any other Person nor is there any agreement to which any Loan
Party is a party which significantly restricts the fields in which such business may be carried on.



               (m) To Borrowers’ actual knowledge, no disclosure has been made to any Person of the know-how
or financial or trade secrets of any Loan Party, except properly and in the ordinary course of
business and on condition that such disclosure is to be treated as being of a confidential nature
and except where such disclosure would not reasonably be expected to have an IP Material Adverse
Effect; and to Borrower’s actual knowledge, none of the IP is being infringed by any other Person,
except where such infringement could not reasonably be expected to have an IP Material Adverse
Effect.



          4.1.38 No Franchise Agreement. None of the Loan Parties or Managers or Sub-Manager
has entered into, and none of the Properties are subject to, any franchise, trademark or license
agreement with any Person with respect to the name and/or operation of any Property, other than the
IP, the Rank License and the Pink Taco License.




          4.1.39 Merger Agreement. The Acquisition and the Other Transaction Closings (as such
capitalized terms are defined in the Merger Agreement) were consummated in




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accordance with all of
the material terms and conditions of the Merger Agreement and the Other Transaction Documents (as
defined in the Merger Agreement), with only such amendments, supplements and/or modifications
thereto, and waivers and extensions thereof, as Mortgage Lender has approved in writing, to the
extent such approval is required under that certain Commitment Letter dated December 22, 2006
between Morgans Hotel Group Co., MHG HR Acquisition Corp, DLJ Merchant Banking, Inc. and Mortgage
Lender.




          4.1.40 Morton Indemnification and PWR/RWB Escrow Agreement. Borrowers have delivered,
or caused Mortgage Borrowers to deliver, to Lender true, correct and complete copies of each of the
Morton Indemnification and the PWR/RWB Escrow Agreement and all amendments thereto. Except for
such amendments thereto as have been delivered to Lender, the Morton Indemnification and the
PWR/RWB Escrow Agreement have not been amended or modified and are in full force and effect. No
Loan Party nor any Affiliate thereof has (a) made any claim under the Morton Indemnification, or
(b) requested any disbursement of funds under the PWR/RWB Escrow Agreement with respect to any
claim under the Morton Indemnification or otherwise. No Loan Party nor any Affiliate thereof knows
of any state of facts currently existing that would be reasonably likely to result in a claim under
the Morton Indemnification.




          4.1.41 Gaming Licenses and Other Operating Permits.




               (a) HRHI possesses all Operating Permits (including, but not limited to, all liquor licenses)
which are necessary for the execution, delivery and performance of the Liquor Management Agreement,
the HRHI Lease and the Gaming Sublease. All of such Operating Permits are in and will be in full
force and effect; the Loan Parties and each of their Affiliates, as applicable, including, without
limitation, HRHI, are in compliance in all material respects with all such Operating Permits; and
no event, including, without limitation, any violation of any Legal Requirement, has occurred which
would be reasonably likely to lead to the suspension, revocation or termination of any such
Operating Permit or the imposition of any restriction thereon.



               (b) To Borrowers’ actual knowledge, Gaming Operator possesses all Operating Permits
(including, without limitation, all Gaming Licenses) which are material to the execution, delivery
and performance of the Gaming Sublease and the use, occupation and operation of the Casino
Component; to Borrowers’ actual knowledge, each such Operating Permit and Gaming License (or any
replacement thereof) is and will be in full force and effect; and, to Borrowers’ actual knowledge,
Gaming Operator is in compliance in all material respects with the Gaming Sublease, all Gaming
Licenses and all other Operating Permits applicable to the operation of the Casino Component as
contemplated herein. Further, Borrowers hereby represent and warrant as follows:



               (c) Borrowers have no reason to believe that Gaming Operator will not be able to maintain in
effect all Gaming Licenses and other Operating Permits necessary for the lawful conduct of its
business or operations as now conducted and as planned to be conducted at the Hotel/Casino
Property, including the Gaming Sublease and operation of the Casino Component, pursuant to all
applicable Legal Requirements.



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               (d) To Borrowers’ actual knowledge, all Gaming Licenses are in full force and effect and have
not been amended or otherwise modified in any material adverse respect or suspended, rescinded or
revoked.



               (e) None of the Loan Parties nor, to Borrowers’ actual knowledge, Gaming Operator are in
default in any material respect under, or in violation in any material respect of, any Gaming
License or other Operating Permit, and no event has occurred, and no condition exists, which, with
the giving of notice or passage of time or both, would constitute such a default thereunder or such
a violation thereof, that has caused or would reasonably be expected to cause the loss, suspension,
revocation, impairment, forfeiture, non-renewal or termination of any Gaming License or the
imposition of any restriction thereon.



               (f) None of the Loan Parties nor, to Borrowers’ actual knowledge, Gaming Operator have
received any notice of any violation of any Legal Requirement which has caused or would reasonably
be expected to cause any Gaming License or other Operating Permit to be modified in any material
adverse respect or suspended, rescinded or revoked.



               (g) The continuation, validity and effectiveness of all Gaming Licenses and other Operating
Permits will not be adversely affected by the transactions contemplated by this Agreement.



               (h) The Gaming Sublease is in full force and effect, none of the Loan Parties nor, to
Borrowers’ actual knowledge, Gaming Operator is in material default thereof and no event has
occurred, and no condition exists, which, with the giving of notice or passage of time, or both,
would constitute a material default thereunder or material violation thereof.



               (i) The execution, delivery or performance of any of the Loan Documents will not permit nor
result in the imposition of any material penalty under, or the suspension, revocation or
termination of, any Gaming License or other Operating Permit or any material impairment of the
rights of the holder of any Gaming License.



               (j) There are no restrictions on transfer or agreements not to encumber the ownership
interests of any Loan Party in any of the Loan Documents, the Mortgage Loan Documents or the First
Mezzanine Loan Documents, as applicable, that require the approval of the Gaming Authorities in
order to become effective, except as set forth in Section 17 of the Pledge Agreement and the Pledge
Agreement affecting the First Mezzanine Collateral.



               (k) (i) Each of HRHI and Hotel/Casino Borrower meet the suitability standards for a landlord
contemplated or set forth in the Gaming Laws; (ii) neither HRHI nor Hotel/Casino Borrower have or
will take dominion over the Casino Component while such Casino Component continues to be used for
gaming purposes without first obtaining the approvals required by the Gaming Laws; and (iii) HRHI
and/or Hotel/Casino Borrower have obtained all necessary approvals to transfer the Gaming Assets to
Golden HRC.



          4.1.42 Control of First Mezzanine Borrowers and Mortgage Borrowers. Borrowers have
the power and authority and the requisite ownership interests to Control the actions of First
Mezzanine Borrowers and, in turn, Mortgage Borrowers.




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          4.1.43 Separate and Distinct Loans. The Loan, the Mortgage Loan and the Mezzanine
Loans are entirely separate, distinct and independent obligations, made to separate and distinct
borrowers, on separate and distinct terms and secured by separate and distinct collateral.




          4.1.44 Mortgage Loan Documents and First Mezzanine Loan Documents. (a) There are no
Mortgage Loan Documents and no First Mezzanine Loan Documents other than those set forth on
Schedule XI and Schedule XII, respectively.




               (b) True and correct copies of all the Mortgage Loan Documents have been provided to Lender
and none of the Mortgage Loan Documents have been modified or amended since the delivery thereof,
except as forth on such Schedule XI.



               (c) True and correct copies of all the First Mezzanine Loan Documents have been provided to
Lender and none of the First Mezzanine Loan Documents have been modified or amended since the
delivery thereof.



          4.1.45 No Defaults. No Mortgage Default, Mortgage Event of Default, First Mezzanine
Default or First Mezzanine Event of Default exists as of the Closing Date.




          4.1.46 Loan Party Representations and Warranties. (a) Borrowers have reviewed the
representations and warranties made by, and covenants of, (i) Mortgage Borrowers to and for the
benefit of Mortgage Lender contained in the Mortgage Loan Documents, and (ii) First Mezzanine
Borrowers to and for the benefit of First Mezzanine Lender contained in the First Mezzanine Loan
Documents and all such representations and warranties are true, correct and complete in all
material respects.




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



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



     Section 4.3 Definition of Borrowers’ Knowledge. As used in this Agreement or any
other Loan Document, the phrases “Borrowers’ knowledge”, “any Borrower’s knowledge”, “Borrowers’
actual knowledge”, “any Borrower’s actual knowledge”, “Borrowers’ best knowledge” or “any
Borrower’s best knowledge” or words of similar import, shall mean the actual knowledge, after
commercially reasonable due inquiry, of any of Edward Scheetz, Marc



107









 




Gordon, David Smail, Matt
Armstrong, Arthur Blee, Ana Nekhamkin, Ryan Sprott, Brian Zaumeyer and/or Bobby Kelly (the “Named
Knowledge Parties”) and/or any additional individual or individuals who in the future are delegated
or assume any of the responsibilities of any of the foregoing Named Knowledge Parties with respect
to any of the Properties, and the knowledge of no other Person shall be imputed to any of the Named
Knowledge Parties or any such other individuals, it being expressly represented and warranted to
Lender by Borrowers that it would be unlikely that any material fact regarding any of the
Properties or Borrowers or otherwise covered in the representations and warranties contained herein
or in any other Loan Document would not come to the attention of one or more of the Named Knowledge
Parties, after commercially reasonable due inquiry. Notwithstanding anything to the contrary
contained in this Agreement or any other Loan Document, none of the Named Knowledge Parties shall
have any personal liability hereunder.




ARTICLE V.

COVENANTS OF BORROWERS




     Section 5.1 Affirmative Covenants. From the date hereof and until payment and
performance in full of all obligations of Borrowers under the Loan Documents or the earlier release
of the Lien of the Pledge Agreement encumbering the Collateral (and all related obligations) in
accordance with the terms of this Agreement and the other Loan Documents, Borrowers hereby jointly
and severally covenant and agree with Lender that:



          5.1.1 Existence; Compliance with Legal Requirements. Each Borrower shall do or cause
to be done all things necessary to preserve, renew and keep in full force and effect its existence,
rights, licenses, permits and franchises necessary for the conduct of its business and comply, or
cause each other Loan Party to comply, in all material respects with all Legal Requirements
applicable to such Loan Party, the First Mezzanine Collateral, the Collateral, the Properties or
the IP, including, without limitation, Prescribed Laws. There shall never be committed by any
Borrower, and no Borrower shall, nor shall cause any other Loan Party to, knowingly permit any
other Person in occupancy of or involved with the operation or use of any of the Properties to
commit, any act or omission affording the federal government or any state or local government the
right of forfeiture against the First Mezzanine Collateral, the Collateral and/or any Property or
any part thereof or any monies paid in performance of any Borrower’s obligations under any of the
Loan Documents or paid in performance of First Mezzanine Borrowers’ obligations under any of the
First Mezzanine Loan Documents or paid in performance of Mortgage Borrowers’ obligations under any
of the Mortgage Loan Documents. Each Borrower hereby covenants and agrees not to commit, permit or
suffer to exist any act or omission affording such right of forfeiture. Each Borrower shall, and
shall cause each other Loan Party to, at all times maintain, preserve and protect in all
material respects all franchises and trade names and preserve all the remainder of its property
necessary for the conduct of its business as contemplated hereunder, and, subject to Mortgage
Borrowers’ right to demolish the Improvements on the Adjacent Property subject to, and in
accordance with, the provisions of Section 3.18 of the Mortgage Loan Agreement, shall keep the
Properties in good working order and repair in all material respects, and from time to time make,
or cause to be made, all reasonably necessary repairs, renewals, replacements, betterments and
improvements thereto, all as more fully provided in the Mortgage. Borrowers shall cause Mortgage
Borrowers to keep the Properties insured at all times by financially sound and reputable insurers,
to such extent and



108









 




against such risks, and maintain liability and such other insurance, as is more
fully provided in the Mortgage Loan Agreement. Borrowers shall cause Mortgage Borrowers to operate
the Properties in accordance with the terms and provisions of the O&M Agreements in all material
respects. After prior notice to Lender, any Borrower, at its own expense, may contest, or may
cause each other Loan Party to contest, by appropriate legal proceeding promptly initiated and
conducted in good faith and with due diligence, the validity of any Legal Requirement, the
applicability of any Legal Requirement to any Loan Party, the First Mezzanine Collateral, the
Collateral or the Property or any alleged violation of any Legal Requirement, provided that
(a) no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default has occurred
and remains uncured; (b) such proceeding shall be permitted under and be conducted in accordance
with the provisions of any instrument to which such Loan Party is subject and shall not constitute
a default thereunder and such proceeding shall be conducted in accordance with all applicable
statutes, laws and ordinances; (c) neither any Property, the First Mezzanine Collateral, the
Collateral or any part of any of the foregoing or interest therein will be in imminent danger of
being sold, forfeited, terminated, cancelled or lost; (d) such Borrower shall, and shall cause each
other Loan Party to, promptly upon final determination thereof comply with any such Legal
Requirement determined to be valid or applicable or cure any violation of any Legal Requirement;
(e) such proceeding shall suspend the enforcement of the contested Legal Requirement against such
Loan Party, the First Mezzanine Collateral, the Collateral or any Property; and (f) such Borrower
shall furnish, or shall cause each other Loan Party to furnish, such security as may be required in
the proceeding, or as may be reasonably requested by Lender, to insure compliance with such Legal
Requirement, together with all interest and penalties payable in connection therewith. Following
any non-compliance with such Legal Requirement as determined by a court of competent jurisdiction,
Lender may apply any such security, as necessary to cause compliance with such Legal Requirement at
any time when, in the reasonable judgment of Lender, the validity, applicability or violation of
such Legal Requirement is finally established or the First Mezzanine Collateral, the Collateral or
any Property (or any part of any of the foregoing or interest therein) shall be in imminent danger
of being sold, forfeited, terminated, cancelled or lost.




          5.1.2 Taxes and Other Charges. Borrowers shall pay, or shall cause Mortgage Borrowers
to pay, all Taxes and Other Charges now or hereafter levied or assessed or imposed against the
Properties or any part thereof prior to the date upon which any interest or late charges shall
begin to accrue thereon; provided, however, Mortgage Borrowers’ obligation to
directly pay Taxes shall be suspended for so long as Mortgage Borrowers comply with the terms and
provisions of Section 7.2 of the Mortgage Loan Agreement or Borrowers comply with the terms and
provisions of Section 7.2
hereof, if applicable. Borrowers will deliver, or will cause Mortgage Borrowers to deliver,
to Lender receipts for payment or other evidence satisfactory to Lender that the Taxes and Other
Charges have been so paid or are not then delinquent. Borrowers shall furnish, or shall cause
Mortgage Borrowers to furnish, to Lender receipts for the payment of the Taxes and the Other
Charges prior to the date upon which any interest or late charges shall begin to accrue thereon;
provided, however, Mortgage Borrowers shall not be required to furnish such
receipts for payment of Taxes in the event that such Taxes have been paid by Mortgage Lender
pursuant to Section 7.2 of the Mortgage Loan Agreement or by Lender pursuant to Section 7.2
hereof, if applicable. Borrowers shall not suffer, and shall not permit any other Loan Party to
suffer, and shall promptly cause to be paid and discharged (or provide reasonable security for) any
Lien or charge against any of the Properties, the First Mezzanine





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Collateral or the Collateral, and shall promptly pay, or shall cause Mortgage Borrowers to
promptly pay, for all utility services provided to any of the Properties. After prior notice to
Lender, any Borrower, at its own expense, may contest, or may cause each other Loan Party to
contest, by appropriate legal proceeding, promptly initiated and conducted in good faith and with
due diligence, the amount or validity or application in whole or in part of any Taxes or Other
Charges, provided that (a) no Event of Default, Mortgage Event of Default or any Mezzanine
Event of Default exists; (b) such proceeding shall be permitted under and be conducted in
accordance with the provisions of any other instrument to which such Borrower or such other Loan
Party is subject and shall not constitute a default thereunder and such proceeding shall be
conducted in accordance with all applicable statutes, laws and ordinances; (c) neither any
Property, the First Mezzanine Collateral, the Collateral nor any part of any of the foregoing or
interest therein will be in imminent danger of being sold, forfeited, terminated, cancelled or
lost; (d) such Borrower shall promptly upon final determination thereof pay, or shall cause such
other Loan Party to pay, the amount of any such Taxes or Other Charges, together with all costs,
interest and penalties which may be payable in connection therewith; (e) such proceeding shall
suspend the collection of such contested Taxes or Other Charges from the applicable Property, the
First Mezzanine Collateral and the Collateral; and (f) such Borrower shall furnish, or shall cause
such other Loan Party to furnish, such security as may be required in the proceeding, or as may be
reasonably requested by Lender, to insure the payment of any such Taxes or Other Charges, together
with all interest and penalties thereon. Lender may pay over any such cash deposit or part thereof
held by Lender to the claimant entitled thereto at any time when, in the reasonable judgment of
Lender, the entitlement of such claimant is established or the First Mezzanine Collateral, the
Collateral or any Property (or any part of any of the foregoing or interest therein) shall be in
danger of being sold, forfeited, terminated, cancelled or lost or there shall be any imminent
danger of the Lien of the Pledge Agreement being primed by any related Lien.




          5.1.3 Litigation. Borrowers shall give prompt notice to Lender of any litigation or
governmental proceedings pending or threatened in writing against any Loan Party, HRHI or any
Guarantor which, if adversely determined, would have a material adverse effect on (a) the business
operations, economic performance, assets, financial condition, equity, contingent liabilities,
material agreements or results of operations of any Loan Party, HRHI, any Guarantor, any Property,
the IP, the First Mezzanine Collateral or the Collateral, (b) the enforceability or validity of any
Loan Document, the perfection or priority of any Lien created under any Loan Document or the
remedies of Lender under any Loan Document, (c) the ability of any Loan Party, HRHI or any
Guarantor to perform, in all material respects, its respective obligations under each of the
Mortgage Loan Documents, the First Mezzanine Loan Documents or the Loan Documents, as applicable,
or (d) the value of, or cash flow from, any Property, the IP, the First Mezzanine Collateral or the
Collateral.




          5.1.4 Access to the Properties. Borrowers shall cause Mortgage Borrowers to permit
agents, representatives and employees of Lender to inspect the Properties or any part thereof at
reasonable hours upon reasonable advance notice (which may be given verbally), subject to the
rights of tenants under their Leases.




          5.1.5 Special Distributions. On each date on which amounts are required to be
disbursed to the Cash Management Account or otherwise to be paid to Borrowers or Lender





110









 







pursuant to
the terms of the Mortgage Loan Documents (including the Mortgage Loan Agreement and/or the Mortgage
Cash Management Agreement), or are required to be paid to Lender under any of the Loan Documents,
Borrowers shall exercise their rights to cause First Mezzanine Borrowers and, in turn, First
Mezzanine Borrowers shall exercise their rights to cause Mortgage Borrowers to make to Borrowers
distributions in an aggregate amount such that Lender shall receive the amount required to be
disbursed to Lender from the Cash Management Account or otherwise paid to Lender on such date.




          5.1.6 Cooperate in Legal Proceedings. Borrowers shall reasonably cooperate, and shall
cause each other Loan Party to reasonably cooperate, fully with Lender with respect to any
proceedings before any court, board or other Governmental Authority which in any way materially
affects the rights of Lender hereunder or any rights obtained by Lender under any of the other Loan
Documents and, in connection therewith, permit Lender, at its election, to participate in any such
proceedings.




          5.1.7 Perform Loan Documents. Borrowers shall observe, perform and satisfy all the
terms, provisions, covenants and conditions of, and shall pay when due all costs, fees and expenses
to the extent required under the Loan Documents executed and delivered by, or applicable to, any
Borrower. Payment of the costs and expenses associated with any of the foregoing shall be in
accordance with the terms and provisions of this Agreement, including, without limitation, the
provisions of Section 10.13 hereof.




          5.1.8 Award and Insurance Benefits. Subject to the terms of Article VI
hereof, Borrowers shall reasonably, and shall cause Mortgage Borrowers to reasonably, cooperate
with Lender in obtaining for Lender the benefits of any Awards or Insurance Proceeds to which
Lender is entitled under the Loan Documents and which is lawfully or equitably payable in
connection with any Property, and Lender shall be reimbursed for any actual, reasonable expenses
incurred in connection therewith (including attorneys’ fees and disbursements, and the payment by
Borrowers of the expense of an appraisal on behalf of Lender in case of Casualty or Condemnation
affecting any Property or any part thereof) out of such Insurance Proceeds or Awards.




          5.1.9 Further Assurances. Borrowers shall, and shall cause each other Loan Party to,
at Borrowers’ sole cost and expense (subject to the terms and conditions of this Agreement):




               (a) execute and deliver to Lender such documents, instruments, certificates, assignments and
other writings, and do such other acts necessary or desirable, to evidence, preserve and/or protect
the Collateral at any time securing or intended to secure the obligations of Borrowers under the
Loan Documents, as Lender may reasonably require, including, without limitation, if permitted by
applicable law, the execution and delivery of all such writings necessary to transfer any Operating
Permits with respect to any Property into the name of Lender or its designee after the occurrence
of an Event of Default; and



               (b) do and execute all and such further lawful and reasonable acts, conveyances and assurances
for the better and more effective carrying out of the intents and



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purposes of this Agreement and
the other Loan Documents, as Lender shall reasonably require from time to time.




          5.1.10 Personal Property Taxes. Borrowers represent that as of the Closing Date
Borrowers have paid all state, county and municipal recording and all other taxes imposed upon the
execution and filing of the UCC Financing Statements.




          5.1.11 Financial Reporting. (a) Borrowers will keep and maintain or will cause to be
kept and maintained on a Fiscal Year basis, in accordance with the Uniform System of Accounts and
reconciled each year in accordance with GAAP (or such other accounting basis acceptable to Lender),
proper and accurate books, records and accounts reflecting all of the financial affairs of each
Borrower and all items of income and expense in respect of the Collateral. Borrowers shall cause
each other Loan Party to keep and maintain on a Fiscal Year basis, in accordance with the Uniform
System of Accounts and reconciled each year in accordance with GAAP (or such other accounting basis
acceptable to Lender), proper and accurate books, records and accounts reflecting all of the
financial affairs of such Loan Party and all items of income and expense in connection with the
operation of each Property. Lender shall have the right from time to time at all times during
normal business hours upon reasonable notice (which may be verbal) to examine such books, records
and accounts at the office of any Loan Party or any other Person maintaining such books, records
and accounts and to make such copies or extracts thereof as Lender shall desire. After the
occurrence and during the continuance of an Event of Default, Borrowers shall pay any actual costs
and expenses incurred by Lender to examine Borrowers’ and each of the other Loan Parties’
accounting records with respect to the Properties, the IP, the First Mezzanine Collateral and the
Collateral, as Lender shall reasonably determine to be necessary or appropriate in the protection
of Lender’s interest.




               (b) Borrowers will furnish to Lender annually, within one hundred twenty (120) days following
the end of each Fiscal Year of Borrowers, a complete copy of each Borrower’s, Mortgage Borrower’s,
HRHI’s and each Guarantor’s annual financial statements audited by a “Big Four” accounting firm or
other independent certified public accountant reasonably acceptable to Lender (it being hereby
understood and agreed that BDO Seidman, LLP is acceptable to Lender) in accordance with the Uniform
System of Accounts (or, in the case of Guarantors, GAAP) and reconciled each year in accordance
with GAAP (or such other accounting basis acceptable to Lender) covering the Collateral and the
Properties for such Fiscal Year and containing statements of profit and loss for Borrowers,
Mortgage Borrowers, HRHI, each Guarantor, the Collateral and each Property and a balance sheet for
Borrowers, Mortgage Borrowers, HRHI and each Guarantor; provided, however, that in
the event that any Guarantor is not otherwise required to, and does not, cause to be prepared such
audited financial statements in the ordinary course of its business, it may deliver the unaudited
statements which are delivered to its investors or otherwise prepared in the ordinary course of its
business, accompanied by the Officer’s Certificate required under Section 5.1.11(b)(B) of the
Mortgage Loan Agreement. Notwithstanding anything to the contrary set forth in this Agreement, the
financial statements of Borrowers and Mortgage Borrowers may be consolidated with those of (1) HRHI
for so long as (y) HRHI owns no other assets other than the ownership interests in one or more of
the Loan Parties and/or other assets related to one or more of the Loan Parties, one or more of the
Properties and/or the IP, and (z) engages in no other business other than those related to
owning one or more of the Loan Parties and/or other assets related to one or more of the Loan
Parties,



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one or more of the Properties and/or the IP, and (2) HR Holdings for so long as (x) the
provisions of the foregoing clause (1) remain true, (y) HR Holdings owns no other assets
other than the ownership interests in HRHI and/or one or more of the Loan Parties and/or other
assets related to HRHI, one or more of the Loan Parties, one or more of the Properties and/or the
IP, and (z) engages in no other business other than those related to owning HRHI and/or one or more
of the Loan Parties and/or other assets related to HRHI, one or more of the Loan Parties, one or
more of the Properties and/or the IP. Borrowers will furnish, or will cause each of the other Loan
Parties to furnish, to Lender a copy of the financial statements and all other materials which such
Loan Parties are required to provide to Mortgage Lender or First Mezzanine Lender under Section
5.1.11 of the Mortgage Loan Agreement or the First Mezzanine Loan Agreement, respectively, within
the time periods required under such Section.




               (c) For each Fiscal Year during the term of the Loan, Borrowers shall submit to Lender (and
Borrowers shall cause Mortgage Borrowers to submit to Mortgage Lender) an Annual Budget not later
than twenty (20) days prior to the commencement of such Fiscal Year in form reasonably satisfactory
to Lender. The Annual Budget shall be subject to Lender’s and Mortgage Lender’s written reasonable
approval (each such Annual Budget, as and when approved or deemed approved pursuant to this
Section 5.1.11(c), the “Approved Annual Budget”). Lender’s approval of a proposed Annual
Budget shall be deemed to have been given if (i) such proposed Annual Budget is submitted to Lender
with a request for approval set forth in a written notice that states clearly (in 14-point type or
larger): “THIS IS A REQUEST FOR APPROVAL OF AN ANNUAL BUDGET AND IF LENDER DOES NOT RESPOND WITHIN
TEN (10) BUSINESS DAYS, BORROWERS MAY DELIVER A DEEMED APPROVAL NOTICE” and Lender does not respond
by approving such proposed Annual Budget or stating in reasonable detail its objections to such
proposed Annual Budget within ten (10) Business Days of Lender’s receipt thereof, and (ii) after
Lender’s failure to respond to the initial request for approval of such proposed Annual Budget
within the time period set forth in the foregoing clause (i), Borrowers shall re-submit to
Lender (and Borrowers shall cause Mortgage Borrowers to re-submit to Mortgage Lender) such proposed
Annual Budget with a request for approval set forth in a written notice that states clearly (in
14-point type or larger): “THIS IS A REQUEST FOR APPROVAL OF AN ANNUAL BUDGET. APPROVAL WILL BE
DEEMED GIVEN IF LENDER DOES NOT RESPOND WITHIN THREE (3) BUSINESS DAYS” and Lender does not respond
to such second submission of such proposed Annual Budget by approving such proposed Annual Budget
or stating in reasonable detail its objection thereto within three (3) Business Days of Lender’s
receipt of such second submission. In the event that Lender objects to a proposed Annual Budget
submitted by any Borrower, Lender shall advise Borrowers of such objections within ten (10)
Business Days after receipt thereof (and deliver to Borrowers a reasonably detailed description of
such objections) and Borrowers shall promptly revise such Annual Budget and resubmit the same to
Lender. Lender shall advise Borrowers of any objections to such revised Annual Budget within ten
(10) days after receipt thereof (and deliver to Borrowers a reasonably detailed description of such
objections) and Borrowers shall promptly revise (or cause the applicable Manager to revise) the
same in accordance with the process described in this subsection until Lender approves each Annual
Budget. Until such time that Lender approves a proposed Annual Budget (or is deemed to have
approved such Annual Budget), the most recently Approved Annual Budget shall apply;
provided, that such Approved Annual Budget shall be automatically adjusted (i) to
reflect actual increases in Taxes and Insurance Premiums with respect to each Property, (ii) by
three percent



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(3%) on all other items to account for inflation, and (iii) to reflect any expenses
that must be incurred on an “emergency basis” in order to prevent the occurrence of any harm to any
individuals on any Property or any Property itself or the operation thereof. Notwithstanding the
foregoing, if seventy-five percent (75%) of the aggregate amount of costs set forth in a proposed
Annual Budget have been approved by Lender, then until such time as Lender and Mortgage Lender
approve the entirety of such proposed Annual Budget (or is deemed to have approved the entirety of
such proposed Annual Budget in accordance with this Section 5.1.11(c)), (A) such approved
portions of such proposed Annual Budget shall apply and shall constitute an “Approved Annual
Budget” with respect only to such portions, (B) the remainder of such proposed Annual Budget shall
be automatically adjusted as provided in the immediately preceding sentence, and (C) Borrowers and
Lender shall diligently continue the process of agreeing to the remaining costs as set forth in
this Section 5.1.11(c) for the approval of the Annual Budget as a whole.




               (d) In the event that any Mortgage Borrower must incur any non-recurring extraordinary
Operating Expense or Capital Expenditure not set forth in the Approved Annual Budget then in effect
(each, an “Extraordinary Expense”), then Borrowers shall promptly deliver to Lender (and Borrowers
shall cause Mortgage Borrowers to promptly deliver to Mortgage Lender) a reasonably detailed
explanation of such proposed Extraordinary Expense for Lender’s approval. Notwithstanding the
foregoing, no prior approval by Lender shall be required for any Extraordinary Expense needed to be
incurred immediately to prevent imminent injury to person or damage to property, provided that
within three (3) Business Days thereafter Borrowers shall provide reasonably satisfactory evidence
to Lender to demonstrate the imminent necessity and reasonableness of the Extraordinary Expense
incurred.



