Document:

<PAGE>
                                                                    Exhibit 4.12

                             CONSTELLATION 3D, INC.
                          805 Third Avenue, 14th Floor
                            New York, New York 10022

                                                 November 15, 2001

The Gleneagles Fund Company II
c/o The Palladin Group, L.P.
195 Maplewood Avenue
Maplewood, New Jersey 07040
Attention: Mr. Maurice Hryshko

                  Re:  Termination of Amended and Restated Purchase Agreement
                       ------------------------------------------------------
Dear Gentlemen:

     Please be advised that, with your consent and except as expressly set forth
herein, Constellation 3D, Inc. (the "Company") hereby irrevocably terminates the
Amended and Restated Common Stock Purchase Agreement dated as of August 16, 2001
by and between The Gleneagles Fund Company II ("Gleneagles") and the Company
(the "Purchase Agreement"). Capitalized terms used but not otherwise defined
herein shall have the respective meanings given to them in the Purchase
Agreement. This termination will take effect immediately upon Gleneagles'
written acceptance of this letter agreement as indicated by its signature below.
In connection with such termination of the Purchase Agreement, the Company
hereby agrees with Gleneagles as follows:

     1. Warrants.
        --------

        (a) Common Stock Purchase Warrant. Gleneagles shall retain the warrant
to purchase 52,000 shares of the Company's common stock dated as of August 16,
2001 (the "Warrant") that was issued to Gleneagles by the Company pursuant to
Section 2(a)(ii) of the Purchase Agreement. The Warrant shall continue to be
exercisable by Gleneagles from time to time in accordance with its terms.

        (b) Adjustment Warrant. Gleneagles shall retain the Common Stock
Adjustment Warrant dated as of August 16, 2001 (the "Adjustment Warrant") that
was issued to Gleneagles by the Company pursuant to Section 2(a)(ii) of the
Purchase Agreement, which shall be amended and restated as of the

<PAGE>

date hereof in the form and substance of Exhibit A hereto as a condition
precedent to Gleneagles entering into this letter agreement. The Adjustment
Warrant shall continue to be exercisable by Gleneagles in accordance with its
terms.

     2. Initial Shares. Gleneagles shall retain the Initial Shares purchased by
        ---------------
it from the Company pursuant to Section 2(a)(iii) of the Purchase Agreement.

     3. Survival.
        --------

        (a) Expenses. The Company's reimbursement obligations under Section
10(b) of the Purchase Agreement shall remain in full force and effect following
the execution of this letter agreement and the termination of the Purchase
Agreement.

        (b) Indemnification. The Company's indemnification obligations under
Section 9(a) of the Purchase Agreement shall remain in full force and effect
following the execution of this letter agreement and the termination of the
Purchase Agreement.

        (c) Registration Statement; Listing. The Company's registration and
listing obligations under Sections 5(g) and (h) of the Purchase Agreement shall
remain in full force and effect following the execution of this letter agreement
and the termination of the Purchase Agreement.

        (d) Representations and Warranties. The Company's representations and
warranties made in the Purchase Agreement shall survive the termination of the
Purchase Agreement.

        (e) Miscellaneous. The rights, remedies and protections of the parties
under Sections 10(n), (o) and (q) of the Purchase Agreement shall remain in full
force and effect following the execution of this letter agreement and the
termination of the Purchase Agreement.

     4. Registration Rights Agreement. The Amended and Restated Registration
        -----------------------------
Rights Agreement dated as of August 16, 2001 by and between Gleneagles and the
Company (the "Registration Rights Agreement") shall remain in full force and
effect following the execution of this letter agreement and the termination of
the Purchase Agreement, except that the Company's obligations thereunder to
register for resale shares of Common Stock issuable by the Company under the
Purchase Agreement pursuant to Drawdown Notices shall be terminated. For the
avoidance of doubt, the Company shall still be required to register for resale
by Gleneagles in accordance with the Registration Rights Agreement the Initial
Shares and the shares of Common Stock for which the Warrant and the Adjustment
Warrant are exercisable. Furthermore, no Registration Statement filed by the
Company with respect to Registered Securities (as such terms are defined in the
Registration Rights Agreement) shall name Gleneagles as an underwriter of such
securities.

                                       2

<PAGE>

     5. Obligations; Rights and Remedies. Except as expressly set forth in this
        --------------------------------
letter agreement, the obligations of the Company and the rights, protections and
remedies of Gleneagles under the Warrant, the Adjustment Warrant (as amended and
restated) and the Registration Rights Agreement shall not be affected or
otherwise diminished in any way as a result of this letter agreement or the
termination of the Purchase Agreement.

     6. Governing Law; Jurisdiction; Waiver of Jury Trial. THIS LETTER AGREEMENT
        -------------------------------------------------
SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. EACH OF THE
COMPANY AND GLENEAGLES HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION
OF THE STATE AND FEDERAL COURTS SITTING IN THE STATE OF NEW YORK, CITY OF NEW
YORK, BOROUGH OF MANHATTAN FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH. EACH OF THE COMPANY AND GLENEAGLES HEREBY IRREVOCABLY
WAIVES ANY RIGHT TO TRIAL BY JURY.

     7. Counterparts; Facsimile Signatures. This letter agreement may be
        ----------------------------------
executed in two or more counterparts, each of which shall be deemed and original
but all of which shall constitute one and the same agreement. This letter
agreement, once executed by a party, may be delivered to the other party hereto
by facsimile transmission of a copy of hereof bearing the signature of the party
so delivering this letter agreement.

     8. Merger; Amendments. This letter agreement supercedes all other prior
        ------------------
oral or written agreements between the Company and Gleneagles, and contains the
entire understanding of the parties, with respect to the matters discussed
herein. No provision of this letter agreement may be amended other than pursuant
to a writing signed by the Company and Gleneagles, and no provision hereof may
be waived other than pursuant to a writing signed by the party against whom
enforcement is sought.

     9. Form 8-K. The Company covenants to Gleneagles that it shall file a Form
        --------
8-K with the Securities and Exchange Commission in form and substance reasonably
satisfactory to Gleneagles describing the terms of this letter agreement in
sufficient detail by no later than 11:59 p.m. New York City time on the second
business day following the date hereof.

                                   Sincerely,

                                   CONSTELLATION 3D, INC.

                                   By: /s/ Michael Goldberg
                                       --------------------
                                       Name: Michael Goldberg
                                       Title: Director of Legal Affairs

                                       3

<PAGE>

AGREED AND ACCEPTED:

THE GLENEAGLES FUND COMPANY II

By: /s/ Maurice Hryshko
    -------------------
        Name:  Maurice Hryshko
        Title: Counsel, The Palladin Group, L.P.
               Attorney-in-Fact

                                       4<PAGE>

                                                                    Exhibit 10.1

                                              Expiration Date: November 20, 2006

$115,000,000

                                    TERM NOTE

     FOR VALUE RECEIVED, BRE/HV HOLDINGS L.L.C. ("Holdco"), a Delaware limited
liability company, hereby promises to pay to the order of SECURITY CAPITAL
LODGING INCORPORATED (the "Lender"), a Delaware corporation, at 639 Isbell Road,
Suite 390, Reno, Nevada 89509 on November 20, 2006 (the "Expiration Date"),
pursuant to the Amended and Restated Agreement and Plan of Mergers dated as of
November 20, 2001 by and between, among others, Lender and BRE/Homestead Village
L.L.C., a Delaware limited liability company and wholly-owned subsidiary of
Holdco, One Hundred Fifteen Million Dollars ($115,000,000) (the "Loan").

     1.  DEFINITIONS.
         -----------

     As used in this Note, the following terms have the following meanings (such
meanings to be applicable to the singular and plural forms of such terms):

     "Affiliate" of any specified Person means any other Person which, directly
or indirectly, controls, is under common control with, or is controlled by such
specified Person.

     "Available Cash" means, for Holdco and its Subsidiaries on a consolidated
basis, for each Computation Period, EBITDA, without deduction for fees described
in Section 6(l), with the following adjustments:
   ------------

     (i)    less, capital lease payments by Holdco and its Subsidiaries;
            ----

     (ii)   less, required interest and principal payments on all Permitted
            ----
Indebtedness of Holdco and its Subsidiaries (other than on this Note);

     (iii)  less, a reserve for capital expenditures in an amount to be
            ----
determined by Holdco, but in any event not less than 3% nor more than 5% of
revenues generated during such Computation Period, provided, HVI (2) L.L.C. may
maintain a larger reserve to the extent required pursuant to the terms of the
HVI Lease;

     (iv)   less, expenditures for capital repairs and replacements by Holdco
            ----
and its Subsidiaries, in excess of any working capital reserves maintained,
reasonably required to be immediately made in order to maintain current use and
operation (as opposed to future replacements and upgrades), with allowances for
reasonable wear and tear;

     (v)    less, additions to working capital reserves necessary to maintain a
            ----
working capital reserve balance for Holdco and its Subsidiaries in the
aggregate not to exceed $5,000,000;

<PAGE>

     (vi)   less, any portion of such EBITDA applicable to interest income from
            ----
the $25,000,000 promissory note of Blackstone Hospitality Acquisition III L.L.C.
payable to HVI (2) L.L.C. and any refinancings thereof (such Note or
refinancing, the "HVI Note"), which refinancings are in an amount not in excess
of $25,000,000; and

     (vii)  less, any portion of EBITDA applicable to minority interests in
            ----
Subsidiaries not owned by Holdco.

     "Business Day" means any day of the year other than (i) any Saturday or
Sunday or (ii) any other day on which banks located in New York generally are
closed for business.

