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                                                                    EXHIBIT 10.1

                          CAPROCK COMMUNICATIONS CORP.

                           1998 EQUITY INCENTIVE PLAN
                             ADOPTED AUGUST 24, 1998

1. PURPOSE OF THE PLAN.

     The purpose of the Plan is to provide a means by which selected Employees
of and Consultants to the Company and its Affiliates may be given an opportunity
to acquire a proprietary interest in the Company. Under the Plan, the Company
may provide various types of long-term incentive awards, including Stock
Options, Stock Appreciation Rights, Restricted Stock, Deferred Stock, Stock
Reload Options and Other Stock-Based Awards, in order to retain the services of
persons who are now Employees of or Consultants to the Company and its
Affiliates, to secure and retain the services of new Employees and Consultants,
and to provide incentives for such persons to exert maximum efforts for the
success of the Company and its Affiliates. Stock Options granted under the Plan
may be Incentive Stock Options or Nonqualified Stock Options, as determined by
the Committee at the time of grant of an Option and subject to the applicable
provisions of Section 422 of the Code and the regulations promulgated
thereunder.

2. DEFINITIONS.

     As used herein, the following definitions shall apply:

     (a) "Affiliate" means, with respect to any Person, any Parent or Subsidiary
of such Person, whether such Parent or Subsidiary is now or hereafter existing.

     (b) "Agreement" means the agreement between the Company and the Holder
setting forth the terms and conditions of an Award under the Plan.

     (c) "Applicable Laws" means the legal requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code and the applicable laws of any
foreign country or jurisdiction where Options are, or will be, granted under the
Plan.

     (d) "Award" means an award of Options, Stock Appreciation Rights,
Restricted Stock, Deferred Stock, Stock Reload Options or Other Stock-Based
Awards under the Plan.

     (e) "Beneficial Owner" means a "beneficial owner" as defined in Rule 13d-3
of the Exchange Act.

     (f) "Board" means the Board of Directors of the Company.

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

     (h) "Change of Control" means the occurrence at any time after the
effective time of the Mergers of (i) any Person or Group of Persons becoming for
the first time the Beneficial Owner, directly or indirectly, of more than fifty
percent (50%) of the total combined voting power of all classes of capital stock
of the Company normally entitled to vote for the election of directors of the
Company ("Voting Stock"), other than as a result of a transfer or series of
related transfers of Voting Stock from a Person or Group of Persons who
immediately prior to such transfer or transfers was the Beneficial Owner, and
who after giving effect to such transfer or transfers continues to be the
Beneficial Owner, of more than fifty percent (50%) of the Voting Stock of the
Company; (ii) a merger (other than the Mergers) or consolidation of the Company
with or into another Person or the merger of another Person into the Company as
a consequence of which those Persons who held all of the Voting Stock of the
Company immediately prior to such merger or consolidation do not hold either
directly or indirectly a majority of the Voting Stock of the Company (or, if
applicable, the surviving company of such merger or consolidation) after the
consummation of such merger or consolidation; (iii) the sale of all or
substantially all of the assets of the Company to any Person or Group of Persons
(other than to an entity which owns a majority or more of the Common Stock of
the Company, a Subsidiary of the Company, or to an entity whose equity interests
are owned directly or indirectly by the Company or by an

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entity which owns directly or indirectly a majority or more of the Common Stock
of the Company); or (iv) any event or series of events (which event or series of
events must include a proxy fight or proxy solicitation with respect to the
election of directors of the Company made in opposition to the nominees
recommended by the Continuing Directors) during any period of 12 consecutive
months all or any portion of which is after the effective time of the Mergers,
as a result of which a majority of the Board of Directors of the Company
consists of individuals other than Continuing Directors; provided, however, that
a "Change of Control" shall not be deemed to have occurred as a result of the
Mergers.

     (i) "Committee" means the Compensation Committee of the Board of Directors.

     (j) "Common Stock" means the Common Stock, par value $.01 per share, of the
Company.

     (k) "Company" means CapRock Communications Corp.

     (l) "Consultant" means (i) any person who is engaged by the Company or any
Parent or Subsidiary to render consulting or advisory services and is
compensated for such services and (ii) any Director of the Company, whether such
Director is compensated for such services or not.

     (m) "Continuous Status as an Employee or Consultant" means that the
employment or consulting relationship with the Company or any Affiliate is not
interrupted or terminated. Continuous Status as an Employee or Consultant shall
not be considered interrupted in the case of (i) any leave of absence approved
by the Company or (ii) transfers between locations of the Company or between the
Company or any Affiliate or any successor. A leave of absence approved by the
Company shall include sick leave, military leave, or any other personal leave
approved by an authorized representative of the Company. For purposes of
Incentive Stock Options, no such leave may exceed 90 days, unless reemployment
upon expiration of such leave is guaranteed by statute or contract. If
reemployment upon expiration of a leave of absence approved by the Company is
not so guaranteed, on the 91st day of such leave any Incentive Stock Option held
by the Holder shall cease to be treated for tax purposes as an Incentive Stock
Option and shall be treated for tax purposes as a Nonqualified Stock Option.