               (e) If, at the time a Disclosure Document is being prepared for a Securitization, Lender
expects that any or more Borrowers alone or any one or more Borrowers and one or more Affiliates of
any Borrower collectively, or the Collateral or any one or more of the Properties alone or any one
or more of the Properties and any one or more Related Properties collectively, will be a
Significant Obligor, Borrowers shall furnish, or shall cause Mortgage Borrowers to furnish, to
Lender upon request (i) the selected financial data or, if applicable, Net Operating Income,
required under Item 1112(b)(1) of Regulation AB, if Lender expects that the principal amount of the
Loan together with any Related Loans as of the cut-off date for such Securitization may, or if the
principal amount of the Loan together with any Related Loans as of the cut-off date for such
Securitization and at any time during which the Loan and any Related Loans are included in a
Securitization does, equal or exceed ten percent (10%) (but less than twenty percent (20%)) of the
aggregate principal amount of all mezzanine loans included or expected to be included, as
applicable, in the Securitization, or (ii) the financial statements required under Item 1112(b)(2)
of Regulation AB, if Lender expects that the principal amount of the Loan together with any Related
Loans as of the cut-off date for such Securitization may, or if the principal amount of the Loan
together with any Related Loans as of the cut-off date for such Securitization and at any time
during which the Loan and any Related Loans are included in a Securitization does, equal or exceed
twenty percent (20%) of the aggregate principal amount of all mezzanine loans included or expected
to be included, as applicable, in the Securitization. Such financial data or financial statements
shall be furnished to Lender (A) within fifteen (15)
Business Days after notice from Lender in connection with the preparation of Disclosure
Documents for the Securitization, (B) not later than forty-five (45) days after the end of each



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calendar quarter of Borrowers, and (C) not later than one hundred twenty (120) days after the end
of each calendar year of Borrowers; provided, however, that Borrowers shall not be
obligated to furnish financial data or financial statements pursuant to clauses (B) or
(C) of this sentence with respect to any period for which a filing pursuant to the Exchange
Act in connection with or relating to the Securitization (an “Exchange Act Filing”) is not
required. If requested by Lender, Borrowers shall furnish, or shall cause Mortgage Borrowers to
furnish, to Lender financial data and/or financial statements for any tenant of any Property, but
only to the extent such tenant is required to provide such financial data and/or financial
statements under its Lease, if, in connection with a Securitization, Lender expects there to be,
with respect to such tenant or group of Affiliated tenants, a concentration within all of the
mezzanine loans included or expected to be included, as applicable, in the Securitization such that
such tenant or group of affiliated tenants would constitute a Significant Obligor.




               (f) All financial data and financial statements provided by Borrowers pursuant to Section
5.1.11(e) hereof shall be prepared in accordance with GAAP and shall meet the requirements of
Regulation AB and all other applicable Legal Requirements. All financial statements referred to in
Section 5.1.11(e) hereof shall be audited by independent accountants of Borrowers or
Mortgage Borrowers reasonably acceptable to Lender in accordance with Regulation AB and all other
applicable Legal Requirements, shall be accompanied by the manually executed report of the
independent accountants thereon, which report shall meet the requirements of Regulation AB and all
other applicable Legal Requirements, and shall be further accompanied by a manually executed
written consent of the independent accountants, in form and substance reasonably acceptable to
Lender, to the inclusion of such financial statements in any Disclosure Document and any Exchange
Act Filing and to the use of the name of such independent accountants and the reference to such
independent accountants as “experts” in any Disclosure Document and Exchange Act Filing, all of
which shall be provided at the same time as the related financial statements are required to be
provided. All financial data and financial statements (audited or unaudited) provided by Borrowers
or Mortgage Borrowers under Section 5.1.11(e) hereof shall be accompanied by an Officer’s
Certificate of each Borrower, which certification shall state that such financial statements meet
the requirements set forth in the first sentence of this Section 5.1.11(f).



               (g) If requested by Lender, Borrowers shall provide, or shall cause Mortgage Borrowers to
provide, Lender, promptly upon request, with any other or additional financial statements, or
financial, statistical or operating information, as Lender shall reasonably determine to be
required pursuant to Regulation AB or any amendment, modification or replacement thereto or other
Legal Requirements in connection with any Disclosure Document or any Exchange Act Filing or as
shall otherwise be reasonably requested by Lender.



               (h) In the event Lender reasonably determines, in connection with a Securitization, that the
financial data and financial statements required in order to comply with Regulation AB or any
amendment, modification or replacement thereto or any other Legal Requirements are other than as
provided herein, then notwithstanding the provisions of Sections 5.1.11(e) and (f)
hereof, Lender may request, and Borrowers shall promptly provide, or shall
cause Mortgage Borrowers to provide, such other financial data and financial statements as
Lender determines to be necessary or appropriate for such compliance.



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



          5.1.12 Business and Operations. Borrowers will continue, and will cause each Loan
Party to continue, to engage in the businesses presently conducted by it as and to the extent the
same are necessary for the ownership, maintenance, management and operation of the First Mezzanine
Collateral, the Collateral, the Properties or the IP, as applicable. Each Borrower will qualify,
and will cause each other Loan Party to qualify, to do business and will remain, and will cause
each other Loan Party to remain, in good standing under the laws of each jurisdiction as and to the
extent the same are required for the ownership, maintenance, management and operation of the First
Mezzanine Collateral, the Collateral, the Properties or the IP, as applicable.




          5.1.13 Title to the Collateral, the Properties and the IP. (a) Borrowers will
warrant and defend (i) the title to the Collateral and every part thereof, subject only to Liens
permitted hereunder (including Permitted Encumbrances) or under the Pledge Agreement, and (ii) the
validity and priority of the Lien of the Pledge Agreement, subject only to Liens permitted
hereunder (including Permitted Encumbrances), in each case against the claims of all Persons
whomsoever.




               (b) Borrowers will cause Mortgage Borrowers to warrant and defend (i) the title to each
Property, the Owned IP and any right in and under all IP Agreements with respect to Licensed IP,
and every part thereof, subject only to Liens permitted hereunder (including Permitted
Encumbrances, Permitted IP Encumbrances and the asset sales and releases permitted under this
Agreement), and (ii) the validity and priority of the Liens of the Mortgage, the Assignment of
Leases and the IP Assignments, subject only to Liens permitted hereunder (including Permitted
Encumbrances and Permitted IP Encumbrances), in each case against the claims of all Persons
whomsoever.



               (c) Borrowers shall reimburse Lender for any actual losses, actual costs, actual damages
(excluding lost profits, diminution in value and other consequential damages) or reasonable
expenses (including reasonable attorneys’ fees and court costs) incurred by Lender if an interest
in the Collateral, any Property or the IP, other than as permitted hereunder, is claimed by another
Person.



          5.1.14 Costs of Enforcement. In the event (a) that the Pledge Agreement is foreclosed
in whole or in part or that the Pledge Agreement is put into the hands of an attorney for
collection, suit, action or foreclosure, or (b) of the bankruptcy, insolvency, rehabilitation or
other similar proceeding in respect of any Borrower or any of its Constituent Members or an
assignment by any Borrower or any of its Constituent Members for the benefit of its creditors, and
Lender incurs costs in connection with any such proceeding as a direct or indirect result of




116









 







the
Loan, then, in any of the foregoing instances, each Borrower, on behalf of itself and its
successors or assigns, shall be chargeable with and shall pay all actual out-of-pocket costs of
collection and defense, including attorneys’ fees and costs, incurred by Lender or any Borrower in
connection therewith and in connection with any appellate proceeding or post-judgment action
involved therein.




          5.1.15 Estoppel Statement. (a) After request by Lender from time to time, but in no
event more than two (2) times in any twelve (12) month period except in connection with a
Securitization, Borrowers shall within ten (10) Business Days furnish Lender with a statement, duly
acknowledged and certified, setting forth (i) the original principal amount of the Loan, (ii) the
Outstanding Principal Balance, (iii) the Applicable Interest Rate of the Loan, (iv) the date an
installment of interest was last paid, (v) any offsets or, to the best of each Borrower’s actual
knowledge, defenses to the payment of the Debt, if any, and (vi) that the Note, this Agreement, the
Pledge Agreement and the other Loan Documents are valid, legal and binding obligations of Borrowers
and have not been modified or, if modified, giving particulars of such modification.




               (b) After request by Borrowers, but in no event more than two (2) times in any twelve (12)
month period, Lender shall within ten (10) Business Days furnish Borrowers with a statement, duly
acknowledged and certified, stating (i) the Outstanding Principal Balance, (ii) the Applicable
Interest Rate, (iii) the date an installment of interest was last paid, and (iv) whether or not
Lender has sent any notice of default under the Loan Documents which remains uncured in the opinion
of Lender.



               (c) Borrowers shall use commercially reasonable efforts to deliver, or cause to be delivered,
to Lender within thirty (30) days of receipt of written request, tenant estoppel certificates from
each commercial tenant leasing space at any of the Properties, in form and substance reasonably
satisfactory to Lender; provided that, except in connection with a Securitization,
Borrowers shall not be required to deliver such certificates more frequently than once in any
calendar year or less frequently if, and to the extent, so restricted by the terms of any Leases
entered into prior to the Closing Date (other than the HRHI Lease).



               (d) Borrowers shall deliver, within ten (10) Business Days after request by Lender from time
to time, estoppel certificates from each Mortgage Borrower and/or each Mezzanine Borrower, covering
substantially the same matters as set forth in clause (a) above and any other matters
reasonably requested by Lender.



          5.1.16 Loan Proceeds. Borrowers shall use the proceeds of the Loan received by them
on the Closing Date only for the purposes set forth in Section 2.1.2 hereof.




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




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               (b) Except for changes to the Mortgage Loan Documents that Mortgage Borrowers are obligated to
enter into pursuant to the terms of the Mortgage Loan Documents, Borrowers shall not cause or
permit Mortgage Borrowers to enter into or otherwise suffer or permit any amendment, waiver,
supplement, termination or other modification of any Mortgage Loan Document executed and delivered
by, or applicable to, Mortgage Borrowers as of the Closing Date without the prior written consent
of Lender which consent shall not be unreasonably withheld, conditioned or delayed. Borrowers
shall cause Mortgage Borrowers to provide Lender with a copy of any amendment, waiver, supplement,
termination or other modification to the Mortgage Loan Documents within five (5) days after the
execution thereof.



               (c) Borrowers shall not cause or permit First Mezzanine Borrowers to enter into or otherwise
suffer or permit any amendment, waiver, supplement, termination or other modification of any First
Mezzanine Loan Document executed and delivered by, or applicable to, First Mezzanine Borrowers as
of the Closing Date without the prior written consent of Lender which consent shall not be
unreasonably withheld, conditioned or delayed. Borrowers shall cause First Mezzanine Borrowers to
provide Lender with a copy of any amendment, waiver, supplement, termination or other modification
to the First Mezzanine Loan Documents within five (5) days after the execution thereof.



               (d) Borrowers shall not, and shall not permit any other Loan Party to, (i) amend or modify the
organizational documents of such Loan Party in any respect without Lender’s prior written consent,
or (ii) take any action that would cause the membership interests of any other Loan Party to cease
to constitute “certificated securities” (as defined in the Uniform Commercial Code of the States of
New York and Delaware) without Lender’s prior written consent.



          5.1.18 Confirmation of Representations. Borrowers shall deliver, in connection with
any Securitization, (a) one or more Officer’s Certificates certifying as to the accuracy of all
representations made by Borrowers in the Loan Documents as of the date of the closing of such
Securitization in all relevant jurisdictions (or if any such representations are no longer
accurate, providing an explanation as to the reason for such inaccuracy), and (b) certificates of
the relevant Governmental Authorities in all relevant jurisdictions indicating the good standing
and qualification of each Borrower and each Mortgage Borrower as of the date of the Securitization.




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




          5.1.20 Leasing Matters. Any Major Leases with respect to any Property executed after
the date hereof shall be subject to Lender’s approval, which approval shall not be unreasonably
withheld, conditioned or delayed, provided, however, that renewals of any Major
Lease by Mortgage Borrowers initially executed prior to the Closing Date shall not require the




118









 







approval of Lender if the terms of any such Lease provided for renewals at a reasonably
determinable rent. Upon request, Borrowers shall furnish, or shall cause Mortgage Borrowers to
furnish, Lender with executed copies of all Leases. All proposed Major Leases shall be on
commercially reasonable terms and no Lease shall contain any terms which would materially adversely
affect Lender’s rights under the Loan Documents or Mortgage Lender’s rights under the Mortgage Loan
Documents. All Leases executed after the Closing Date shall provide that they are subordinate to
the Mortgage and that the lessee agrees to attorn to Mortgage Lender or any purchaser at a sale by
foreclosure or power of sale, provided that, with respect to Major Leases and except with
respect to the HRHI Lease, Mortgage Lender provides commercially reasonable non-disturbance
language. Borrowers shall cause Mortgage Borrowers to (i) observe and perform the obligations
imposed upon the lessor under the Leases in a commercially reasonable manner; (ii) enforce the
terms, covenants and conditions contained in the Leases upon the part of the lessee thereunder to
be observed or performed in a commercially reasonable manner and in a manner not to impair the
value of any Property involved, except that no termination by any Mortgage Borrower or acceptance
of surrender by a tenant of any Major Lease (including, without limitation, the HRHI Lease) will be
permitted without the consent of Lender; (iii) not collect any of the rents more than one (1) month
in advance (other than security deposits); (iv) not execute any other assignment of lessor’s
interest in the Leases or the Rents (except as contemplated by the Mortgage Loan Documents); and
(v) not alter, modify or change the terms of (A) the HRHI Lease other than any ministerial,
non-monetary amendment or modification, or (B) any other Major Lease in any material manner, in
each of the foregoing instances, without the prior written approval of Lender, not to be
unreasonably withheld. To the extent Lender’s approval is required pursuant to this Section
5.1.20, Lender shall endeavor to respond to a request for Lender’s approval within ten (10)
Business Days after Borrowers’ written request therefor, delivered together with any documents or
information required to be provided by Borrowers hereunder in connection with Lender’s review of
the proposed Major Lease, Major Lease amendment or Major Lease termination. If the correspondence
from Borrowers requesting such approval contains the following statement at the top of the first
page thereof in capitalized, boldfaced, 14 point type lettering: “IF YOU FAIL TO RESPOND TO OR TO
EXPRESSLY DENY THIS REQUEST FOR APPROVAL IN WRITING WITHIN TEN (10) BUSINESS DAYS, YOUR APPROVAL
SHALL BE DEEMED GIVEN”, and if Lender shall fail to respond to or to expressly deny such request
for approval in writing (stating in reasonable detail the reason for such disapproval) within ten
(10) Business Days after receipt of Borrowers’ written request therefor together with the documents
and information required above and any other information reasonably requested by Lender in writing
prior to the expiration of such ten (10) Business Day period in order to adequately review the
same, then Borrowers shall re-submit such proposed Major Lease, Major Lease amendment or Major
Lease termination and accompanying information to Lender with a request for approval containing the
following statement at the top of the first page thereof in capitalized, boldfaced, 14 point type
lettering: “IF YOU FAIL TO RESPOND TO OR TO EXPRESSLY DENY THIS REQUEST FOR APPROVAL IN WRITING
WITHIN FIVE (5) BUSINESS DAYS, YOUR APPROVAL SHALL BE DEEMED GIVEN”, and if Lender does not respond
to such second
request by approving such proposed Major Lease, Major Lease amendment or Major Lease
termination or stating its objection thereto within five (5) Business Days of Lender’s receipt of
such second submission, Lender’s approval shall be deemed given. Notwithstanding anything to




119









 







the
contrary contained herein, Borrowers shall not permit or cause Mortgage Borrowers to enter into a
lease of all or substantially all of any Property without Lender’s prior consent.




          5.1.21 Alterations. Other than the construction of the Project, which shall be
governed by the provisions of Article III of the Mortgage Loan Agreement, Borrowers shall, or shall
cause Mortgage Borrowers to, obtain Lender’s prior consent to any material alterations to any
Improvements, which consent shall not be unreasonably withheld, conditioned or delayed.
Notwithstanding the foregoing, Lender’s consent shall not be required in connection with any
alterations that will not have a material adverse effect on any Borrower’s or Mortgage Borrower’s
financial condition, the value of the Collateral, the applicable Property or the Net Operating
Income, provided that such alterations (a) are made in connection with tenant improvement
work performed pursuant to the terms of any Lease, (b) do not materially adversely affect any
structural component of any Improvements, any utility or HVAC system contained in any Improvements
or the exterior of any building constituting a part of any Improvements and the aggregate cost
thereof does not exceed the Alteration Threshold Amount, or (c) are performed in connection with
the Restoration of a Property after the occurrence of a Casualty or Condemnation in accordance with
the terms and provisions of the Mortgage Loan Agreement and this Agreement. To the extent Lender’s
prior written approval is required pursuant to this Section 5.1.21, Lender shall have
fifteen (15) Business Days from receipt of written request and any and all reasonably required
information and documentation relating thereto in which to approve or disapprove such request and
such written request shall state thereon in bold letters of 14 point font or larger that action is
required by Lender. If Lender fails to approve or disapprove the request within such fifteen (15)
Business Days, Lender’s approval shall be deemed given. Should Lender fail to approve any such
request, Lender shall give Borrowers written notice setting forth in reasonable detail the basis
for such disapproval. In no event shall Lender require any “consent fee” as a condition to any
required approval. If the total unpaid amounts due and payable with respect to alterations to the
Improvements at any Property (other than such amounts to be paid or reimbursed by tenants under the
Leases) shall at any time exceed the Alteration Threshold Amount, Borrowers shall promptly deliver
to Lender as security for the payment of such amounts and as additional security for Borrowers’
obligations under the Loan Documents any of the following: (A) cash, (B) U.S. Obligations, (C)
other securities having a rating acceptable to Lender and that the applicable Rating Agencies have
confirmed in writing will not, in and of itself, result in a downgrade, withdrawal or qualification
of the then current ratings assigned to any Securities or any class thereof in connection with any
Securitization, (D) a Letter of Credit, or (E) a completion and performance bond issued by an
Approved Bank; provided, however, that (i) in the event (A) Mortgage Borrowers are
required to and do deliver such security to Mortgage Lender under the Mortgage Loan Agreement, or
(B) if the Mortgage Loan has been paid in full, First Mezzanine Borrowers are required to and do
deliver such security to First Mezzanine Lender under the First Mezzanine Loan Agreement; and (ii)
upon request, Lender receives evidence reasonably acceptable to it of the delivery of such security
by Mortgage Borrowers to Mortgage Lender, or by First Mezzanine Borrowers to First Mezzanine
Lender, as applicable, then Borrowers shall not be required to deliver any such security to Lender.
Such security (if given as set forth above) shall be in an amount equal to the excess of the total
unpaid amounts with respect to alterations to the Improvements on the applicable
Prope
rty (other than such amounts to be paid or reimbursed by tenants under the Leases) over
the Alteration Threshold Amount and during the continuance of an Event of Default, Lender may apply
such security from time to time at the option of Lender to pay for such alterations.




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          5.1.22 Operation of the Properties.




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



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



               (c) Borrowers shall cause Hotel/Casino Borrower to, at all times, operate and maintain (or
cause to be operated and maintained) the Hotel/Casino Property and the Casino Component as a hotel
and casino resort in accordance with standards at least equivalent to the Comparable Hotel/Casinos.
The theme of the Hotel/Casino Property and the Casino Component shall not be materially changed
without the prior written consent of Lender, which consent shall not be unreasonably withheld.
Borrowers shall cause Hotel/Casino Borrower to cause the Hotel/Casino Property to be at all times
open for business as a hotel and the Casino Component to be open at all times for business as a
casino, other than as provided under the Gaming Sublease, pursuant to Legal Requirements, temporary
closures as a result of Casualty or other events outside the reasonable control of Borrowers and
Mortgage Borrowers.



          5.1.23 Liquor Management at Hotel/Casino Property.




               (a) Unless and until Hotel/Casino Borrower has obtained all Governmental Approvals necessary
to provide all alcoholic beverage services provided at the Hotel/Casino Property as of the Closing
Date, Borrowers shall cause Hotel/Casino Borrower to cause all alcoholic beverage services at the
Hotel/Casino Property to be managed by a Liquor
Manager in accordance with a Liquor Management Agreement and Borrowers shall use, or shall
cause Hotel/Casino Borrower to use, commercially reasonable best efforts to conduct and/or to cause
to be conducted the alcoholic beverage services at the Hotel/Casino Property in such a manner so as
to maximize Gross Income from Operations at the Properties in the aggregate. In



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the event that a
Liquor Management Agreement expires or is terminated (without limiting any obligation of
Hotel/Casino Borrower to obtain Lender’s consent to any termination or modification of any Liquor
Management Agreement, if applicable, in accordance with the terms and provisions of this
Agreement), Borrowers shall cause Hotel/Casino Borrower to promptly enter into a Replacement Liquor
Management Agreement with the Liquor Manager or another Qualified Liquor Manager, as applicable.




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



               (c) Upon the occurrence and during the continuance of an Event of Default, Borrowers shall, at
the request of Lender, cause the Liquor Manager, if one of the Loan Parties or an Affiliate of any
Loan Party, to continue to perform all obligations under the Liquor Management Agreement.
Additionally, Borrowers shall, upon and after the foreclosure, deed in lieu of foreclosure or other
similar transfer of the Hotel/Casino Property to Mortgage Lender, its designee or nominee (a
“Mortgage Lender Successor Owner”), cause Mortgage Borrowers to comply with the provisions of
Section 5.1.23 (c) of the Mortgage Loan Agreement.



          5.1.24 Gaming Operations at the Hotel/Casino Property.




               (a) All gaming operations conducted at the Hotel/Casino Property shall at all times be
operated by a Qualified Gaming Operator and Borrowers shall cause Mortgage Borrowers to use
commercially reasonable best efforts to conduct and/or to cause to be conducted the gaming
operations in such a manner so as to maximize Gross Income from Operations at the Properties in the
aggregate. Lender acknowledges and agrees that, as of the Closing Date, Golden HRC, LLC is a
Qualified Gaming Operator.



               (b) Borrowers shall cause Hotel/Casino Borrower to comply with the provisions of Section
5.1.24(b) of the Mortgage Loan Agreement.



          5.1.25 Intellectual Property.




               (a) Each Borrower shall take, and shall cause Mortgage Borrowers to take, all actions
reasonably necessary to protect the IP, subject to, and in compliance with, applicable IP
Agreements, including, without limitation, (i) maintaining all registrations and
applications with respect to any IP owned by any Loan Party, (ii) maintaining and complying
with the terms of all licenses necessary for the use of any IP licensed to any Loan Party, (iii)
expeditiously and diligently seeking to stop any acts of infringement or unfair competition with
respect to the Owned IP that are brought to any Loan Party’s attention, and using commercially



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reasonable efforts to cause Rank or Morton, as the case may be, to diligently seek to stop any acts
of infringement or unfair competition with respect to the Licensed IP that are brought to any Loan
Party’s attention and (iii) refraining from any act or omission that might jeopardize any Loan
Party’s ability to use any of the IP.




               (b) Borrowers shall cause Hotel/Casino Borrower to operate the Hotel/Casino Property as a
“Hard Rock” hotel unless otherwise consented to in writing by Lender and shall cause Hotel/Casino
Borrower to refrain from any act or omission, including, without limitation, any act contemplated
under Section 5.1.26 hereof, that would result in, or would be reasonably likely to result
in, the loss of its ability to so operate the Hotel/Casino Property as a “Hard Rock” hotel.



          5.1.26 Licensing and Sublicensing of the IP.




               (a) Except as set forth in Sections 5.1.26(b), (c) and (d) hereof, Borrowers shall not
permit or cause Mortgage Borrowers to license any of the Owned IP or sublicense any of the Licensed
IP (an “IP License”) without Lender’s consent in each instance.



               (b) Notwithstanding the foregoing or anything else to the contrary set forth in this Agreement
or the other Loan Documents, IP Borrower shall have the right, without the consent of Lender and
without violating the Loan Documents, to license or sublicense, as applicable, the IP (or any
portion thereof) (an “Adjacent Property IP License”) to any subsequent purchaser of all or any
portion of the Adjacent Property and its successors and assigns, whether or not any such subsequent
purchaser, successor or assign is an Affiliate of any Loan Party or any other Restricted Party;
provided that all of the following conditions shall be satisfied with respect to any such
Adjacent Property IP License:




     (i) IP Borrower shall have notified Lender of such Adjacent Property IP License
at least ten (10) Business Days prior to the anticipated date of the execution and
delivery thereof, which notice shall include (A) a copy of the Adjacent Property IP
License, and (B) an Officer’s Certificate providing a certification that such
Adjacent Property IP License (1) does not and will not adversely affect any Mortgage
Borrower’s ownership and/or operation of, or any activities conducted on, its
Property, (2) does not and will not materially diminish any Mortgage Borrower’s
rights to use any of the Owned IP or Licensed IP that is reasonably necessary or
desirable to operate its Property as then being operated and as then contemplated to
be operated in the future, and (3) does not, and is not reasonably anticipated in
the future to, materially diminish the value of any Owned IP or Licensed IP;




     (ii) Such Adjacent Property IP License shall be granted and used only in
connection with the ownership, development and/or use of improvements and/or
activities on the Adjacent Property or any portion thereof;




     (iii) Such Adjacent Property IP License may be granted (A) without
consideration beyond that which is paid to Adjacent Borrower in connection with the
sale of the applicable portion of the Adjacent Property and/or (B) on a royalty



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free
basis; provided, however, that, notwithstanding the foregoing, any
consideration and/or royalties that is/are paid to IP Borrower in connection with
such Adjacent Property IP License shall constitute Gross Income from Operations for
all purposes under this Agreement and the other Loan Documents and Borrowers shall
cause IP Borrower to deposit the same directly into the Lockbox Account within one
(1) Business Day following receipt by IP Borrower from time to time;




     (iv) Such Adjacent Property IP License shall not violate or result in a
violation of Section 5.1.25(b) hereof; and




     (v) Such Adjacent Property IP License shall not adversely affect Lender’s Liens
and security interests in the Owned IP and Licensed IP, all of which shall remain in
full force and effect and, at Lender’s request in its sole discretion, Borrowers
shall cause IP Borrower to collaterally assign to Lender such Adjacent Property IP
License pursuant to a security agreement reasonably satisfactory to Lender and IP
Borrower in form and substance.



               (c) Notwithstanding the foregoing or anything else to the contrary set forth in this Agreement
or the other Loan Documents, IP Borrower shall have the right, without the consent of Lender and
without violating the Loan Documents, to license or sublicense, as applicable, the IP (or any
portion thereof) to any bonafide third party who is not an Affiliate of any Loan Party or any other
Restricted Party (a “Third Party IP License”); provided that all of the following
conditions shall be satisfied with respect to any such Third Party IP License:




     (i) IP Borrower shall have notified Lender of such proposed Third Party IP
License at least ten (10) Business Days prior to the anticipated date of the
execution and delivery thereof, which notice shall include (A) a copy of the
proposed Third Party IP License, and (B) an Officer’s Certificate providing a
certification that (1) as of the date of such notice, no monetary Default, monetary
Mortgage Default or any monetary Mezzanine Default, and no Event of Default,
Mortgage Event of Default or any Mezzanine Event of Default, shall have occurred and
be continuing, (2) the proposed licensee or sublicensee, as applicable, is a
bonafide third party who is not an Affiliate of any Borrower or any other Restricted
Party, (3) the total consideration paid and to be paid under such proposed Third
Party IP License, (4) other than the proposed Third Party IP License, there are no
other written or oral agreements between any Borrower or any other Restricted Party
or any Affiliate of any thereof, on the one hand, and the proposed licensee or
sublicensee, as applicable, on the other hand, relating to such proposed Third Party
IP License or the IP covered thereunder, (5) the proposed Third Party IP License
does not and will not adversely affect any Mortgage Borrower’s ownership and/or
operation of, or any activities conducted on, its Property, (6) the proposed Third
Party IP License does not and will not materially diminish any Mortgage Borrower’s
rights to use any of the Owned IP or Licensed
IP that is reasonably necessary or desirable to operate its Property as then
being operated and as then contemplated to be operated in the future, and (7) the



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proposed Third Party IP License does not, and is not reasonably anticipated in the
future to, materially diminish the value of any Owned IP or Licensed IP;




     (ii) Such proposed Third Party IP License shall, without limitation, (A) be on
arm’s-length, market terms, (B) require cash consideration only, (C) prohibit any
material amendment thereof without Lender’s prior reasonable approval, other than
any amendment that does not violate any of the requirements of this Section
5.1.26(c)(ii), (D) prohibit the assignment or sub-licensing thereof without
Lender’s prior reasonable approval, other than an assignment to a bonafide third
party who is not an Affiliate of any Loan Party or any other Restricted Party, and
(E) require the proposed licensee or sublicensee, as applicable, to deposit all
consideration payable thereunder or otherwise in connection therewith from time to
time directly into the Lockbox Account;




     (iii) All consideration and/or royalties that is/are paid under or otherwise in
connection with such Third Party IP License shall constitute Gross Income from
Operations for all purposes under this Agreement and the other Loan Documents and
if, notwithstanding the provisions of the foregoing Section 5.1.26(c)(ii)(E)
hereof, any Mortgage Borrower shall receive any such consideration and/or royalties,
Borrowers shall cause such Mortgage Borrower to deposit the same directly in the
Lockbox Account within one (1) Business Day following receipt by such Mortgage
Borrower from time to time;




     (iv) Such Third Party IP License shall not violate or result in a violation of
Section 5.1.25(b) hereof;




     (v) Without limiting the generality of the foregoing, such Third Party IP
License shall in no event prohibit or limit in any manner the use of the “Hard Rock”
name in connection with the operation of the Hotel/Casino Property or any other
Property;




     (vi) Such Third Party IP License shall not adversely affect Lender’s Liens and
security interests in the Owned IP and Licensed IP, all of which shall remain in
full force and effect and, at Lender’s request in its sole discretion, Borrowers
shall cause IP Borrower to collaterally assign to Lender such Third Party IP License
pursuant to a security agreement reasonably satisfactory to Lender and IP Borrower
in form and substance; and




     (vii) On the date of the full execution and delivery of such Third Party IP
License, no monetary Default, monetary Mortgage Default or any monetary Mezzanine
Default, and no Event of Default, Mortgage Event of Default or any Mezzanine Event
of Default, shall have occurred and be continuing.