     "Cash Equivalent Investment" means, at any time, (a) any evidence of
Indebtedness, maturing not more than one year after such time, issued or
guaranteed by the United States Government or any agency thereof, (b) commercial
paper, maturing not more than one year from the date of issue, or corporate
demand notes, in each case rated at least A-1 by Standard & Poor's Ratings Group
or P-1 by Moody's Investors Service, Inc., (c) any certificate of deposit (or
time deposits represented by such certificates of deposit) or banker's
acceptance, maturing not more than one year after such time, or overnight
Federal Funds transactions that are issued or sold by a commercial banking
institution that is a member of the Federal Reserve System and has a combined
capital and surplus and undivided profits of not less than $500,000,000 and (d)
any repurchase agreement entered into with any commercial banking institution of
the stature referred to in clause(c) which (i) is secured by a fully perfected
                           ---------
security interest in any obligation of the type described in any of clauses (a)
                                                                    -----------
through (c) and (ii) has a market value at the time such repurchase agreement is
        ---
entered into of not less than 100% of the repurchase obligation of such
commercial banking institution thereunder.

     "Change of Control" means transfer or issuance of a beneficial or record
equity interest in Holdco, which results in (i) Blackstone Real Estate Partners
III L.P., Blackstone Real Estate Holdings III L.P., Blackstone Real Estate
Partners III, TE, 1 L.P., Blackstone Real Estate Partners III, TE 2 L.P. and
Blackstone Real Estate Partners III, TE 3 L.P or (ii) any Affiliate of a Person
described in clause (i), collectively owning directly or indirectly less than
51% of the beneficial or record equity interest in Holdco.

     "Code" means the Internal Revenue Code of 1986, as amended.

     "Computation Period" means the three month period ending on the last day of
each March, June, September and December; provided that the first Computation
Period under this Note shall commence on the date hereof and end December 31,
2001.

     "Consolidated Net Income" means, with respect to Holdco and its
Subsidiaries on a consolidated basis or for any other Person for any period, the
net income (or loss) of Holdco and its Subsidiaries or such Person for such
period, calculated in accordance with GAAP.

     "Controlled Group" means all members of a controlled group of corporations
and all members of a controlled group of trades or businesses (whether or not
incorporated) under common control which, together with Holdco, are treated as a
single employer under Section 414 of the Code or Section 4001 of ERISA.

                                       2

<PAGE>

     "Default" means an event, which with the passage of time, notice or both
would constitute an Event of Default.

     "Distributable Cash" means Available Cash less payments of interest and
principal made hereunder and under the PIK Notes.

     "Dollars" means lawful money of the United States of America.

     "EBITDA" means with respect to the relevant Computation Period, the
Consolidated Net Income of Holdco and its Subsidiaries with the following
adjustments (to the extent deducted or added, as applicable, in computing
Consolidated Net Income): (i) plus interest expense, income taxes, depreciation
                              ----
and amortization; (ii) less capital gains; and (iii) plus capital losses.
                       ----                          ---

     "Eligible Assignee" means (i) Security Capital Group Incorporated, a
Maryland corporation or any direct or indirect Wholly-Owned Subsidiary thereof
or (ii) an "accredited investor" as defined in Rule 501 of Regulation D of the
Securities Act of 1933, as amended, domiciled in the United States approved by
Holdco, which approval shall not be unreasonably withheld or delayed; provided
                                                                      --------
that any Eligible Assignee must be a "U.S. Person" as defined in Section
7701(o)(30) of the Code.

     "Environmental Laws" means any statute, ordinance, rule, regulation,
policy, permit, consent, approval, license, judgment, order, decree, injunction
or other authorization of any Governmental Authority (other than building codes
and workplace violations) relating to: (1) pollution or protection of human
health or safety, health assessments or safety of employees, sanitation, or the
environment (including, without limitation, indoor or ambient air, surface
water, ground water, land surface or subsurface strata); (2) Releases or
threatened Releases of Hazardous Materials into the environment; or (3) the
generation, treatment, storage, disposal, use, handling, manufacturing,
transportation or shipment of Hazardous Material.

     "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

     "Event of Default" is defined in Section 7.
                                      ---------

     "Expiration Date" is defined in the preamble.

     "GAAP" means generally accepted accounting principles set forth from time
to time in the opinions and pronouncements of the Accounting Principles Board
and the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the date of
determination.

     "Governmental Authority" means the government of the United States or any
foreign country or any state or political subdivision thereof and any entity,
body or authority exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, including, without
limitation, the Pension Benefit Guaranty Corporation and other
quasi-governmental entities established to perform such functions.

                                       3

<PAGE>

     "Hazardous Materials" means and include: (i) all substances defined as
"hazardous substances" under Section 101(14) of the Comprehensive Environmental
Response, Compensation, and Liability Act, as amended, 42 U.S.C. ss. 9601(14);
(ii) petroleum, including crude oil or any fraction thereof, natural gas,
natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel (or
mixture of natural gas or such synthetic gas); (ii) asbestos and
asbestos-containing materials; and (iv) any substance, material or waste listed
or defined as hazardous or toxic or as a pollutant or contaminant under any
Environmental Law.

     "Holdco" is defined in the preamble.

     "Holdco Pledge Agreement" is defined in Section 8.
                                             ---------

     "HPT" means HPT HSD Properties Trust, a Maryland real estate investment
trust.

     "HVI Guaranty" means the Guaranty Agreement, dated as of February 23, 1999,
by Homestead Village Incorporated, a Maryland corporation, for the benefit of
HPT and Hospitality Properties Trust, a Maryland real estate investment trust,
as the same may be amended, supplemented or otherwise modified from time to
time; provided such modifications do not increase the amount guarantied
      --------
thereunder.

     "HVI Lease" means that certain Lease Agreement, dated as of February 23,
1999, by and between HPT and HVI (2) Incorporated, a Delaware corporation, as
the same may be amended, supplemented or otherwise modified from time to time;
provided such modifications do not increase the amount payable thereunder.
--------

     "HVI Note" is defined in the definition of "Available Cash."

     "Indebtedness" of any Person means (i) indebtedness for borrowed money,
whether secured or unsecured, (ii) obligations under conditional sale or other
title retention agreements relating to property purchased by such Person, (iii)
obligations to pay the deferred purchase price of businesses, assets, stock, or
other property or services (excluding current accounts payable in the ordinary
course of business), (iv) capitalized lease obligations, (v) Suretyship
Liabilities with respect to any such indebtedness of any other Person and (vi)
any such indebtedness secured by a Lien on any assets of such Person, even
though such Person has not assumed or become liable for the payment of such
indebtedness.

     "Investment" means, relative to any Person, any investment in another
Person, whether by acquisition of any debt or equity security, by making any
loan or advance or by becoming obligated with respect to a Suretyship Liability
in respect of obligations of such other Person (other than travel and similar
advances to employees in the ordinary course of business).

     "Lender" is defined in the preamble.

     "Lien" means any mortgage, lien, charge, pledge or security interest
(including, without limitation, any conditional sale or other title retention
agreement or lease in the nature thereof).

     "Material Adverse Effect" means a material adverse effect on the business,
properties, assets, results of operations, cash flows or financial condition of
Holdco and its Subsidiaries,

                                       4

<PAGE>

taken as a whole; provided that for the purpose of determining whether a
Material Advance Effect is reasonably likely to occur arising from any event
described in Section 5 or Section 6, the effect of all such events, which have
occurred and are continuing, shall be calculated and added together.

     "Maximum Legal Rate" shall mean the maximum nonusurious interest rate, if
any, that at any time or from time to time be contracted for, taken, reserved,
charged or received on the indebtedness evidenced hereby and as provided for
herein 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" is defined in Section 5(d).
                                      ------------

     "Multiemployer Pension Plan" means a multiemployer plan, as defined in
Section 4001(a)(3) of ERISA, to which Holdco or any member of the Controlled
Group may have any liability.

     "Net Capital Proceeds" means the cash received by Holdco and its
Subsidiaries as a result of any sale of property or assets of Holdco or its
Subsidiaries (including any stock, partnership or membership interests in any
Subsidiary), in each case, less any such cash which is applied to (i) the
                           ----
payment of transaction costs, (ii) the repayment of Indebtedness of Holdco or
its Subsidiaries which is required under the terms of such Indebtedness, (iii)
the establishment of reserves for liabilities arising from such sale, and (iv)
payments to holders of minority interests in Subsidiaries not owned by Holdco.
Notwithstanding the foregoing, Net Capital Proceeds shall (1) include the first
$10,000,000 in funds released to Holdco or its Subsidiaries from the Debt
Service Reserve Fund (as defined in the Senior Debt Agreement) and (2) exclude
funds released to Holdco or its Subsidiaries from the Debt Service Reserve Fund
in excess of $10,000,000.

     "Nonrecourse Debt" means Indebtedness of a Subsidiary created after the
date hereof, which is nonrecourse to such Subsidiary, Holdco or any other
Subsidiary of Holdco, which is secured by assets acquired after the date hereof
by such Subsidiary (and not previously held by Holdco or any other Subsidiary of
Holdco) and which assets are income producing properties which at the time of
acquisition are expected by such Subsidiary in good faith based on historical
performance to generate sufficient income to service such nonrecourse debt.

     "Nonrecourse Parties" is defined in Section 9(f).
                                         ------------

     "PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.

     "Pension Plan" means a "pension plan", as such term is defined in Section
3(2) of ERISA, which is subject to Title IV of ERISA (other than a Multiemployer
Pension Plan), and to which Holdco or any member of its Controlled Group may
reasonably be expected to have liability.

     "Permitted Indebtedness" is defined in Section 6(f).
                                            ------------

     "Person" means any natural person, corporation, partnership, trust, limited
liability company, association, governmental authority or unit, or any other
entity, whether acting in an individual, fiduciary or other capacity.

     "PIK Note" is defined in Section 2(a).
                              ------------

     "Pledge Agreement" is defined in Section 8.
                                      ---------

                                       5

<PAGE>

     "Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing.

     "Senior Debt Agreement" means that certain Loan Agreement dated the date of
this Note between BRE/HV Properties L.L.C., as borrower and Bear Stearns
Funding, Inc., as lender, together with all other documents and instruments
evidencing, securing or relating to the loans made thereunder, as the same may
be amended, supplemented or otherwise modified from time to time, provided such
modifications do not increase the principal amount of the loans outstanding
thereunder or amend the amount of, or definition of, "Debt Service Reserve
Fund."