     (n) "Deferred Stock" means Stock to be received at the end of a specified
deferral period under an Award made pursuant to Section 10 below.

     (o) "Director" means a member of the Board of Directors of the Company.

     (p) "Employee" means any person, including Officers and Directors, employed
by the Company or any Affiliate of the Company. The payment of a Director's fee
by the Company shall not be sufficient to constitute "employment" by the
Company.

     (q) "Exchange Act" means the Securities Exchange Act of 1934, as amended.

     (r) "Fair Market Value" means, as of any date, the value of Common Stock
determined as follows:

          (i) If the Common Stock is listed on any established stock exchange or
     a national market system, including without limitation the Nasdaq National
     Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair
     Market Value shall be the closing sales price for such stock (or the
     closing bid, if no sales were reported) as quoted on such exchange or
     system for the last market trading day prior to the time of determination,
     as reported in The Wall Street Journal or such other source as the
     Committee deems reliable;

          (ii) If the Common Stock is regularly quoted by a recognized
     securities dealer but selling prices are not reported, its Fair Market
     Value shall be the mean between the high bid and low asked prices for the
     Common Stock on the last market trading day prior to the day of
     determination; or

          (iii) In the absence of an established market for the Common Stock,
     the Fair Market Value thereof shall be determined in good faith by the
     Committee.

     (s) "Group" means a "group" as such term is used in Section 13(d)(3) of the
Exchange Act.

     (t) "Holder" means a person who has received an Award under the Plan.

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     (u) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.

     (v) "Mergers" means the proposed combination of the businesses of CapRock
Telecommunications Corp., CapRock Fiber Network, Ltd., and IWL Communications
contemplated by the Agreement and Plan of Merger and Plan of Exchange entered
into on February 16, 1998.

     (w) "Nonqualified Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.

     (x) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

     (y) "Option" means a Stock Option granted pursuant to the Plan.

     (z) "Option Agreement" shall mean the written option agreement,
substantially in the form attached hereto as Exhibit A (or such other form as
may be approved by the Committee for use under the Plan pursuant to Section
3(b)(v) hereof), between the Company and Holder evidencing the grant of an
Option.

     (aa) "Optioned Stock" means the Common Stock subject to an Option.

     (bb) "Other Stock-Based Awards" means awards (other than Stock Options,
Stock Appreciation Rights, Restricted Stock, Deferred Stock and Stock Reload
Options) denominated or payable in, valued in whole or in part by reference to,
or otherwise based on, or related to shares of Common Stock.

     (cc) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.

     (dd) "Person" means an individual or entity.

     (ee) "Plan" means this 1998 Equity Incentive Plan.

     (ff) "Restricted Stock" means Stock, received under an Award made pursuant
to Section 9 below, that is subject to restrictions under said Section 9.

     (gg) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor rule thereto.

     (hh) "Section 16(b)" means Section 16(b) of the Exchange Act.

     (ii) "SAR Value" means the excess of the Fair Market Value of one share of
Common Stock over the exercise price per share specified in a related Stock
Option in the case of a Stock Appreciation Right granted in tandem with a Stock
Option and the Stock Appreciation Right price per share in the case of a Stock
Appreciation Right awarded on a free standing basis, in each case multiplied by
the number of shares in respect of which the Stock Appreciation Right shall be
exercised, on the date of exercise.

     (jj) "Share" means a share of the Common Stock of the Company.

     (kk) "Stock" means the Common Stock of the Company.

     (ll) "Stock Appreciation Right" means the right, pursuant to an Award
granted under Section 8 hereof, to recover an amount equal to the SAR Value.

     (mm) "Stock Option" means any Option to purchase shares of Stock which is
granted pursuant to the Plan.

     (nn) "Stock Reload Option" means any option granted under Section 7(e) as a
result of the payment of the exercise price of a Stock Option and/or the
withholding tax related thereto in the form of Stock owned by the Holder or the
withholding of Stock by the Company.

     (oo) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code, including without
limitation, in the case of the Company, IWL Communications,

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Incorporated and CapRock Telecommunications Corp. (f/k/a CapRock Communications
Corp.) and including without limitation CapRock Fiber Network, Ltd.

     (pp) "Tandem Stock Appreciation Right" means a Stock Appreciation Right
granted in tandem with all or part of any Stock Option granted under the Plan.

3. ADMINISTRATION OF THE PLAN.

     (a) Plan Administration. The Plan at all times shall be administered by the
Committee, which shall be comprised solely of not less than two members who
shall be (i) "Non-Employee Directors" within the meaning of Rule 16b-3 and (ii)
unless otherwise determined by the Board of Directors, "outside directors"
within the meaning of Treasury Regulation Section 1.162-27(e)(3) under Section
162(m) of the Code.