               (d) Notwithstanding the foregoing or anything else to the contrary set forth in this Agreement
or the other Loan Documents, IP Borrower shall have the right to license
or sublicense, as applicable, the IP (or any portion thereof) to an Affiliate of any Loan
Party or any other Restricted Party (an “Affiliate IP License”); provided that (i) all of
the conditions set



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forth in Section 5.1.26(c) hereof shall be satisfied with respect to any
such Affiliate IP License, other than the condition set forth in Section 5.1.26(c)(i)(2)
hereof, and (ii) such Affiliate IP License shall have been approved in writing by Lender, which
approval shall not be unreasonably withheld.




               (e) With respect to any IP License, Adjacent Property IP License, Third Party IP License or
Affiliate IP License permitted hereunder, upon satisfaction of such conditions as Lender shall
impose with respect to its consent to any IP License, or upon satisfaction of the conditions set
forth in Section 5.1.26(b) hereof with respect to any Adjacent Property IP License, or upon
satisfaction of the conditions set forth in Section 5.1.26(c) hereof with respect to any
Third Party IP License, or upon satisfaction of the conditions set forth in Section
5.1.26(d) hereof with respect to any Affiliate IP License, Lender, at the sole cost and expense
of Borrowers, shall execute and deliver to Borrowers (for the benefit of the licensee or
sublicensee, as applicable, under such IP License, Adjacent Property IP License, Third Party IP
License or Affiliate IP License, as applicable), provided that Borrowers cause the
applicable licensee or sublicensee, as applicable, to also execute and deliver, a customary and
mutually acceptable non-disturbance and attornment agreement as reasonably requested by IP
Borrower.



          5.1.27 Mortgage Reserve Funds. (a)  Borrowers shall cause Mortgage Borrowers to
deposit and maintain each of the Mortgage Reserve Funds as required pursuant to the terms of the
Mortgage Loan Agreement and to perform and comply with all the terms and provisions relating
thereto.




               (b) Each Borrower grants to Lender a security interest in such Borrower’s interest in each of
the Mortgage Reserve Funds, if any, subject to the prior rights of Mortgage Lender and First
Mezzanine Lender, and any and all monies now or hereafter deposited in each Mortgage Loan Reserve
Fund as additional security for payment of the Debt to the extent such Borrower has an interest in
same. Subject to the qualifications regarding Borrowers’ interest in the Mortgage Reserve Funds,
if any, until expended or applied in accordance with the Mortgage Loan Documents, the First
Mezzanine Loan Documents or the Loan Documents, Borrowers’ interest in the Mortgage Reserve Funds
shall constitute additional security for the Debt and upon the occurrence of an Event of Default,
Lender may, in addition to any and all other remedies available to Lender, but subject to the prior
rights of Mortgage Lender and First Mezzanine Lender thereto, apply any sums then present in any or
all of the Mortgage Reserve Funds to the payment of the Debt in any order in its sole discretion.



          5.1.28 Mortgage Loan and First Mezzanine Loan Notices. (a)  Borrowers shall give
notice, or cause notice to be given to Lender, promptly upon the occurrence and during the
continuance of a Mortgage Event of Default or a First Mezzanine Event of Default.




               (b) Borrowers shall cause each Loan Party to promptly notify Lender of all notices received by
such Loan Party under or in connection with the Mortgage Loan or the First Mezzanine Loan,
including, without limitation, any notice by Mortgage Lender or First Mezzanine Lender to the
applicable Loan Party of any default by such Loan Party in the performance or observance of any of
the terms, covenants or conditions of the Mortgage Loan
Documents or the First Mezzanine Loan Documents on the part of such Loan Party to be performed
or observed, and deliver to Lender a true copy of each such notice, together with any



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other
consents, notices, requests or other written correspondence between the applicable Loan Party and
Mortgage Lender or First Mezzanine Lender.




          5.1.29 Compliance with Mortgage Loan Documents and First Mezzanine Loan Documents.
(a) Borrowers shall cause Mortgage Borrowers to comply with all of the terms, covenants and
conditions set forth in the Mortgage Loan Documents. Borrowers acknowledge that the obligation to
comply with this covenant is separate from, and may be enforced independently from, the obligations
of Mortgage Borrowers under the Mortgage Loan Documents.




               (b) Borrowers shall cause First Mezzanine Borrowers to comply with all of the terms, covenants
and conditions set forth in the First Mezzanine Loan Documents. Borrowers acknowledge that the
obligation to comply with this covenant is separate from, and may be enforced independently from,
the obligations of First Mezzanine Borrowers under the First Mezzanine Loan Documents.



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




          5.2.1 Operation of the Properties; Liquor Management.




               (a) Borrowers shall not, and shall cause Mortgage Borrowers not to, without Lender’s prior
consent (which consent shall not be unreasonably withheld, conditioned or delayed): (i) subject to
Section 9.5.1 hereof, surrender, terminate or cancel any Management Agreement;
provided, that Borrowers may, without Lender’s consent, replace, or cause Mortgage
Borrowers to replace, any Manager so long as the replacement manager is a Qualified Manager
pursuant to a Replacement Management Agreement; (ii) reduce or consent to the reduction of the term
of any Management Agreement; (iii) increase or consent to the increase of the amount of any charges
or fees under any Management Agreement; or (iv) otherwise modify, change, supplement, alter or
amend, or waive or release any of its rights and remedies under, any Management Agreement in any
material respect. Notwithstanding the foregoing, Borrowers may terminate, or may cause Mortgage
Borrowers to terminate, the Sub-Management Agreement without the consent of Lender so long as
either (A) the Improvements on the Adjacent Property are and are intended to remain completely
vacant or are demolished, or (B) a Manager under a Management Agreement is obligated to perform the
duties that were delegated to Sub-Manager under the Sub-Management Agreement.



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



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               (c) Borrowers shall cause Hotel/Casino Borrower not to, without Lender’s prior consent (which
consent shall not be unreasonably withheld, conditioned or delayed): (i) subject to Section
9.5.2 hereof, surrender, terminate or cancel any Liquor Management Agreement; provided,
that Borrowers may replace, or may cause Hotel/Casino Borrower to replace, without Lender’s
consent, the Liquor Manager so long as the replacement liquor manager is a Qualified Liquor Manager
pursuant to a Replacement Liquor Management Agreement; (ii) reduce or consent to the reduction of
the term of the Liquor Management Agreement; (iii) increase or consent to the increase of the
amount of any charges or fees under the Liquor Management Agreement; or (iv) otherwise modify,
change, supplement, alter or amend, or waive or release any of its rights and remedies under, any
Liquor Management Agreement in any material respect.



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



          5.2.2 Liens. (a) Borrowers shall not create, incur, assume or suffer to exist any
Lien on (i) any portion of the Pledged Collateral except for the Lien created by the Pledge
Agreement or (ii) any portion of the other Collateral, except for Permitted Encumbrances and Liens
created by or permitted pursuant to the Loan Documents.




               (b) Borrowers shall not permit or cause any Loan Party to create, incur, assume or suffer to
exist any Lien on any portion of any Property, the IP or the First Mezzanine Collateral or
knowingly permit any such action to be taken, except: (i) Permitted Encumbrances and Permitted IP
Encumbrances; (ii) Liens created by or permitted pursuant to the Mortgage Loan Documents and the
First Mezzanine Loan Documents, as applicable; and (iii) Liens for Taxes or Other Charges not yet
delinquent.



          5.2.3 Dissolution. (a) No Borrower shall (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; (iii) transfer, lease or
sell, in one transaction or any combination of transactions, the assets or all or substantially all
of the assets of such Borrower except to the extent permitted by the Loan Documents; or (iv)
modify, amend, waive or terminate (A) its organizational documents in any material respect or in
any respect with regard to the provisions concerning such Borrower’s status as a Special Purpose
Entity, or (B) its qualification and good standing in any jurisdiction, in each case, without
obtaining the prior consent of Lender.




               (b) Borrowers shall cause each other Loan Party not 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 its Property, the IP or the First
Mezzanine Collateral; (ii) transfer, lease or sell, in one transaction or any combination of
transactions, the assets or all or substantially all of the properties or assets of such Loan Party
except to the extent permitted by the Mortgage Loan Documents, the First Mezzanine Loan Documents
and the Loan Documents; or (iii) modify, amend, waive or



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terminate (A) its organizational documents in any material respect or in any respect with
regard to the provisions concerning such Mortgage Borrower’s or such First Mezzanine Borrower’s
status as a “Special Purpose Entity” (as such term is defined in Section 1.1 of the Mortgage Loan
Agreement or the First Mezzanine Loan Agreement, as applicable, in each case as in effect on the
date hereof), or (B) its qualification and good standing in any jurisdiction, in each case, without
obtaining the prior consent of Lender.




          5.2.4 Change in Business. (a) No Borrower shall enter into any line of business
other than the ownership and management of the Collateral, or make any material change in the scope
or nature of its business objectives, purposes or operations, or undertake or participate in a
material manner in activities other than the continuance of its present business.




               (b) No Borrower shall permit or cause any other Loan Party to enter into any line of business
other than the ownership and operation of its Property, the IP or the First Mezzanine Collateral,
or make any material change in the scope or nature of its business objectives, purposes or
operations, or undertake or participate in a material manner in activities other than the
continuance of its present business.



          5.2.5 Debt Cancellation. (a) No Borrower shall cancel or otherwise forgive or
release any material claim or debt owed to such Borrower by any Person, except for adequate
consideration and in the ordinary course of such Borrower’s business.




               (b) No Borrower shall permit or cause any other Loan Party to cancel or otherwise forgive or
release any material claim or debt (other than termination of Leases by Mortgage Borrowers in
accordance with the Mortgage Loan Agreement) owed to such Loan Party by any Person, except for
adequate consideration and in the ordinary course of such Loan Party’s business.



          5.2.6 Zoning. No Borrower shall cause or permit any Mortgage Borrower to initiate or
consent to any zoning reclassification of any portion of any Property or seek any variance under
any existing zoning ordinance or use or permit the use of any portion of any Property in any manner
that could result in such use becoming a non-conforming use under any zoning ordinance or any other
applicable land use law, rule or regulation, in each case, without the prior consent of Lender not
to be unreasonably withheld.




          5.2.7 Removal of FF&E. Except in the ordinary course of business, no Borrower shall
cause or permit any Mortgage Borrower to remove or transfer any material article of FF&E or other
personal property owned by any Mortgage Borrower used in the operation of any Property unless the
same is replaced with substantially similar FF&E or is obsolete, without the prior written consent
of Lender in each instance, which consent shall not be unreasonably withheld, conditioned or
delayed. To the extent Lender’s prior written approval is required pursuant to this Section
5.2.7, Lender shall endeavor to respond to a request for Lender’s approval within five (5)
Business Days after Borrowers’ written request therefor, delivered together with any documents or
information required to be provided by Borrowers hereunder in connection with Lender’s review of
the proposed action or matter. Lender’s approval of any action or matter requiring Lender’s
consent under this Section 5.2.7 shall be deemed to have been given if (i) a request for
approval, together with any documents or information required to





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be provided by Borrowers hereunder in connection with Lender’s review of the proposed action or
matter, is submitted to Lender with a request for approval set forth in a written notice that
states clearly (in 14-point type or larger): “THIS IS A REQUEST FOR APPROVAL AND IF LENDER DOES NOT
RESPOND TO OR EXPRESSLY DENY THIS REQUEST FOR APPROVAL IN WRITING WITHIN FIVE (5) BUSINESS DAYS,
BORROWERS MAY DELIVER A DEEMED APPROVAL NOTICE”, and Lender does not respond by approving such
proposed action or matter or stating in reasonable detail its objections to such proposed action or
matter within five (5) Business Days of Lender’s receipt thereof, and (ii) after Lender’s failure
to respond to the initial request for approval of such proposed action or matter within the time
period set forth in the foregoing clause (i), Borrowers shall re-submit such request to Lender in a
written notice that states clearly (in 14-point type or larger): “THIS IS A REQUEST FOR APPROVAL.
APPROVAL WILL BE DEEMED GIVEN IF LENDER DOES NOT RESPOND WITHIN FIVE (5) BUSINESS DAYS”, and Lender
does not respond to such second submission by approving such proposed action or matter or stating
in reasonable detail its objection thereto within five (5) Business Days of Lender’s receipt of
such second submission.




          5.2.8 Principal Place of Business and Organization. No Borrower shall change its
principal place of business set forth in the introductory paragraph of this Agreement without first
giving Lender thirty (30) days prior notice. No Borrower shall change the place of its
organization as set forth in Section 4.1.28 hereof without the consent of Lender, which
consent shall not be unreasonably withheld. Upon Lender’s request, Borrowers shall execute and
deliver additional financing statements, security agreements and other instruments which may be
necessary to effectively evidence or perfect Lender’s security interest in the Collateral as a
result of such change of principal place of business or place of organization.




          5.2.9 ERISA. (a) Assuming that Lender is not, and is not lending the assets of, an
“employee benefit plan” as defined in Section 3(3) of ERISA, no Borrower shall engage in any
transaction which would cause any obligation, or action taken or to be taken, hereunder (or the
exercise by Lender of any of its rights under the Note, this Agreement or the other Loan Documents)
to be a non-exempt (under a statutory or administrative class exemption) prohibited transaction
under ERISA.




               (b) Each Borrower shall deliver to Lender such certifications or other evidence from time to
time throughout the term of the Loan, as requested by Lender in its reasonable discretion, that (i)
such Borrower is not an “employee benefit plan” as defined in Section 3(3) of ERISA, which is
subject to Title I of ERISA, or a “governmental plan” within the meaning of Section 3(32) of ERISA;
(ii) none of the assets of such Borrower constitute “plan assets” within the meaning of Section
3(3) of ERISA for purposes of any state law provisions regulating investments of, or fiduciary
obligations with respect to, governmental plans; and (iii) one or more of the following
circumstances is true:




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




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



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     (C) Such Borrower qualifies as an “operating company”, a “venture
capital operating company” or a “real estate operating company” within the
meaning of 29 C.F.R. §2510.3 101(c), (d) or (e).



          5.2.10 Transfers. (a)  Borrowers acknowledge that Lender has examined and relied on
the experience of Borrowers and their direct and indirect members in owning and operating the
Collateral and Mortgage Borrowers in agreeing to make the Loan, and will continue to rely on
Borrowers’ ownership of the Collateral as a means of maintaining the value of the Collateral as
security for repayment of the Debt and the performance of the obligations contained in the Loan
Documents. Additionally, Borrowers acknowledge that Lender has examined and relied on the
experience of Mortgage Borrowers and their general partners, members, principals and (if any
Mortgage Borrower is a trust) beneficial owners, as applicable, in owning and operating properties
such as the Properties and in owning intellectual property such as the IP, in agreeing to make the
Loan, and will continue to rely on Mortgage Borrowers’ ownership of the Properties and the IP as a
means of maintaining the value of the Properties and the IP and, therefore, indirectly the value of
the Collateral, as security for repayment of the Debt and the performance of the obligations
contained in the Loan Documents. Borrowers acknowledge that Lender has a valid interest in
maintaining the value of the Collateral so as to ensure that, should Borrowers default in the
repayment of the Debt or the performance of the obligations contained in the Loan Documents, Lender
can recover the Debt by a sale of the Collateral.




               (b) Without the prior consent of Lender and except to the extent otherwise set forth in this
Section 5.2.10, Borrowers shall not, and shall not permit any Transfer Restricted Party to,
(i) sell, convey, mortgage, grant, bargain, encumber, pledge, assign, license, grant options with
respect to, or otherwise transfer or dispose of (directly or indirectly, voluntarily or
involuntarily, by operation of law or otherwise, and whether or not for consideration or of record)
any Property or any part thereof or any legal or beneficial interest therein, or any IP or any part
thereof or any legal or beneficial interest therein, or the Collateral or any part thereof or any
legal or beneficial interest therein; or (ii) permit a Sale or Pledge of any interest in any
Transfer Restricted Party (any of the actions in the foregoing clauses (i) or (ii),
a “Transfer”), other than, notwithstanding anything to the contrary contained in this Section
5.2.10:




     (A) pursuant to Leases of space in the Improvements to tenants in accordance
with the provisions of Section 5.1.20 hereof, including, without
limitation, the HRHI Lease;




     (B) the pledge of the membership interests in each Mortgage Borrower as
collateral for the First Mezzanine Loan and, if applicable, the exercise of
applicable remedies or a transfer in lieu of foreclosure under the First
Mezzanine Loan Documents by First Mezzanine Lender, subject to the conditions
and restrictions set forth in the Intercreditor Agreement;




     (C) the pledge of the membership interests in each First Mezzanine Borrower
as collateral for the Loan and, if applicable, the exercise of applicable remedies
or a transfer in lieu of foreclosure under the Loan Documents by



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Lender, subject
to the conditions and restrictions set forth in the Intercreditor Agreement;




     (D) the pledge of the membership interests in each Borrower as collateral for
the Third Mezzanine Loan and, if applicable, the exercise of applicable remedies
or a transfer in lieu of foreclosure under the Third Mezzanine Loan Documents by
Third Mezzanine Lender, subject to the conditions and restrictions set forth in
the Intercreditor Agreement;




     (E) any Release Parcel Sale, any Adjacent Parcel Sale or an IP Sale, in each
instance in accordance with the applicable provisions of Section 2.5 of the
Mortgage Loan Agreement;




     (F) a conveyance of the Deeded Adjacent Property as contemplated by Section
3.2(u) of the Mortgage Loan Agreement;




     (G) any IP License or Adjacent Property IP License granted in accordance with
the provisions of Section 5.1.26 hereof;




     (H) the Permitted Encumbrances and Permitted IP Encumbrances; and




     (I) the issuance of new stock in, the merger or consolidation of, and/or the
Sale or Pledge of the stock in, any Publicly Traded Entity who owns a direct or
indirect ownership interest in any Transfer Restricted Party;




     (J) the transfer of indirect ownership interests in any Mortgage Borrower in
order to create one or more new mezzanine borrowers for any New Mezzanine Loan as
contemplated under the Mortgage Loan Agreement; and




     (K) the transfer by deed of any applicable Partial Release Parcel and/or
Partial Adjacent Parcel to a Subsidiary Transferee and the subsequent transfer of
all of the membership interests held by Adjacent Borrower in such Subsidiary
Transferee, in each instance in accordance with Section 2.5.1(f) or 2.5.2(f) of
the Mortgage Loan Agreement, as applicable;



          provided, however, that in the case of each of the foregoing clauses (A) –
(K), such Transfer shall only be permitted hereunder if it does not violate any Legal
Requirements, including specifically, but without limitation, any Gaming Laws.




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



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any merger or consolidation or the change, removal, resignation, admission or addition of
a general partner or the Sale or Pledge of the general partnership interest of any general partner
or any profits or proceeds relating to such partnership interest, or the Sale or Pledge of limited
partnership interests or any profits or proceeds relating to such limited partnership interest or
the creation or issuance of new limited partnership interests; (v) if a Transfer Restricted Party
is a limited liability company, any merger or consolidation or the change, removal, resignation,
admission or addition of a managing member or non-member manager (or if no managing member, any
member) or the Sale or Pledge of the membership interest of a managing member (or if no managing
member, any member) or any profits or proceeds relating to such membership interest, or the Sale or
Pledge of non-managing or managing membership interests or the creation or issuance of new
non-managing or managing membership interests; (vi) if a Transfer Restricted Party is a trust or
nominee trust, any merger, consolidation or the Sale or Pledge of the legal or beneficial interest
in a Transfer Restricted Party or the creation or issuance of new legal or beneficial interests;
(vii) the removal or the resignation of any Manager (including, without limitation, an Affiliated
Manager) other than in accordance with the Mortgage Loan Agreement and Section 5.1.22
hereof; or (viii) any deed-in-lieu or consensual foreclosure relating to any Property with or for
the benefit of Mortgage Lender or any Affiliate thereof.



               (d) Notwithstanding the provisions of this Section 5.2.10, so long as the following
Transfers do not violate any Legal Requirements in any instance, including specifically, but
without limitation, any Gaming Laws, or cause or otherwise result in the suspension, termination
and/or revocation of any Gaming License, the HRHI Lease, the Gaming Sublease or the Casino
Component Lease, as applicable, the following Transfers may occur without the consent of Lender or
the payment of any transfer or other fee, excluding, however, any Transfer of (i) any direct
interest in any Mortgage Borrower for so long as the Loan, the Mortgage Loan or any Mezzanine Loan
is outstanding, and/or (ii) any direct interest in any Borrower for so long as the Loan or any
Mezzanine Loan is outstanding:




     (A) the Transfer of any direct or indirect interest in any Transfer
Restricted Party, provided that (1) no Event of Default, Mortgage Event of
Default or any Mezzanine Event of Default has occurred and is continuing, (2) (y)
one or both Guarantors continue to Control, directly or indirectly, each Loan
Party and HRHI, and (z) one or both Guarantors own, directly or indirectly, at
least a fifty-one percent (51%) economic interest in each Loan Party and in HRHI,
(3) Lender receives (y) at least ten (10) days prior written notice of any such
voluntary Transfer and copies of the documents transferring such interest, or (z)
written notice of any such involuntary Transfer and copies of the documents
transferring such interest within thirty (30) days following such involuntary
Transfer, (4) if after such Transfer any Person and its Affiliates collectively
would own more than forty-nine (49%) in the aggregate of the direct and/or
indirect interests of any Loan Party and as of the Closing Date
such Person and its Affiliates collectively owned forty-nine percent (49%) or
less in the aggregate of the direct and/or indirect interests of any Loan Party,
Lender shall have received, prior to such Transfer, an Additional Insolvency
Opinion reasonably satisfactory to Lender and the Rating Agencies and, if a
Securitization has occurred, a confirmation in writing from the Rating Agencies to
the effect that such Transfer will not result in a re-qualification, reduction or



133









 







withdrawal of the then current rating assigned to the Securities or any class
thereof in any applicable Securitization, and (5) Borrowers deliver, or cause
Mortgage Borrowers to deliver, to Lender a copy of any consents or approvals
required by any Governmental Authority, including specifically, but without
limitation, any Gaming Authority, in connection with such Transfer;




     (B) the Transfer of any direct or indirect interest in any Transfer
Restricted Party to any other Person who is, as of the Closing Date, a holder of
any direct or indirect interest in any Transfer Restricted Party, provided
that (1) no Event of Default, Mortgage Event of Default or any Mezzanine Event of
Default has occurred and is continuing, (2) (y) one or both Guarantors continue to
Control, directly or indirectly, each Loan Party and HRHI, and (z) one or both
Guarantors own, directly or indirectly, at least a fifty-one percent (51%)
economic interest in each Loan Party and in HRHI, (3) Lender receives (y) at least
ten (10) days prior written notice of any such voluntary Transfer and copies of
the documents transferring such interest, or (z) written notice of any such
involuntary Transfer and copies of the documents transferring such interest within
thirty (30) days following such involuntary Transfer, and (4) Borrowers deliver,
or cause Mortgage Borrowers to deliver, to Lender a copy of any consents or
approvals required by any Governmental Authority, including specifically, but
without limitation, any Gaming Authority, in connection with such Transfer;




     (C) the Transfer of any direct or indirect interest in any Transfer
Restricted Party by inheritance, devise, bequest or operation of law upon the
death of a natural person who owned such interest, provided that (1) such
Transfer is to a non-minor member of the immediate family of the deceased holder
of such interest or a trust established for the benefit of one or more members of
the immediate family of the deceased holder of such interest, (2) (y) one or both
Guarantors continue to Control, directly or indirectly, each Loan Party and HRHI,
and (z) one or both Guarantors own, directly or indirectly, at least a fifty-one
percent (51%) economic interest in each Loan Party and in HRHI, (3) such Transfer
shall not result in a change of Control of the day-to-day operations of any of the
Properties, (4) Lender receives written notice of such Transfer and copies of the
documents transferring such interest not later than thirty (30) days following
such Transfer, (5) the legal and financial structure of each Loan Party and the
other Transfer Restricted Parties, and the single purpose nature and bankruptcy
remoteness of each Loan Party and the other Transfer Restricted Parties, after
such Transfer shall satisfy the applicable provisions of the Loan Documents, the
Mortgage Loan Documents and/or the First Mezzanine Loan Documents (including,
without limitation, Section 4.1.30
hereof and/or Section 4.1.30 of the Mortgage Loan Agreement or the First
Mezzanine Loan Agreement, as applicable), (6) if after such Transfer any Person
and its Affiliates would collectively own more than forty-nine (49%) in the
aggregate of the direct and/or indirect interests of any Loan Party and as of the
Closing Date such Person and its Affiliates collectively owned forty-nine percent
(49%) or less in the aggregate of the direct and/or indirect interests of



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any Loan
Party, Lender shall have received an Additional Insolvency Opinion reasonably
satisfactory to Lender and the Rating Agencies and, if a Securitization has
occurred, a confirmation in writing from the Rating Agencies to the effect that
such Transfer will not result in a re-qualification, reduction or withdrawal of
the then current rating assigned to the Securities or any class thereof in any
applicable Securitization, and (7) Borrowers deliver, or cause Mortgage Borrowers
to deliver, to Lender a copy of any consents or approvals required by any
Governmental Authority, including specifically, but without limitation, any Gaming
Authority, in connection with such Transfer; and




     (D) (1) the merger or consolidation of any Guarantor or any Constituent
Member of any Guarantor with or into any other Person, (2) the sale of any
Guarantor or substantially all of any Guarantor’s assets to any other Person, or
(3) the issuance of new stock or limited partnership or membership interests in,
and/or the Sale or Pledge of stock, limited partnership or membership interests
in, any Guarantor or any Constituent Member thereof (any of the occurrences in the
foregoing clauses (1), (2) or (3), a “Guarantor Transfer”);
provided, that, in each of the foregoing instances, whether or not the
applicable Guarantor or the applicable Constituent Member of a Guarantor is or is
not a Publicly Traded Company, (I) after giving effect to such Guarantor Transfer,
when viewed both individually and together with any prior Guarantor Transfers, (y)
the Guarantors, collectively, shall continue to satisfy the Net Worth
Requirements, and (z) at least one of the Guarantors shall be a Qualified Real
Estate Guarantor, (II) except if the applicable Guarantor or the applicable
Constituent Member of a Guarantor is a Publicly Traded Company, Lender receives at
least ten (10) days prior written notice of any such Guarantor Transfer, (III) if
after such Guarantor Transfer any Person and its Affiliates collectively would own
more than forty-nine (49%) in the aggregate of the direct and/or indirect
interests of any Loan Party and as of the Closing Date such Person and its
Affiliates collectively owned forty-nine percent (49%) or less in the aggregate of
the direct and/or indirect interests of any Loan Party, Lender shall have
received, prior to such Guarantor Transfer, an Additional Insolvency Opinion
reasonably satisfactory to Lender and the Rating Agencies and, if a Securitization
has occurred, a confirmation in writing from the Rating Agencies to the effect
that such Guarantor Transfer will not result in a re-qualification, reduction or
withdrawal of the then current rating assigned to the Securities or any class
thereof in any applicable Securitization, and (IV) Borrowers deliver, or cause
Mortgage Borrowers to deliver, to Lender a copy of any consents or approvals
required by any Governmental Authority, including specifically, but without
limitation, any Gaming Authority, in connection with such Guarantor Transfer.



               (e) With respect to any Transfer permitted under this Section 5.2.10 or otherwise
consented to by Lender, Borrowers shall pay, or shall cause Mortgage Borrowers to pay, all fees and
expenses incurred by Lender in connection with such Transfer, including, without limitation, the
cost of any third party reports, reasonable legal fees and expenses, Rating Agency fees and
expenses and required legal opinions.



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               (f) Notwithstanding anything to the contrary set forth in this Agreement or in any of the
other Loan Documents, Borrowers expressly acknowledge and agree, on behalf of themselves and the
other Transfer Restricted Parties, that any Transfer or Guarantor Transfer stated to be permitted
hereunder or thereunder shall only be permitted if it does not violate any Legal Requirements,
including specifically, but without limitation, any Gaming Laws.



          5.2.11 Morton Indemnification and PWR/RWB Escrow Agreement. Borrowers shall not do,
and Borrowers shall not permit any Mortgage Borrower or any Affiliate to do, any of the following,
in each instance without the prior approval of Lender, which approval shall not be unreasonably
withheld: (a) modify, amend, waive any right under, or terminate the Morton Indemnification or the
PWR/RWB Escrow Agreement, other than any ministerial, non-monetary amendment or modification; (b)
make any claim or otherwise exercise any rights or remedies under the Morton Indemnification or the
PWR/RWB Escrow Agreement; or (c) other than the funds released on February 2, 2007 pursuant to the
express terms of the PWR/RWB Escrow Agreement, cause any funds escrowed under the PWR/RWB Escrow
Agreement to be used for any purpose other than the satisfaction of indemnification claims pursuant
to the Morton Indemnification until such time as the Morton Indemnification shall expire by its
terms. Borrowers shall cause Mortgage Borrowers to comply with the provisions of Section 5.2.11 of
the Mortgage Loan Agreement.