     "Significant Subsidiary" means, as of the date of determination, any
Subsidiary, together with its Subsidiaries, that for the most recent fiscal year
of Holdco, accounted for more than 10% of (a) the Consolidated Net Income or (b)
the assets of Holdco and its Subsidiaries.

     "Subsidiary" of any Person means any corporation, partnership, limited
liability company, joint venture, trust or other legal entity of which such
Person owns (either directly or through or together with another Subsidiary of
such Person) either (i) a general partner, managing member or other similar
interest, or (ii)(A) the majority of the shares of securities or other interests
having ordinary voting power, or (B) the majority of economic interests of such
corporation, partnership, limited liability company, joint venture or other
legal entity. Unless the context otherwise requires, Subsidiary means a
Subsidiary of Holdco.

     "Suretyship Liability" means any agreement, undertaking or arrangement by
which any Person guarantees, endorses or otherwise becomes or is contingently
liable upon (by direct or indirect agreement, contingent or otherwise, to
provide funds for payment, to supply funds to or otherwise to invest in a
debtor, or otherwise to assure a creditor against loss) any indebtedness,
obligation or other liability of any Person (other than by endorsements of
instruments in the course of collection), or guarantees the payment of dividends
or other distributions upon the shares of any other Person. The amount of any
Person's obligation in respect of any Suretyship Liability shall (subject to any
limitation set forth therein) be deemed to be the principal amount of the debt,
obligation or other liability supported thereby.

     "Taxes" is defined in Section 4.
                           ---------

     "Wholly-Owned Subsidiary" means, as to any Person, another Person all of
the shares of capital stock or other equity interests of which (except
directors' qualifying shares) are at the time directly or indirectly owned by
such Person and/or another Wholly-Owned Subsidiary of such Person.

     Unless the context otherwise clearly requires, all accounting terms not
expressly defined herein shall be construed, and all financial computations
required under this Note shall be made, in accordance with GAAP, consistently
applied.

     2.  INTEREST.
         --------

         (a)  Interest Prior to Default. The unpaid principal of the Loan shall
              -------------------------
              bear interest prior to maturity at a rate equal to 12% per annum,
              increasing by adding 1% (100 basis points) per annum on the first
              anniversary of this

                                       6

<PAGE>

               Note and an additional 1% (100 basis points) per annum on each
               anniversary of this Note thereafter. Interest on the Loan shall
               be payable in cash quarterly on the last day of each March, June,
               September and December; provided, however, that if on any such
                                       --------  -------
               date, the interest due is in excess of Available Cash for the
               Computation Period ending on the date of such payment, Holdco
               shall have the option of paying such deficiency by issuing to
               Lender a note (a "PIK Note") in the principal amount of such
               deficiency and otherwise in the form attached as Schedule 2;
               provided, that, if Holdco shall fail to deliver such PIK Note,
               Holdco shall have the obligation to make payments as if such PIK
               Note had been delivered.

          (b)  Interest After Maturity. Holdco shall pay to the Lender interest
               -----------------------
               on any amount of principal of the Loan which is not paid when
               due, whether at the stated maturity for such Loan or upon
               acceleration, accruing from and including the date such amount
               shall have become due to (but not including) the date of payment
               thereof in full at the rate per annum applicable under clause (a)
               for thirty days (but in cash) and thereafter in cash at a rate
               per annum equal to 2% (200 basis points) per annum in excess of
               the rate otherwise applicable. Interest after maturity shall be
               payable on demand.

          (c)  Method of Calculating Interest. Interest on the Loan shall be
               ------------------------------
               computed on the basis of a year consisting of 360 days and paid
               for actual days elapsed.

          (d)  Usury Savings. This Note is subject to the express condition
               -------------
               that at no time shall Holdco be obligated or required to pay
               interest on the principal balance of the Loan at a rate which
               could subject the 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 Note, Holdco is at any time required or
               obligated to pay interest on the principal balance due hereunder
               at a rate in excess of the Maximum Legal Rate, the interest rate
               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 the Lender for the use,
               forebearance, 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
               the 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.

     3.   PREPAYMENT.
          ----------

     The Loan may be prepaid in full or in part at any time without penalty.

     4.   TAXES.
          -----

     All payments by Holdco of principal of, and interest on, the Loan and all
other amounts payable hereunder shall be made free and clear of and without
deduction for any present or future income, excise, stamp or franchise taxes and
other taxes, fees, duties, withholdings or other charges of any nature
whatsoever imposed by any taxing authority, but excluding franchise taxes and
taxes imposed on or measured by the Lender's net income or receipts (such
non-excluded items being called "Taxes"). If any withholding or deduction from
any payment to be made by Holdco hereunder is required in respect of any Taxes
pursuant to any applicable law, rule or regulation, then Holdco shall:

          (a)  pay directly to the relevant authority the full amount required
               to be so withheld or deducted;

          (b)  promptly forward to the Lender an official receipt or other
               documentation satisfactory to the Lender evidencing such payment
               to such authority; and

          (c)  pay to the Lender such additional amount (the "Additional
               Amounts") as is necessary to ensure that the net amount actually
               received by the Lender

                                       7

<PAGE>

               will equal the full amount the Lender would have received had no
               such withholding or deduction been required.

Moreover, if any Taxes are directly asserted against the Lender or on any
payment received by the Lender hereunder, the Lender may pay such Taxes and
Holdco shall promptly pay such additional amount (including any penalty,
interest or expense) as is necessary in order that the net amount received by
the Lender after the payment of such Taxes (including any Taxes on such
additional amount) shall equal the amount the Lender would have received had no
such Taxes been asserted.

The Lender (or any Eligible Assignee) shall provide to Holdco at the time that
it becomes a party to this Agreement, two copies of Internal Revenue Service
Form W-9, certifying complete exemption from backup withholding. Holdco shall
not be required to pay any taxes or any Additional Amounts attributable to the
failure of the Lender (or any Eligible Assignee) to comply with the requirements
of this paragraph.

     If Holdco fails to pay any Taxes when due to the appropriate taxing
authority or fails to remit to the Lender the required receipts or other
required documentary evidence, Holdco shall indemnify the Lender for any
incremental Tax, interest, penalty or expense that may become payable by the
Lender as a result of any such failure.

     If Holdco determines in good faith that a reasonable basis exists for
contesting any Taxes for which indemnification has been demanded hereunder, the
Lender shall cooperate with Holdco in challenging such Taxes at Holdco's expense
if so requested by Holdco. If the Lender receives a refund of a Tax for which a
payment has been made by Holdco pursuant to this Note, which refund in the good
faith judgment of the Lender is attributable to such payment made by Holdco,
then the Lender shall reimburse Holdco for such amount (together with any
interest received thereon) as the Lender determines to be the proportion of the
refund as will leave it, after such reimbursement, in no better or worse
position than it would have been in if the payment had not been required.

     5.   REPRESENTATIONS.
          ---------------

     Holdco represents and warrants to the Lender as of the date of this Note
that:

          (a)  Organization. Holdco is a limited liability company validly
               ------------
               existing and in good standing under the laws of the State of
               Delaware; each Subsidiary is validly existing and in good
               standing under the laws of the jurisdiction of its organization;
               and each of Holdco and each Subsidiary is duly qualified to do
               business in each jurisdiction where, because of the nature of its
               activities or properties, such qualification is required, except
               for such jurisdictions where the failure to so qualify would not
               have a Material Adverse Effect.

          (b)  Authorization. Holdco is duly authorized to execute and deliver
               -------------
               this Note. Holdco is duly authorized to borrow monies hereunder
               and is duly authorized to perform its obligations under this
               Note. The execution, delivery and performance by Holdco of this
               Note, and the borrowings by

                                       8

<PAGE>

               Holdco hereunder, do not and will not (i) require any consent or
               approval of any Governmental Authority (other than any consent or
               approval which has been obtained and is in full force and
               effect), (ii) conflict with (A) any provision of law, (B) the
               limited liability company agreement or any other organizational
               documents of Holdco or any Subsidiary or (C) any agreement,
               indenture, instrument or other document, or any judgment, order
               or decree, which is binding upon Holdco or any of its properties,
               or, to Holdco's knowledge, any Subsidiary or any of its
               properties or (iii) require, or result in, the creation or
               imposition of any Lien on any asset of Holdco or, to Holdco's
               knowledge, any asset of any Subsidiary.

          (c)  Validity and Binding Nature. This Note is the legal, valid and
               ---------------------------
               binding obligation of Holdco, enforceable against Holdco in
               accordance with its terms, subject to applicable bankruptcy,
               insolvency and similar laws affecting the enforceability of
               creditors' rights generally and general principles of equity.

          (d)  Financial Condition. As of the date hereof, Holdco has no
               -------------------
               Indebtedness except hereunder and has received capital
               contributions in cash from its members of not less than
               $125,000,000. The unaudited proforma financial statements of
               Holdco and its Subsidiaries dated as of the date hereof, copies
               of which have been furnished to the Lender, present fairly the
               financial position of Holdco and its Subsidiaries as of said
               date, giving effect to the Mergers as defined in the Amended and
               Restated Agreement and Plan of Merger (the "Merger Agreement"),
               dated as of November 20, 2001, by and among the Lender,
               BRE/Homestead Village L.L.C., a Delaware limited liability
               company, Homestead Village Incorporated, a Maryland corporation,
               and the Merging Subsidiaries as defined therein.

          (e)  Litigation and Contingent Liabilities. No litigation (including
               -------------------------------------
               derivative actions), arbitration proceeding or governmental
               investigation or proceeding is pending against Holdco. No
               litigation (including derivative actions), arbitration proceeding
               or governmental proceeding is pending, to Holdco's knowledge,
               against any Subsidiary which might reasonably be expected to have
               a Material Adverse Effect. No litigation (including derivative
               actions), arbitration proceeding or governmental investigation or
               proceeding is threatened in writing against Holdco or, to
               Holdco's knowledge, against any Subsidiary, which might
               reasonably be expected to have a Material Adverse Effect.