     (b) Powers of the Committee. Subject to the provisions of the Plan and
subject to the approval of any relevant authorities, including the approval, if
required, of any stock exchange upon which the Common Stock is listed, the
Committee shall have the full authority to award: (i) Stock Options, (ii) Stock
Appreciation Rights, (iii) Restricted Stock, (iv) Deferred Stock, (v) Stock
Reload Options and/or (vi) Other Stock-Based Awards. For purposes of
illustration and not of limitation, the Committee shall have the authority
(subject to the express provisions of the Plan):

          (i) to determine the Fair Market Value of the Common Stock;

          (ii) to select the Consultants and Employees to whom Awards may from
     time to time be granted hereunder;

          (iii) to determine whether and to what extent Awards or any
     combination thereof are granted hereunder;

          (iv) to determine the number of Shares to be covered by each such
     Award granted hereunder;

          (v) to approve forms of agreement for use under the Plan;

          (vi) to determine the terms and conditions, not inconsistent with the
     terms of the Plan, of any Award granted hereunder. Such terms and
     conditions include, but are not limited to, the exercise price of an
     Option; any specified performance goals or other criteria which must be
     attained for the vesting of an Award; any restrictions or limitations; and
     any vesting, exchange, surrender, cancellation, acceleration, termination,
     exercise or forfeiture provisions; and

          (vii) to construe and interpret the terms of the Plan and Awards
     granted pursuant to the Plan.

     (c) Effect of Committee's Decision. All decisions, determinations and
interpretations of the Committee shall be final and binding on all Holders of
any Awards. No member of the Board or any Committee administering the Plan shall
be liable for any action taken or determination made in good faith with respect
to the Plan or any Option granted hereunder.

4. STOCK SUBJECT TO THE PLAN.

     The maximum aggregate number of Shares that may be acquired by Holders of
any Awards granted under the Plan is 5,000,000 shares and the maximum number of
Shares that may be acquired by an individual Holder under the Plan shall not
exceed 2,500,000 (in each case subject to adjustment as provided in Section 12
of the Plan). The Shares may be authorized but unissued or reacquired Common
Stock.

     If any shares of Stock that have been granted pursuant to a Stock Option
cease to be subject to a Stock Option, or if any shares of Stock that are
subject to any Stock Appreciation Right, Restricted Stock, Deferred Stock award,
Reload Stock Option or Other Stock-Based Award granted hereunder are forfeited
or any such award otherwise terminates without a payment being made to the
Holder in the form of Stock, such shares shall again be available for
distribution in connection with future grants and awards under the Plan. Only
net shares issued upon a stock-for-stock exercise (including stock used for
withholding taxes) shall be counted against the number of shares available under
the Plan.

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5. ELIGIBILITY.

     (a) Awards may be made or granted to key employees, officers, directors and
consultants of the Company who are deemed to have rendered or to be able to
render significant services to the Company or its Subsidiaries and who are
deemed to have contributed or to have the potential to contribute to the success
of the Company. No Incentive Stock Option shall be granted to any person who is
not an employee of the Company or a Subsidiary at the time of grant.

     (b) Each Option shall be designated in the Option Agreement as either an
Incentive Stock Option or a Nonqualified Stock Option. However, notwithstanding
such designation, to the extent that the aggregate Fair Market Value of the
Shares with respect to which Incentive Stock Options are exercisable for the
first time by the Optionee during any calendar year (under all plans of the
Company or any Affiliate) exceeds $100,000, such Options shall be treated for
tax purposes as Nonqualified Stock Options. For purposes of this Section 5(b),
Incentive Stock Options shall be taken into account in the order in which they
were granted. For purposes of this Section 5(b), the Fair Market Value of the
Shares shall be determined as of the time the Option with respect to such Shares
is granted.

     (c) Neither the Plan nor any Award shall confer upon any Holder any right
with respect to continuation of his or her employment or consulting relationship
with the Company or any Affiliate, nor shall it interfere in any way with his or
her right or the Company's right to terminate his or her employment or
consulting relationship at any time, with or without cause.

6. OPTION EXERCISE PRICE AND CONSIDERATION.

     (a) The per Share exercise price for the Shares to be issued upon exercise
of an Option shall be such price as is determined by the Committee, but in the
case of an Incentive Stock Option:

          (i) granted to an Employee who, at the time of grant of such Option,
     owns stock representing more than ten percent (10%) of the voting power of
     all classes of stock of the Company or any Affiliate, the per Share
     exercise price shall not be less than 110% of the Fair Market Value per
     Share on the date of grant; and

          (ii) granted to any other Employee, the per Share exercise price shall
     not be less than 100% of the Fair Market Value per Share on the date of
     grant.

     (b) The consideration to be paid for the Shares to be issued upon exercise
of an Option, including the method of payment, shall be determined by the
Committee (and, in the case of an Incentive Stock Option, shall be determined at
the time of grant). Such consideration shall be paid, to the extent permitted by
applicable statutes and regulations at the time the Option is exercised, either
(i) in cash or check, or (ii) at the discretion of the Committee, in one or a
combination of the following ways (which may be in combination with or in lieu
of payment by cash or check): (A) by delivery to the Company of other Shares of
Common Stock of the Company to be valued at their Fair Market Value on the
exercise date, (B) according to a deferred payment or other arrangement with the
Person to whom the Option is granted or to whom the Option is transferred
pursuant to Section 15, (C) withholding of Shares that would otherwise be issued
upon the exercise of the Option, valued at their Fair Market Value on the
exercise date, or (D) in any other form of legal consideration that may be
acceptable to the Committee. In making its determination as to the type of
consideration to accept, the Committee shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company. In addition,
such consideration shall be accompanied by the delivery by the Optionee of a
properly executed exercise notice together with such other documentation as the
Committee and a broker, if applicable, shall require to effect an exercise of
the Option and delivery to the Company of the sale or loan proceeds required to
pay the exercise price.