          5.2.12 Distributions to Affiliates. Other than the fees and expense reimbursements
payable to any Affiliated Manager pursuant to any Management Agreement reasonably approved by
Lender, no Borrower shall, nor shall cause or permit any other Loan Party to, make any
distributions to, or otherwise pay any dividends or make any payments to, any Restricted Party
unless and until the Excess Cash Termination Conditions shall have occurred, and thereafter, only
when no Event of Default, Mortgage Event of Default and/or any Mezzanine Event of Default shall
have occurred and be continuing.




          5.2.13 Limitation on Securities Issuances.




               (a) Borrowers shall not cause any ownership interests in any other Loan Party to be issued
other than those that have been issued as of the Closing Date nor shall Borrowers cause or permit
any other Loan Party to enter into or grant any option, warrant or other agreement or right with
respect to any ownership interest in such Loan Party or with respect to any income or profits of
such Loan Party.



               (b) No Borrower shall issue any ownership interests or other securities other than those that
have been issued as of the Closing Date nor shall any Borrower enter into or grant any option,
warrant or other agreement or right with respect to any ownership interest in such Borrower.



          5.2.14 Distributions.




               (a) Any and all dividends, including capital dividends, stock or liquidating dividends,
distributions of property, redemptions or other distributions made by any Mortgage Borrower on or
in respect of any interests in such Mortgage Borrower, and any and all



136









 







cash and other property
received in payment of the principal of or in redemption of or in exchange for any such interests
(collectively, the “Mortgage Distributions”), shall become part of the Collateral.



               (b) If any Mortgage Distributions shall be received by any Borrower or any Affiliate of any
Borrower after the occurrence and during the continuance of an Event of Default, each Borrower
shall hold, or shall cause the same to be held, in trust for the benefit of Lender. Any and all
revenue derived from any Property paid directly by tenants, subtenants or occupants of such
Property shall be held and applied in accordance with the terms and provisions of the Mortgage Loan
Agreement.



          5.2.15 Refinancing or Prepayment of the Mortgage Loan or the First Mezzanine Loan.




               (a) Borrowers or Mortgage Borrowers shall not be required to obtain the consent of Lender to
refinance the Mortgage Loan, provided that the Loan shall have been (or shall simultaneously be)
paid in full in accordance with the terms of this Agreement (including any Spread Maintenance
Premiums and other amounts due and payable to Lender under the Loan Documents). Borrowers shall
cause Mortgage Borrowers to obtain the prior written consent of Lender to enter into any other
refinancing of the Mortgage Loan which consent shall not be unreasonably withheld, conditioned or
delayed.



               (b) Borrowers or First Mezzanine Borrowers shall not be required to obtain the consent of
Lender to refinance the First Mezzanine Loan, provided that the Loan shall have been (or shall
simultaneously be) paid in full in accordance with the terms of this Agreement (including any
Spread Maintenance Premiums and other amounts due and payable to Lender under the Loan Documents).
Borrowers shall cause First Mezzanine Borrowers to obtain the prior written consent of Lender to
enter into any other refinancing of the First Mezzanine Loan which consent shall not be
unreasonably withheld, conditioned or delayed.



          5.2.16 Acquisition of the Mortgage Loan.




               (a) No Loan Party, Guarantor, or any Affiliate of any of them or any Person acting at any such
Person’s request or direction, shall acquire or agree to acquire Mortgage Lender’s interest in the
Mortgage Loan, or any portion thereof or any interest therein, or any direct or indirect ownership
interest in the holder of the Mortgage Loan (other than any passive minority interest in the holder
of the Mortgage Loan obtained by any Person), 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, Borrowers shall have failed to comply with
the foregoing, then Borrowers: (i) shall immediately notify Lender of such failure; (ii) shall
cause any and all such prohibited parties acquiring any interest in the Mortgage Loan Documents:
(A) not to enforce the Mortgage 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 Mortgage Loan, (2) reconvey and release the Lien securing the
Mortgage Loan and any other collateral under the Mortgage Loan Documents, and (3) discontinue and
terminate any enforcement proceeding(s) under the Mortgage Loan Documents.



137









 





               (b) Lender shall have the right at any time to acquire all or any portion of the Mortgage Loan
or any interest in any holder of, or participant in, the Mortgage Loan without notice or consent of
Borrowers or any other Loan Party, in which event Lender shall have and may exercise all rights of
Mortgage Lender thereunder (to the extent of its interest), including the right (i) to declare that
the Mortgage Loan is in default and (ii) to accelerate the Mortgage Loan indebtedness, in
accordance with the terms thereof and (iii) to pursue all remedies against any obligor under the
Mortgage Loan Documents.



          5.2.17 Other Limitations. Prior to the payment and performance in full of the
Obligations, no Borrower shall, nor shall permit or cause any other Loan Party or any of its
respective Affiliates to, without the prior written consent of Lender, which consent shall not be
unreasonably withheld, give its consent or approval to any of the following actions or items:




               (a) any Mortgage Borrower or any First Mezzanine Borrower creating, incurring, assuming or
suffering to exist any additional Liens on any portion of any Property or the First Mezzanine
Collateral, as applicable, except for Permitted Encumbrances;



               (b) any modification, amendment, consolidation, spreading, restatement, waiver or termination
of any of the Mortgage Loan Documents or any of the First Mezzanine Loan Documents;



               (c) any modification or amendment of any Approved Annual Budget;



               (d) any material change in the method of conduct of the business of any Borrower or any other
Loan Party; or



               (e) the settlement of any claim against any Borrower or any other Loan Party, other than a
fully insured third party.



ARTICLE VI.

INSURANCE; CASUALTY; CONDEMNATION; RESTORATION




          Section 6.1 Insurance. (a)  Borrowers shall cause Mortgage Borrowers to obtain and
maintain, or cause to be maintained, at all times during the term of the Loan the insurance
required under Section 6.1 of the Mortgage Loan Agreement, including, without limitation, meeting
all insurer requirements thereunder. In addition, Borrowers shall cause Mortgage Borrower to cause
Lender to be named as an additional named insured under each of the insurance policies described in
Section 6.1(a)(ii), (iii), (v), (vii), and (xii) of the Mortgage Loan Agreement, and Borrowers
shall cause Mortgage Borrowers to cause Lender to be named as a named insured together with
Mortgage Lender, as their interest may appear, under the insurance policies required under Section
6.1 (a)(i), (iv), (vi), (viii), (ix), (x) and (xi) of the Mortgage Loan Agreement. Borrowers shall
cause Mortgage Borrowers to cause all insurance policies required under this Section 6.1 to provide
for at least thirty (30) days prior notice to Lender in the event of policy cancellation or
material changes. Not less than five (5) Business Days prior to the expiration dates of the
Policies theretofore furnished to Lender pursuant to the terms hereof, certificates of insurance
evidencing the Policies reasonably satisfactory to Lender and accompanied by evidence reasonably
satisfactory to Lender of payment of the premiums due thereunder (the “Insurance Premiums”) shall
be delivered by Borrowers to Lender; provided,



138









 






however, that in the case of renewal Policies,
Borrowers may furnish Lender with binders therefor to be followed by the original Policies when
issued.




               (b) If at any time Lender is not in receipt of written evidence that all Policies are in full
force and effect, Lender shall have the right, upon two (2) Business Days’ written notice to
Borrowers, to take such reasonable action as Lender deems necessary to protect its interest in the
Collateral, including, without limitation, the obtaining of such insurance coverage as Lender in
its sole discretion deems appropriate. All premiums incurred by Lender in connection with such
action or in obtaining such insurance and keeping it in effect shall be paid by Borrowers to Lender
within ten (10) days after demand and, until paid, shall be secured by the Pledge Agreement and
shall bear interest at the Default Rate from the date of demand.



               (c) Notwithstanding anything to the contrary set forth herein, proof of all property coverages
required under Section 6.1(a) of the Mortgage Loan Agreement shall be on an Acord 28 Evidence of
Property Form (2003/10 version) or on such other binding form as is then generally used or is
otherwise reasonably acceptable to Lender.



               (d) For purposes of this Agreement, Lender shall have the same approval rights over the
insurance referred to above (including, without limitation, the insurers, deductibles and coverages
thereunder, as well as the right to require other reasonable insurance pursuant to Section
6.1(a)(xii) of the Mortgage Loan Agreement) as are provided in favor of Mortgage Lender in the
Mortgage Loan Agreement. All liability insurance provided for in the Mortgage Loan Agreement shall
provide insurance with respect to the liabilities of each of the Loan Parties. The Policies
delivered pursuant to the Mortgage Loan Agreement shall include endorsements of the type described
in Section 6.1(e) of the Mortgage Loan Agreement, but
pursuant to which Lender shall have the same rights as Mortgage Lender as referred to in such
Section 6.1(e).



               (e) Upon repayment in full of the Mortgage Loan and the First Mezzanine Loan, the provisions
of Section 6.1 of the Mortgage Loan Agreement and all related definitions shall be incorporated
into this Agreement in their entirety.




     Section 6.2 Casualty. If any Property shall be damaged or destroyed, in whole or
in part, by fire or other casualty (a “Casualty”), Borrowers shall cause Mortgage Borrowers to
give prompt notice of such damage to Lender and shall cause Mortgage Borrowers to promptly
commence and diligently prosecute the completion of the Restoration so that such Property
resembles, as nearly as possible, the condition such Property was in immediately prior to such
Casualty, with such alterations as may be reasonably approved by Lender (to the extent such
alterations are of a type that would require Lender’s approval under Section 5.1.21 hereof) and
otherwise in accordance with Section 6.4 of the Mortgage Loan Agreement, provided, that if (A)
Mortgage Lender is obligated to make Net Proceeds available to Mortgage Borrowers for purposes
of Restoration in accordance with Section 6.4 of the Mortgage Loan Agreement, (B) Mortgage
Lender has received such Net Proceeds, and (C) Mortgage Lender has not made such Net Proceeds
available to Mortgage Borrowers, then Borrowers shall not be required to cause Mortgage
Borrowers to repair and restore such Property unless and until such Net Proceeds are made
available to Mortgage Borrowers. It is expressly understood, however, that Mortgage Borrowers
shall not be obligated to restore



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such Property to the precise condition of such Property prior
to such Casualty provided such Property is restored, to the extent practicable, to be of at
least equal value and of substantially the same character as prior to the Casualty. Borrowers
shall pay, or shall cause Mortgage Borrowers to pay, all costs of such Restoration whether or
not such costs are covered by insurance. Lender may, but shall not be obligated to make proof
of loss if not made promptly by any Borrower or any Mortgage Borrower. In addition, Lender may
participate in any settlement discussions with any insurance companies (and shall approve any
final settlement) with respect to any Casualty in which the Net Proceeds or the costs of
completing the Restoration are equal to or greater than the Restoration Threshold and the
applicable Borrower shall, or shall cause the applicable Mortgage Borrower to, deliver to Lender
all instruments reasonably required by Lender to permit such participation. In the event of a
Casualty in which the Net Proceeds and the costs of completing the Restoration are each less
than the Restoration Threshold, Borrowers may settle and adjust such claim without Lender’s
consent or participation.




     Section 6.3 Condemnation. Borrowers shall promptly give Lender notice of the
actual or threatened commencement of any proceeding for the Condemnation of any Property or any
part thereof and shall cause Mortgage Borrowers to deliver to Lender copies of any and all
papers served in connection with such proceedings. Lender may participate in any such
proceedings with respect to any Condemnation in which Borrowers’ reasonable estimate (based on
any statement of value submitted to the condemning authority or any other reasonable evidence in
Lender’s reasonable judgment) of the Net Proceeds or the costs of completing the
Restoration are equal to or greater than the Restoration Threshold, and the applicable
Borrower shall, or shall cause the applicable Mortgage Borrower to, from time to time deliver to
Lender all instruments reasonably requested by it to permit such participation. Borrowers
shall, or shall cause Mortgage Borrowers to, at their expense, diligently prosecute any such
proceedings, and shall, to the extent required hereunder, consult with Lender, its attorneys and
experts, and cooperate with them in the carrying on or defense of any such proceedings.
Notwithstanding any taking by any public or quasi-public authority through Condemnation or
otherwise (including, but not limited to, any transfer made in lieu of or in anticipation of the
exercise of such taking), Borrowers shall continue to pay the Debt at the time and in the manner
provided for its payment in the Note and in this Agreement and the Debt shall not be reduced
until any Award shall have been actually received and applied by Lender, after the deduction of
expenses of collection, to the reduction or discharge of the Debt. Lender shall not be limited
to the interest paid on the Award by the condemning authority but shall be entitled to receive
out of the Award interest at the rate or rates provided herein or in the Note. If any Property
or any portion thereof is taken by a condemning authority, Borrowers shall, or shall cause
Mortgage Borrowers to, promptly commence and diligently prosecute the Restoration of the
applicable Property and otherwise comply with the provisions of Section 6.4 of the Mortgage Loan
Agreement, provided, that if (A) Mortgage Lender is obligated to make Net Proceeds available to
Mortgage Borrowers for purposes of Restoration in accordance with Section 6.4 of the Mortgage
Loan Agreement, (B) Mortgage Lender has received such Net Proceeds, and (C) Mortgage Lender has
not made such Net Proceeds available to Mortgage Borrowers, then Mortgage Borrowers shall not be
obligated to repair and restore such Property unless and until such Net Proceeds are made
available to Mortgage Borrowers. If such Property is sold, through foreclosure or otherwise,
prior to the receipt by Lender of the Award, Lender shall have the right, whether or not a
deficiency



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judgment on the Note shall have been sought, recovered or denied, to receive the
Award, or a portion thereof sufficient to pay the Debt.



          Section 6.4 Restoration.




               (a) Borrowers shall, or shall cause Mortgage Borrowers to, deliver to Lender copies of all
reports, plans, specifications, documents and other materials that are delivered to Mortgage Lender
under Section 6.4 of the Mortgage Loan Agreement in connection with a Restoration of any Property
after a Casualty or Condemnation. If any insurance proceeds or condemnation awards are to be
disbursed by Mortgage Lender for Restoration, Borrowers shall deliver or cause to be delivered to
Lender copies of all written correspondence delivered to and received from Mortgage Lender that
relates to the restoration and release of the insurance proceeds or condemnation awards.



               (b) Notwithstanding any provision in this Agreement to the contrary, all insurance proceeds
and condemnation awards will be made available to Mortgage Borrowers in accordance with the
Mortgage Loan Agreement. In the event the Mortgage Loan has been paid in full and Lender receives
any insurance proceeds or condemnation award, Lender shall either apply such proceeds to the Debt
or for the Restoration of any Property in accordance with the same terms and conditions contained
in Section 6.4 of the Mortgage Loan Agreement.



               (c) Upon repayment in full of the Mortgage Loan and the First Mezzanine Loan, if the Loan or
any portion thereof is then outstanding, the provisions of Section 6.4 of the Mortgage Loan
Agreement and all related definitions shall be incorporated into this Agreement in their entirety.



          Section 6.5 Rights of Lender. For purposes of this Article VI, Borrowers shall obtain
the approval of Lender for each matter requiring the approval of Mortgage Lender under the
provisions of Sections 6.4 of the Mortgage Loan Agreement, with each reference in any such
provisions to the “Loan” to include the Mortgage Loan and the Loan, and the reference in any such
provisions to the “Maturity Date” to mean the Maturity Date, as defined herein. If (a) Mortgage
Lender does not require the deposit by Mortgage Borrowers of the “Net Proceeds Deficiency” pursuant
to Section 6.4(c)(vi) of the Mortgage Loan Agreement or (b) First Mezzanine Lender does not require
the deposit by First Mezzanine Borrowers of the “Net Proceeds Deficiency” pursuant to Section 6.5
of the First Mezzanine Loan Agreement, Lender shall have the right to demand that Borrowers make a
deposit of said “Net Proceeds Deficiency” in accordance with the terms of such Section (as if each
reference therein to “Borrowers” and “Lender” referred to Borrowers and Lender, respectively).




ARTICLE VII.

RESERVE FUNDS




          Section 7.1 Required Repair Fund.




               (a) Borrowers shall cause Mortgage Borrowers to comply with all of the terms and conditions
set forth in Section 7.1 of the Mortgage Loan Agreement.



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               (b) In the event (i)(A) Mortgage Lender waives the requirements of Mortgage Borrowers to
maintain the Required Repair Fund and the Required Repair Account pursuant to the terms of Section
7.1 of the Mortgage Loan Agreement and (B) First Mezzanine Lender waives the requirements of First
Mezzanine Borrowers to maintain the Required Repair Fund and the Required Repair Account pursuant
to the terms of Section 7.1 of the First Mezzanine Loan Agreement; or (ii) the Mortgage Loan and
the First Mezzanine Loan have been repaid in full (without a prepayment of the Loan in full),
Lender shall have the right to require Borrowers to establish and maintain an escrow that would
operate in the same manner as the Required Repair Fund and the Required Repair Account in Section
7.1 of the Mortgage Loan Agreement and the provisions of Section 7.1 of the Mortgage Loan Agreement
and all related definitions shall be incorporated herein by reference; provided,
however, that all references to “Borrowers,” “Lender” and “Event of Default” therein shall
be deemed references to Borrowers, Lender and Event of Default as defined herein.



          Section 7.2 Tax and Insurance Escrow Fund.




               (a) Borrowers shall cause Mortgage Borrowers to comply with all of the terms and conditions
set forth in Section 7.2 of the Mortgage Loan Agreement.



               (b) In the event (i)(A) Mortgage Lender waives the requirements of Mortgage Borrowers to
maintain the Tax and Insurance Escrow Fund pursuant to the terms of Section 7.2 of the Mortgage
Loan Agreement and (B) First Mezzanine Lender waives the requirements of First Mezzanine Borrowers
to maintain the Tax and Insurance Escrow Fund pursuant to the terms of Section 7.2 of the First
Mezzanine Loan Agreement; or (ii) the Mortgage Loan and the First Mezzanine Loan have been repaid
in full (without a prepayment of the Loan in full), Lender shall have the right to require
Borrowers to establish and maintain an escrow that would operate in the same manner as the Tax and
Insurance Escrow Fund in Section 7.2 of the Mortgage Loan Agreement and the provisions of Section
7.2 of the Mortgage Loan Agreement and all related definitions shall be incorporated herein by
reference; provided, however, that all references to “Borrowers,” “Lender” and
“Event of Default” therein shall be deemed references to Borrowers, Lender and Event of Default as
defined herein.



          Section 7.3 Replacement Reserve Fund.




               (a) Borrowers shall cause Mortgage Borrowers to comply with all of the terms and conditions
set forth in Section 7.3 of the Mortgage Loan Agreement.



               (b) In the event (i)(A) Mortgage Lender waives the requirements of Mortgage Borrowers to
maintain the Replacement Reserve Fund and the Replacement Reserve Account pursuant to the terms of
Section 7.3 of the Mortgage Loan Agreement and (B) First Mezzanine Lender waives the requirements
of First Mezzanine Borrowers to maintain the Replacement Reserve Fund and the Replacement Reserve
Account pursuant to the terms of Section 7.3 of the First Mezzanine Loan Agreement; or (ii) the
Mortgage Loan and the First Mezzanine Loan have been repaid in full (without a prepayment of the
Loan in full), Lender shall have the right to require Borrowers to establish and maintain an escrow
that would operate in the same manner as the Replacement Reserve Fund and the Replacement Reserve
Account in Section 7.3 of the Mortgage
Loan Agreement and the provisions of Section 7.3 of the
Mortgage



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Loan Agreement and all related definitions shall be incorporated herein by reference;
provided, however, that all references to “Borrowers,” “Lender” and “Event of
Default” therein shall be deemed references to Borrowers, Lender and Event of Default as defined
herein.



          Section 7.4 Interest Reserve Fund.




               (a) Borrowers shall cause Mortgage Borrowers to comply with all of the terms and conditions
set forth in Section 7.4 of the Mortgage Loan Agreement.



               (b) In the event (i)(A) Mortgage Lender waives the requirements of Mortgage Borrowers to
maintain the Interest Reserve Fund pursuant to the terms of Section 7.4 of the Mortgage Loan
Agreement and (B) First Mezzanine Lender waives the requirements of First Mezzanine Borrowers to
maintain the Interest Reserve Fund pursuant to the terms of
Section 7.4 of the First Mezzanine Loan Agreement; or (ii) the Mortgage Loan and the First
Mezzanine Loan have been repaid in full (without a prepayment of the Loan in full), Lender shall
have the right to require Borrowers to establish and maintain an escrow that would operate in the
same manner as the Interest Reserve Fund in Section 7.4 of the Mortgage Loan Agreement and the
provisions of Section 7.4 of the Mortgage Loan Agreement and all related definitions shall be
incorporated herein by reference; provided, however, that all references to
“Borrowers,” “Lender” and “Event of Default” therein shall be deemed references to Borrowers,
Lender and Event of Default as defined herein.



          Section 7.5 Initial Renovation Reserve Fund.




               (a) Borrowers shall cause Mortgage Borrowers to comply with all of the terms and conditions
set forth in Section 7.5 of the Mortgage Loan Agreement.



               (b) In the event (i)(A) Mortgage Lender waives the requirements of Mortgage Borrowers to
maintain the Initial Renovation Reserve Fund and the Initial Renovation Reserve Account pursuant to
the terms of Section 7.5 of the Mortgage Loan Agreement and (B) First Mezzanine Lender waives the
requirements of First Mezzanine Borrowers to maintain the Initial Renovation Reserve Fund and the
Initial Renovation Reserve Account pursuant to the terms of Section 7.5 of the First Mezzanine Loan
Agreement; or (ii) the Mortgage Loan and the First Mezzanine Loan have been repaid in full (without
a prepayment of the Loan in full), Lender shall have the right to require Borrowers to establish
and maintain an escrow that would operate in the same manner as the Initial Renovation Reserve Fund
and the Initial Renovation Reserve Account in Section 7.5 of the Mortgage Loan Agreement and the
provisions of Section 7.5 of the Mortgage Loan Agreement and all related definitions shall be
incorporated herein by reference; provided, however, that all references to
“Borrowers,” “Lender” and “Event of Default” therein shall be deemed references to Borrowers,
Lender and Event of Default as defined herein.



          Section 7.6 General Reserve Fund.




               (a) Borrowers shall cause Mortgage Borrowers to comply with all of the terms and conditions
set forth in Section 7.6 of the Mortgage Loan Agreement.



               (b) In the event (i)(A) Mortgage Lender waives the requirements of Mortgage Borrowers to
maintain the General Reserve Fund and the General Reserve Account



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pursuant to the terms of Section
7.6 of the Mortgage Loan Agreement and (B) First Mezzanine Lender waives the requirements of First
Mezzanine Borrowers to maintain the General Reserve Fund and the General Reserve Account pursuant
to the terms of Section 7.6 of the First Mezzanine Loan Agreement; or (ii) the Mortgage Loan and
the First Mezzanine Loan have been repaid in full (without a prepayment of the Loan in full),
Lender shall have the right to require Borrowers to establish and maintain an escrow that would
operate in the same manner as the General Reserve Fund and the General Reserve Account in Section
7.6 of the Mortgage Loan Agreement and the provisions of Section 7.6 of the Mortgage Loan Agreement
and all related definitions shall be incorporated herein by reference; provided,
however, that all references to
“Borrowers,” “Lender” and “Event of Default” therein shall be deemed references to Borrowers,
Lender and Event of Default as defined herein.



          Section 7.7 Construction Loan Reserve Fund.




               (a) Borrowers shall cause Mortgage Borrowers to comply with all of the terms and conditions
set forth in Section 7.7 of the Mortgage Loan Agreement.



               (b) In the event (i)(A) Mortgage Lender waives the requirements of Mortgage Borrowers to
maintain the Construction Loan Reserve Fund and the Construction Loan Reserve Account pursuant to
the terms of Section 7.7 of the Mortgage Loan Agreement and (B) First Mezzanine Lender waives the
requirements of First Mezzanine Borrowers to maintain the Construction Loan Reserve Fund and the
Construction Loan Reserve Account pursuant to the terms of Section 7.7 of the First Mezzanine Loan
Agreement; or (ii) the Mortgage Loan and the First Mezzanine Loan have been repaid in full (without
a prepayment of the Loan in full), Lender shall have the right to require Borrowers to establish
and maintain an escrow that would operate in the same manner as the Construction Loan Reserve Fund
and the Construction Loan Reserve Account in Section 7.7 of the Mortgage Loan Agreement and the
provisions of Section 7.7 of the Mortgage Loan Agreement and all related definitions shall be
incorporated herein by reference; provided, however, that all references to
“Borrowers,” “Lender” and “Event of Default” therein shall be deemed references to Borrowers,
Lender and Event of Default as defined herein.



          Section 7.8 Reserve Funds, Generally.




               (a) Borrowers hereby grant to Lender a first-priority perfected security interest in each of
the Reserve Funds held by Lender and any and all monies now or hereafter deposited in each Reserve
Fund as additional security for payment of the Debt. Until expended or applied in accordance
herewith, the Reserve Funds shall constitute additional security for the Debt.



               (b) Upon the occurrence and during the continuance of an Event of Default, Lender may, in
addition to any and all other rights and remedies available to Lender, apply any sums then present
in any or all of the Reserve Funds to the reduction of the Debt (in such order, proportion and
priority as Lender may determine in its sole discretion), until the Debt is paid in full, with any
amounts remaining being disbursed, as a distribution permitted under applicable law, (i) to Third
Mezzanine Lender for application by Third Mezzanine Lender in accordance with the terms of the
Third Mezzanine Loan Documents if the Third Mezzanine Debt




144












 




(or any portion thereof) is outstanding, until the Third Mezzanine Debt is paid in full, and
then (ii) any balance remaining to Borrowers.




               (c) Any amount remaining in any of the Reserve Funds after the Obligations have been satisfied
shall be released to Borrowers; provided, however, that Borrowers and Lender hereby
agree and acknowledge that if (1) all of the Obligations have been satisfied, (2) there is any
amount remaining in any of the Reserve Funds, and (3) the Third Mezzanine Debt (or any portion
thereof) is outstanding, then Lender will not pay any such remaining amount in any of the Reserve
Funds to Borrowers, but rather shall deliver such amount to Third Mezzanine Lender to be held in
accordance with the terms of the Third Mezzanine Loan Documents. The Reserve Funds shall not
constitute trust funds and may be commingled with other monies held by Lender.



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



               (e) The Reserve Funds shall be held in an Eligible Account in Permitted Investments pursuant
to the Cash Management Agreement. All interest or other earnings on a Reserve Fund (with the
exception of the Tax and Insurance Escrow Fund) shall be added to and become a part of such Reserve
Fund and shall be disbursed in the same manner as other monies deposited in such Reserve Fund,
except that all interest or other earnings on the Tax and Insurance Escrow Fund shall be retained
by Lender. Borrowers shall have the right to direct Lender to invest sums on deposit in the
Eligible Account in Permitted Investments provided (i) such investments are then regularly offered
by Lender for accounts of this size, category and type, (ii) such investments are permitted by
applicable Legal Requirements, (iii) the maturity date of the Permitted Investment is not later
than the date on which the applicable Reserve Fund is required for payment of an obligation for
which such Reserve Fund was created, and (iv) no Event of Default shall have occurred and be
continuing. Borrowers shall be responsible for payment of any federal, state or local income or
other tax applicable to the interest or income earned on the Reserve Funds (with the exception of
the Tax and Insurance Escrow Fund). No other investments of the sums on deposit in the Reserve
Funds shall be permitted except as set forth in this Section 7.8. Borrowers shall bear all
reasonable costs associated with the investment of the sums in the account in Permitted
Investments. Such costs shall be deducted from the income or earnings on such investment, if any,
and to the extent such income or earnings shall not be sufficient to pay such costs, such costs
shall be paid by Borrowers promptly on demand by Lender. Lender shall have no liability for the
rate of return earned or losses incurred on the investment of the sums in Permitted Investments.



               (f) Borrowers, jointly and severally, shall indemnify Lender and hold Lender harmless from and
against any and all actions, suits, third party claims, demands, liabilities, actual losses, actual
damages (excluding lost profits, diminution in value and other consequential damages), obligations
and reasonable costs and expenses (including litigation costs and reasonable attorneys’ fees and
expenses) arising from or in any way connected with the Reserve Funds held by Lender or the
performance of the obligations for which the Reserve



145









 




Funds were established, excluding matters arising from Lender’s or its agents’ fraud, willful
misconduct, illegal acts or gross negligence. Borrowers shall assign to Lender all rights and
claims any Borrower may have against all Persons supplying labor, materials or other services which
are to be paid from or secured by the Reserve Funds; provided, however, that Lender
may not pursue any such right or claim unless an Event of Default has occurred and remains uncured.




     Section 7.9 Transfer of Mortgage Reserve Funds. If Mortgage Lender waives any
reserves or escrow accounts required in accordance with the terms of the Mortgage Loan Agreement,
which reserves or escrow accounts are also required in accordance with the terms of this
Article VII, or if the Mortgage Loan is paid off in full (without a prepayment of the Loan
in full), then Borrowers shall cause any amounts that had been, or would have been, deposited into
any reserves or escrow accounts in accordance with the terms of the Mortgage Loan Agreement to be
deposited or transferred to Lender in accordance with the terms of this Article VII (and
Borrowers shall enter into a cash management and lockbox agreement for the benefit of Lender
substantially similar to the arrangement entered into between Mortgage Borrowers and Mortgage
Lender at the time of the closing of the Mortgage Loan).



ARTICLE VIII.