          (f)  Subsidiaries. As of the Closing Date, Holdco has no Subsidiaries
               ------------
               other than those listed on Schedule 1.
                                          ----------

          (g)  Investment Company Act. Neither Holdco nor any Subsidiary is an
               ----------------------
               "investment company" or a company "controlled" by an "investment
               company," within the meaning of the Investment Company Act of
               1940.

                                       9

<PAGE>

               (h)  Regulation U. Holdco is not engaged principally, or as one
                    ------------
                    of its important activities, in the business of extending
                    credit for the purpose of purchasing or carrying Margin
                    Stock (as defined in Regulation U of the Board of Governors
                    of the Federal Reserve System). Less than 25% of the assets
                    of Holdco (and its Subsidiaries) consists of Margin Stock.

               (i)  Senior Debt Agreement. To the best of Holdco's Knowledge,
                    ---------------------
                    the representations and warranties set forth in the Senior
                    Debt Agreement are true and correct in all material
                    respects. For purposes hereof, "Holdco's Knowledge" shall
                    mean the actual knowledge of Jonathan D. Gray, without any
                    duty of investigation or inquiry.

          6.   COVENANTS. Holdco shall:
               ---------

               (a)  Reports, Certificates and Other Information. Furnish to the
                    -------------------------------------------
                    Lender:

                    (i)    Annual Report. Promptly when available, and in any
                           -------------
               event within 90 days after the close of each fiscal year, a copy
               of the annual audit report of Holdco and its Subsidiaries for
               such fiscal year, including therein consolidated balance sheets
               and statements of earnings and cash flows of Holdco and its
               Subsidiaries as at the end of such fiscal year, certified by
               Deloitte & Touche or other independent auditors of recognized
               standing selected by Holdco and reasonably acceptable to the
               Lender, together with a written statement from such accountants
               to the effect that in making the examination necessary for the
               signing of such annual audit report by such accountants, no Event
               of Default or Default came to their attention.

                    (ii)   Interim Reports. Promptly when available, and in any
                           ---------------
               event within 35 days after the end of each fiscal quarter (except
               the last fiscal quarter of each fiscal year), consolidated
               balance sheets of the Holdco and its Subsidiaries as of the end
               of such fiscal quarter, together with consolidated statements of
               earnings and cash flows for such fiscal quarter and for the
               period beginning with the first day of such fiscal year and
               ending on the last day of such fiscal quarter, together with a
               comparison with the corresponding period of the previous fiscal
               year.

                    (iii)  Compliance Certificates. Contemporaneously with the
                           -----------------------
               furnishing of a copy of each annual audit report pursuant to
               clause (i) and each set of quarterly statements pursuant to
               clause (ii), a duly completed compliance certificate dated the
               date of such annual report or such quarterly statements and
               signed by the chief financial officer, president, treasurer,
               comptroller or any vice president of Holdco, containing a
               statement to the effect that (A) such officer has not become
               aware of any Event of Default or Default that has occurred and is
               continuing or, if there is any such event, describing it and the
               steps, if any, being taken to cure it and (B) certifying as to an
               attached calculation of Available Cash.

                                       10

<PAGE>

               (iv)   Notice of Default and Litigation. Promptly upon becoming
                      --------------------------------
          aware of any of the following, written notice describing the same and
          the steps being taken by Holdco or the Subsidiary affected thereby
          with respect thereto:

               (A)    the occurrence of an Event of Default or of a Default;

               (B)    Any litigation, arbitration or governmental investigation
or proceeding not previously disclosed by Holdco to the Lender which has been
instituted or, to the knowledge of Holdco, is threatened against Holdco or any
Subsidiary or to which any of the properties of any thereof, is subject which
might reasonably be expected to have a Material Adverse Effect;

               (C)    the institution of proceedings by any member of the
Controlled Group or the PBGC to terminate any underfunded Pension Plan, or the
failure of any member of the Controlled Group to make a required contribution to
any Pension Plan (if such failure is sufficient to give rise to a Lien under
Section 302(f) of ERISA) or to any Multiemployer Pension Plan, or the taking of
any action with respect to a Pension Plan which could result in the requirement
that Holdco furnish security to the PBGC or such Pension Plan, or the occurrence
of any event with respect to any Pension Plan or Multiemployer Pension Plan
which might reasonably be expected to result in the incurrence by any member of
the Controlled Group of any material liability (including withdrawal liability
under any Multiemployer Pension Plan), or receipt of notice from a
representative of a Multiemployer Pension Plan that it is in reorganization
within the meaning of Section 4241 of ERISA, that increased contributions will
be required to avoid a reduction in plan benefits or the imposition of an excise
tax, that such plan is funded at a rate less than that required under Section
412 of the Code, that any such plan is terminated, or that any such plan is
insolvent within the meaning of Section 4245 of ERISA; and in each case such
events or conditions described in this Section 6(a)(iv)(C) with respect to any
Pension Plan or Multiemployer Pension Plan might reasonably be expected to have
a Material Adverse Effect;

               (D)    any environmental event or claim, actual or constructive
loss of property of Holdco or any Subsidiary by reason of fire, explosion, theft
or, other casualty shall occur or any taking of title to or the use of all or
any part of the property of Holdco or any Subsidiary by eminent domain or
condemnation proceedings or in settlement thereof shall occur, in any case in
respect of loss reasonably likely to exceed $10,000,000 or

               (E)    copies of any notice given by Holdco or any Subsidiary
under the Senior Debt Agreement.

               (v)    Other Information. Promptly from time to time, such other
                      -----------------
          information concerning Holdco and its Subsidiaries as the Lender may
          reasonably request.

          (b)  Books, Records and Inspections. Keep, and cause each Subsidiary
               ------------------------------
               to keep, its books and records in accordance with sound business
               practices sufficient to allow the preparation of financial
               statements in accordance with GAAP; permit, and cause each
               Subsidiary to permit, the Lender or

                                       11

<PAGE>

               any representative thereof to inspect the properties and
               operations of Holdco or such Subsidiary; provide to Lender copies
               of the portions of the quarterly reports to investors in
               Blackstone Real Estate Partners L.P. relating to Holdco and its
               Subsidiaries; and permit, and cause each Subsidiary to permit, at
               any reasonable time and with reasonable notice (or at any time
               without notice if an Event of Default exists), the Lender or any
               duly authorized representative thereof to visit any or all of its
               offices, to discuss its financial matters with its officers and
               its independent auditors (and Holdco hereby authorizes such
               independent auditors to discuss such financial matters with the
               Lender or any representative thereof). All such inspections or
               audits by the Lender shall be at Lender's expense.

          (c)  Maintenance of Property; Insurance. (i) Keep, and cause each
               ----------------------------------
               Subsidiary to keep, all property useful and necessary in the
               business of Holdco or such Subsidiary in good working order and
               condition, ordinary wear and tear excepted, except where such
               failure to keep could not reasonably be expected to have a
               Material Adverse Effect.

               (ii)   Maintain, and cause each Subsidiary to maintain, with
          responsible insurance companies, such insurance as may be required by
          any law or governmental regulation or court decree or order applicable
          to it and such other insurance, to such extent and against such
          hazards and liabilities, as is customarily maintained by companies
          similarly situated.

          (d)  Compliance with Laws; Payment of Taxes and Liabilities. (i)
               ------------------------------------------------------
               Comply, and cause each Subsidiary to comply, in all material
               respects with all applicable laws, rules, regulations, decrees,
               orders, judgments, licenses and permits, except where failure to
               comply could not reasonably be expected to have a Material
               Adverse Effect; and (ii) pay, and cause each Subsidiary to pay,
               prior to delinquency, all taxes and other governmental charges
               against it or any of its property; provided that the foregoing
                                                  --------
               shall not require Holdco or any Subsidiary to pay any such tax or
               charge so long as it shall contest the validity thereof in good
               faith by appropriate proceedings and shall set aside on its books
               adequate reserves with respect thereto in accordance with GAAP.

          (e)  Maintenance of Existence, etc. Maintain and preserve, and cause
               -----------------------------
               each Subsidiary to maintain and preserve, (i) its existence and
               good standing in the jurisdiction of its organization and (ii)
               its qualification to do business and good standing in each
               jurisdiction where the nature of its business makes such
               qualification necessary (except in those instances in which the
               failure to be qualified or in good standing would not have a
               Material Adverse Effect) provided, that Holdco may dissolve,
                                        --------
               liquidate or otherwise fail to maintain the existence of any
               Subsidiary if the assets of such Subsidiary are transferred by
               operation of law or otherwise to another Subsidiary of Holdco.

                                       12

<PAGE>

          (f)  Limitations on Debt and Equity. Not, and not permit any
               ------------------------------
               Subsidiary to, create, incur, assume or suffer to exist any
               Indebtedness and not issue any equity in any Subsidiary, except
               (collectively the "Permitted Indebtedness"):

               (i)    obligations under this Note;

               (ii)   obligations under the Senior Debt Agreement;

               (iii)  one or more refinancings of Indebtedness under clauses (i)
                      and (ii) from time to time, so long as the principal
                      amount thereof shall not be increased;

               (iv)   Nonrecourse Debt;

               (v)    obligations under the HVI Lease and the HVI Guaranty;

               (vi)   obligations under a working capital facility for Holdco or
                      any of its Subsidiaries not to exceed the principal amount
                      of $10,000,000;

               (vii)  Indebtedness among Holdco and its Subsidiaries which if
                      payable by Holdco is subordinated to the obligations
                      hereunder and under any PIK Note, in form reasonably
                      satisfactory to the Lender; and

               (viii) Indebtedness incurred to acquire personal property in the
                      ordinary course of business of Holdco and its Subsidiaries
                      in an aggregate amount not exceeding $5,000,000 at any
                      time outstanding;

provided that any proceeds of preferred equity issued by Holdco shall be applied
--------
to repay Indebtedness or used in the ordinary course of business of Holdco and
its Subsidiaries or in a manner consistent with the restrictions set forth in
Section 6(q).