7. EXERCISE OF OPTION.

     (a) Procedure for Exercise; Rights as a Shareholder. Any Option granted
hereunder shall be exercisable at such times and under such conditions as
determined by the Committee, including performance criteria

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with respect to the Company and/or the Optionee, and as shall be permissible
under the terms of the Plan. The total number of Shares subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable with respect
to some or all of the Shares allotted to that period and may be exercised with
respect to some or all of the Shares allotted to such period and/or any prior
period as to which the Option became vested but was not fully exercised.

     An Option may not be exercised for a fraction of a Share. Exercise of an
Option in any manner shall result in a decrease in the number of Shares that
thereafter may be available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.

     Subject to Section 18, an Option shall be deemed to be exercised when
written notice of such exercise has been given to the Company in accordance with
the terms of the Option Agreement by the Person entitled to exercise the Option
and full payment for the Shares with respect to which the Option is exercised
has been received by the Company. To the extent required by applicable federal,
state, local or foreign law, an Optionee shall make arrangements satisfactory to
the Company for the satisfaction of any withholding tax obligations that arise
by reason of an Option exercise or any sale of Shares, which obligations may, as
authorized by the Committee, consist of any consideration and method of payment
allowable under Section 6(b) hereof. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote, receive dividends or any other rights as a shareholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly upon
exercise of the Option. No adjustment shall be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 12 hereof.

     (b) Termination of Employment or Consulting Relationship. Subject to
paragraph (c) below, in the event of termination of an Optionee's Continuous
Status as an Employee or Consultant, such Optionee may exercise his or her
Option to the extent that the Optionee was entitled to exercise it at the date
of such termination; provided, however, that such Option may be exercised only
within such period of time as is determined by the Committee at the date of
grant. Such time period shall not, in the case of an Incentive Stock Option,
exceed three (3) months after the date of such termination and shall not, in any
case, be later than the expiration date of the term of such Option as set forth
in the Option Agreement. To the extent that the Optionee was not entitled to
exercise the Option at the date of such termination, or if the Optionee does not
exercise such Option to the extent so entitled within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan. An Optionee's Continuous Status as an Employee or Consultant shall
not be terminated in the event of Optionee's change of status from an Employee
to a Consultant or from a Consultant to an Employee; provided, however, that in
the event of an Optionee's change of status from an Employee to a Consultant,
any Incentive Stock Option granted to such Employee shall automatically cease to
be treated for tax purposes as an Incentive Stock Option and shall be treated
for tax purposes as a Nonqualified Stock Option on the day three months and one
day following such change of status.

     (c) Disability of Optionee. In the event of termination of an Optionee's
Continuous Status as an Employee or Consultant as a result of his or her
disability, the Optionee may, but only within twelve (12) months from the date
of such termination (and in no event later than the expiration date of the term
of such Option as set forth in the Option Agreement), exercise the Option to the
extent he or she otherwise was entitled to exercise it at the date of such
termination. If such disability is not a "disability" as such term is defined in
Section 22(e)(3) of the Code, then in the case of an Incentive Stock Option such
Incentive Stock Option shall automatically cease to be treated for tax purposes
as an Incentive Stock Option and shall be treated for tax purposes as a
Nonqualified Stock Option on the day three months and one day following such
termination. To the extent that the Optionee was not entitled to exercise the
Option at the date of termination, or if the Optionee does not exercise such
Option to the extent so entitled within the time specified herein, the Option
shall terminate, and the Shares covered by such Option shall revert to the Plan.

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     (d) Death of Optionee. In the event of the death of an Optionee, the Option
may be exercised at any time within twelve (12) months following the date of
death (but in no event later than the expiration date of the term of such Option
as set forth in the Option Agreement) by the Optionee's estate or by any Person
who acquired the right to exercise the Option by bequest or inheritance (the
"Option Beneficiary"), but only to the extent that the Optionee was entitled to
exercise the Option on the date of death. To the extent that, at the time of
death, the Optionee was not entitled to exercise the Option, or if the Option
Beneficiary does not exercise the Option within the time specified herein, the
Option shall terminate and the Shares covered by such Option shall revert to the
Plan.

     (e) Stock Reload Option. The Committee may also grant to the Holder
(concurrently with the grant of an Incentive Stock Option and at or after the
time of grant in the case of a Non-Qualified Stock Option) a Stock Reload Option
up to the amount of shares of Stock held by the Holder for at least six months
and used to pay all or part of the exercise price of an Option and, if any,
withheld by the Company as payment for withholding taxes. Such Stock Reload
Option shall have an exercise price of the Fair Market Value as of the date of
the Stock Reload Option grant. Unless the Committee determines otherwise, a
Stock Reload Option may be exercised commencing one year after it is granted and
shall expire on the date of expiration of the Option to which the Stock Reload
Option is related.