DEFAULTS




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




     (i) if (A) the Debt is not paid in full on the Maturity Date, (B) any Monthly
Interest Payment or any required monthly deposit to any Reserve Fund is not paid in
full on or before the related Payment Date, or (C) any other portion of the Debt is
not paid within three (3) Business Days following notice to Borrowers that the same
is due and payable;




     (ii) if any of the Taxes or Other Charges are not paid prior to the date upon
which any interest or late charges shall begin to accrue thereon, subject to Section
7.2 of the Mortgage Loan Agreement or Section 7.2 hereof, as applicable;




     (iii) if the Policies are not kept in full force and effect;




     (iv) if any Borrower Transfers or otherwise encumbers any portion of the
Collateral or any interest therein, or if any Mortgage Borrower Transfers or
otherwise encumbers any portion of any Property or any interest therein or the IP or
any portion thereof, or any direct or indirect interest in any Transfer Restricted
Party is Transferred, in each instance, in violation of the provisions of this
Agreement and not otherwise consented to by Lender;




     (v) if any representation or warranty made by any Borrower herein or in any
other Loan Document, or in any report, certificate, financial statement or other
instrument, agreement or document furnished to Lender by or on behalf of any
Borrower or any Restricted Party shall have been false or misleading in any material
respect as of the date the representation or warranty was made, provided,
however, if such representation or warranty is susceptible of being cured,
and



146









 






Lender has not theretofore materially adversely relied thereon, Borrowers shall
have the right to cure such representation or warranty within ten (10) Business Days
of notice thereof;




     (vi) if any Loan Party, HRHI or any Guarantor shall make an assignment for the
benefit of any creditor (other than Lender);




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




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




     (ix) if any Borrower breaches any of its respective negative covenants
contained in Section 5.2 hereof or any covenant contained in Section
4.1.30 or Section 5.1.11 hereof, provided, however,
that, unless otherwise addressed in any other clause of this Section 8.1(a),
a breach of any covenant contained in Section 4.1.30, Section 5.1.11
or Section 5.2 hereof shall not constitute an Event of Default if (A) such
breach is inadvertent and non-recurring, (B) if such breach is curable, Borrowers
shall promptly cure such breach within thirty (30) days after notice thereof from
Lender, and (C) with respect to a material breach of any material covenant contained
in Section 4.1.30 hereof, within fifteen (15) Business Days of the request
of Lender, Borrowers deliver to Lender an Additional Insolvency Opinion, or a
modification of the Insolvency Opinion, to the effect that such breach shall not in
any way impair, negate or amend the opinions rendered in the Insolvency Opinion,
which opinion or modification and the counsel delivering such opinion or
modification shall be acceptable to Lender in its reasonable discretion;




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




     (xi) if any of the assumptions contained in the Insolvency Opinion delivered to
Lender in connection with the Loan, or in any Additional Insolvency



147









 






Opinion delivered subsequent to the closing of the Loan, is or shall become
untrue in any material respect;




     (xii) if a material default by any Mortgage Borrower has occurred and continues
beyond any applicable cure period under any Management Agreement (or any Replacement
Management Agreement) and as a result of such default the Manager thereunder
terminates or cancels such Management Agreement (or any Replacement Management
Agreement);




     (xiii) if a material default by Hotel/Casino Borrower has occurred and
continues beyond any applicable cure period under the Liquor Management Agreement
(or any Replacement Liquor Management Agreement) and as a result of such default the
Liquor Manager thereunder terminates or cancels such Liquor Management Agreement (or
any Replacement Liquor Management Agreement);




     (xiv) if any Borrower or any other Loan Party fails to comply in any material
respect with the covenants as to Prescribed Laws set forth in Section 5.1.1
hereof and such failure to comply continues after ten (10) Business Days notice
thereof;




     (xv) except as otherwise contemplated by the Loan Documents, if Hotel/Casino
Borrower ceases to do business as a hotel and casino at a standard at least equal to
Comparable Hotel/Casinos, including, without limitation, comparable food and
beverage outlets and other amenities, (other than temporary cessation in connection
with any diligent Restoration of the Hotel/Casino Property following a Casualty or
Condemnation) and such failure continues after thirty (30) days notice from Lender
thereof; provided, however, that if any such failure is susceptible
of cure but cannot reasonably be cured within such thirty (30) day period, and
provided, further, that Borrowers shall have caused Mortgage
Borrowers to commence to cure such failure within such thirty (30) day period and
shall thereafter diligently and expeditiously proceed to cure the same, such thirty
(30) day period shall be extended for such time as is reasonably necessary for
Mortgage Borrowers in the exercise of due diligence to cure such Default, such
additional period not to exceed sixty (60) days, subject to Excusable Delay;




     (xvi) if (A) there shall occur any default by HRHI or Hotel/Casino Borrower
under the HRHI Lease in the observance or performance of any term, covenant or
condition on its part to be observed or performed and such failure shall continue
beyond the expiration of all applicable notice and cure periods under the HRHI
Lease, (B) if, without Lender’s prior written consent, the HRHI Lease shall be
terminated, changed, modified or amended, other than ministerial non-monetary
amendments or modifications, or (C) if, without Lender’s prior written consent, HRHI
shall hold over at the expiration or earlier termination of the HRHI Lease;




     (xvii) if (A) there shall occur any default by HRHI under the Gaming Sublease
in the observance or performance of any term, covenant or condition on



148









 






the part of HRHI to be observed or performed and such failure shall continue
beyond the expiration of all applicable notice and cure periods under the Gaming
Sublease, (B) any event shall occur which would cause the Gaming Sublease to
terminate without notice or action by the Gaming Operator or which would entitle the
Gaming Operator to terminate the Gaming Sublease by giving notice to HRHI, (C) if
HRHI shall waive, excuse, condone or in any way release or discharge the Gaming
Operator of or from any of the Gaming Operator’s material obligations, covenants
and/or conditions under the Gaming Sublease without the prior written consent of
Lender, (D) if, without Lender’s prior written consent, HRHI shall terminate (or
consent to or approve any such termination), change, modify or amend the Gaming
Sublease, other than ministerial non-monetary amendments or modifications, (E) if
HRHI shall fail to provide Gaming Employees as and to the extent required pursuant
to Paragraph 7 of the HRHI Gaming Agreement, (F) if HRHI shall, without the consent
of Mortgage Lender as provided in the HRHI Gaming Agreement, consent to or approve
any matter requiring Mortgage Lender’s consent thereunder (other than a
termination), in the event that either (1) Mortgage Lender has been materially
damaged by such consent or approval or is reasonably likely to be materially damaged
by such consent or approval with the further passage of time, or (2) HRHI is unable
to rescind or void such consent or approval within thirty (30) days after notice
from Mortgage Lender of its objection thereto, and/or (G) HRHI shall otherwise
default under the Gaming Recognition Agreement or the HRHI Gaming Agreement and such
default, if a monetary default, shall continue beyond the notice and cure period set
forth in Section 8.1(a)(i)(C) hereof, or if a non-monetary default, shall
continue beyond the notice and cure period set forth in Section
8.1(a)(xxiii) hereof;




     (xviii) if at any time during the term of the Loan, for any reason (including,
without limitation, the revocation, suspension or surrender of any required
Governmental Approval), (A) the Gaming Operating Condition is not satisfied,
provided, however, that if the Gaming Operating Condition is not
satisfied at any time on or after February 2, 2008 through and including May 9,
2008, so long as (I) Mortgage Borrowers are diligently pursuing the satisfaction of
the Gaming Operating Condition, (II) all Debt Service is being satisfied as and when
due, and (III) no other Event of Default has occurred and is continuing, the failure
of the Gaming Operating Condition to be satisfied during such period shall not
constitute an Event of Default unless the Gaming Operating Condition shall remain
unsatisfied beyond May 9, 2008; or (B) any Gaming License or finding of suitability
held by the Gaming Operator shall be materially adversely modified, denied,
suspended, revoked or canceled or allowed to lapse or if a notice of a material
violation is issued under any Gaming License by the issuing agency or other
Governmental Authority having jurisdiction, or any proceeding is commenced by any
Governmental Authority for the purpose of modifying in any materially adverse
respect, suspending, revoking or canceling any Gaming License in any materially
adverse respect, in each case, which is not stayed within sixty (60) days after
commencement thereof and the result of which is reasonably likely to be Mortgage
Borrowers’ inability to continue to conduct gaming



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operations at the Hotel/Casino Property; provided, however,
that during the course of any of the foregoing, substantially the same gaming
operations are permitted to continue to operate at the Hotel/Casino Property, or any
Governmental Authority shall have appointed a conservator, supervisor or trustee
with respect to the Casino Component or the Hotel/Casino Property;




     (xix) if at any time during the term of the Loan, for any reason (including,
without limitation, the revocation, suspension or surrender of any required
Governmental Approval), the alcoholic beverage services at the Hotel/Casino Property
(A) are not being managed by a Qualified Liquor Manager pursuant to the Liquor
Management Agreement or a Replacement Liquor Management Agreement;




     (xx) if HRHI shall fail to provide liquor management services following an
Event of Default or a foreclosure of the Mortgage as and to the extent required
pursuant to Sections 5(a) or 5(b) of the Assignment of Liquor Management Agreement;




     (xxi) in the event that Gaming Borrower shall ever become the Gaming Operator
pursuant to Article XII hereof, if Gaming Borrower thereafter shall fail to
provide gaming operation services for the Hotel/Casino Property following an Event
of Default or a foreclosure of the Mortgage as and to the extent required pursuant
to Section 12.1(e) hereof;




     (xxii) in the event that Gaming Borrower, any other Mortgage Borrower or any
Affiliate thereof shall ever become the Liquor Manager, if Gaming Borrower, such
other Mortgage Borrower or such Affiliate thereof thereafter shall fail to provide
liquor management services following an Event of Default or following the transfer
of the Hotel/Casino Property to a Mortgage Lender Successor Owner as and to the
extent required pursuant to Section 5.1.23(c) of the Mortgage Loan Agreement and
Section 5.1.23(c) hereof;




     (xxiii) if any Borrower shall continue to be in Default under any of the other
terms, covenants or conditions of this Agreement or any other Loan Document, in each
instance, not specified in subsections (i) to (xxii) above, for ten
(10) Business Days after notice to Borrowers from Lender, in the case of any Default
which can be cured by the payment of a sum of money, or for thirty (30) days after
notice from Lender in the case of any other Default; provided,
however, that if any such non-monetary Default is susceptible of cure but
cannot reasonably be cured within such thirty (30) day period, and provided further
that Borrowers shall have commenced to cure such Default within such thirty (30) day
period and thereafter diligently and expeditiously proceed to cure the same, such
thirty (30) day period shall be extended for such time as is reasonably necessary
for Borrowers in the exercise of due diligence to cure such Default, such additional
period not to exceed ninety (90) days, subject to Excusable Delay;



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     (xxiv) the occurrence of any event that is expressly specified to be an Event
of Default in this Agreement or any other Loan Document;




     (xxv) if the Liens created pursuant to the Pledge Agreement or any other Loan
Document shall cease to be a fully perfected enforceable first priority security
interest effective under the Gaming Laws or if there shall be a default under the
Pledge Agreement beyond any applicable notice and cure periods contained in the
Pledge Agreement;




     (xxvi) if any other event shall occur or condition shall exist, if the effect
of such event or condition is to accelerate the maturity of any portion of the Debt
or to permit Lender to accelerate the maturity of all or any portion of the Debt;




     (xxvii) if a Mortgage Event of Default shall occur and be continuing; or




     (xxviii) if a First Mezzanine Event of Default shall occur and be continuing.



               (b) Upon the occurrence and during the continuance of an Event of Default (other than an Event
of Default described in clauses (vi) or (vii) above) and at any time thereafter, in
addition to any other rights or remedies available to it pursuant to this Agreement and the other
Loan Documents or at law or in equity, to the extent permitted by applicable law, Lender may take
such action, without notice or demand, that Lender deems advisable to protect and enforce its
rights against Borrowers and in and to any Property and/or the IP and/or the Collateral, including,
without limitation, declaring the Debt to be immediately due and payable, and Lender may enforce or
avail itself of any or all rights or remedies provided in the Loan Documents against Borrowers, any
Property and/or the IP and/or the Collateral, including, without limitation, all rights or remedies
available at law or in equity; and upon any Event of Default described in clauses (vi) or
(vii) above, the Debt and all Other Obligations of Borrowers hereunder and under the other
Loan Documents shall, to the extent permitted by applicable law, immediately and automatically
become due and payable, without notice or demand, and each Borrower hereby expressly waives any
such notice or demand, anything contained herein or in any other Loan Document to the contrary
notwithstanding.



     Section 8.2 Remedies.



               (a) Upon the occurrence and during the continuance of an Event of Default, subject to
applicable Gaming Laws, all or any one or more of the rights, powers, privileges and other remedies
available to Lender against Borrowers under this Agreement or any of the other Loan Documents
executed and delivered by, or applicable to, Borrowers or at law or in equity may be exercised by
Lender at any time and from time to time, whether or not all or any of the Debt shall be declared
due and payable, and whether or not Lender shall have commenced any foreclosure proceeding or other
action for the enforcement of its rights and remedies under any of the Loan Documents, in each case
to the extent permitted by applicable law. Any such actions taken by Lender shall be cumulative
and concurrent and may be pursued independently, singularly, successively, together or otherwise,
at such time and in such order as Lender may determine in its sole discretion, to the fullest
extent permitted by law, without



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impairing or otherwise affecting the other rights and remedies of Lender permitted by law,
equity or contract or as set forth herein or in the other Loan Documents. Without limiting the
generality of the foregoing, each Borrower agrees, to the extent permitted by applicable law, that
if an Event of Default is continuing (i) Lender shall not be subject to any “one action” or
“election of remedies” law or rule, and (ii) all liens and other rights, remedies or privileges
provided to Lender shall remain in full force and effect until Lender has exhausted all of its
remedies against the Collateral and the Pledge Agreement has been foreclosed, sold and/or otherwise
realized upon in satisfaction of the Debt or the Debt has been paid in full.




               (b) During the continuance of an Event of Default, with respect to each Borrower and the
Collateral, nothing contained herein or in any other Loan Document shall be construed as requiring
Lender to resort to the Collateral or any particular portion of the Collateral for the satisfaction
of any of the obligations in preference or priority to any other collateral, and Lender may seek
satisfaction out of the Collateral or any part thereof, in its absolute discretion in respect of
the Obligations. In addition, to the extent permitted by applicable law, Lender shall have the
right from time to time to partially foreclose upon the Collateral under the Pledge Agreement in
any manner and for any amounts secured by the Pledge Agreement then due and payable as determined
by Lender in its sole discretion, including, without limitation, the following circumstances: (i)
in the event Borrowers default beyond any applicable grace period in the payment of one or more
scheduled payments of interest, Lender may foreclose upon the Collateral under the Pledge Agreement
to recover such delinquent payments, and/or (ii) in the event Lender elects to accelerate less than
the entire Outstanding Principal Balance, Lender may foreclose upon the Collateral under the Pledge
Agreement to recover so much of the Outstanding Principal Balance as Lender may accelerate and such
other sums secured by the Pledge Agreement as Lender may elect in its sole discretion.
Notwithstanding one or more partial foreclosures, the Collateral and any other collateral shall
remain subject to the Pledge Agreement to secure payment of sums secured by the Pledge Agreement
and not previously recovered.



               (c) Subject to applicable Gaming Laws, Lender shall have the right, at Lender’s sole cost and
expense except during the continuance of an Event of Default, in which event the same shall be at
Borrowers’ sole cost and expense, from time to time to sever the Note and the other Loan Documents
into one or more separate notes, pledges and other security documents (the “Severed Loan
Documents”) in such denominations as Lender shall determine in its sole discretion for purposes of
evidencing and enforcing its rights and remedies provided hereunder, provided that Borrowers’
liability or obligation shall not be increased by such severance. Borrowers 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 reasonably request in order to effect the severance
described in the preceding sentence, all in form and substance reasonably satisfactory to Lender.
Subject to applicable Gaming Laws, each Borrower hereby absolutely and irrevocably appoints Lender
as its true and lawful attorney, coupled with an interest, in its name and stead to make and
execute all documents necessary or desirable to effect the aforesaid severance, each Borrower
ratifying all that its said attorney shall do by virtue thereof; provided, however,
Lender shall not make or execute any such documents under such power until five (5) Business Days
after notice has been given to Borrowers by Lender of Lender’s intent to exercise its rights under
such power. Except as may be required in connection with a Securitization and expressly provided
pursuant to Section 9.1 hereof, (i) Borrowers shall



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not be obligated to pay any costs or expenses incurred in connection with the preparation,
execution, recording or filing of the Severed Loan Documents, and (ii) the Severed Loan Documents
shall not contain any representations, warranties or covenants not contained in the Loan Documents
(modified to reflect the current status of such representations and warranties) and any such
representations and warranties contained in the Severed Loan Documents will be given by Borrowers
only as of the Closing Date.




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



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



               (f) Upon the occurrence and during the continuance of an Event of Default, Lender may declare
all unpaid principal of and accrued interest on the Note, together with all other sums payable
under the Loan Documents, to be immediately due and payable, whereupon the same shall become and be
immediately due and payable, anything in the Loan Documents to the contrary notwithstanding, and
without presentation, protest or further demand or notice of any kind, all of which are expressly
hereby waived by Borrowers to the extent permitted by applicable law.



     Section 8.3 Right to Cure Defaults. Upon the occurrence and during the continuance of
any Event of Default, Lender may, but without any obligation to do so and without notice to or
demand on Borrowers and without releasing Borrowers from any obligation hereunder, make any payment
or do any act required of Borrowers hereunder in such manner and to such extent as Lender may deem
necessary to protect the security hereof. Subject to the terms of the Mortgage Loan Agreement,
Lender is authorized to enter upon any Property for such purposes, or appear in, defend, or bring
any action or proceeding to protect its interest in the Properties for such purposes, and the cost
and expense thereof (including reasonable attorneys’ fees to the extent permitted by law), with
interest as provided in this Section 8.3, shall constitute a portion of the Debt and shall be due
and payable to Lender upon demand. All such costs and expenses incurred by Lender in remedying
such Event of Default or such failed payment or act or in appearing in, defending, or bringing any
action or proceeding shall bear interest at the Default Rate, for the period after notice from
Lender that such cost or expense was incurred to the date of payment to Lender. All such costs and
expenses incurred by Lender together with



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interest thereon calculated at the Default Rate shall be deemed to constitute a portion of the
Debt and shall be secured by the Pledge Agreement and enforced as a lien against the Collateral and
shall be immediately due and payable upon demand by Lender therefor.




ARTICLE IX.

SPECIAL PROVISIONS




     Section 9.1 Sale of Note and Securitization. (a) Borrowers acknowledge and agree
that, at any time from and after the Closing Date, Lender may sell all or any portion of the Loan
and the Loan Documents, or require Borrowers to restructure the Loan into multiple notes (which may
include component notes and/or senior and junior notes) and/or issue one or more participations
therein and/or syndicate the Loan, which restructuring may include the restructuring of a portion
of the Loan to one or more of the foregoing or into one or more additional mezzanine loans to the
direct and/or indirect owners of the equity interests in Borrowers as reasonably, mutually
determined by Lender and Borrowers and that are direct or indirect subsidiaries of HR Holdings,
secured by a pledge of such interests, or consummate one or more private or public securitizations
of rated single- or multi-class securities (the “Securities”) secured by or evidencing ownership
interests in all or any portion of the Loan and the Loan Documents or a pool of assets that include
the Loan and the Loan Documents (such sales, participations and/or securitizations, collectively, a
“Securitization”). At the request of Lender, and to the extent not already required to be provided
by Borrowers under this Agreement, Borrowers shall use commercially reasonable good faith efforts
to provide information not in the possession of Lender or which may be reasonably required by
Lender in order to satisfy the market standards to which Lender customarily adheres or which may be
reasonably required by prospective investors and/or the Rating Agencies in connection with any such
Securitization, including, without limitation, to:




     (i) provide additional and/or updated Provided Information or other information with
respect to the Properties, the IP, the First Mezzanine Collateral and/or the Collateral
reasonably requested or reasonably required by Lender, prospective investors or the Rating
Agencies, together with, if customary or if otherwise requested by any Rating Agency,
appropriate verification and/or consents related to the Provided Information through
letters of auditors or opinions of counsel of independent attorneys reasonably acceptable
to Lender and the Rating Agencies;




     (ii) review descriptive materials for presentations to any or all of the Rating
Agencies, and work with third-party service providers engaged to obtain, collect, and
deliver information reasonably requested or reasonably required by Lender, prospective
investors or the Rating Agencies;




     (iii) if required by any Rating Agency, (A) deliver updated opinions of counsel as to
non-consolidation, due execution and enforceability with respect to the Properties, the
IP, the Collateral, any Loan Party, HRHI, any Guarantor, any of their respective
Affiliates and the Loan Documents, and (B) amend the Special Purpose Entity provisions of
the organizational documents for each Loan Party, which counsel opinions and amendments to
the organizational documents shall be reasonably satisfactory to Lender and the Rating
Agencies;



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




     (v) provide, as of the closing date of the Securitization, updated representations
and warranties made in the Loan Documents as may be reasonably requested by Lender or the
Rating Agencies and consistent with the facts covered by such representations and
warranties made in the Loan Documents to the extent they are true as of the closing of the
Securitization;




     (vi) execute such amendments to the Loan Documents as may be reasonably requested by
Lender or the Rating Agencies to effect such Securitization and/or deliver one or more new
component notes to replace the original note or modify the original note to reflect
multiple components of the Loan (and such new notes or modified note shall have the same
initial weighted average coupon of the original note, but such new notes or modified note
may change the interest rate of the Loan), and modify the Cash Management Agreement with
respect to the newly created components such that the pricing and marketability of the
Securities and the size of each class of Securities and the rating assigned to each such
class by the Rating Agencies shall provide the most favorable rating levels and achieve
the optimum rating levels for the Loan, provided, however, that (A) such
new notes or modified note will not change the interest rate, the stated maturity or the
amortization of principal set forth in the Note unless the varying interest rates shall
have the same initial weighted average coupon of the original Note, (B) such amendments to
the Loan Documents or the new notes or modified note will not modify or amend any other
economic or material term of the Loan in a manner materially adverse to any Loan Party,
HRHI or Guarantors or any of their respective Constituent Members, or (C) such amendments
to the Loan Documents will not materially increase any Loan Party’s or Guarantors’
obligations and liabilities under the Loan Documents or materially decrease the rights of
Borrowers under the Loan Documents;




     (vii) if requested by Lender, review any information regarding any Property, the IP,
the First Mezzanine Collateral, the Collateral, any Loan Party, any Mezzanine Borrower,
HRHI, the Gaming Operator, any Manager, the Liquor Manager and/or the Loan which is
contained in any preliminary or final private placement memorandum, prospectus, prospectus
supplement (including any amendment or supplement to either thereof), or other disclosure
document to be used by Lender or any affiliate thereof; and




     (viii) supply to Lender such documentation, financial statements and reports
concerning any Loan Party, any Mezzanine Borrower, HRHI, any Guarantor, the Loan, any
Property, the IP, the First Mezzanine Collateral and/or the Collateral in form and
substance required in order to comply with any applicable securities laws.



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               (b) Lender shall pay all reasonable third party costs and expenses (excluding fees and
expenses of Borrower’s legal counsel) in excess of Twenty Thousand Dollars ($20,000) incurred by
Borrowers in connection with Borrowers’ complying with requests made under this Section 9.1
and/or under Section 9.2 hereof, provided, however, the fees and expenses
of Borrowers’ legal counsel and Borrowers’ administrative costs shall not be included in such
amount and Borrowers shall remain at all times responsible for the fees and expenses of their legal
counsel and their own administrative costs. In addition to the foregoing, Lender expressly
acknowledges and agrees that Borrowers shall not be required to pay any Rating Agency surveillance
charges.



               (c) Notwithstanding anything to the contrary contained in this Agreement, in the event of a
Securitization that involves a participation or restructuring into one or more additional mezzanine
loans, Borrowers shall not be required to deliver Rating Agency confirmations in accordance with
the terms and conditions of this Agreement at any time that rated Securities are not outstanding.



     Section 9.2 Re-Dating. In connection with a Securitization or other sale of all or a
portion of the Loan, Lender shall have the right to modify all operative dates (including, but not
limited to, payment dates, interest period start dates and end dates, etc.) under the Loan
Documents, by up to ten (10) days (such action and all related action is a “Re-Dating”) so long as
such modification shall not have a materially adverse effect on Borrowers. Borrowers shall
cooperate with Lender to implement any Re-Dating. If any Borrower fails to cooperate with Lender
within ten (10) Business Days of written request by Lender, Lender is hereby appointed as each
Borrower’s attorney-in-fact to execute any and all documents necessary to accomplish the Re-Dating,
the foregoing power of attorney being coupled with an interest.



     Section 9.3 Securitization Indemnification. (a) Each Borrower understands that
information provided to Lender by Borrowers and their agents, counsel and representatives may be
included in Disclosure Documents in connection with the Securitization and may also be included in
filings with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended (the “Securities Act”), or the Securities and Exchange Act of 1934, as amended (the
“Exchange Act”), and may be made available to investors or prospective investors in the Securities,
the Rating Agencies, and service providers relating to a Securitization. In the event that the
Disclosure Document is required to be revised prior to the sale of all Securities, Borrowers will
cooperate with the holder of the Note in updating the Disclosure Document by providing all current
information necessary to keep the Disclosure Document accurate and complete in all material
respects.



               (b) Upon Lender’s reasonable request, Borrowers shall provide in connection with each of (i) a
preliminary and a final private placement memorandum or (ii) a preliminary and final prospectus or
prospectus supplement, as applicable, an agreement (A) certifying that Borrowers have examined such
Disclosure Documents specified by Lender and that to each Borrower’s actual knowledge, each such
Disclosure Document, as it relates to the Loan Parties, the Loan Parties’ Affiliates, Guarantors,
HRHI, the Properties, the IP, the First Mezzanine Collateral, the Collateral, the Managers, the
Liquor Manager, the Gaming Operator and/or the Loan, does not contain any untrue statement of a
material fact or omit to state a material fact in each Borrower’s actual knowledge necessary in
order to make the statements



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made, in the light of the circumstances under which they were made, not materially misleading,
(B) jointly and severally indemnifying Lender, Credit Suisse (whether or not it is Lender), any
Affiliate of Lender or Credit Suisse that has filed any registration statement relating to the
Securitization or has acted as the sponsor or depositor in connection with the Securitization, any
Affiliate of Lender or Credit Suisse that acts as an underwriter, placement agent or initial
purchaser of Securities issued in the Securitization, any other co-underwriters, co-placement
agents or co-initial purchasers of Securities issued in the Securitization, and each of their
respective officers, directors, partners, employees, representatives, agents and Affiliates and
each Person or entity who controls any such Person within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act (collectively, the “Indemnified Persons”), for any
out-of-pocket losses, third party claims, actual damages (but not lost revenues, diminution in
value and other consequential damages) or liabilities (collectively, the “Liabilities”) to which
any such Indemnified Person may become subject insofar as the Liabilities arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact contained in any such
Disclosure Document specified by Lender for Borrowers’ review, as it relates to any Loan Party, any
Loan Party’s Affiliates, Guarantors, HRHI, the Properties, the IP, the First Mezzanine Collateral,
the Collateral, the Managers, the Liquor Manager, the Gaming Operator and/or the Loan, known by any
Borrower to be untrue or arise out of or are based upon the omission or alleged omission to state
therein a material fact in any Borrower’s actual knowledge, required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances under which they
were made, not misleading, and (C) agreeing to reimburse each Indemnified Person for any reasonable
legal or other reasonable expenses reasonably incurred by such Indemnified Person in connection
with investigating or defending the Liabilities; provided, however, that Borrowers
will be liable in any such case under clauses (B) or (C) above only to the extent
that any such Liabilities arise out of or are based upon any such untrue statement or omission made
therein in reliance upon and in conformity with information furnished to Lender by Borrowers in
connection with the preparation of any Disclosure Document(s) or in connection with the
underwriting or closing of the Loan or in the ordinary course of the Loan, including, without
limitation, financial statements of any Loan Party, operating statements and rent rolls with
respect to any of the Properties. This indemnity agreement will be in addition to any liability
which any Borrower may otherwise have. Moreover, the indemnification provided for in clauses
(B) and (C) above shall be effective whether or not a separate indemnification
agreement is provided.




               (c) In connection with Exchange Act Filings, Borrowers, jointly and severally, shall (i)
indemnify the Indemnified Persons for Liabilities to which any such Indemnified Persons may become
subject insofar as the Liabilities arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact in any Disclosure Documents specified by Lender for
Borrowers’ review, as it relates to the Loan Parties, the Loan Parties’ Affiliates, Guarantors,
HRHI, the Properties, the IP, the First Mezzanine Collateral, the Collateral, the Managers, the
Liquor Manager, the Gaming Operator and/or the Loan, or the omission or alleged omission to state
in any such Disclosure Document a material fact in any Loan Party’s actual knowledge, required to
be stated in such Disclosure Document in order to make the statements in such Disclosure Document,
in light of the circumstances under which they were made, not misleading, and (ii) reimburse each
Indemnified Person for any reasonable legal or other expenses reasonably incurred by such
Indemnified Person in connection with defending or investigating the Liabilities; provided,
however, that Borrowers will be liable in any



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such case under clauses (i) or (ii) above only to the extent that any such
Liabilities arise out of or are based upon any such untrue statement or omission made therein in
reliance upon and in conformity with information furnished to Lender by Borrowers in connection
with the preparation of any Disclosure Document(s) or in connection with the underwriting or
closing of the Loan or in the ordinary course of the Loan, including, without limitation, financial
statements of any Loan Party, operating statements and rent rolls with respect to any of the
Properties.