          (g)  Partial Prepayment. Not prepay the Loan in part with the proceeds
               ------------------
               of Indebtedness incurred by Holdco or any Subsidiary; provided
               Holdco and its Subsidiaries may prepay the Loan in full with
               proceeds of Indebtedness.

          (h)  Liens. Not, and not permit any Subsidiary to, create or permit to
               -----
               exist any Lien on any of its real or personal properties, assets
               or rights of whatsoever nature (whether now owned or hereafter
               acquired), except:

               (i)    Liens for taxes or other governmental charges not at the
          time delinquent or thereafter payable without penalty or being
          contested in good faith by appropriate proceedings and, in each case,
          for which it maintains adequate reserves;

               (ii)   Liens arising in the ordinary course of business (such as
          (A) Liens of carriers, warehousemen, mechanics and materialmen and
          other similar Liens imposed by law and (B) Liens incurred in
          connection with worker's

                                       13

<PAGE>

          compensation, unemployment compensation and other types of social
          security (excluding Liens arising under ERISA) or in connection with
          surety bonds, bids, performance bonds and similar obligations) for
          sums not overdue or being contested in good faith by appropriate
          proceedings and not involving any deposits or advances or borrowed
          money or the deferred purchase price of property or services and, in
          each case, for which it maintains adequate reserves;

               (iii) Liens arising under ERISA; provided such Liens are
          satisfied or vacated within 30 days;

               (iv)  Liens securing Permitted Indebtedness with respect to which
          Holdco is not an obligor or guarantor;

               (v)   attachments, appeal bonds, judgments and other similar
          Liens arising in connection with court proceedings, provided the
                                                              --------
          execution or other enforcement of such Liens is effectively stayed and
          the claims secured thereby are being actively contested in good faith
          and by appropriate proceedings; and

               (vi)  easements, rights of way, restrictions, minor defects or
          irregularities in title and other similar Liens not interfering in any
          material respect with the ordinary conduct of the business of Holdco
          or any Subsidiary.

          (i)  Restricted Payments. Not, and not permit any Subsidiary to, (i)
               -------------------
               make any distribution to any of its equity holders or (ii)
               purchase or redeem any of its equity interests or any warrants,
               options or other rights in respect thereof. Notwithstanding the
               foregoing, Holdco and any Subsidiary may pay dividends or make
               other distributions out of the sum of (a) the aggregate amount of
               Distributable Cash (for all Computation Periods elapsed through
               the date of payment), (b) common equity contributed in cash to
               Holdco (other than by Persons not members of Holdco on the date
               hereof or Affiliates thereof) in excess of $125,000,000, and (c)
               interest income on the HVI Note so long as, (A) before and after
               giving effect to any of the foregoing, no Event of Default or
               Default exists and (B) all interest hereunder accrued to the date
               of such payment and all interest and principal in the PIK Notes
               shall have been paid in full in cash.

          (j)  Net Capital Proceeds. Cause all Net Capital Proceeds, at Holdco's
               --------------------
               option, either to be applied in payment of interest and principal
               outstanding under this Note and the PIK Notes or deposited in the
               Collection Account (as defined in the Pledge Agreement).

          (k)  Mergers, Consolidations, Acquisitions, Sales. Not, and not permit
               --------------------------------------------
               any Subsidiary to, be a party to any merger or consolidation, or
               purchase or otherwise acquire all or substantially all of the
               assets or any stock of any class of, or any partnership or joint
               venture interest in, any other Person, or, except in the ordinary
               course of its business, sell, transfer, convey or lease all or
               substantially all of its assets; provided, that (a) Subsidiaries
                                                --------  ----

                                       14

<PAGE>

               may make acquisitions of Persons or assets of Persons, so long as
               any such Person is engaged substantially in the same business as
               Holdco and its Subsidiaries or such assets are related to the
               lodging business or any business incidental thereto and, after
               giving effect thereto, no Event of Default or Default exists and
               (b) Holdco and its Subsidiaries shall not be restricted from
               engaging in any such transactions solely among themselves so long
               as no assets or equity directly or indirectly held by
               BRE/Homestead Village L.L.C. shall no longer be held directly or
               indirectly by BRE/Homestead Village L.L.C., after giving effect
               to such transaction and so long as the management of the
               Properties, as defined in the Senior Debt Agreement, shall remain
               with BRE/Homestead Village L.L.C. or a Subsidiary of
               BRE/Homestead Village L.L.C.; and provided further Holdco shall
                                                 -------- -------
               not transfer or permit any Subsidiary to transfer minority
               interests in Subsidiaries.

          (l)  Management Fees. Not pay or permit Subsidiaries to pay management
               ---------------
               fees, corporate allocations, monitoring fees and acquisition fees
               to Affiliates (other than Holdco and its Wholly-Owned
               Subsidiaries), except in aggregate annual amounts not in excess
               of $500,000 and acquisition fees on or about the date hereof in
               an amount not exceeding $8,000,000.

          (m)  Transactions with Affiliates. Not, and not permit any Subsidiary
               ----------------------------
               to, enter into, or cause, suffer or permit to exist any
               transaction, arrangement or contract with any of its other
               Affiliates (other than Holdco and its Wholly-Owned Subsidiaries)
               which is on terms that are less favorable than are generally
               available from a Person which is not one of its Affiliates.

          (n)  Environmental Matters. Comply with, and cause each of its
               ---------------------
               Subsidiaries to comply with, applicable Environmental laws if the
               effect of noncompliance (other than noncompliance for which
               Holdco and its Subsidiaries are indemnified by the Lender
               pursuant to Section 11.2 of the Merger Agreement) could
               reasonably be expected to have an aggregate adverse effect in
               excess of $5,000,000.

          (o)  Investments. Not, and not permit any Subsidiary to, make or
               -----------
               permit to exist any Investment in any other Person (other than
               BRE/Homestead Village L.L.C. and Subsidiaries of BRE/Homestead
               Village L.L.C.), except (without duplication) the following:

               (i)   Cash Equivalent Investments;

               (ii)  bank deposits in the ordinary course of business; and

               (iii) Investments in the lodging business and any business
          incidental thereto.

          (p)  Limitation on Dividend Restrictions Affecting Subsidiaries. Not
               ----------------------------------------------------------
               permit any of its Subsidiaries, directly or indirectly, to create
               or otherwise cause

                                       15

<PAGE>

               or suffer to exist or become effective any consensual encumbrance
               or restriction which by its terms restricts the ability of any
               such Subsidiary to (i) pay dividends or make any other
               distributions on such Subsidiary's equity or (ii) pay any
               Indebtedness owed to Holdco or any Subsidiary, except for such
               encumbrances or restrictions existing under or by reason of (A)
               applicable law, (B) this Note, (C) the Senior Debt Agreement, (D)
               Nonrecourse Debt, which encumbrances and restrictions apply only
               to proceeds of the assets securing such Nonrecourse Debt, (E) the
               HVI Lease and (F) restrictions applicable to the property
               previously owned by K.C. Homestead Village Redevelopment
               Corporation, located in Kansas City, Missouri.

          (q)  Business. Not permit any of its Subsidiaries to, engage (directly
               --------
               or indirectly) in any business other than the lodging business
               and any businesses incidental thereto.

          (r)  Employee Benefit Plans. Maintain and cause each Subsidiary to
               ----------------------
               maintain, each Pension Plan in substantial compliance will all
               applicable of laws and regulations, except where the failure to
               comply would not reasonably be expected to have a Material
               Adverse Effect.

     7.   Events of Default. Upon the occurrence of any of the following events
          -----------------
          (each an "Event of Default"):

          (a)  Non Payment. Holdco fails to pay when due any principal of, or
               -----------
               interest on, the Loan and such failure continues for five days
               after notice from the Lender; provided that so long as Holdco has
               paid interest in cash or by delivery of a PIK Note, based on good
               faith estimates, when due under this Section 7(a), no Event of
               Default shall arise prior to five days after delivery of the
               applicable compliance certificates under Section 6(a)(iii);

          (b)  Representations. Any representation or warranty of Holdco made
               ---------------
               hereunder or in the Pledge Agreement on the date hereof is
               incorrect in any material respect;

          (c)  Covenants. Holdco shall fail to comply with or perform any
               ---------
               covenant set forth in this Note or the Pledge Agreement and such
               failure shall continue for 30 days after written notice from the
               Lender;

          (d)  Cross Acceleration. (i) Holdco or any Subsidiary shall default in
               ------------------
               the payment when due (subject to any applicable grace period) of
               any Indebtedness of Holdco or any Subsidiary under (w) the Senior
               Debt Agreement, (x) the HVI Lease, (y) any interest rate cap,
               swap, collar or similar transaction or currency hedging
               transaction or (z) any other Indebtedness of Holdco or any
               Subsidiary (other than Nonrecourse Debt), having a principal
               amount, individually or in the aggregate, in excess of
               $10,000,000 and either such Indebtedness has matured in
               accordance with

                                       16

<PAGE>

               its terms or the maturity of such Indebtedness has been
               accelerated as a result of such payment default, or (ii) a
               default shall occur in the performance or observance of any
               obligation or condition with respect to any of the foregoing, if
               the effect of such default is to accelerate the maturity of any
               of the foregoing;

          (e)  Monetary Judgments. One or more judgments, orders or decrees is
               ------------------
               entered against Holdco or any Subsidiary involving in the
               aggregate a liability (to the extent not covered by independent
               third-party insurance as to which the insurer does not dispute
               coverage) as to any single or related series of transactions,
               incidents or conditions of $15,000,000 or more, and the same
               shall remain unsatisfied, unvacated or unstayed (through appeal
               or otherwise) for a period of 20 consecutive days after the entry
               thereof.