8. STOCK APPRECIATION RIGHTS.

     (a) Grant and Exercise. Stock Appreciation Rights may be granted in tandem
with (i.e., Tandem Stock Appreciation Right) or in conjunction with all or part
of any Stock Option granted under the Plan or may be granted on a free-standing
basis. In the case of a Non-Qualified Stock Option, a Tandem Stock Appreciation
Right may be granted either at or after the time of the grant of such
Non-Qualified Stock Option. In the case of an Incentive Stock Option, a Tandem
Stock Appreciation Right may be granted only at the time of the grant of such
Incentive Stock Option.

     (b) Terms and Conditions. Stock Appreciation Rights shall be subject to the
following terms and conditions:

          (i) Exercisability. Tandem Stock Appreciation Rights shall be
     exercisable only at such time or times and to the extent that the Stock
     Options to which they relate shall be exercisable in accordance with the
     provisions of Section 7 hereof and this Section 8 and may be subject to the
     Code with respect to related Incentive Stock Options and such additional
     limitations on exercisability as shall be determined by the Committee and
     set forth in the Agreement. Other Stock Appreciation Rights shall be
     exercisable at such time or times and subject to such terms and conditions
     as shall be determined by the Committee and set forth in the Agreement.

          (ii) Termination. A Tandem Stock Appreciation Right shall terminate
     and shall no longer be exercisable upon the termination or exercise of the
     related Stock Option, except that, unless otherwise determined by the
     Committee at the time of grant, a Tandem Stock Appreciation Right granted
     with respect to less than the full number of shares covered by a related
     Stock Option shall not be reduced until after the number of shares
     remaining under the related Stock Option equals the number of shares
     covered by the Tandem Stock Appreciation Right.

          (iii) Method of Exercise. A Tandem Stock Appreciation Right may be
     exercised by a Holder by surrendering the applicable portion of the related
     Stock Option. Upon such exercise and surrender, the Holder shall be
     entitled to receive such amount in the form determined pursuant to Section
     8(b)(iv) below. Stock Options which have been so surrendered, in whole or
     in part, shall no longer be exercisable to the extent the related Tandem
     Stock Appreciation Rights have been exercised.

          (iv) Receipt of SAR Value. Upon the exercise of a Stock Appreciation
     Right, a Holder shall be entitled to receive up to, but not more than, an
     amount in cash and/or shares of Stock equal to the SAR Value with the
     Committee having the right to determine the form of payment.

          (v) Shares Affected Upon Plan. Upon the exercise of a Tandem Stock
     Appreciation Right, the Stock Option or part thereof to which such Tandem
     Stock Appreciation Right is related shall be deemed

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     to have been exercised for the purpose of the limitation set forth in
     Section 4 hereof on the number of shares of Common Stock to be issued under
     the Plan, but only to the extent of the number of shares, if any, issued
     under the Tandem Stock Appreciation Right at the time of exercise based
     upon the SAR Value.

9. RESTRICTED STOCK.

     (a) Grant. Shares of Restricted Stock may be awarded either alone or in
addition to other Awards granted under the Plan. The Committee shall determine
the eligible persons to whom, and the time or times at which, grants of
Restricted Stock will be awarded, the number of shares to be awarded, the price
(if any) to be paid by the Holder, the time or times within which such Awards
may be subject to forfeiture ("Restriction Period"), the vesting schedule and
rights to acceleration thereof, and all other terms and conditions of the
Awards.

     (b) Terms and Conditions. Each Restricted Stock Award shall be subject to
the following terms and conditions:

          (i) Certificates. Restricted Stock, when issued, will be represented
     by a stock certificate or certificates registered in the name of the Holder
     to whom such Restricted Stock shall have been awarded. During the
     Restriction Period, certificates representing the Restricted Stock and any
     securities constituting Retained Distributions (as defined below) shall
     bear a legend to the effect that ownership of the Restricted Stock (and
     such Retained Distributions), and the enjoyment of all rights appurtenant
     thereto, are subject to the restrictions, terms and conditions provided in
     the Plan and the Agreement. Such certificates shall be deposited by the
     Holder with the Company, together with stock powers or other instruments of
     assignment, each endorsed in blank, which will permit transfer to the
     Company of all or any portion of the Restricted Stock and any securities
     constituting Retained Distributions that shall be forfeited or that shall
     not become vested in accordance with the Plan and the Agreement.