               (d) Promptly after receipt by an Indemnified Person under this Section 9.3 of notice
of the commencement of any action, such Indemnified Person will, if a claim in respect thereof is
to be made against Borrowers under this Section 9.3, notify Borrowers in writing of the
commencement thereof, but the omission to so notify Borrowers will not relieve any Borrower from
any liability which any Borrower may have to any Indemnified Person hereunder except to the extent
that such failure to notify causes material prejudice to any Borrower. In the event that any
action is brought against any Indemnified Person, and it notifies Borrowers of the commencement
thereof, Borrowers will be entitled to participate therein and, to the extent that they may elect
by written notice delivered to such Indemnified Person promptly after receiving the aforesaid
notice from such Indemnified Person, to assume the defense thereof with counsel reasonably
satisfactory to such Indemnified Person. After notice from Borrowers to such Indemnified Person
under this Section 9.3, such Indemnified Person shall pay for any legal or other expenses
subsequently incurred by such Indemnified Person in connection with the defense thereof other than
reasonable costs of investigation; provided, however, if the defendants in any such
action include both the Indemnified Person and any Borrower and the Indemnified Person shall have
reasonably concluded that there are any legal defenses available to it and/or other Indemnified
Persons that are different from or additional to those available to Borrowers, the Indemnified
Person(s) shall have the right to select separate counsel to assert such legal defenses and to
otherwise participate in the defense of such action on behalf of such Indemnified Person(s) at the
cost of Borrowers. Borrowers shall not be liable for the expenses of more than one separate
counsel unless any Indemnified Person shall have reasonably concluded that there may be legal
defenses available to it that are different from or additional to those available to another
Indemnified Person.



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



               (f) Borrowers agree that if any indemnification or reimbursement sought pursuant to this
Section 9.3 is finally judicially determined to be unavailable for any reason or is
insufficient to hold any Indemnified Person harmless (with respect only to the Liabilities that are
the subject of this Section 9.3), then Borrowers, on the one hand, and such



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Indemnified Person, on the other hand, shall contribute to the Liabilities for which such
indemnification or reimbursement is held unavailable or is insufficient: (i) in such proportion as
is appropriate to reflect the relative benefits to Borrowers, on the one hand, and such Indemnified
Person, on the other hand, from the transactions to which such indemnification or reimbursement
relates; or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) but also the relative faults of Borrowers, on the one hand, and
all Indemnified Persons, on the other hand, as well as any other equitable considerations. In
determining the amount of contribution to which the respective parties are entitled, the following
factors shall be considered: (A) Lender’s and Borrowers’ relative knowledge and access to
information concerning the matter with respect to which the claim was asserted; and (B) the
opportunity to correct and prevent any statement or omission. Notwithstanding the provisions of
this Section 9.3, no Person found liable for a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any other
Person who is not also found liable for such fraudulent misrepresentation.




               (g) Borrowers agree that the indemnification, contribution and reimbursement obligations set
forth in this Section 9.3 shall apply whether or not any Indemnified Person is a formal
party to any lawsuits, claims or other proceedings. Borrowers further agree that the Indemnified
Persons are intended third party beneficiaries under this Section 9.3.



               (h) Subject to the provisions of Section 9.4 hereof, the liabilities and obligations
of Borrowers and Lender under this Section 9.3 shall survive the termination of this
Agreement and the satisfaction and discharge of the Debt.



     Section 9.4 Exculpation. Subject to the qualifications below, Lender shall not
enforce the liability and obligation of Borrowers to perform and observe the obligations contained
in the Note, this Agreement, the Pledge Agreement or the other Loan Documents by any action or
proceeding wherein a money judgment shall be sought against any Borrower, except that Lender may
bring a foreclosure action, an action for specific performance or any other appropriate action or
proceeding to enable Lender to enforce and realize upon its interest under the Note, this
Agreement, the Pledge Agreement and the other Loan Documents, or in the Collateral given to Lender
pursuant to the Loan Documents; provided, however, that, except as specifically
provided herein, any judgment in any such action or proceeding shall be enforceable against any
Borrower only to the extent of such Borrower’s interest in the Collateral, and Lender, by accepting
the Note, this Agreement, the Pledge Agreement and the other Loan Documents, agrees that it shall
not sue for, seek or demand any deficiency judgment against any Borrower in any such action or
proceeding under, or by reason of, or in connection with, the Note, this Agreement, the Pledge
Agreement or the other Loan Documents. The provisions of this Section 9.4 shall not,
however, (a) constitute a waiver, release or impairment of any obligation evidenced or secured by
any of the Loan Documents; (b) impair the right of Lender to name any Borrower as a party defendant
in any action or suit for foreclosure and sale under the Pledge Agreement; (c) affect the validity
or enforceability of or any guaranty made in connection with the Loan, including, without
limitation, the Non-Recourse Guaranty, the Non-Qualified Prepayment Guaranty, the Closing
Completion Guaranty, the Construction Completion Guaranty and the HRHI Guaranty, or any of the
rights and remedies of Lender thereunder; (d) impair the right of



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Lender to obtain the appointment of a receiver; (e) constitute a prohibition against Lender
seeking a deficiency judgment against any Borrower in order to fully realize the security granted
by the Pledge Agreement or commencing any other appropriate action or proceeding in order for
Lender to exercise its remedies against the Collateral; or (f) constitute a waiver of the right of
Lender to enforce the liability and obligation of any Borrower, by money judgment or otherwise, to
the extent of any actual loss, damage (excluding any lost revenue, diminution of value and other
consequential damages), reasonable cost, reasonable expense, liability, claim or other obligation
incurred by Lender (including attorneys’ fees and costs reasonably incurred) arising out of or in
connection with the following:





     (i) fraud or intentional misrepresentation by any Loan Party, HRHI, any
Guarantor or any of their respective principals, officers, agents or employees in
connection with the Loan;




     (ii) physical waste to any Property arising from the intentional misconduct or
gross negligence of any Loan Party, HRHI, any Guarantor or any of their respective
principals, officers, agents or employees and/or any removal of any asset forming a
part of any Property in violation of this Agreement or the other Loan Documents;




     (iii) Intentionally Omitted;




     (iv) the misappropriation or conversion by any Loan Party, by any Person
Controlled by any Loan Party, including, without limitation, any Affiliated Manager,
a Liquor Manager who is an Affiliate of any Loan Party or a Gaming Operator who is
an Affiliate of any Loan Party, by any agent of any Loan Party, or by any other
Person with whom any Loan Party shall collude or cooperate, of (A) any Insurance
Proceeds paid by reason of any Casualty, to the extent so misappropriated or
converted; (B) any Awards received in connection with a Condemnation, to the extent
so misappropriated or converted; (C) any Rents or other Gross Income from Operations
not delivered to Lender following and during the continuance of an Event of Default
and not otherwise used to pay actual, customary Operating Expenses reflected on the
Approved Annual Budget then in effect, including, without limitation, (I) any
income, proceeds or other amounts received by any Loan Party under the Gaming
Sublease, and/or (II) without duplication of the foregoing clause (I), any
income, proceeds or revenue generated from gaming activities at any Property, in
each of the foregoing instances, to the extent so misappropriated or converted; (D)
any Rents paid more than one (1) month in advance in violation of this Agreement or
the other Loan Documents, to the extent so misappropriated or converted; and/or (E)
any security deposits, to the extent so misappropriated or converted;




     (v) the failure of any Loan Party to pay (or to deposit into the Mortgage
Reserve Funds or the Reserve Funds, if applicable, amounts sufficient to pay) all
Taxes and all other costs giving rise to any Lien on any portion of the Collateral
or any Property or the IP with priority over or equal to the Lien of the Loan
Documents in violation of this Agreement or the other Loan Documents, to



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the extent that there is sufficient Gross Income from Operations to make such
payments (or deposits, as applicable);




     (vi) if any Loan Party fails to maintain its status as a Special Purpose Entity
as required pursuant to the terms hereof;




     (vii) if any Loan Party fails to obtain Lender’s consent to any subordinate
financing, mortgage or other voluntary Lien encumbering the Collateral, any Property
or the IP other than Permitted Encumbrances and Permitted IP Encumbrances;




     (viii) the failure to maintain insurance coverage under blanket insurance
policies to the extent permitted under this Agreement;




     (ix) if any of the events set forth in clauses (a), (b) or (c)
of Section 5.2.11 hereof shall occur without the prior approval of Lender;




     (x) if any of the restrictions to Transfer set forth in Section 5.2.10
hereof or in any of the other Loan Documents are violated;




     (xi) if Lender or any Affiliate thereof shall succeed to the interest of HRHI
under the Gaming Sublease following a foreclosure, deed in lieu of foreclosure or
similar transfer, any actual loss, cost, damage or expense (including, without
limitation, reasonable attorneys’ fees and expenses) suffered by Lender or such
Affiliate as a result of: (A) any act, omission, neglect or default of HRHI under
the Gaming Sublease, (B) any claim, defense, counterclaim or offset which the Gaming
Operator may have under the Gaming Sublease against HRHI, (C) any obligation to make
any payment to the Gaming Operator under the Gaming Sublease which was required to
be made by or on behalf of HRHI prior to the time Lender or such Affiliate succeeded
to HRHI’s interest under the Gaming Sublease, (D) any monies deposited with HRHI
under the Gaming Sublease, except to the extent such monies are actually received by
Lender or such Affiliate, (E) any obligation to complete or permit the construction
of any improvements under the Gaming Sublease arising while HRHI was the sublandlord
under the Gaming Sublease, and/or (F) any default by HRHI under the Gaming Lease
beyond applicable notice and cure periods;




     (xii) if HRHI or any Affiliate thereof shall send a notice to Gaming Operator
under Section 6(a), (c) or (d) of the Gaming Recognition Agreement which conflicts
with any notice theretofore sent by Lender to Gaming Operator under said Section
6(a), (c) or (d), as applicable, of the Gaming Recognition Agreement;
provided, however, that the liability under this clause
(xii) shall be limited to all fees and costs incurred by Gaming Operator in
bringing and pursuing any interpleader action contemplated by said Section 6(a), (c)
or (d), as applicable, and only to the extent that Gaming Operator seeks to recover
and/or does recover such fees and expenses from Lender;



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     (xiii) if HRHI shall fail to provide Gaming Employees for the operation of
gaming activities at the Hotel/Casino Property as and to the extent required
pursuant to Paragraph 7 of the HRHI Gaming Agreement;




     (xiv) in the event that Gaming Borrower shall ever become the Gaming Operator
pursuant to Article XII hereof, if Gaming Borrower thereafter shall fail to
provide gaming operation services for the Hotel/Casino Property following an Event
of Default or a foreclosure of the Mortgage as and to the extent required pursuant
to Section 12.1(e) hereof;




     (xv) in the event that HRHI, Gaming Borrower, any other Loan Party or any
Affiliate thereof shall be the Liquor Manager, if HRHI, Gaming Borrower, such other
Loan Party or such Affiliate thereof shall fail to provide liquor management
services for the Hotel/Casino Property following an Event of Default or a
foreclosure of the Mortgage as and to the extent required (A) as to HRHI, pursuant
to Sections 5(a) or 5(b) of the Assignment of Liquor Management Agreement, as
applicable, and (B) as to Gaming Borrower, any other Mortgage Borrower or any
Affiliate thereof, pursuant to Section 5.1.23(c) hereof;




     (xvi) in connection with the $250,000.00 lease termination fee pursuant to
Section 3.2(B) of that certain Lease by and between PM Realty, LLC and HRHI, as
landlord, and Mr. Chow of Las Vegas, LLC, as tenant, dated December 24, 2004;




     (xvii) as a result of the imposition of any tax provided in NRS §§375.020 and
375.023 with respect to the merger transaction contemplated under the Merger
Agreement and/or the subsequent conveyance of the Hotel/Casino Property (A) to HRHH
Gaming Junior Mezz, LLC, and then (B) to Gaming Mezz Borrower, and then (iii) to
Hotel/Casino Borrower, provided, however, that any liability under
this clause (xvii) shall terminate upon the payment in full of the Debt;




     (xviii) as a result of Adjacent Borrower selling or attempting to sell any
Partial Release Parcel or any Partial Adjacent Parcel in accordance with the
procedures set forth in Section 2.5.1(f) or 2.5.2(f) of the Mortgage Loan Agreement,
as applicable, rather than pursuant to a customary direct deed transfer, including,
without limitation, (A) the imposition of any tax (including interest and penalties)
provided in NRS §§375.020 and 375.023, (B) in connection with any Bankruptcy Action
filed by or against any Subsidiary Transferee prior to or following the consummation
of such sale, and/or (C) in connection with any delay in accomplishing any of the
steps identified in said Section 2.5.1(f) or 2.5.2(f) of the Mortgage Loan
Agreement, as applicable; and/or




     (xix) any Interest Shortfall existing on any Payment Date (A) occurring after
February 2, 2008, if on or after February 2, 2008 the Gaming Operating Condition is
not satisfied, and (B) ending with (and including) the May 9, 2008 Payment Date.



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     Notwithstanding anything to the contrary in this Agreement, the Note or any of the other 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 Bankruptcy Code to file a claim for
the full amount of the Debt secured by the Pledge Agreement or to require that all collateral shall
continue to secure all of the Debt owing to Lender in accordance with the Loan Documents, and (B)
the Debt shall be fully recourse to Borrowers in the event of: (i) any Loan Party, HRHI or both
Guarantors filing a voluntary petition under the Bankruptcy Code or any other Federal or state
bankruptcy or insolvency law; (ii) the filing of an involuntary petition against any Loan Party,
HRHI or both Guarantors under the Bankruptcy Code or any other Federal or state bankruptcy or
insolvency law by or on behalf of any Person other than Lender, and such petition is not dismissed
within ninety (90) days after filing, or any Loan Party, or any Affiliate of any of them who
Controls any Loan Party, or HRHI or both Guarantors, solicit or cause to be solicited petitioning
creditors for any involuntary petition against any Loan Party, HRHI or both Guarantors from any
Person (other than if requested to do so by or on behalf of Lender); (iii) any Loan Party, HRHI or
both Guarantors filing an answer consenting to, or any Loan Party, HRHI or both Guarantors, or any
Affiliate of any of them who Controls any Loan Party, otherwise consenting to or acquiescing or
joining in, any involuntary petition filed against any Loan Party, HRHI or both Guarantors, by any
other Person (other than if filed by or on behalf of Lender) under the Bankruptcy Code or any other
Federal or state bankruptcy or insolvency law; (iv) any Loan Party, HRHI or both Guarantors, or any
Affiliate of any of them who Controls any Loan Party, consenting to or acquiescing or joining in an
application for the appointment of a custodian, receiver, trustee or examiner for any Loan Party or
any portion of any Property or any portion of the IP or the Collateral (other than any such
appointment at the request or petition of Lender); (v) any Loan Party, HRHI or both Guarantors
voluntarily making an assignment for the benefit of creditors (other than Lender), or admitting, in
writing or in any legal proceeding, its insolvency or inability to pay its debts as they become
due; and/or (vi) Gaming Mezz Borrower failing to comply, or cause compliance by the applicable Loan
Party, with the requirements of the Gaming Laws to obtain the approval of the Gaming Authorities of
the pledge of the Gaming Securities pursuant to Section 17(b) of the Pledge Agreement (it being
understood and agreed that Borrowers shall have no liability under this clause (vi) to the
extent arising from the failure of Lender to reasonably cooperate with the Gaming Authorities in
connection with such Gaming Law requirements to the extent necessary); unless, in the case of any
of the foregoing clauses (i), (ii), (iii), (iv), (v) or (vi) as it relates to or
affects both Guarantors, one or more guarantors acceptable to Lender in its sole discretion remains
or becomes a guarantor of the Loan.



     Notwithstanding anything to the contrary in this Agreement or any other Loan Document, and
except for (1) Guarantors’ obligations under the Non-Recourse Guaranty, the Non-Qualified
Prepayment Guaranty, the Closing Completion Guaranty and the Construction Completion Guaranty, (2)
HRHI’s obligations under the HRHI Guaranty, and (3) with respect to the DLJ Guarantor, DLJ Merchant
Banking Partners IV, L.P., MBP IV Plan Investors, L.P., DLJMB HRH Co-Investments, L.P., DLJ
Offshore Partners IV, L.P., and DLJ Merchant Banking Partners IV (Pacific), L.P. (such limited
partnerships, collectively, the “DLJMB Parties”) as provided in the DLJMB Commitment Letter, no
present or future Constituent Member in any Borrower, nor any present or future shareholder,
officer, director, employee, trustee, beneficiary, advisor, member, partner, principal, participant
or agent of or in any Borrower or of or in any Person that is or becomes a Constituent Member in
any Borrower, shall have any personal



163









 







liability, directly or indirectly, under or in connection with this Agreement or any of the
Loan Documents, or any amendment or amendments to any of the foregoing made at any time or times,
heretofore or hereafter, and Lender on behalf of itself and its successors and assigns, hereby
waives any and all such personal liability. In addition, Lender, for itself and its successors and
assigns, acknowledges and agrees that neither Borrowers, nor any Constituent Member, nor any other
party, is assuming any personal liability, directly or indirectly, under or in connection with any
agreement, lease, instrument, claim or right constituting a part of any Property, the IP or the
Collateral or to which any Property, the IP or the Collateral is now or hereafter subject, except
as may be expressly set forth therein.



     For purposes of this Agreement and each of the other Loan Documents, neither the negative
capital account of any Constituent Member in any Borrower nor any obligation of any Constituent
Member in any Borrower to restore a negative capital account or to contribute or loan capital to
any Borrower or to any other Constituent Member in any Borrower shall at any time be deemed to be
the property or an asset of such Borrower (or any such other Constituent Member) and neither Lender
nor any of its successors or assigns shall have any right to collect, enforce or proceed against
any Constituent Member with respect to any such negative capital account or obligation to restore,
contribute or loan.



          Section 9.5 Matters Concerning Managers and Liquor Manager.




               9.5.1 If (a) an Event of Default occurs and is continuing, (b) without the consent of Lender,
Morgans Parent ceases to Control any Manager, unless following such change of Control, each
affected Manager still constitutes a Qualified Manager, (c) any Manager shall become bankrupt or
insolvent, or (d) any Manager commits fraud, gross negligence, willful misconduct or
misappropriation of funds with respect to any Mortgage Borrower and/or any Property and/or the IP
or any material default otherwise occurs under any Management Agreement beyond any applicable grace
and cure periods, Borrowers shall cause the applicable Mortgage Borrower to, at the request of
Lender, terminate the applicable Management Agreement and replace the Manager thereunder with a
Qualified Manager pursuant to a Replacement Management Agreement, it being understood and agreed
that the management fee for such Qualified Manager shall not exceed then prevailing market rates.
If (i) an Event of Default occurs and is continuing, (ii) Sub-Manager shall become bankrupt or
insolvent, or (iii) Sub-Manager commits fraud, gross negligence, willful misconduct or
misappropriation of funds with respect to any Mortgage Borrower and/or any Property or any material
default otherwise occurs under the Sub-Management Agreement beyond any applicable grace and cure
periods, Borrowers shall cause the applicable Mortgage Borrower to, at the request of Lender,
terminate the Sub-Management Agreement and amend an existing Management Agreement to include the
duties previously delegated under the Sub-Management Agreement (if not already included therein).



               9.5.2 If (a) an Event of Default occurs and is continuing, (b) without the consent of Lender,
HR Holdings ceases to Control the Liquor Manager, unless following such change of Control, the
Liquor Manager still constitutes a Qualified Liquor Manager, (c) the Liquor Manager shall become
bankrupt or insolvent, or (d) the Liquor Manager commits fraud, gross negligence, willful
misconduct or misappropriation of funds with respect to Hotel/Casino Borrower and/or the
Hotel/Casino Property or any material default otherwise occurs under the



164









 




Liquor Management Agreement beyond any applicable grace and cure periods, Borrowers shall
cause Hotel/Casino Borrower to, at the request of Lender, terminate the Liquor Management Agreement
and replace the Liquor Manager thereunder with a Qualified Liquor Manager pursuant to a Replacement
Liquor Management Agreement, it being understood and agreed that the management fee for such
Qualified Liquor Manager shall not exceed then prevailing market rates; provided,
however, that in no event shall Hotel/Casino Borrower be required to terminate such Liquor
Manager if such immediate termination would require cessation of liquor-related activities at any
of the Properties and, in such event, (i) such termination shall occur immediately upon the ability
of Hotel/Casino Borrower to transfer such liquor operations to a Qualified Liquor Manager as
required herein, and (ii) Borrowers shall cause Hotel/Casino Borrower to, at its sole cost and
expense, diligently pursue the engagement and licensing of a replacement Qualified Liquor Manager.




     Section 9.6 Matters Concerning Gaming Operator. If (a) the Gaming Operator commits
fraud, gross negligence or willful misconduct with respect to the Hotel/Casino Property or any
material default otherwise occurs under the Gaming Sublease beyond any applicable grace and cure
periods, or (b) the Gaming Operator (i) has its gaming license suspended or revoked, (ii) allows
its gaming license to lapse, or (iii) may not lawfully operate gaming at the Hotel/Casino Property
pursuant to any Legal Requirements or the order of any Governmental Authority, Borrowers shall
cause Hotel/Casino Borrower to, at the request of Lender and to the extent permitted by applicable
Legal Requirements and the requirements of any Gaming Authorities, cause HRHI to terminate the
Gaming Sublease and replace the Gaming Operator with a Qualified Gaming Operator pursuant to a new
gaming sublease or similar agreement and a new recognition agreement, in each instance reasonably
acceptable to Lender; provided, however, that in no event shall Hotel/Casino Borrower be required
to terminate such Gaming Operator if such immediate termination would require cessation of
gaming-related activities at the Hotel/Casino Property and, in such event, (A) such termination
shall occur immediately upon the ability of Hotel/Casino Borrower to transfer such gaming
operations to a Qualified Gaming Operator as required herein, and (B) Borrowers shall cause
Hotel/Casino Borrower to, at its sole cost and expense, diligently pursue the engagement and
licensing of a replacement Qualified Gaming Operator.



     Section 9.7 Servicer. (a) At the option of Lender, the Loan may be serviced by a
servicer/trustee (the “Servicer”) selected by Lender and Lender may delegate all or any portion of
its responsibilities under this Agreement and the other Loan Documents to the Servicer pursuant to
a servicing agreement (the “Servicing Agreement”) between Lender and Servicer. Borrowers shall not
be responsible for any set up fees or any other initial costs relating to or arising under the
Servicing Agreement nor shall Borrowers be responsible for payment of the monthly servicing fee due
to the Servicer under the Servicing Agreement.



               (b) Lender shall endeavor in good faith (without liability for failure to do so) to provide
Borrowers with notification of any change in the Person servicing the Loan; provided that
it is expressly acknowledged and agreed by Lender that it shall not constitute a Default or Event
of Default hereunder if due to such failure to provide notification Borrowers send any payments
required to be made hereunder to Lender or any predecessor Person servicing the Loan.



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ARTICLE X.

MISCELLANEOUS




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



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



     Section 10.3 Governing Law.



               (a) THIS AGREEMENT WAS NEGOTIATED IN THE STATE OF NEW YORK, THE LOAN WAS MADE BY LENDER AND
ACCEPTED BY BORROWERS IN THE STATE OF NEW YORK, AND THE PROCEEDS OF THE LOAN DELIVERED PURSUANT
HERETO WERE DISBURSED FROM THE STATE OF NEW YORK, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL
RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS,
INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE, THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS AND THE OBLIGATIONS ARISING
HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE (WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS) AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA, EXCEPT
THAT AT ALL TIMES THE PROVISIONS FOR THE CREATION, PERFECTION, PRIORITY AND ENFORCEMENT OF THE
LIENS AND SECURITY INTERESTS IN ANY REAL PROPERTY INTEREST CREATED PURSUANT HERETO AND PURSUANT TO
THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED



166









 




ACCORDING TO THE LAW OF THE STATE IN WHICH THE APPLICABLE REAL PROPERTY IS LOCATED, IT BEING
UNDERSTOOD THAT, TO THE FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE, THE LAW OF THE STATE OF
NEW YORK SHALL GOVERN THE CONSTRUCTION, VALIDITY AND ENFORCEABILITY OF ALL LOAN DOCUMENTS AND ALL
OF THE OBLIGATIONS ARISING HEREUNDER OR THEREUNDER. TO THE FULLEST EXTENT PERMITTED BY LAW, EACH
BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY
OTHER JURISDICTION GOVERNS THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS, AND THIS
AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL
OBLIGATIONS LAW.




               (b) NOTWITHSTANDING THE FOREGOING, THIS AGREEMENT IS SUBJECT TO THE GAMING LAWS. LENDER
EXPRESSLY ACKNOWLEDGES AND AGREES THAT ALL RIGHTS, REMEDIES, POWERS AND OBLIGATIONS OF EACH PARTY
UNDER THIS AGREEMENT MAY BE EXERCISED ONLY TO THE EXTENT THAT THE EXERCISE THEREOF DOES NOT VIOLATE
ANY APPLICABLE PROVISIONS OF THE GAMING LAWS AND ONLY TO THE EXTENT THAT ANY APPLICABLE REQUIRED
APPROVAL OF ANY GAMING AUTHORITY (INCLUDING PRIOR APPROVALS) IS OBTAINED. NOTWITHSTANDING THE
FOREGOING, BORROWERS EXPRESSLY ACKNOWLEDGE AND AGREE THAT THE FACT THAT ANY GAMING LAW OR THE LACK
OF APPROVAL FROM ANY GAMING AUTHORITY MAY PREVENT ANY BORROWER OR ANY OTHER PERSON FROM TAKING ANY
ACTION OR FULFILLING ANY OBLIGATION HEREUNDER OR UNDER ANY OTHER LOAN DOCUMENT WHICH RESULTS IN THE
OCCURRENCE OF AN EVENT OF DEFAULT AND/OR A CIRCUMSTANCE GIVING RISE TO RECOURSE LIABILITY UNDER
SECTION 9.4 HEREOF, SHALL NOT, IN ANY MANNER, LIMIT OR VITIATE OR BE DEEMED TO LIMIT OR
VITIATE SUCH EVENT OF DEFAULT OR SUCH CIRCUMSTANCE GIVING RISE TO RECOURSE LIABILITY IN ANY MANNER
WHATSOEVER.



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



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CT CORPORATION SYSTEM

111 EIGHTH AVENUE

NEW YORK, NEW YORK 10011



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




     Section 10.4 Modification, Waiver in Writing. No modification, amendment, extension,
discharge, termination or waiver of any provision of this Agreement, or of the Note, or of any
other Loan Document, nor consent to any departure by any 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 any Borrower, shall entitle such Borrower or any other Borrower to any other or future
notice or demand in the same, similar or other circumstances.



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



     Section 10.6 Notices. Except as otherwise required by applicable law, all notices,
consents, approvals and requests required or permitted hereunder or under any other Loan Document
(each, a “Notice”) shall be given in writing and shall be effective for all purposes if (a) hand
delivered, (b) sent by reputable overnight courier, (c) sent by (i) certified or registered United
States mail, postage prepaid, return receipt requested or (ii) expedited prepaid delivery



168









 




service, either commercial or United States Postal Service, with proof of attempted delivery,
or (d) sent by telecopier (with answer back acknowledged and followed by a hard copy via one of the
other methods described above), addressed as follows (or to such other address and Person as shall
be designated from time to time by any party hereto, as the case may be, in a Notice to the other
parties hereto in the manner provided for in this Section 10.6):




	 	 	 	 	 
	 

	 	If to Lender:
	 	Column Financial, Inc.
	 

	 	 	 	11 Madison Avenue
	 

	 	 	 	New York, New York 10010
	 

	 	 	 	Attention: Edmund Taylor
	 

	 	 	 	Facsimile No.: (212) 352-8106
	 
	 	 	 	 
	 

	 	with a copy to:
	 	Column Financial, Inc.
	 

	 	 	 	One Madison Avenue
	 

	 	 	 	New York, New York 10019
	 

	 	 	 	Legal and Compliance Department
	 

	 	 	 	Attention: Casey McCutcheon, Esq.
	 

	 	 	 	Facsimile No.: (917) 326-8433
	 
	 	 	 	 
	 

	 	with a copy to:
	 	Thelen Reid Brown Raysman & Steiner LLP
	 

	 	 	 	875 Third Avenue
	 

	 	 	 	New York, New York 10022
	 

	 	 	 	Attention: Jeffrey B. Steiner, Esq.
	 

	 	 	 	Facsimile No.: (212) 603-2001
	 

	 	 	 	Hard Rock/Rand Peppas
	 
	 	 	 	 
	 

	 	If to Borrowers:
	 	HRHH Gaming Junior Mezz, LLC
	 

	 	 	 	and
	 

	 	 	 	HRHH JV Junior Mezz, LLC
	 

	 	 	 	c/o Morgans Hotel Group Co.
	 

	 	 	 	475 Tenth Avenue
	 

	 	 	 	New York, New York 10018
	 

	 	 	 	Re: Hard Rock
	 

	 	 	 	Attention: Marc Gordon, Chief Investment Officer
	 

	 	 	 	Facsimile No.: (212) 277-4201
	 
	 	 	 	 
	 

	 	With a copy to:
	 	Wachtell, Lipton, Rosen & Katz
	 

	 	 	 	51 West 52nd Street
	 

	 	 	 	29th Floor
	 

	 	 	 	New York, New York 10019
	 

	 	 	 	Attention: Stephen Gellman, Esq.
	 

	 	 	 	Facsimile No.: (212) 403-2000
	 
	 	 	 	 
	 

	 	With a copy to:
	 	DLJ Merchant Banking Partners
	 

	 	 	 	11 Madison Avenue
	 

	 	 	 	New York, New York 10010






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	 	 	 	Attention: Ryan Sprott
	 

	 	 	 	Facsimile No.: (212) 743-1667
	 
	 	 	 	 
	 

	 	With a copy to:
	 	Latham & Watkins LLP
	 

	 	 	 	885 Third Avenue
	 

	 	 	 	Suite 1000
	 

	 	 	 	New York, New York 10022
	 

	 	 	 	Attention: Michelle Kelban, Esq.
	 