          (f)  Pension Plans. (i) Proceedings shall be commenced by Holdco or
               -------------
               any member of its Controlled Group or the PBGC to terminate a
               Pension Plan other than pursuant to a standard termination under
               Section 4041(b) of ERISA if as a result of such termination it is
               reasonably likely that Holdco would be required to make a current
               contribution to such Pension Plan or incur a liability or
               obligation to such Pension Plan, in excess of $15,000,000 or (ii)
               there shall occur any withdrawal or partial withdrawal from a
               Multiemployer Pension Plan and it is reasonably expected that
               Holdco would be subject to pay annual payments in satisfaction of
               the withdrawal liability to such Multiemployer Pension Plan as a
               result of such withdrawal (including any current annual payment
               obligations in connection with any withdrawal liability that
               Holdco had incurred as of the date of such withdrawal) in excess
               of $15,000,000;

          (g)  Insolvency.  Any Significant Subsidiary shall:
               ----------

               (i)   apply for, consent to or acquiesce in the appointment of a
          trustee, receiver, sequestrator or other custodian for any Significant
          Subsidiary or any property thereof, or make a general assignment for
          the benefit of creditors;

               (ii)  in the absence of such application, consent or
          acquiescence, permit or suffer to exist the appointment of a trustee,
          receiver, sequestrator or other custodian for any Significant
          Subsidiary or for a substantial part of the property thereof, and such
          trustee, receiver, sequestrator or other custodian shall not be
          discharged within 60 days;

               (iii) permit or suffer to exist the commencement of any
          bankruptcy, reorganization, debt arrangement or other case or
          proceeding under any bankruptcy or insolvency law, or any dissolution,
          winding up or liquidation proceeding, in respect of any Significant
          Subsidiary and, if any such case or proceeding is not commenced by any
          Significant Subsidiary, such case or proceeding shall be consented to
          or acquiesced in by any Significant Subsidiary or

                                       17

<PAGE>

               (iii) shall result in the entry of an order for relief or shall
          remain for 60 consecutive days undismissed; or

               (iv)  take any corporate, partnership, or limited liability
          company action authorizing, or in furtherance of, any of the
          foregoing;

          (h)  Insolvency.  Holdco shall:
               ----------

               (i)   admit in writing its inability or unwillingness to pay
          debts as they become due;

               (ii)  apply for, consent to or acquiesce in the appointment of a
          trustee, receiver, sequestrator or other custodian for Holdco or any
          property thereof, or make a general assignment for the benefit of
          creditors;

               (iii) in the absence of such application, consent or
          acquiescence, permit or suffer to exist the appointment of a trustee,
          receiver, sequestrator or other custodian for Holdco or for a
          substantial part of the property thereof, and such trustee, receiver
          sequestrator or other custodian shall not be discharged within 60
          days;

               (iv)  permit or suffer to exist the commencement of any
          bankruptcy, reorganization, debt arrangement or other case or
          proceeding under any bankruptcy or insolvency law, or any dissolution,
          winding up or liquidation proceeding, in respect of Holdco and, if any
          such case or proceeding shall be consented to or acquiesced in by
          Holdco or shall result in the entry of an order for relief or shall
          remain for 60 consecutive days undismissed; or

               (v)   take any limited liability company action authorizing, or
          in furtherance of, any of the foregoing; or

          (i)  Change of Control. A Change of Control shall occur;
               -----------------

then the Lender may declare this Note and the principal of and accrued interest
on each Loan, and all other amounts payable hereunder, to be forthwith due and
payable in full, provided, that upon the occurrence of an event described in
clauses (g) and (h) above, this Note and the principal of and accrued interest
on each Loan, and all other amounts payable hereunder, shall immediately become
due and payable in full.

                                       18

<PAGE>

           8.  COLLATERAL. This Note is secured pursuant to a Pledge Agreement
               ----------
               (the "Pledge Agreement") of Holdco dated the date hereof and a
               Pledge Agreement (the "Holdco Pledge Agreement") of the members
               of Holdco dated the date hereof.

           9.  GENERAL.
               -------

               (a)   Payments. Payments of principal and interest on the Loans
                     --------
                     shall be made in immediately available funds in Dollars by
                     11:00 a.m. (New York time) on the date due.

               (b)   Assignments. The provisions of this Note shall be binding
                     -----------
                     upon Holdco and inure to the benefit of the Lender and its
                     successors and permitted assigns. Holdco may not assign or
                     transfer any of its obligations under this Note without the
                     prior written consent of the Lender.

           The Lender may assign its rights hereunder to any Eligible Assignee.
           Holdco agrees that it will not assert any right of set off or
           counterclaim against any such Eligible Assignee and waives any
           defenses (other than payment) it could otherwise assert against the
           Lender with respect to any such Eligible Assignee.

               (c)   Waivers. Holdco hereby waives presentment, demand, notice
                     -------
                     of dishonor, protest and all other demands and notices in
                     connection with this Note. No act of omission or commission
                     of the Lender, including specifically any failure to
                     exercise any right or remedy, shall be deemed to be a
                     waiver or release of the same, such waiver or release to be
                     made only in writing.

               (d)   Costs. Holdco shall pay all costs of the Lender of
                     -----
                     enforcement or collection of every kind, including, but not
                     limited to, all reasonable attorneys' fees, court costs and
                     expenses incurred by the Lender in connection with
                     collection or protection or enforcement of any rights
                     hereunder whether or not any lawsuit is ever filed.

               (e)   Indemnification by Holdco. Holdco shall indemnify,
                     -------------------------
                     exonerate and hold the Lender and each of the officers,
                     director, employees, Affiliates and agents of the Lender
                     (each a "Lender Party") free and harmless from and against
                              ------------
                     any and all actions, causes of action, suits, losses,
                     liabilities, damages and expenses, including, without
                     limitation, costs and expenses of attorneys (collectively,
                     the "Indemnified Liabilities"), incurred by the Lender
                          -----------------------
                     Parties or any of them as a result of, or arising out of,
                     or relating to the enforcement of this Note by any of the
                     Lender Parties, except for any such Indemnified Liabilities
                     arising on account of the applicable Lender Party's gross
                     negligence or willful misconduct. If and to the extent that
                     the foregoing undertaking may be unenforceable for any
                     reason, Holdco hereby agrees to make the maximum
                     contribution to the payment and satisfaction of each of the
                     Indemnified Liabilities which is permissible

                                       19

<PAGE>

               under applicable law. All obligations provided for in this clause
               (e) shall survive repayment of the Loan and cancellation of this
               Note.

          (f)  Recourse. No member of Holdco, and no present or future officer,
               --------
               employee, manager or agent of Holdco (collectively the
               "Nonrecourse Parties"), shall have any liability to the Lender
               (such liability, including such as may arise by operation of law,
               being hereby waived) for the payment of any sums now or hereafter
               owing by Holdco under this Note or for the performance of any of
               the obligations of Holdco contained herein or therein or shall
               otherwise be liable or responsible with respect thereto.
               Notwithstanding the foregoing, nothing contained in this Section
               shall in any manner or any way (i) affect or diminish any
               obligation, covenant, or agreement of any Nonrecourse Person
               under any agreement to which such Nonrecourse Person is a party,
               or (ii) affect or diminish any rights of any Person against any
               other Person arising from such other Person's gross negligence or
               willful misconduct.

          (g)  Waivers. The failure of the Lender at any time or times to
               -------
               require performance of any provision hereof shall in no manner
               affect its right at a later time to enforce the same. No waiver
               by the Lender of any condition or of any breach of any term,
               covenant, representation or warranty contained in this Note shall
               be effective unless in writing, and no waiver in any one or more
               instances shall be deemed to be a further or continuing waiver of
               any such condition or breach in other instances or a waiver of
               any other condition or breach of any other term, covenant,
               representation or warranty.

          (h)  Interpretation. The headings preceding the text of Articles and
               --------------
               Sections included in this Note and the headings to Schedules
               attached to this Note are for convenience only and shall not be
               deemed part of this Note or be given any effect in interpreting
               this Note. The use of the masculine, feminine or neuter gender
               herein shall not limit any provision of this Note. The use of the
               terms "including" or "include" shall in all cases herein mean
               "including, without limitation" or "include, without limitation,"
               respectively. Underscored references to Articles, Sections,
               Subsections or Schedules shall refer to those portions of this
               Note. Consummation of the transactions contemplated herein shall
               not be deemed a waiver of a breach of or inaccuracy in any
               representation, warranty or covenant or of any party's rights and
               remedies with regard thereto. No specific representation,
               warranty or covenant contained herein shall limit the generality
               or applicability of a more general representation, warranty or
               covenant contained herein. A breach of or inaccuracy in any
               representation, warranty or covenant shall not be affected by the
               fact that any more general or less general representation,
               warranty or covenant was not also breached or inaccurate.

                                       20

<PAGE>

          (i)  Severability. If any provision of this Note shall be held
               ------------
               invalid, illegal or unenforceable, the validity, legality or
               enforceability of the other provisions hereof shall not be
               affected thereby, and there shall be deemed substituted for the
               provision at issue a valid, legal and enforceable provision as
               similar as possible to the provision at issue.

          (j)  Construction. Holdco and, by its acceptance of this Note, the
               ------------
               Lender acknowledge that the parties and their counsel have
               reviewed and revised this Note and that the normal rule of
               construction to the effect that any ambiguities are to be
               resolved against the drafting party shall not be employed in the
               interpretation of this Note or any exhibits or amendments hereto.