          (ii) Rights of Holder. Restricted Stock shall constitute issued and
     outstanding shares of Common Stock for all corporate purposes. The Holder
     will have the right to vote such Restricted Stock, to receive and retain
     all regular cash dividends and other cash equivalent distributions as the
     Board may in its sole discretion designate, pay or distribute on such
     Restricted Stock and to exercise all other rights, powers and privileges of
     a holder of Common Stock with respect to such Restricted Stock, with the
     exceptions that (A) the Holder will not be entitled to delivery of the
     stock certificate or certificates representing such Restricted Stock until
     the Restriction Period shall have expired and unless all other vesting
     requirements with respect thereto shall have been fulfilled; (B) the
     Company will retain custody of the stock certificate or certificates
     representing the Restricted Stock during the Restriction Period; (C) other
     than regular cash dividends and other cash equivalent distributions as the
     Board may in its sole discretion designate, pay or distribute, the Company
     will retain custody of all distributions ("Retained Distributions") made or
     declared with respect to the Restricted Stock (and such Retained
     Distributions will be subject to the same restrictions, terms and
     conditions as are applicable to the Restricted Stock) until such time, if
     ever, as the Restricted Stock with respect to which such Retained
     Distributions shall have been made, paid or declared shall have become
     vested and with respect to which the Restriction Period shall have expired;
     (D) a breach of any of the restrictions, terms or conditions contained in
     this Plan or the Agreement or otherwise established by the Committee with
     respect to any Restricted Stock or Retained Distributions will cause a
     forfeiture of such Restricted Stock and any Retained Distributions with
     respect thereto.

          (iii) Vesting: Forfeiture. Upon the expiration of the Restriction
     Period with respect to each Award of Restricted Stock and the satisfaction
     of any other applicable restrictions, terms and conditions (A) all or part
     of such Restricted Stock shall become vested in accordance with the terms
     of the Agreement, and (B) any Retained Distributions with respect to such
     Restricted Stock shall become vested to the extent that the Restricted
     Stock related thereto shall have become vested. Any such Restricted Stock
     and Retained Distributions that do not vest shall be forfeited to the
     Company and the Holder shall not

<PAGE>   9

     thereafter have any rights with respect to such Restricted Stock and
     Retained Distributions that shall have been so forfeited.

10. DEFERRED STOCK.

     (a) Grant. Shares of Deferred Stock may be awarded either alone or in
addition to other Awards granted under the Plan. The Committee shall determine
the eligible persons to whom and the time or times at which grants of Deferred
Stock shall be awarded, the number of shares of Deferred Stock to be awarded to
any person, the duration of the period ("Deferral Period") during which, and the
conditions under which receipt of the shares will be deferred, and all the other
terms and conditions of the Awards.

     (b) Terms and Conditions. Each Deferred Stock Award shall be subject to the
following terms and conditions:

          (i) Certificates. At the expiration of the Deferral Period (or the
     Additional Deferral Period referred to in Section 10(b)(iii) below, where
     applicable), share certificates shall be delivered to the Holder, or his
     legal representative, representing the number equal to the shares covered
     by the Deferred Stock Award.

          (ii) Vesting; Forfeiture. Upon the expiration of the Deferral Period
     (or the Additional Deferral Period, where applicable) with respect to each
     Award of Deferred Stock and the satisfaction of any other applicable
     limitations, terms or conditions, such Deferred Stock shall become vested
     in accordance with the terms of the Agreement. Any Deferred Stock that does
     not vest shall be forfeited to the Company and the Holder shall not
     thereafter have any rights with respect to such Deferred Stock that has
     been so forfeited.

          (iii) Additional Deferral Period. A Holder may request to, and the
     Committee may at any time, defer the receipt of an Award (or an installment
     of an Award) for an additional specified period or until a specified event
     ("Additional Deferral Period"). Subject to any exceptions adopted by the
     Committee, such request must generally be made at least one year prior to
     expiration of the Deferral Period for such Deferred Stock Award (or such
     installment).

11. OTHER STOCK-BASED AWARDS.

     (a) Grant and Exercise. Other Stock-Based Awards may be awarded, subject to
limitations under applicable law, that are denominated or payable in, valued in
whole or in part by reference to, or otherwise based on, or related to, shares
of Common Stock, as deemed by the Committee to be consistent with the purposes
of the Plan, including, without limitation, purchase rights, shares of Common
Stock awarded which are not subject to any restrictions or conditions,
convertible or exchangeable debentures, or other rights convertible into shares
of Common Stock and Awards valued by reference to the value of securities of or
the performance of specified Subsidiaries. Other Stock-Based Awards may be
awarded either alone or in addition to or in tandem with any other Awards under
this Plan or any other plan of the Company.

     (b) Eligibility For Other Stock-Based Awards. The Committee shall determine
the eligible persons to whom and the time or times at which grants of such Other
Stock-Based Awards shall be made, the number of shares of Common Stock to be
awarded pursuant to such Awards, and all other terms and conditions of the
Awards.

     (c) Terms and Conditions. Each Other Stock-Based Award shall be subject to
such terms and conditions as may be determined by the Committee.

12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.

     (a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Award, and the number of shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Awards have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Award, as well as

<PAGE>   10

the price per share of Common Stock covered by each such outstanding Award,
shall be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company. The conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Committee, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible or exchangeable into
shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or exercise price of shares of Common
Stock subject to an Award.

     (b) Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, the Committee shall notify the Holder at least
fifteen (15) days prior to such proposed action. To the extent it has not been
previously exercised, the Award shall terminate immediately prior to the
consummation of such proposed action; provided, however, that the Committee may,
in the exercise of its sole discretion in such instances, declare that any Award
shall terminate as of an earlier date fixed by the Committee and give each
Holder the right to exercise his or her rights as to all or any part of the
Award, including Shares as to which the Award would not otherwise be
exercisable.