	 	 	 	Facsimile No.: (212) 751-4864
	 
	 	 	 	 
	 

	 	With a copy to:
	 	Latham & Watkins LLP
	 

	 	 	 	633 West Fifth Street
	 

	 	 	 	Suite 4000
	 

	 	 	 	Los Angeles, California 90071
	 

	 	 	 	Attention: Paul Fuhrman, Esq.
	 

	 	 	 	Facsimile No.: (213) 891-8763





A Notice shall be deemed to have been given: in the case of hand delivery or delivery by a
reputable overnight courier, at the time of delivery; in the case of registered or certified mail,
when delivered or the first attempted delivery on a Business Day; in the case of expedited prepaid
delivery and telecopy, upon the first attempted delivery on a Business Day; or in the case of
telecopy, upon sender’s receipt of a machine-generated confirmation of successful transmission on a
Business Day after advice by telephone to recipient that a telecopy Notice is forthcoming;
provided, that within three (3) Business Days thereafter, a hard copy of such Notice shall
have been delivered pursuant to the provisions of clause (a), (b)or (c) of this
Section 10.6. Any failure to deliver a Notice by reason of a change of address not given
in accordance with this Section 10.6, or any refusal to accept a Notice, shall be deemed to
have been given when delivery was attempted. Any Notice required or permitted to be given by any
party hereunder or under any other Loan Document may be given by its respective counsel.
Additionally, any Notice required or permitted to be given by Lender hereunder or under any other
Loan Document may also be given by the Servicer. Any Notice sent to one Borrower shall constitute
and shall be deemed to constitute such Notice to all Borrowers.




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





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



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



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



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



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



     Section 10.13 Expenses; Indemnity . (a) Borrowers jointly and severally covenant and agree to pay or, if Borrowers fail to pay,
to reimburse, Lender, within ten (10) days of receipt of notice from Lender, for all reasonable
costs and expenses (including reasonable attorneys’ fees and disbursements) incurred by Lender in
connection with (i) Borrowers’ ongoing performance of and compliance with Borrowers’ respective
agreements and covenants contained in this Agreement and the other Loan Documents on their part to
be performed or complied with after the Closing Date, including, without limitation, confirming
compliance with environmental, gaming and insurance requirements; (ii) the negotiation,
preparation, execution, delivery and administration of any consents, amendments, waivers or other
modifications to this Agreement and the other Loan Documents and any other documents or matters
requested by or benefiting any Borrower; (iii) securing Borrowers’ compliance with their
obligations pursuant to the



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provisions of this Agreement and the other Loan Documents; (iv) the
filing and recording fees and expenses, title insurance and reasonable fees and expenses of counsel
for providing to Lender all required legal opinions, and other similar expenses incurred in
creating and perfecting the Liens in favor of Lender pursuant to this Agreement and the other Loan
Documents; (v) all fees payable hereunder; (vi) dealing with any Letter of Credit delivered to
Lender hereunder; (vii) subject to the terms hereof, enforcing or preserving any rights, either in
response to third party claims or in prosecuting or defending any action or proceeding or other
litigation, in each case against, under or affecting any Borrower, this Agreement, the other Loan
Documents, any Property, the IP, the Collateral or any other security given for the Loan; and
(viii) enforcing any obligations of or collecting any payments due from any Borrower under this
Agreement or the other Loan Documents or with respect to any Property, the IP or the Collateral or
in connection with any refinancing or restructuring of the credit arrangements provided under this
Agreement in the nature of a “work-out” or of any insolvency or bankruptcy proceedings;
provided, however, that Borrowers shall not be liable for the payment of any such
costs and expenses to the extent the same arise by reason of the gross negligence, illegal acts,
fraud or willful misconduct of Lender. Notwithstanding the provisions set forth in this
Section 10.13(a) or in any other provision of this Agreement or the other Loan Documents,
in the event that (A) Lender employs counsel to collect the Debt, protect or foreclose the Pledge
Agreement or as otherwise permitted in this Agreement and the other Loan Documents and (B) Lender
has sold or transferred any interests in the Note, then Borrowers shall only be responsible for the
attorneys’ fees and expenses of the counsel of one Lender.




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



               (c) Borrowers, jointly and severally, covenant and agree to pay for or, if Borrowers fail to
pay, to reimburse Lender for, any fees and expenses incurred by any Rating Agency in connection
with any consent, approval, waiver or confirmation obtained from such Rating Agency and required
pursuant to the terms and conditions of this Agreement or any other Loan Document in connection
with any request or approval sought by Borrowers, and Lender shall be entitled to require payment
of such fees and expenses as a condition precedent to the



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obtaining of any such consent, approval,
waiver or confirmation; provided, however, that Lender expressly acknowledges and
agrees that Borrowers shall not be required to pay any Rating Agency surveillance charges.




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



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



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



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



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



          (c) Without limiting the generality of Section 10.16(a) hereof, Borrowers expressly
acknowledge and agree that: (i) DLJ Merchant Banking, Inc. is an affiliate of Lender and various of
its indirect subsidiaries and/or affiliates own indirect ownership interests in each Borrower (the
“DLJ Entities”), and (ii) neither the Lender named herein nor any successor or assign thereof shall
have any liability to Borrower as a result of such relationship between Lender and the DLJ
Entities, including, without limitation, under any theory of lender liability.



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          (d) The benefits of this Agreement shall not inure to any third party, nor shall this
Agreement be construed to make or render Lender liable to any Trade Contractors including any Major
Contractors or others for goods and materials supplied or work and labor furnished in connection
with the construction or rehabilitation of the Project or for debts or claims accruing to any such
Persons against Mortgage Borrowers or Borrowers. Notwithstanding anything contained in the Loan
Documents, or any conduct or course of conduct by the parties hereto, before or after signing the
Loan Documents, this Agreement shall not be construed as creating any rights, claims or causes of
action against Lender, or any of its officers, directors, agents or employees, in favor of any
Major Contractor or other Trade Contractor, or any of their respective creditors, or any other
Person.



          (e) Observation, inspection and approvals, if applicable, by Lender of the Plans and
Specifications, the construction of the Project and/or the workmanship and materials used therein
shall impose no responsibility or liability of any nature whatsoever on Lender and no Borrower,
Mortgage Borrower, Trade Contractor or other interested Person, under any circumstances, shall be
entitled to rely upon such inspections and approvals by Lender for any reason. Approvals granted
by Lender for any matters covered under this Agreement shall be narrowly construed to cover only
the parties and facts identified in any such approval.



     Section 10.17 Publicity. All news releases, publicity or advertising by any Borrower
or their Affiliates through any media intended to reach the general public which refers to the Loan
Documents or the financing evidenced by the Loan Documents or to Lender, Credit Suisse or any of
their Affiliates shall be subject to the prior approval of Lender not to be unreasonably withheld,
conditioned or delayed. Notwithstanding the foregoing, disclosure required by applicable state or
federal securities laws, rules or regulations or other applicable Legal Requirements, or as
customarily and reasonably requested by any Gaming Authorities, shall not be subject to Lender’s
prior written approval.



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



     Section 10.19 Waiver of Counterclaim. To the fullest extent permitted by law, each
Borrower hereby waives the right to assert a counterclaim, other than a compulsory counterclaim, in
any action or proceeding brought against it by Lender or its agents or otherwise to offset any
Obligations under the Loan Documents. No failure by Lender to perform any of its obligations
hereunder shall be a valid defense to, or result in any offset against, any payments which any
Borrower is obligated to make under any of the Loan Documents.



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



     Section 10.21 Brokers and Financial Advisors.



          (a) Each Borrower hereby represents that neither it nor any of its Affiliates has dealt with
any financial advisors, brokers, underwriters, placement agents, agents or finders in connection
with the transactions contemplated by this Agreement. Each Borrower
hereby agrees to indemnify, defend and hold Lender harmless from and against any and all
third-party claims, liabilities, out-of-pocket costs and reasonable expenses of any kind (including
Lender’s reasonable attorneys’ fees and expenses (but only for one (1) set of attorneys)) in any
way relating to or arising from a claim by any Person that such Person acted on behalf of any
Borrower or an Affiliate of any Borrower in connection with the transactions contemplated herein.
The provisions of this Section 10.21(a) shall survive the expiration and termination of
this Agreement and the payment of the Debt.



          (b) Lender hereby represents that neither it nor any of its Affiliates has dealt with any
financial advisors, brokers, underwriters, placement agents, agents or finders in connection with
the transactions contemplated by this Agreement. Lender hereby agrees to indemnify, defend and
hold Borrowers harmless from and against any and all third-party claims, liabilities, out-of-pocket
costs and reasonable expenses of any kind (including Borrowers’ reasonable attorneys’ fees and
expenses (but only for one (1) set of attorneys)) in any way relating to or arising from a claim by
any Person that such Person acted on behalf of Lender or an Affiliate of Lender in connection with
the transactions contemplated herein. The provisions of this Section 10.21(b) shall
survive the expiration and termination of this Agreement and the payment of the Debt.



     Section 10.22 Prior Agreements. This Agreement and the other Loan Documents contain
the entire agreement of the parties hereto and thereto in respect of the transactions contemplated
hereby and thereby, and all prior agreements among or between such parties, whether oral or
written, including, without limitation, (i) the Commitment Letter dated May 11,



175









 




2006 between
Morgans Hotel Group Co., MHG HR Acquisition Corp and Lender, and (ii) the Commitment Letter dated
December 22, 2006 between Morgans Hotel Group Co., MHG HR Acquisition Corp, DLJ Merchant Banking,
Inc. and Lender, are superseded by the terms of this Agreement and the other Loan Documents.




     Section 10.23 Joint and Several Liability. The representations, covenants,
warranties and obligations of Borrowers hereunder are joint and several.



     Section 10.24 Certain Additional Rights of Lender (VCOC). Notwithstanding anything to
the contrary contained in this Agreement, Lender shall have:



          (a) subject to applicable Gaming Laws, the right to routinely consult with and advise each
Borrower’s management regarding the significant business activities and business and financial
developments of each 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 and upon reasonable
advance notice;



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



          (c) the right, in accordance with the terms of this Agreement, including, without limitation,
Section 5.1.11 hereof, to receive monthly, quarterly and year-end financial reports,
including balance sheets, statements of income, shareholder’s equity and cash flow, a management
report and schedules of outstanding indebtedness; and



          (d) the right, without restricting any other rights of Lender under this Agreement (including
any similar right), to approve any acquisition by any Borrower of any other significant property
(other than (i) personal property required for the day to day operation of any Property and (ii) to
the extent any such acquisition is contemplated in the Approved Annual Budget then in effect).



     The rights described above in this Section 10.24 may be exercised by any entity which
owns and Controls, directly or indirectly, substantially all of the interests in Lender.



ARTICLE XI.

MORTGAGE LOAN AND MEZZANINE LOANS




     Section 11.1 Mortgage Loan and Mezzanine Loan Deliveries.



          (a) Promptly after receipt, Borrowers shall deliver (or cause Mortgage Borrowers, First
Mezzanine Borrowers or Third Mezzanine Borrowers, as applicable, to deliver) to Lender a true,
correct and complete copy of all material notices, demands, requests or material correspondence
(including electronically transmitted items) received from (i) Mortgage Lender by any Mortgage
Borrower or any guarantor under the Mortgage Loan Documents, (ii) First Mezzanine Lender by any
First Mezzanine Borrower or any guarantor under the First Mezzanine



176









 




Loan Documents, or (iii) Third
Mezzanine Lender by any Third Mezzanine Borrower or any guarantor under the Third Mezzanine Loan
Documents.




          (b) Unless otherwise delivered to Lender pursuant to the provisions of Section 5.1.11
hereof, Borrowers shall deliver (or cause Mortgage Borrowers, First Mezzanine Borrowers or Third
Mezzanine Borrowers, as applicable, to deliver) to Lender all of the financial statements, reports,
material certificates and related items delivered or required to be delivered by (i) Mortgage
Borrowers to Mortgage Lender under the Mortgage Loan Documents as and when due under the Mortgage
Loan Documents, (ii) First Mezzanine Borrowers to First Mezzanine Lender under the First Mezzanine
Loan Documents as and when due under the First Mezzanine Loan Documents, and (iii) Third Mezzanine
Borrowers to Third Mezzanine Lender under the Third Mezzanine Loan Documents as and when due under
the Third Mezzanine Loan Documents.



     Section 11.2 Mortgage Loan and Mezzanine Loan Estoppels.



          (a) After written request by Lender but in no event more than two (2) times in any twelve (12)
month period, Borrowers shall (or shall cause Mortgage Borrowers to) from time to time, use
reasonable efforts to obtain from Mortgage Lender such estoppel certificates with respect to the
status of the Mortgage Loan and compliance by Mortgage Borrowers with the terms of the Mortgage
Loan Documents as may reasonably be requested by Lender. In the event or to the extent that
Mortgage Lender is not legally obligated to deliver such estoppel certificates and is unwilling to
deliver the same, or is legally obligated to deliver such estoppel certificates but breaches such
obligation, then Borrowers shall not be in breach of this provision so long as Borrowers furnish to
Lender estoppels executed by Borrowers and Mortgage Borrowers expressly representing to Lender the
information requested by Lender regarding the status of the Mortgage Loan and the compliance by
Mortgage Borrowers with the terms of the Mortgage Loan Documents. Borrowers hereby jointly and
severally indemnify Lender from and against all liabilities, obligations, losses, damages,
penalties, assessments, actions, or causes of action, judgments, suits, claims, demands, costs,
expenses (including reasonable attorneys’ and other professional fees, whether or not suit is
brought and settlement costs) and reasonable disbursements of any kind or nature whatsoever which
may be imposed on, actually incurred by, or asserted against Lender based in whole or in part upon
any fact, event, condition or circumstance relating to the Mortgage Loan which was misrepresented
in any material respect by Borrowers in, or which warrants disclosure and was omitted from, such
estoppel executed by Borrowers and Mortgage Borrowers.



          (b) After written request by Lender but in no event more than two (2) times in any twelve (12)
month period, Borrowers shall (or shall cause First Mezzanine Borrowers to) from time to time, use
reasonable efforts to obtain from First Mezzanine Lender such estoppel certificates with respect to
the status of the First Mezzanine Loan and compliance by First Mezzanine Borrowers with the terms
of the First Mezzanine Loan Documents as may reasonably be requested by Lender. In the event or to
the extent that First Mezzanine Lender is not legally obligated to deliver such estoppel
certificates and is unwilling to deliver the same, or is legally obligated to deliver such estoppel
certificates but breaches such obligation, then Borrowers shall not be in breach of this provision
so long as Borrowers furnish to Lender estoppels executed by Borrowers and First Mezzanine
Borrowers expressly representing to



177









 




Lender the information requested by Lender regarding the status
of the First Mezzanine Loan and the compliance by First Mezzanine Borrowers with the terms of the
First Mezzanine Loan Documents. Borrowers hereby jointly and severally indemnify Lender from and
against all liabilities, obligations, losses, damages, penalties, assessments, actions, or causes
of action, judgments, suits, claims, demands, costs, expenses (including reasonable attorneys’ and
other professional fees, whether or not suit is brought and settlement costs) and reasonable
disbursements of any kind or nature whatsoever which may be imposed on, actually incurred by, or
asserted against Lender based in whole or in part upon any fact, event, condition or circumstance
relating to the First Mezzanine Loan which was misrepresented in any material respect by Borrowers
in, or which warrants disclosure and was omitted from, such estoppel executed by Borrowers and
First Mezzanine Borrowers.




          (c) After written request by Lender but in no event more than two (2) times in any twelve (12)
month period, Borrowers shall (or shall cause Third Mezzanine Borrowers to) from time to time, use
reasonable efforts to obtain from Third Mezzanine Lender such estoppel certificates with respect to
the status of the Third Mezzanine Loan and compliance
by Third Mezzanine Borrowers with the terms of the Third Mezzanine Loan Documents as may
reasonably be requested by Lender. In the event or to the extent that Third Mezzanine Lender is
not legally obligated to deliver such estoppel certificates and is unwilling to deliver the same,
or is legally obligated to deliver such estoppel certificates but breaches such obligation, then
Borrowers shall not be in breach of this provision so long as Borrowers furnish to Lender estoppels
executed by Borrowers and Third Mezzanine Borrowers expressly representing to Lender the
information requested by Lender regarding the status of the Third Mezzanine Loan and the compliance
by Third Mezzanine Borrowers with the terms of the Third Mezzanine Loan Documents. Borrowers
hereby jointly and severally indemnify Lender from and against all liabilities, obligations,
losses, damages, penalties, assessments, actions, or causes of action, judgments, suits, claims,
demands, costs, expenses (including reasonable attorneys’ and other professional fees, whether or
not suit is brought and settlement costs) and reasonable disbursements of any kind or nature
whatsoever which may be imposed on, actually incurred by, or asserted against Lender based in whole
or in part upon any fact, event, condition or circumstance relating to the Third Mezzanine Loan
which was misrepresented in any material respect by Borrowers in, or which warrants disclosure and
was omitted from, such estoppel executed by Borrowers and Third Mezzanine Borrowers.



     Section 11.3 Mortgage Loan and First Mezzanine Loan Defaults.



          (a) Without limiting the generality of the other provisions of this Agreement, and without
waiving or releasing Borrowers from any of their obligations hereunder, if there shall occur any
Mortgage Event of Default or any First Mezzanine Event of Default, Borrowers hereby expressly agree
that Lender shall have the immediate right, without notice to or demand on any of the applicable
Loan Parties, but shall be under no obligation: (i) to pay all or any part of the Mortgage Loan
and/or the First Mezzanine Loan, as applicable, and any other sums, that are then due and payable
and to perform any act or take any action on behalf of the applicable Loan Parties, as may be
appropriate, to cause all of the terms, covenants and conditions of the Mortgage Loan Documents or
the First Mezzanine Loan Documents on the part of such Loan Parties 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



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absolute discretion, shall deem advisable to protect or
preserve the rights and interests of Lender in the Loan and/or the Collateral. Lender shall have
no obligation to complete any cure or attempted cure undertaken or commenced by Lender. All sums
so paid and the costs and expenses incurred by Lender in exercising rights under this Section
11.3 (including, without limitation, reasonable attorneys’ and other professional fees), with
interest at the Default Rate, for the period from the date of demand by Lender to Borrowers for
such payments to the date of payment to Lender, shall constitute a portion of the Debt, shall be
secured by the Pledge Agreement and shall be due and payable to Lender upon demand therefor.




          (b) Subject to the rights of tenants and the Mortgage Loan Agreement, Borrowers hereby grant,
and shall cause Mortgage Borrowers to grant, Lender and any Person designated by Lender the right
to enter upon any Property at any time for the purpose of carrying out the rights granted to Lender
under this Section 11.3.



          (c) Borrowers shall not, and shall not cause or permit any of the Loan Parties or any other
Person 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 Mortgage Loan or the First Mezzanine Loan, as
applicable, or to otherwise protect or preserve Lender’s interests in the Loan and the Collateral
(including the Properties) following a default or asserted default under the Mortgage Loan or the
First Mezzanine Loan, as applicable, in accordance with the provisions of this Agreement and the
other Loan Documents.



          (d) Borrowers hereby indemnify Lender from and against all liabilities, obligations, losses,
damages, penalties, assessments, actions, or causes of action, judgments, suits, claims, demands,
costs, expenses (including, without limitation, reasonable 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 described in Section 11.3(a). Lender shall have no obligation to any
Loan Party or any other party to make any such payment or performance.



          (e) If Lender shall receive a copy of any notice of default under the Mortgage Loan Documents
or the First Mezzanine Loan Documents, 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 in making the Loan, Borrowers hereby absolutely and unconditionally
release and waive all claims against Lender arising out of Lender’s exercise of its rights and
remedies provided in this Section 11.3 other than claims arising out of the fraud, illegal
acts, gross negligence or willful misconduct of Lender.



          (f) In the event that Lender cures any Mortgage Event of Default or any First Mezzanine Event
of Default, any such cure by Lender shall not waive or be deemed to have cured such Mortgage Event
of Default or such First Mezzanine Event of Default and shall constitute an immediate Event of
Default under this Agreement without any notice, grace or cure period otherwise applicable under
this Agreement.



          (g) In the event that Lender makes any payment in respect of the Mortgage Loan and/or the
First Mezzanine Loan, Lender shall be subrogated to (i) all of the



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rights of Mortgage Lender under
the Mortgage Loan Documents against the Properties and Mortgage Borrowers, and/or (ii) all of the
rights of First Mezzanine Lender under the First Mezzanine Loan Documents against the First
Mezzanine Collateral and First Mezzanine Borrowers, as applicable, in each case in addition to all
other rights which Lender may have under the Loan Documents or applicable law (including, without
limitation, reasonable attorneys’ and other professional fees), and any such payments made by
Lender together with interest at the Default Rate, for the period from the date of demand by Lender
to Borrowers for such payments to the date of payment to Lender, (A) shall constitute a portion of
the Debt, (B) shall be secured by the Pledge Agreement and (C) shall be due and payable to Lender
upon demand therefor.




     Section 11.4 Discussions with Mortgage Lender and First Mezzanine Lender . In connection with the exercise of its rights set forth in the Loan Documents, Lender shall
have the right at any time to discuss the Properties, the Mortgage Loan, the First Mezzanine Loan,
the Loan or any other matter directly with Mortgage Lender and/or First Mezzanine Lender or its
respective consultants, agents or representatives without notice to or permission from any Borrower
or any other Loan Party, nor shall Lender have any obligation to disclose such discussions or the
contents thereof with any Borrower or any other Loan Party.



     Section 11.5 Independent Approval Rights.



          (a) If any action, proposed action or other decision is consented to or approved by Mortgage
Lender or First Mezzanine Lender, such consent or approval shall not be binding or controlling on
Lender; provided, however, that, notwithstanding anything to the contrary which may
be contained in this Agreement, and as between Lender and Borrowers only, Lender shall be deemed to
have approved or waived any document delivered or action taken, or required to be delivered or
taken, by Mortgage Borrowers to Mortgage Lender under the Mortgage Loan Agreement related to the
construction of the Project which is approved or waived in writing by Mortgage Lender under the
Mortgage Loan Documents.



          (b) Borrowers hereby acknowledge and agree that (i) the risks of Mortgage Lender in making the
Mortgage Loan, and the risks of First Mezzanine Lender in making the First Mezzanine Loan, are
different from the risks of Lender in making the Loan, (ii) in determining whether to grant, deny,
withhold or condition any requested consent or approval, Mortgage Lender, First Mezzanine Lender
and Lender may reasonably reach different conclusions, and (iii) Lender has an absolute independent
right to grant, deny, withhold or condition any requested consent or approval based on its own
point of view. Further, the denial by Lender of a requested consent or approval shall not create
any liability or other obligation of Lender if the denial of such consent or approval results
directly or indirectly in a default under the Mortgage Loan and/or the First Mezzanine Loan, and
Borrowers hereby waive any claim of liability against Lender arising from any such denial.



     Section 11.6 Intercreditor Agreement.



          (a) Borrowers hereby acknowledge and agree that (i) the Intercreditor Agreement entered into
by and among Lender, Mortgage Lender, First



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Mezzanine Lender and Third Mezzanine Lender will be
solely for the benefit of Lender, Mortgage Lender, First Mezzanine Lender and Third Mezzanine
Lender; (ii) none of Borrowers, Mortgage Borrowers, First Mezzanine Borrowers or Third Mezzanine
Borrowers shall be intended third-party beneficiaries of any of the provisions therein; and (iii)
none Borrowers, Mortgage Borrowers, First Mezzanine Borrowers or Third Mezzanine Borrowers shall
have any rights thereunder or shall be entitled to rely on any of the provisions contained therein.
None of Lender, Mortgage Lender, First Mezzanine Lender or Third Mezzanine Lender shall have any
obligation to disclose to Borrowers the contents of the Intercreditor Agreement. Borrowers’
obligations hereunder are
and will be independent of the Intercreditor Agreement and shall remain unmodified by the
terms and provisions thereof.




          (b) In the event that Lender, pursuant to the terms of the Intercreditor Agreement, is
required to pay over to Mortgage Lender or First Mezzanine Lender any payment or distribution of
assets, whether in cash, property or securities which otherwise would have been applied to the
Debt, including, without limitation, any proceeds of any property previously received by Lender on
account of the Loan or any payments under the Guaranties, pursuant to voluntary payment or judgment
or otherwise, then Borrowers agree to indemnify Lender for any amounts so paid, and any amount so
paid shall continue to be owing pursuant to the Loan Documents as part of the Debt notwithstanding
the prior receipt of such payment by Lender.



ARTICLE XII.

GAMING PROVISIONS




     Section 12.1 Operation of Casino Component.



          (a) Borrowers shall (i) cause HRHI to observe and perform the obligations imposed upon the
lessor under the Gaming Sublease in a commercially reasonable manner; (ii) cause HRHI to enforce
the terms, covenants and conditions contained in the Gaming Sublease and the Gaming Recognition
Agreement upon the part of the Gaming Operator thereunder to be observed or performed in a
commercially reasonable manner and in a manner not to impair the value of the Casino Component or
the Hotel/Casino Property; (iii) not allow any amendment to or termination or modification of the
Gaming Sublease without the consent of Lender, which consent shall not be unreasonably withheld,
other than modifications of a ministerial and non-monetary nature; (iv) not permit HRHI to collect
any of the rents or other payments due under the Gaming Sublease more than one (1) month in
advance; and (v) not permit HRHI to execute any assignment of its interest in the Gaming Sublease.



          (b) As soon as practicable after the date hereof, Borrowers shall submit or cause to be
submitted any and all applications, filings and other submissions required by the Gaming
Authorities or pursuant to any Gaming Laws to obtain the Gaming Licenses necessary to permit the
operation of the Casino Component by Gaming Borrower as contemplated herein. Borrowers shall, or
shall cause Mortgage Borrowers to, timely pay all application fees, investigative fees and other
costs or fees required by the Gaming Authorities with respect to said approvals and licenses or
arising in connection with the diligent prosecution of such applications. Borrowers shall, or
shall cause Mortgage Borrowers to, diligently and comprehensively respond to any inquiries and
requests from the Gaming Authorities and promptly file or cause to be filed any additional
information required in connection with such applications or filings as soon as practicable after
receipt of requests therefor.



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          (c) Provided that (i) no Event of Default has occurred and is continuing, (ii) Gaming Borrower
is, pursuant to Gaming Laws, the holder of all Gaming Licenses and all other Operating Permits and
Governmental Approvals necessary for the operation of the Casino Component as a casino and the
performance of the Casino Component
Lease, (iii) the Casino Component Lease is in full force and effect and no material default
beyond applicable notice and/or cure periods has occurred thereunder, (iv) the Gaming Sublease has
either expired by its own terms or has been properly terminated pursuant to the terms thereof, and
(v) Borrowers have given Lender thirty (30) days prior written notice, Borrowers shall cause Gaming
Borrower to operate the Casino Component pursuant to the Casino Component Lease and in accordance
with all Gaming Laws and all other applicable Legal Requirements. Borrowers shall cause Mortgage
Borrowers to thereafter maintain all Gaming Licenses, Operating Permits and Governmental Approvals
necessary for the lawful operation of the Casino Component as a casino consistent with Comparable
Hotel/Casinos and use its commercially reasonable efforts to operate the Casino Component in a
manner designed to maximize revenues from the Properties in the aggregate. No Loan Party shall
take, permit or omit any action that would adversely affect the status or good standing of Gaming
Borrower under such Operating Permits, Gaming Licenses or Governmental Approvals.



          (d) Borrowers hereby acknowledge and agree that the Casino Component Lease and any and all
rights and interests (whether choate or inchoate and including, without limitation, all mechanic’s
and materialmen’s liens under applicable law) owned, claimed or held, by Gaming Borrower thereunder
or otherwise in and to the Casino Component, shall be in all respects subordinate and inferior to
the liens and security interests created, or to be created, for the benefit of Lender under the
Loan Documents, and securing the repayment of the Note and the performance of the Obligations, and
all renewals, extensions, increases, supplements, amendments, modifications or replacements
thereof.



          (e) Borrowers hereby agree that, at any time after the date the Casino Component Lease becomes
effective, if ever, (i) upon the occurrence and during the continuance of an Event of Default and
at the request of Lender, Borrowers shall cause Gaming Borrower to continue to perform all of its
obligations under the terms of the Casino Component Lease with respect to the Casino Component,
(ii) upon and after foreclosure, deed in lieu of foreclosure or other similar transfer of the
Casino Component to a Mortgage Lender Successor Owner, Borrowers shall cause Gaming Borrower to (A)
recognize such Mortgage Lender Successor Owner as the lessor under the Casino Component Lease, (B)
not exercise any right to terminate the Casino Component Lease, and (C) at the request of such
Mortgage Lender Successor Owner, continue to operate and manage the Casino Component and maintain
all applicable Gaming Licenses with respect to the Casino Component for a period not to exceed
fifteen (15) months after the effective date of such transfer to such Mortgage Lender Successor
Owner (which period shall in all events terminate upon Mortgage Lender Successor Owner’s
appointment of a new gaming operator possessing all Gaming Licenses and other Governmental
Approvals necessary to conduct all gaming operations at the Hotel/Casino Property, subject to
Gaming Borrower’s obligation to transfer its responsibilities under the Casino Component Lease to
such new gaming operator and to reasonably cooperate with the transition of the gaming operations
from Gaming Borrower to such new gaming operator), in accordance with the terms of the Casino
Component Lease; provided that such Mortgage Lender Successor Owner shall be obligated to
pay a then market rate casino management fee which is reasonable and customary for similar casinos
in Las



182









 




Vegas, Nevada, and (iii) at any time after foreclosure, deed in lieu of foreclosure or other
similar transfer of the Casino Component to a Mortgage Lender Successor Owner, at the option of
such Mortgage Lender Successor Owner exercised by written notice to Gaming Borrower, such
Mortgage Lender Successor Owner shall have the right to terminate the Casino Component Lease
without penalty or termination fee.