          (k)  Jurisdictions. ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
               -------------
               UNDER, OR IN CONNECTION WITH, THIS NOTE, OR ANY COURSE OF
               CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR
               WRITTEN) OR ACTIONS OF THE LENDER OR HOLDCO SHALL BE BROUGHT AND
               MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR
               IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
               NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT
               AGAINST ANY PROPERTY MAY BE BROUGHT, AT THE LENDER'S OPTION, IN
               THE COURTS OF ANY JURISDICTION WHERE SUCH PROPERTY MAY BE FOUND.
               HOLDCO HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE
               JURISDICTION OF THE COURTS OF THE STATE NEW YORK AND OF THE
               UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
               YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE
               AND IRREVOCABLY CONSENTS TO PERSONAL SERVICE WITHIN OR WITHOUT
               THE STATE OF NEW YORK. HOLDCO HEREBY EXPRESSLY AND IRREVOCABLY
               WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION
               WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF
               ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE
               AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN
               INCONVENIENT FORUM. TO THE EXTENT THAT HOLDCO HAS OR HEREAFTER
               MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM
               ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT
               PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE)
               WITH RESPECT TO ITSELF OR ITS PROPERTY, HOLDCO HEREBY IRREVOCABLY
               WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS
               AGREEMENT.

                                       21

<PAGE>

          (l)  Waiver of Jury Trial. HOLDCO WAIVES AND, BY ACCEPTING THIS NOTE,
               --------------------
               THE LENDER SHALL BE DEEMED TO WAIVE, ANY RIGHT TO A TRIAL BY JURY
               IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER
               THIS NOTE, AND HOLDCO AGREES, AND, BY ACCEPTING THIS NOTE, THE
               LENDER SHALL BE DEEMED TO AGREE THAT ANY SUCH ACTION OR
               PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT A JURY.

          (m)  Governing Law. This Note shall be governed by the internal laws
               -------------
               of the State of New York applicable to contracts made to be
               performed entirely within such State.

                                        BRE/HV HOLDINGS L.L.C.

                                        By:    /s/ Jonathan Gray
                                               ------------------------
                                        Title: Senior Managing Director
                                               ------------------------

                                       22

<PAGE>

                                   Schedule 1

                                  Subsidiaries

BRE/Homestead Village L.L.C.

BRE/HV Properties L.L.C.

Homestead Village Management L.L.C.

HVI (2) L.L.C.

Atlantic Homestead Village Limited Partnership

PTR Homestead Village Limited Partnership

<PAGE>

                                   Schedule 2

                               [Form of PIK Note]

<PAGE>

                                   Schedule 2

                                              Expiration Date: November 20, 2006

$___________________

                                    PIK NOTE

         FOR VALUE RECEIVED, BRE/HV HOLDINGS L.L.C. ("Holdco"), a Delaware
limited liability company, hereby promises to pay to the order of SECURITY
CAPITAL LODGING INCORPORATED (the "Lender"), a Delaware corporation, at 639
Isbell Road, Suite 390, Reno, Nevada 89509 on November 20, 2006 (the "Expiration
Date"), pursuant to the Amended and Restated Agreement and Plan of Mergers dated
as of November 20, 2001 by and between, among others, Lender and BRE/Homestead
Village L.L.C., a Delaware limited liability company and wholly-owned subsidiary
of Holdco, ________________________ ($_______) (the "Loan").

         1. DEFINITIONS.
            -----------

         Unless otherwise defined herein or the context otherwise requires, all
terms defined in the Term Note (the "Term Note") in the principal amount of
$115,000,000 of Holdco to the Lender dated November 20, 2001 shall have the
meanings set forth in the Term Note, as from time to time amended or modified
but without giving effect to any termination of the Term Note. This Note is one
of the "PIK Notes" as defined therein.

         2. INTEREST. The unpaid principal of the Loan shall bear interest
            --------
at the rates set forth in the Term Note. Interest on the Loan shall be payable
in cash quarterly on the last day of each March, June, September and December;
provided, however, that if on any such date, the interest due hereunder, under
--------  -------
the Term Note and any other PIK Note delivered pursuant to the Term Note is in
excess of Available Cash for the Computation Period ending on the date of such
payment, Holdco shall have the option of paying such deficiency by issuing to
Lender a PIK Note in the principal amount of such deficiency; provided, that, if
Holdco shall fail to deliver such PIK Note, Holdco shall have the obligation to
make payments as if such PIK Note had been delivered.

         This Note is subject to the express condition that at no time shall
Holdco be obligated or required to pay interest on the principal balance of the
Loan at a rate which could subject the 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 Note, Holdco is at any time required or obligated to pay interest
on the principal balance due hereunder at a rate in excess of the Maximum Legal
Rate, the interest rate 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 the 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.

<PAGE>

         3. PREPAYMENT.
            ----------

         The Loan may be prepaid in full or in part at any time without penalty.

         4. TAXES.
            -----

         All payments by Holdco of principal of, and interest on, the Loan and
all other amounts payable hereunder shall be made free and clear of and without
deduction for any present or future income, excise, stamp or franchise taxes and
other taxes, fees, duties, withholdings or other charges of any nature
whatsoever imposed by any taxing authority, but excluding franchise taxes and
taxes imposed on or measured by the Lender's net income or receipts (such
non-excluded items being called "Taxes"). If any withholding or deduction from
any payment to be made by Holdco hereunder is required in respect of any Taxes
pursuant to any applicable law, rule or regulation, then Holdco shall:

(a)      pay directly to the relevant authority the full amount required to be
         so withheld or deducted;

(b)      promptly forward to the Lender an official receipt or other
         documentation satisfactory to the Lender evidencing such payment to
         such authority; and

(c)      pay to the Lender such additional amount (the "Additional Amounts") as
         is necessary to ensure that the net amount actually received by the
         Lender will equal the full amount the Lender would have received had no
         such withholding or deduction been required.

Moreover, if any Taxes are directly asserted against the Lender or on any
payment received by the Lender hereunder, the Lender may pay such Taxes and
Holdco shall promptly pay such additional amount (including any penalty,
interest or expense) as is necessary in order that the net amount received by
the Lender after the payment of such Taxes (including any Taxes on such
additional amount) shall equal the amount the Lender would have received had no
such Taxes been asserted.

The Lender (or any Eligible Assignee) shall provide to Holdco at the time that
it becomes a party to this Agreement, two copies of Internal Revenue Service
Form W-9, certifying complete exemption from backup withholding. Holdco shall
not be required to pay any taxes or any Additional Amounts attributable to the
failure of the Lender (or any Eligible Assignee) to comply with the requirements
of this paragraph.

         If Holdco fails to pay any Taxes when due to the appropriate taxing
authority or fails to remit to the Lender the required receipts or other
required documentary evidence, Holdco shall indemnify the Lender for any
incremental Tax, interest, penalty or expense that may become payable by the
Lender as a result of any such failure.

         If Holdco determines in good faith that a reasonable basis exists for
contesting any Taxes for which indemnification has been demanded hereunder, the
Lender shall cooperate with Holdco in challenging such Taxes at Holdco's expense
if so requested by Holdco. If the Lender receives a refund of a Tax for which a
payment has been made by Holdco pursuant to this Note, which refund in the good
faith judgment of the Lender is attributable to such payment made by

                                       2

<PAGE>

Holdco, then the Lender shall reimburse Holdco for such amount (together with
any interest received thereon) as the Lender determines to be the proportion of
the refund as will leave it, after such reimbursement, in no better or worse
position than it would have been in if the payment had not been required.

          5.  REPRESENTATIONS.
              ---------------

         Holdco represents and warrants to the Lender as of the date of this
Note that:

(a)       Organization. Holdco is a limited liability company validly existing
          ------------
          and in good standing under the laws of the State of Delaware; each
          Subsidiary is validly existing and in good standing under the laws of
          the jurisdiction of its organization; and each of Holdco and each
          Subsidiary is duly qualified to do business in each jurisdiction
          where, because of the nature of its activities or properties, such
          qualification is required, except for such jurisdictions where the
          failure to so qualify would not have a Material Adverse Effect.

(b)       Authorization.  Holdco is duly authorized to execute and deliver this
          -------------
          Note. Holdco is duly authorized to borrow monies hereunder and is duly
          authorized to perform its obligations under this Note. The execution,
          delivery and performance by Holdco of this Note, and the borrowings by
          Holdco hereunder, do not and will not (i) require any consent or
          approval of any Governmental Authority (other than any consent or
          approval which has been obtained and is in full force and effect),
          (ii) conflict with (A) any provision of law, (B) the limited liability
          company agreement or any other organizational documents of Holdco or
          any Subsidiary or (C) any agreement, indenture, instrument or other
          document, or any judgment, order or decree, which is binding upon
          Holdco or any of its properties, or, to Holdco's knowledge, any
          Subsidiary or any of its properties or (iii) require, or result in,
          the creation or imposition of any Lien on any asset of Holdco or, to
          Holdco's knowledge, any asset of any Subsidiary.

(c)       Validity and Binding Nature. This Note is the legal, valid and binding
          ---------------------------
          obligation of Holdco, enforceable against Holdco in accordance with
          its terms, subject to applicable bankruptcy, insolvency and similar
          laws affecting the enforceability of creditors' rights generally and
          general principles of equity.

          6.  COVENANTS.  Holdco shall perform all agreements and covenants set
              ---------
forth in the Term Note, as amended or modified from time to time but without
giving effect to any termination thereof, for the benefit of the Lender
hereunder.