     (c) Merger or Asset Sale. Subject to Section 12(d), in the event of the
merger of the Company into, or the consolidation of the Company with, another
corporation in which the shareholders of the Company receive cash or securities
of another issuer, or any combination thereof, in exchange for their shares of
Common Stock, or the sale of all or substantially all of the assets of the
Company, each outstanding Award shall be assumed or an equivalent option or
right substituted by the successor corporation or an Affiliate of the successor
corporation. In the event that the successor corporation refuses to assume or
substitute for the Award, the Holder shall fully vest in and have the right to
exercise the Award (provided it has not already terminated), including Shares as
to which it would not otherwise be vested or exercisable. If an Award becomes
fully vested and exercisable in lieu of assumption or substitution in the event
of a merger, consolidation or sale of assets, the Committee shall notify the
Holder that the Award shall be fully exercisable for a period of fifteen (15)
days from the date of such notice, and the Award shall terminate upon the
expiration of such period. For the purposes of this paragraph, the Award shall
be considered assumed if, following the merger, consolidation or sale of assets,
the option substituted for such Award confers the right to purchase or receive,
for each Share of Stock subject to the Award immediately prior to the merger,
consolidation or sale of assets, the per Share consideration (whether stock,
cash, or other securities or property) received in the merger, consolidation or
sale of assets by holders of Common Stock (and if holders were offered a choice
of consideration, the type of consideration chosen by the holders of a majority
of the outstanding Shares); provided, however, that if such consideration
received in the merger, consolidation or sale of assets is not solely common
stock of the successor corporation or its Parent (if any), the Committee may,
with the consent of the successor corporation, provide for the consideration to
be received upon the exercise of the Award, for each Share of Stock subject to
the Award, to be solely common stock of the successor corporation or its Parent
(if any) equal in fair market value to the per Share consideration received by
holders of Common Stock in the merger, consolidation or sale of assets.

     (d) Change of Control. Notwithstanding anything to the contrary, the
Committee may grant Awards which provide for the acceleration of the vesting of
Shares subject to the Award upon a Change of Control. Such provisions shall be
set forth in the Agreement.

     (e) Further Adjustments. In the event of any change of a type described in
paragraphs (a) or (c) above, the Committee shall make any further adjustment to
the maximum number of Shares which may be acquired under the Plan pursuant to
the exercise of Awards, the maximum number of Shares for which Awards may be
granted to any one Employee and the number of Shares and price per Share subject
to outstanding Awards as shall be equitable to prevent dilution or enlargement
of rights under such Awards, and the determination of the Committee as to these
matters shall be conclusive and binding on the Holder; provided, however, that
(i) each such adjustment with respect to an Incentive Option shall comply with
the rules of Section 424(a) of the Code (or any successor provision) and (ii) in
no event shall any adjustment be

<PAGE>   11

made which would render any Incentive Stock Option granted hereunder other than
an "incentive stock option" as defined in Section 422 of the Code.

     (f) No Limitation on Right to Merge, Etc. The grant of Awards pursuant to
the Plan shall not restrict in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure or to merge, consolidate, dissolve, liquidate, or sell or
transfer all or any part of its business or assets.

13. TERM OF PLAN.

     The Plan shall become effective upon the earlier to occur of its adoption
by the Committee or its approval by the shareholders of the Company, as
described in Section 21 of the Plan. It shall continue in effect for a term of
ten (10) years unless sooner terminated under Section 17 of the Plan.

14. TERM OF OPTIONS.

     The term of each Option shall be the term stated in the Option Agreement;
provided, however, that the term shall be no more than ten (10) years from the
date of grant thereof; and provided further that in the case of an Incentive
Stock Option granted to an Optionee who, at the time the Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Affiliate, the term of the Option shall
be no more than five (5) years from the date of grant thereof.

15. NON-TRANSFERABILITY OF AWARDS.

     An Incentive Stock Option shall not be transferrable except by will or by
the laws of descent and distribution and shall be exercisable during the
lifetime of the Person to whom the Incentive Stock Option is granted only by
such Person. Any other Award, including a Nonqualified Stock Option, shall not
be transferrable except by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order, as defined by the Code or by
Title I of the Employee Retirement Income Security Act of 1974, as amended, or
the rules thereunder (a "QDRO"), and shall be exercisable during the lifetime of
the Person to whom the Option is granted only by such Person or any transferee
pursuant to a QDRO.

16. TIME OF GRANTING AWARDS.

     The date of grant of an Award shall, for all purposes, be the date on which
the Committee makes the determination granting such Award, or such other date as
is determined by the Committee. Notice of the determination shall be given to
each Employee or Consultant to whom an Award is so granted within a reasonable
time after the date of such grant.

17. AMENDMENT AND TERMINATION OF THE PLAN.

     The Board may amend or terminate the Plan in any respect whatsoever,
provided that any such amendment or termination of the Plan shall not affect
Award already granted and such Award shall remain in full force and effect as if
the Plan had not been amended or terminated. In addition, to the extent
necessary and desirable to comply with Rule 16b-3 (or any other applicable law
or regulation, including the requirements of the NASD or an established stock
exchange), the Company shall obtain shareholder approval of any Plan amendment
in such a manner and to such a degree as required.