          (f) Upon the occurrence and during the continuance of an Event of Default, Lender may elect,
upon written notice, to require Borrowers to cause Gaming Borrower or any other Loan Party to
surrender or relinquish one or more or all of the Gaming Licenses held by such Person(s). If
Gaming Borrower or such other Loan Party fails or refuses to so relinquish such Gaming License(s)
within five (5) Business Days after receipt of such written notice, then Lender is hereby appointed
(which appointment is coupled with an interest) as each Loan Party’s attorney in fact with full
authority to surrender or relinquish each such Gaming License on each such Loan Party’s behalf, the
foregoing power being irrevocable and coupled with an interest.



          (g) Borrowers agree to cause Gaming Borrower to (i) execute such affidavits and certificates
as Lender shall reasonably require to further evidence the agreements herein contained, (ii) on
request from Lender, furnish Lender with copies of such information as Hotel/Casino Borrower is
entitled to receive under the Casino Component Lease, and (iii) cooperate with Lender’s
representative in any inspection of all or any portion of the Casino Component from time to time at
reasonable times during business hours.



          (h) Lender agrees to cooperate with all Gaming Authorities in connection with the
administration of its regulatory jurisdiction over the Gaming Operator, Gaming Borrower and any
other Person licensed by or registered with the Gaming Authorities, including the provision of such
documents or other information as may be requested by the Gaming Authorities relating to the Gaming
Sublease, the Casino Component Lease or the Loan Documents. Additionally, Lender acknowledges and
understands that (a) it is subject to being called forward by the Gaming Authorities, in their
discretion, for licensing or a finding of suitability, (b) all rights, remedies and powers provided
in this Agreement may be exercised only to the extent the exercise thereof does not violate any
applicable Gaming Laws, and (c) to the extent prior approval of the Gaming Authorities is required
pursuant to applicable Gaming Laws for the exercise, operation and effectiveness of any remedy
hereunder or under any other Loan Document, or the taking of any action that may be taken by Lender
hereunder or under any other Loan Document, such remedy or action shall be subject to such prior
approval of the Gaming Authorities, but the foregoing acknowledgements shall not be read or
construed, in any manner or at any time, to qualify or limit any representation, warranty,
covenant, agreement or obligation of any Loan Party herein, including, without limitation, any of
the same relating to the due authorization, execution, delivery, performance and/or enforceability
of any Loan Document, or any assignment, issuance, granting or remedy evidenced, created or
effected thereby. Notwithstanding the foregoing, Borrowers expressly acknowledge and agree that
Lender shall not be liable to any Loan Party or any other Person for any loss, cost, damage, fine
or other expense suffered by any Loan Party or any other Person resulting from Lender’s cooperation
with, appearance before, or provision of information or documents to, any Gaming Authority as
contemplated in this Sections 12.1(h), except for Lender’s gross negligence, willful
misconduct or fraud.



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     Section 12.2 Gaming Liquidity Requirements. From and after the date, if ever, upon which Gaming Borrower becomes the Gaming Operator in
accordance with the terms of the Mortgage Loan Agreement and this Agreement, Borrowers shall
furnish, or shall cause Gaming Borrower to furnish, to Lender, within five (5) Business Days
following the end of each calendar month, an Officer’s Certificate certifying as to the amount of
the Gaming Liquidity Requirement (including a calculation of the determination thereof) and the
Gaming Operating Reserve with respect to such month, including any changes to the foregoing during
such month, the foregoing to be in form and substance reasonably acceptable to Lender (the “Monthly
Gaming Requirement Certificate”).



ARTICLE XIII.

RIGHT OF FIRST OFFER




     Section 13.1 Right of First Offer. Prior to seeking any Refinancing Loan and/or any
commitment for a Refinancing Loan, Borrowers shall first notify Credit Suisse in writing (the
"Right of First Offer Notice”) of its intention to obtain any such Refinancing Loan, which Right of
First Offer Notice shall (a) contain the Material Economic Terms which Borrowers would, in good
faith, expect to receive in the market for loans similar in type to the Refinancing Loan being
sought, and (b) offer (in each case, a “Right of First Offer”) to Credit Suisse the opportunity to
consider whether or not Credit Suisse (or an Affiliate thereof) will provide the Refinancing Loan
on Material Economic Terms substantially similar to the Material Economic Terms contained in the
Right of First Offer Notice. For the purposes of this Article XIII, “Material Economic Terms”
shall mean, collectively, the term of the facility, the approximate amount of the facility, the
type of facility (i.e., fixed rate v. floating rate; interest only v. amortization), interest rate,
points and other fees, guarantors and types of guaranty agreements, use of deposits/reserves,
required equity, and net worth and liquidity requirements. For purposes only of (i) this
Article XIII, and (ii) the definition of Applicable Exit Fee Percentage set forth in
Section 1.1 of the Mortgage Loan Agreement, the term “Credit Suisse” shall also include any
Affiliate of Credit Suisse.



     Section 13.2 Right of First Offer Procedure. The Right of First Offer shall be
subject to the procedure set forth below.



          (a) As and when Borrowers determine that they will seek to obtain a Refinancing Loan,
Borrowers shall promptly send to Credit Suisse the Right of First Offer Notice.



          (b) Upon receipt of the Right of First Offer Notice, Credit Suisse shall have the right to
request all information and materials relating to Borrowers, their direct and indirect principals,
the Collateral and the Properties that Credit Suisse shall reasonably require in order to evaluate
whether or not it will seek to obtain the requisite internal approvals (the “Internal Approvals”)
to extend a Refinancing Loan (collectively, the “Right of First Offer Information and Materials”)
and Borrowers hereby agree to cooperate with Credit Suisse in all reasonable respects in connection
with providing the Right of First Offer Information and Materials. Such request for the Right of
First Offer Information and Materials shall be made within five (5) Business Days of Credit
Suisse’s receipt of the Right of First Offer Notice.



184









 





     (c) If Credit Suisse is not willing to consider the Refinancing Loan, Credit Suisse shall,
prior to the expiration of the period ending thirty (30) days after Credit Suisse’s receipt of the
Right of First Offer Information and Materials, deliver to Borrowers a written notice to such
effect (“Lender’s Rejection Notice”). Upon receipt of Lender’s Rejection Notice, Borrowers shall
then have the right to solicit Third Party Lenders to provide a Refinancing Loan.



          (d) If Credit Suisse is willing to consider the Refinancing Loan, Credit Suisse shall, prior
to the expiration of the period ending thirty (30) days after Credit Suisse’s receipt of the Right
of First Offer Information and Materials, deliver to Borrowers a term sheet containing Material
Economic Terms substantially similar to the Material Economic Terms contained in the Right of First
Offer Notice upon which Credit Suisse is prepared to seek the Internal Approvals to extend the
Refinancing Loan (the “ROFO Term Sheet”), it being understood that such ROFO Term Sheet shall not
be binding upon Credit Suisse and shall in no event be deemed a commitment by Credit Suisse to
lend. If Credit Suisse does not deliver a ROFO Term Sheet within such thirty (30) day period,
Credit Suisse shall be deemed to be unwilling to provide the Refinancing Loan on the Material
Economic Terms contained in the Right of First Offer Notice and the terms and conditions of
clause (c) above shall be applicable.



          (e) Credit Suisse shall not be liable in any manner whatsoever for (i) failure to deliver any
notice or documents specified herein or (ii) its failure to continue to consider whether or not it
will commit to extend the Refinancing Loan.



     Section 13.3 Application to Credit Suisse. Borrowers expressly acknowledge and agree
that Borrowers shall afford the rights under this Article XIII to Credit Suisse whether or
not Credit Suisse or any Affiliate thereof is then “Lender” under this Agreement and the other Loan
Documents.



[NO FURTHER TEXT ON THIS PAGE]





185









 








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



	 	 	 	 	 
	 	HRHH GAMING JUNIOR MEZZ, LLC,

a Delaware limited liability company

 	 
	 	By:  	/s/ RICHARD SZYMANSKI
 	 
	 	 	Name:  	Richard Szymanski 	 
	 	 	Title:  	Vice President, Secretary and Treasurer 	 
	 
	 	HRHH JV JUNIOR MEZZ, LLC,

a Delaware limited liability company

 	 
	 	By:  	/s/ RICHARD SZYMANSKI
 	 
	 	 	Name:  	Richard Szymanski 	 
	 	 	Title:  	Vice President 	 



 









 






	 	 	 	 	 



	 	 	 	 	 
	 	COLUMN FINANCIAL, INC.,

a Delaware corporation

 	 
	 	By:  	/s/ HEATHER C. JONES
 	 
	 	 	Name:  	Heather C. Jones 	 
	 	 	Title:  	Vice President 	 



 









 






	 	 	 	 	 



SCHEDULE
I-A


LEGAL DESCRIPTION OF HOTEL/CASINO PROPERTY





 









 








SCHEDULE
I-B


LEGAL DESCRIPTION OF CAFE PROPERTY





 












 





SCHEDULE I-C




LEGAL DESCRIPTION OF ADJACENT PROPERTY





 









 








SCHEDULE II




DESCRIPTION OF PROJECT




 









 








SCHEDULE III




DESCRIPTION OF PLEDGED INTERESTS




	 	 	 	 	 	 	 
	 	 	 	 	 	 	Percentage of
	 	 	 	 	Class of	 	Membership
	Issuer	 	Owner	 	Membership Interest	 	Interests
	 
	HRHH JV Senior
	 	HRHH JV Junior
	 	Regular
	 	100%
	Mezz, LLC
	 	Mezz, LLC	 	 	 	 
	 	 	 	 	 	 	 
	HRHH Gaming Senior
	 	HRHH Gaming Junior
	 	Regular
	 	100%
	Mezz, LLC
	 	Mezz, LLC	 	 	 	 







 









 








SCHEDULE IV




ALLOCATED LOAN AMOUNTS




 









 





SCHEDULE V




NET WORTH REQUIREMENTS




     1. Guarantors Net Worth Requirements. At all times following any Guarantor Transfer,
and thereafter throughout the term of the Loan, (i) the aggregate Net Worth of all Guarantors shall
equal $400,000,000 or more, and the aggregate Effective Liquidity of all Guarantors shall equal
$200,000,000 or more, and (ii) each Guarantor shall maintain (x) Net Worth of not less than
$200,000,000, or, in the event that the Morgans Guarantor or any transferee (including an Affiliate
of such transferee) of the Morgans Guarantor’s interests in HR Holdings (collectively, a “Morgans
Transferee”) shall remain or become a guarantor of the Loan at such time, as to the Morgans
Guarantor and any Morgans Transferee only, the product of $400,000,000.00 and such Person’s then
percentage interest (directly or indirectly) in all profits and losses of HR Holdings, and (y)
Effective Liquidity of not less than $100,000,000, or, in the event that the Morgans Guarantor or
any Morgans Transferee shall remain or become a guarantor of the Loan at such time, as to the
Morgans Guarantor and any Morgans Transferee only, the product of $200,000,000.00 and such Person’s
then percentage interest (directly or indirectly) in all profits and losses of HR Holdings. Upon
request, and at such times as Borrowers are required to deliver to Lender any financial statements
or information with regard to Guarantor required by Section 5.1.11 of the Loan Agreement,
Borrowers shall deliver or cause to be delivered to Lender a certificate of each Guarantor setting
forth in reasonable detail such Guarantor’s Net Worth as of the end of the prior calendar year or
quarter, as the case may be, and then Effective Liquidity, and certifying that such calculations
and accompanying financial statements are true, correct, accurate and complete in all material
respects.



     2. Additional Definitions. As used in this Schedule V, the following terms
shall have the following meanings:




          “Distributable Cash” means, with respect to any Person, and subject to the following
proviso, the amount of all capital surplus, retained earnings or net profits of such Person
held in the form of cash or cash equivalents (including cash reserves established from
undistributed net profits from any prior fiscal period), then freely and lawfully
distributable to the holders of all equity interests of such Person as dividends or
distributions or in redemption of such equity interests in accordance with all laws and
operative agreements, documents or instruments governing the formation and capitalization of
such Person, the receipt of which by the holders of such equity interests, if so paid, will
not give rise to any liability of the recipient to return or to repay such amounts to such
Person, and the payment or distribution of which by such Person to such equity holders (i)
will not violate any term or condition of any agreement or instrument to which such Person
is subject or by which its properties or assets is bound, and (ii) has been consented to or
approved by all other Persons not controlled by any Guarantor whose consent to or approval
of such payment or distribution is required under any of such operative, governing or other
agreements, documents or instruments; provided that Lender is given, from time to
time, such information as it may reasonably request confirming the foregoing, subject to the
requirements of any existing Guaranty insofar as



 









 







relates to the Morgans Guarantor, so long as Morgans Guarantor remains a guarantor of any of
the Obligations.




          “Effective Liquidity” means, (A) with respect to any Person, as of a given date, the
sum of (i) all unrestricted cash and cash equivalents held by such Person and, in the case
of Morgans Guarantor, so long as Morgans Guarantor remains a guarantor of any of the
Obligations, the Distributable Cash of Morgans Gurantor’s direct or indirect wholly-owned
subsidiaries, membership or other equity interests which are not pledged to or otherwise
encumbered by any lien, charge or other encumbrance in favor of any Person other than
Morgans Guarantor or Lender; (ii) the aggregate amount of available borrowing of such Person
under credit facilities and other lines of credit; and (iii) except as provided in the
following sentence, the aggregate maximum amount, if any, of all committed and undrawn or
uncalled capital available to such Person (as to any Person its “Available Capital”) under
the terms of any partnership, limited liability, statutory business trust, or similar
agreement of such Person from any Constituent Member (other than (x) any Constituent Member
of another Constituent Member that is publicly traded, and (y) in the case of the DLJ
Guarantor (so long as the DLJ Guarantor remains guarantor of any of the Obligations), any
limited partner of DLJMB HRH Co-Investments, L.P., a DLJMB Party (“Co-Investments LP”)),
less, (iv) the aggregate amount of any accrued but unpaid liabilities or obligations
of such Person under the facilities or agreements described in the preceding clauses
(ii) and (iii), other than (for purposes of this clause (iv)) the
principal amount of Indebtedness under any such facilities, and (B) with respect to DLJ
Guarantor, so long as the DLJ Guarantor remains a guarantor of any of the Obligations, as of
a given date, the sum of all of the foregoing with respect to the DLJ Guarantor and, without
duplication, each of the DLJMB Parties. In addition, and notwithstanding anything herein to
the contrary, the Available Capital of Co-Investments LP for purposes of determining its
Effective Liquidity shall equal, as of a given date, either (1) Co-Investments LP’s
Available Capital, or (2), if greater, and subject to the following proviso, an aggregate
amount not exceeding one hundred fifty (150%) percent of the aggregate Available Capital of
the other DLJMB Parties, provided that Lender is given, from time to time, such
information as it may reasonably request (including an opinion of counsel to Co-Investments
LP in respect of the following clause (y)) to confirm that the limited partners of
Co-Investments LP (x) are financially capable of funding such amount, and (y) are and remain
obligated to make capital contributions to Co-Investments LP in such aggregate amounts in
order to cause the DLJ Guarantor or DLJMB Parties to pay and perform any obligations
guaranteed with respect to the Loan.




          “Net Worth” shall mean, (A) with respect to the Morgans Guarantor only, so long as
Morgans Guarantor remains a guarantor of the Obligations, as of a given date, an amount
equal to the aggregate fair market value of Morgans Guarantor’s assets and properties (i)
as reasonably determined by Lender in good faith applying such customary and reasonable
market factors as Lender shall then apply to similar assets and properties, or (ii) at the
election of Morgans Guarantor, as determined by appraisals prepared by an independent MAI
real estate “state certified general appraiser” (as defined under regulations or guidelines
issued pursuant the Financial Institutions Reform Recovery Enforcement Act of 1989, 12
U.S.C. 1811 et. seq., as amended) selected by the Morgans Guarantor and approved by Lender
(which approval shall not be unreasonably withheld,



 









 







delayed, or conditioned) at Morgans Guarantor’s sole cost and expense and not more than
ninety (90) days prior to such date, minus the amount of all Indebtedness of Morgans
Guarantor and its consolidated subsidiaries as of such date, but in no event shall such
amount be less than zero, and (B) with respect to any other Person as of a given date, (i)
such Person’s total assets as of such date, less (ii) such Person’s total
liabilities as of such date, in each case, as they would be reflected in a balance sheet
prepared in accordance with GAAP, provided that, so long as DLJ Guarantor remains a
guarantor of any of the Obligations, the Net Worth of the DLJ Guarantor shall equal, as of a
given date, the sum of the Net Worth (determined as provided in the preceding clause
(B)) of the DLJ Guarantor and, without duplication, each of the DLJMB Parties, including
for purposes of this computation, and subject to the following proviso, the Net Worth of any
limited partner of Co-Investments LP that shall have entered into an equity commitment
letter satisfactory to Lender, for the express benefit of Lender, pursuant to which such
limited partner of Co-Investments LP agrees to, and recognizes the rights of Lender in place
and instead of the general partner or manager of Co-Investments LP to require such limited
partner of Co-Investments LP to, make contributions to Co-Investments LP directly to Lender,
in an aggregate amount not exceeding one hundred fifty (150%) percent of the aggregate Net
Worth of the DLJMB Parties other than Co-Investments LP, provided further,
that Lender is given, from time to time, such information as it may reasonably request
(including an opinion of counsel to Co-Investments LP in respect of the following clause
(y)) to confirm (x) the Net Worth of the limited partners of Co-Investments LP, and (y)
that such limited partners of Co-Investments LP are and remain obligated to make capital
contributions to Co-Investments LP in such aggregate amounts in order to cause the DLJ
Guarantor or DLJMB Parties to pay and perform any obligations guaranteed with respect to the
Loan.




 









 








SCHEDULE VI




ORGANIZATIONAL STRUCTURE




 









 








SCHEDULE VII




IP





 









 








SCHEDULE VIII




LITIGATION





 









 








SCHEDULE IX




OPERATING PERMITS





 









 








SCHEDULE X




RENT ROLL





 









 








SCHEDULE XI




LIST OF MORTGAGE LOAN DOCUMENTS





	1.	 	Amended and Restated Loan Agreement, dated as of November 6, 2007, among Mortgage Borrowers
and Mortgage Lender.
	 
	2.	 	Replacement Reduced Acquisition Loan Promissory Note, dated November 6, 2007, in the
principal amount of Four Hundred Ten Million and No/100 Dollars ($410,000,000), made by
Mortgage Borrowers in favor of Mortgage Lender.
	 
	3.	 	Replacement Construction Loan Promissory Note, dated November 6, 2007, in the principal
amount of Six Hundred Twenty Million and No/100 Dollars ($620,000,000), made by Mortgage
Borrowers in favor of Mortgage Lender.
	 
	4.	 	Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing
Statement (Fixture Filing), dated as of February 2, 2007, from Mortgage Borrowers to First
American Title Insurance Company, as Trustee for the benefit of Mortgage Lender.
	 
	5.	 	Modification of Construction Deed of Trust, Assignment of Leases and Rents, Security
Agreement and Financing Statement (Fixture Filing) and Other Loan Documents, dated as of
November 6, 2007, by and among Mortgage Borrowers and Mortgage Lender.
	 
	6.	 	Amended and Restated Cash Management Agreement, dated as of November 6, 2007, by and among
Mortgage Borrowers, Mortgage Lender and Manager.
	 
	7.	 	Environmental Indemnity Agreement, dated as of February 2, 2007, by Mortgage Borrowers in
favor of Mortgage Lender.
	 
	8.	 	Guaranty Agreement, dated as of February 2, 2007, by Guarantors in favor of Mortgage Lender.
	 
	9.	 	Guaranty Agreement (Non-Qualified Mandatory Prepayment), dated as of February 2, 2007, by
Guarantors in favor of Mortgage Lender.
	 
	10.	 	Closing Guaranty of Completion, dated as of February 2, 2007, by Guarantors in favor of
Mortgage Lender.
	 
	11.	 	Modification and Ratification of Guaranties, dated as of November 6, 2007, by and among
Guarantors and Mortgage Lender.
	 
	12.	 	HRHI Guaranty Agreement, dated as of February 2, 2007, by HRHI in favor of Mortgage Lender.
	 
	13.	 	Modification of HRHI Loan Documents and Ratification of HRHI Guaranty, dated as of November
6, 2007, by and between HRHI and Mortgage Lender.




 









 






	14.	 	HRHI Security Agreement, dated as of February 2, 2007, by HRHI in favor of Mortgage Lender.
	 
	15.	 	Intellectual Property Security Agreement, dated as of February 2, 2007, by IP Borrower and
HRHI in favor of Mortgage Lender.
	 
	16.	 	HRHI Gaming Agreement, dated as of February 2, 2007, executed by Mortgage Lender,
Hotel/Casino Borrower and HRHI in connection with the Gaming Sublease and the gaming
operations at the Hotel/Casino Property.
	 
	17.	 	Recognition Agreement, dated as of February 2, 2007, executed by Mortgage Lender,
Hotel/Casino Borrower, HRHI and Golden HRC, LLC in connection with the Gaming Sublease.
	 
	18.	 	Agreement, dated as of October 31, 2007, by and among Navegante HR, LLC, Morgans Parent,
HRHI, Mortgage Lender and Navegante Gaming, LLC.
	 
	19.	 	Operations and Maintenance Agreement, dated as of February 2, 2007, by and among each of
Hotel/Casino Borrower and Mortgage Lender and Adjacent Borrower and Mortgage Lender.
	 
	20.	 	Collateral Assignment and Acknowledgment (Morton Indemnification), dated as of February 2,
2007, made by PM Realty, LLC, Red, White and Blue Pictures, Inc., Peter A. Morton, 510
Development Corporation, Morgans Hotel Group Co., Morgans Group LLC and Chicago Title Agency
of Nevada, Inc. in favor of Mortgage Lender.
	 
	21.	 	Assignment of Contracts, Operating Permits and Construction Permits, dated as of February 2,
2007, from Mortgage Borrowers to Mortgage Lender.
	 
	22.	 	Assignment of Leases and Rents, dated as of February 2, 2007, from Hotel/Casino Borrower,
Café Borrower, Adjacent Borrower and Gaming Borrower, as assignors, to Mortgage Lender, as
assignee.
	 
	23.	 	Assignment of Management Agreement and Subordination of Management Fees (All Properties),
dated as of February 2, 2007, by Café Borrower, Hotel/Casino Borrower and Adjacent Borrower to
Mortgage Lender, and consented and agreed to by the Affiliated Manager of such Properties.
	 
	24.	 	Assignment of Management Agreement (Adjacent Property), dated as of February 2, 2007, by
Adjacent Borrower to Mortgage Lender, and consented and agreed to by Sub-Manager.
	 
	25.	 	Assignment of Liquor Management and Employee Services Agreement and Subordination of
Management Fees, dated as of February 2, 2007, by Hotel/Casino Borrower to Mortgage Lender,
and consented and agreed to by HRHI, in its capacity as the Liquor Manager.
	 
	26.	 	Assignment of Restaurant Management Agreement, dated as of February 2, 2007, by Hotel/Casino
Borrower to Mortgage Lender.




 









 






	27.	 	Collateral Assignment of Interest Rate Cap Agreement (Acquisition Mortgage Loan), dated as of
November 6, 2007, by Mortgage Borrowers in favor of Mortgage Lender, together with:






	 	(a)	 	Acknowledgement of Pledge of Interest Rate Cap Agreement by Counterparty.
	 
	 	(b)	 	Interest Rate Cap Confirmation and ISDA Master Agreement.






	28.	 	Collateral Assignment of Interest Rate Cap Agreement (Construction Mortgage Loan), dated as
of November 6, 2007, by Mortgage Borrowers in favor of Mortgage Lender, together with:






	 	(a)	 	Acknowledgement of Pledge of Interest Rate Cap Agreement by Counterparty.
	 
	 	(b)	 	Interest Rate Cap Confirmation and ISDA Master Agreement.






	29.	 	Commitment Letter of the DLJMB Parties, dated as of February 2, 2007, addressed to the DLJ
Guarantor, as modified by that certain Modification and Ratification of DLJMB Commitment
Letter and Consent, dated as of November 6, 2007, by the DLJMB Parties in favor of Mortgage
Lender, First Mezzanine Lender, Lender and Third Mezzanine Lender.






 









 








SCHEDULE XII




LIST OF FIRST MEZZANINE LOAN DOCUMENTS





	1.	 	First Mezzanine Loan Agreement, dated as of November 6, 2007, among First Mezzanine Borrowers
and First Mezzanine Lender.
	 
	2.	 	First Mezzanine Promissory Note, dated November 6, 2007, in the principal amount of Two
Hundred Million and No/100 Dollars ($200,000,000), made by First Mezzanine Borrowers in favor
of First Mezzanine Lender.
	 
	3.	 	First Mezzanine Pledge and Security Agreement, dated as of November 6, 2007, by First
Mezzanine Borrowers, as pledgors, in favor of First Mezzanine Lender, together with:






	 	(a)	 	Assignment of Membership Interest in: (i) HRHH Cafe, LLC, (ii) HRHH Development,
LLC, (iii) HRHH Hotel/Casino, LLC, (iv) HRHH IP, LLC, (v) HRHH Gaming, LLC, and (vi) HRHH
Gaming Member, LLC.
	 
	 	(b)	 	Acknowledgment and Consent of Pledge by: (i) HRHH Cafe, LLC, (ii) HRHH Development,
LLC, (iii) HRHH Hotel/Casino, LLC, (iv) HRHH IP, LLC, (v) HRHH Gaming, LLC, and (vi) HRHH
Gaming Member, LLC.
	 
	 	(c)	 	Instruction to Register Pledge from the applicable First Mezzanine Borrower to: (i)
HRHH Cafe, LLC, (ii) HRHH Development, LLC, (iii) HRHH Hotel/Casino, LLC, (iv) HRHH IP,
LLC, (v) HRHH Gaming, LLC, and (vi) HRHH Gaming Member, LLC.
	 
	 	(d)	 	Confirmation Statement and Instruction Agreement from: (i) HRHH Cafe, LLC, (ii)
HRHH Development, LLC, (iii) HRHH Hotel/Casino, LLC, (iv) HRHH IP, LLC, (v) HRHH Gaming,
LLC, and (vi) HRHH Gaming Member, LLC.
	 
	 	(e)	 	Original Membership Certificate in each Mortgage Borrower with Transfer Endorsed in
Blank: (i) HRHH Cafe, LLC, (ii) HRHH Development, LLC, (iii) HRHH Hotel/Casino, LLC, (iv)
HRHH IP, LLC, (v) HRHH Gaming, LLC, and (vi) HRHH Gaming Member, LLC.






	4.	 	Cash Management Agreement (First Mezzanine Loan), dated as of November 6, 2007, by and among
First Mezzanine Borrowers, Mortgage Borrowers and First Mezzanine Lender.
	 
	5.	 	First Mezzanine Environmental Indemnity Agreement, dated as of November 6, 2007, by First
Mezzanine Borrowers in favor of First Mezzanine Lender.
	 
	6.	 	First Mezzanine Guaranty Agreement, dated as of November 6, 2007, by Guarantors in favor of
First Mezzanine Lender.
	 
	7.	 	First Mezzanine Guaranty Agreement (Non-Qualified Mandatory Prepayment), dated as of November
6, 2007, by Guarantors in favor of First Mezzanine Lender.




 









 






	8.	 	First Mezzanine Closing Guaranty of Completion, dated as of November 6, 2007, by Guarantors
in favor of First Mezzanine Lender.
	 
	9.	 	First Mezzanine HRHI Guaranty Agreement, dated as of November 6, 2007, by HRHI in favor of
First Mezzanine Lender.
	 
	10.	 	First Mezzanine HRHI Security Agreement, dated as of November 6, 2007, by HRHI in favor of
First Mezzanine Lender.
	 
	11.	 	First Mezzanine Intellectual Property Security Agreement, dated as of November 6, 2007, by
HRHI in favor of First Mezzanine Lender.
	 
	12.	 	First Mezzanine Assignment of Management Agreement and Subordination of Management Fees (All
Properties), dated as of November 6, 2007, by First Mezzanine Borrowers, as assignors, Café
Borrower, Hotel/Casino Borrower and Adjacent Borrower, to First Mezzanine Lender, and
consented and agreed to by the Affiliated Manager of such Properties.
	 
	13.	 	First Mezzanine Assignment of Liquor Management and Employee Services Agreement and
Subordination of Management Fees, dated as of November 6, 2007, by First Mezzanine Borrowers,
as assignors, and Hotel/Casino Borrower, to First Mezzanine Lender, and consented and agreed
to by HRHI, in its capacity as the Liquor Manager.
	 
	14.	 	Collateral Assignment of Interest Rate Cap Agreement (First Mezzanine Loan), dated as of
November 6, 2007, by First Mezzanine Borrowers in favor of First Mezzanine Lender, together
with:






	 	(a)	 	Acknowledgement of Pledge of Interest Rate Cap Agreement by Counterparty.
	 
	 	(b)	 	Interest Rate Cap Confirmation and ISDA Master Agreement.






	15.	 	Commitment Letter of the DLJMB Parties, dated as of February 2, 2007, addressed to the DLJ
Guarantor, as modified by that certain Modification and Ratification of DLJMB Commitment
Letter and Consent, dated as of November 6, 2007, by the DLJMB Parties in favor of Mortgage
Lender, Lender, Second Mezzanine Lender and Third Mezzanine Lender.






 









 








EXHIBIT A




FORM OF SECOND MEZZANINE 

CONSTRUCTION COMPLETION GUARANTY