          7.  EVENT OF DEFAULT.  Upon the occurrence of any of the following
              ----------------
events (each an "Event of Default"):

(a)       Non Payment. Holdco fails to pay when due any principal of, or
          -----------
          interest on, the Loan and such failure continues for five days after
          notice from the Lender; provided that so long as Holdco has paid
          interest in cash or by delivery of a PIK Note, based on good faith
          estimates, when due under this Section 7(a), no Event of Default shall
          arise prior to five days after delivery of the applicable compliance
          certificates under Section 6(a)(iii) of the Term Note;

                                       3

<PAGE>

(b)      Representations.  Any representation or warranty of Holdco made
         ---------------
         hereunder is incorrect in any material respect;

(c)      Cross Default.  An Event of Default (as defined in the Term Note) shall
         -------------
         occur and be continuing;

(d)      Insolvency.  Any Significant Subsidiary shall:
         ----------

               (i)   apply for, consent to or acquiesce in the appointment of a
         trustee, receiver, sequestrator or other custodian for any Significant
         Subsidiary or any property thereof, or make a general assignment for
         the benefit of creditors;

               (ii)  in the absence of such application, consent or
         acquiescence, permit or suffer to exist the appointment of a trustee,
         receiver, sequestrator or other custodian for any Significant
         Subsidiary or for a substantial part of the property thereof, and such
         trustee, receiver, sequestrator or other custodian shall not be
         discharged within 60 days;

               (iii) permit or suffer to exist the commencement of any
         bankruptcy, reorganization, debt arrangement or other case or
         proceeding under any bankruptcy or insolvency law, or any dissolution,
         winding up or liquidation proceeding, in respect of any Significant
         Subsidiary and, if any such case or proceeding is not commenced by any
         Significant Subsidiary, such case or proceeding shall be consented to
         or acquiesced in by any Significant Subsidiary or shall result in the
         entry of an order for relief or shall remain for 60 consecutive days
         undismissed; or

               (iv)  take any corporate, partnership, or limited liability
         company action authorizing, or in furtherance of, any of the foregoing;
         or

(e)      Insolvency.  Holdco shall:
         ----------

               (i)   admit in writing its inability or unwillingness to pay
         debts as they become due;

               (ii)  apply for, consent to or acquiesce in the appointment of a
         trustee, receiver, sequestrator or other custodian for Holdco or any
         property thereof, or make a general assignment for the benefit of
         creditors;

               (iii) in the absence of such application, consent or
         acquiescence, permit or suffer to exist the appointment of a trustee,
         receiver, sequestrator or other custodian for Holdco or for a
         substantial part of the property thereof, and such trustee, receiver
         sequestrator or other custodian shall not be discharged within 60 days;

               (iv)  permit or suffer to exist the commencement of any
         bankruptcy, reorganization, debt arrangement or other case or
         proceeding under any bankruptcy or insolvency law, or any dissolution,
         winding up or liquidation proceeding, in respect of Holdco and, if any
         such case or proceeding shall be consented to or acquiesced in by
         Holdco or shall result in the entry of an order for relief or shall
         remain for 60 consecutive days undismissed; or

                                       4

<PAGE>

        (v) take any limited liability company action authorizing, or in
     furtherance of, any of the foregoing;

then the Lender may declare this Note and the principal of and accrued interest
on each Loan, and all other amounts payable hereunder, to be forthwith due and
payable in full, provided, that upon the occurrence of an event described in
clauses (d) and (e) above, this Note and the principal of and accrued interest
on each Loan, and all other amounts payable hereunder, shall immediately become
due and payable in full.

     8. COLLATERAL AND GUARANTY. This Note is secured pursuant to a Pledge
        -----------------------
Agreement (the "Pledge Agreement") of Holdco dated November 20, 2001 and a
Pledge Agreement (the "Holdco Pledge Agreement") of the members of Holdco dated
November 20, 2001.

     9. GENERAL.
        -------

(a)  Payments.  Payments of principal and interest on the Loans shall be made in
     --------
     immediately available funds in Dollars.

(b)  Assignments. The provisions of this Note shall be binding upon Holdco
     -----------
     and inure to the benefit of the Lender and its successors and permitted
     assigns. Holdco may not assign or transfer any of its obligations under
     this Note without the prior written consent of the Lender.

     The Lender may assign its rights hereunder to any Eligible Assignee.
     Holdco agrees that it will not assert any right of set off or
     counterclaim against any such Eligible Assignee and waives any defenses
     (other than payment) it could otherwise assert against the Lender with
     respect to any such Eligible Assignee.

(c)  Waivers. Holdco hereby waives presentment, demand, notice of dishonor,
     -------
     protest and all other demands and notices in connection with this Note.
     No act of omission or commission of the Lender, including specifically
     any failure to exercise any right or remedy, shall be deemed to be a
     waiver or release of the same, such waiver or release to be made only
     in writing.

(d)  Costs. Holdco shall pay all costs of the Lender of enforcement or
     -----
     collection of every kind, including, but not limited to, all reasonable
     attorneys' fees, court costs and expenses incurred by the Lender in
     connection with collection or protection or enforcement of any rights
     hereunder whether or not any lawsuit is ever filed.

(e)  Indemnification by Holdco.  Holdco shall indemnify, exonerate and hold the
     -------------------------
     Lender and each of the officers, director, employees, Affiliates and agents
     of the Lender (each a "Lender Party") free and harmless from and against
                            ------------
     any and all actions, causes of action, suits, losses, liabilities, damages
     and expenses, including, without limitation, costs and expenses of
     attorneys (collectively, the "Indemnified Liabilities"), incurred by the
                                   -----------------------
     Lender Parties or any of them as a result of, or arising out of, or
     relating to the enforcement of this Note by any of the Lender Parties,
     except for any such Indemnified Liabilities arising on account of the
     applicable Lender Party's gross negligence or willful misconduct. If

                                       5

<PAGE>

     and to the extent that the foregoing undertaking may be unenforceable for
     any reason, Holdco hereby agrees to make the maximum contribution to the
     payment and satisfaction of each of the Indemnified Liabilities which is
     permissible under applicable law. All obligations provided for in this
     clause (e) shall survive repayment of the Loan and cancellation of this
     Note.

(f)  Recourse. No member of Holdco, and no present or future officer, employee,
     --------
     manager or agent of Holdco (collectively the "Nonrecourse Parties"), shall
     have any liability to the Lender (such liability, including such as may
     arise by operation of law, being hereby waived) for the payment of any sums
     now or hereafter owing by Holdco under this Note or for the performance of
     any of the obligations of Holdco contained herein or therein or shall
     otherwise be liable or responsible with respect thereto. Notwithstanding
     the foregoing, nothing contained in this Section shall in any manner or any
     way (i) affect or diminish any obligation, covenant, or agreement of any
     Nonrecourse Person under any agreement to which such Nonrecourse Person is
     a party, or (ii) affect or diminish any rights of any Person against any
     other Person arising from such other Person's gross negligence or willful
     misconduct.

(g)  Waivers. The failure of the Lender at any time or times to require
     -------
     performance of any provision hereof shall in no manner affect its right at
     a later time to enforce the same. No waiver by the Lender of any condition
     or of any breach of any term, covenant, representation or warranty
     contained in this Note shall be effective unless in writing, and no waiver
     in any one or more instances shall be deemed to be a further or continuing
     waiver of any such condition or breach in other instances or a waiver of
     any other condition or breach of any other term, covenant, representation
     or warranty.

(h)  Interpretation.  The headings preceding the text of Articles and Sections
     --------------
     included in this Note and the headings to Schedules attached to this Note
     are for convenience only and shall not be deemed part of this Note or be
     given any effect in interpreting this Note. The use of the masculine,
     feminine or neuter gender herein shall not limit any provision of this
     Note. The use of the terms "including" or "include" shall in all cases
     herein mean "including, without limitation" or "include, without
     limitation," respectively. Underscored references to Articles, Sections,
     Subsections or Schedules shall refer to those portions of this Note.
     Consummation of the transactions contemplated herein shall not be deemed a
     waiver of a breach of or inaccuracy in any representation, warranty or
     covenant or of any party's rights and remedies with regard thereto. No
     specific representation, warranty or covenant contained herein shall limit
     the generality or applicability of a more general representation, warranty
     or covenant contained herein. A breach of or inaccuracy in any
     representation, warranty or covenant shall not be affected by the fact that
     any more general or less general representation, warranty or covenant was
     not also breached or inaccurate.

(i)  Severability. If any provision of this Note shall be held invalid, illegal
     ------------
     or unenforceable, the validity, legality or enforceability of the other
     provisions hereof shall not be affected thereby, and there shall be deemed
     substituted for the provision at issue a valid, legal and enforceable
     provision as similar as possible to the provision at issue.

                                       6

<PAGE>

(j)  Construction. Holdco and, by its acceptance of this Note, the Lender
     ------------
     acknowledge that the parties and their counsel have reviewed and revised
     this Note and that the normal rule of construction to the effect that any
     ambiguities are to be resolved against the drafting party shall not be
     employed in the interpretation of this Note or any exhibits or amendments
     hereto.

(k)  Jurisdictions. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER,
     -------------
     OR IN CONNECTION WITH, THIS NOTE, OR ANY COURSE OF CONDUCT, COURSE OF
     DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE LENDER OR
     HOLDCO SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE
     STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
     DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT
     AGAINST ANY PROPERTY MAY BE BROUGHT, AT THE LENDER'S OPTION, IN THE COURTS
     OF ANY JURISDICTION WHERE SUCH PROPERTY MAY BE FOUND. HOLDCO HEREBY
     EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE
     STATE NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
     DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH
     ABOVE AND IRREVOCABLY CONSENTS TO PERSONAL SERVICE WITHIN OR WITHOUT THE
     STATE OF NEW YORK. HOLDCO HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE
     FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR
     HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN
     ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS
     BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT HOLDCO HAS OR
     HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM
     ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO
     JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO
     ITSELF OR ITS PROPERTY, HOLDCO HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN
     RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT.

(l)  Waiver of Jury Trial. HOLDCO WAIVES AND, BY ACCEPTING THIS NOTE, THE LENDER
     --------------------
     SHALL BE DEEMED TO WAIVE, ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
     PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS NOTE, AND HOLDCO
     AGREES, AND, BY ACCEPTING THIS NOTE, THE LENDER SHALL BE DEEMED TO AGREE
     THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT A
     JURY.

                                       7

<PAGE>

(m)      Governing Law.  This Note shall be governed by the internal laws of the
         -------------
         State of New York applicable to contracts made and to be performed
         entirely within such State.

                                              BRE/HV HOLDINGS L.L.C.

                                              By: __________________________

                                              Title: _______________________

                                       8

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