18. CONDITIONS UPON ISSUANCE OF SHARES.

     Shares shall not be issued pursuant to an Award unless the issuance and
delivery of such Shares pursuant thereto shall comply with all relevant
Applicable Laws, including, without limitation, the Securities Act of 1933, as
amended (the "Securities Act"), the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the Shares may then be listed or any automatic quotation system upon which the
Shares may then be quoted, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.

<PAGE>   12

     The Company may require any Optionee or other Holder, as a condition of
receiving Shares pursuant to an Award, (i) to give written assurances
satisfactory to the Company as to the Holder's knowledge and experience in
financial and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced in
financial and business matter, and that he or she is capable of evaluating,
alone or together with the purchaser representative, the merits and risks of
exercising the Award; (ii) to give written assurances satisfactory to the
Company stating that such Person is acquiring the Shares subject to the Award
for such Person's own account and not with any present intention of selling or
otherwise distributing such Shares; and (iii) to deliver such other
documentation as may be necessary to comply with federal and state securities
laws. These requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the Shares upon the
exercise of the Award has been registered under a then currently effective
registration statement under the Securities Act and all applicable state
securities laws, or (ii) as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may, upon
advice of counsel to the Company, place legends on stock certificates issued
under the Plan as such counsel deems necessary or appropriate in order to comply
with applicable securities laws, including, but not limited to, legends
restricting the transfer of the Shares, and may enter stop-transfer orders
against the transfer of the Shares issued upon the exercise of an Award.

     The inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.

19. RESERVATION OF SHARES.

     The Company, during the term of the Plan, shall at all times reserve and
keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.

20. AGREEMENTS.

     Options shall be evidenced by Option Agreements in such form as the
Committee shall approve from time to time. Other Awards shall be evidenced by
similar Agreements.

21. SHAREHOLDER APPROVAL.

     Continuance of the Plan shall be subject to approval by the shareholders of
the Company within twelve (12) months before or after the date the Plan is
adopted. Such shareholder approval shall be obtained to the extent and in manner
required under Applicable Laws and the rules of any stock exchange upon which
the Common Stock is listed or any automatic quotation system upon which the
Common Stock is quoted.

22. USE OF PROCEEDS FROM STOCK.

     Proceeds from the sale of stock pursuant to Options or other Awards shall
constitute general funds of the Company.

23. MISCELLANEOUS.

     (a) Acceleration of Vesting. The Committee shall have the power to
accelerate the time at which an Award may first be exercised or the time during
which an Award or any part thereof will vest, notwithstanding the provisions in
the Award Agreement stating the time at which it may first be exercised or the
time during which it will vest.

     (b) Rule 16b-3. With respect to Persons subject to Section 16 of the
Exchange Act, transactions under the Plan are intended to comply with all
applicable conditions of Rule 16b-3 and with respect to such Persons all
transactions shall be subject to such conditions regardless of whether they are
expressly set forth in the Plan or the Award Agreement. To the extent any
provision of the Plan or action by the Committee fails to so

<PAGE>   13

comply, it shall not apply to such Persons or their transactions and shall be
deemed null and void, to the extent permitted by law and deemed advisable by the
Committee.

     (c) Grants Exceeding Allotted Shares. If the number of shares of Stock
subject to an Award granted pursuant to the Plan exceeds, as of the date of
grant, the number of Shares that may be issued under the Plan without additional
shareholder approval, such Award shall be void with respect to such excess
Shares, unless shareholder approval of an amendment sufficiently increasing the
number of Shares subject to the Plan is timely obtained in accordance with
Section 17 of the Plan.

     (d) Notice. Any written notice to the Company required by any of the
provisions of the Plan shall be addressed to the Secretary of the Company and
shall become effective when it is received. Any written notice to Holders
required by any provisions of the Plan shall be addressed to the Holder at the
address on file with the Company and shall become effective three days after it
is mailed by certified mail, postage prepaid to such address or at the time of
delivery if delivered sooner by messenger or overnight courier.

     (e) Savings Clause. Notwithstanding any other provision hereof, the Plan is
intended to qualify as a plan pursuant to which Incentive Stock Options may be
issued under Section 422 of the Code. If the Plan or any provision of the Plan
shall be held to be invalid or to fail to meet the requirements of Section 422
of the Code or the regulations promulgated thereunder, such invalidity or
failure shall not affect the remaining parts of the Plan, but rather it shall be
construed and enforced as if the Plan or the affected provision thereof, as the
case may be, complied in all respects with the requirements of Section 422 of
the Code.

     (f) Governing Law. The Plan and all rights and obligations thereunder shall
be construed in accordance with and governed by the laws of the State of Texas
without regard to its conflict of laws rules.

<PAGE>   14

                                                                       EXHIBIT A

                          CAPROCK COMMUNICATIONS CORP.

                           1998 EQUITY INCENTIVE PLAN
                             STOCK OPTION AGREEMENT

     Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.

I. NOTICE OF STOCK OPTION GRANT

[Optionee's name and address]

     You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of this Option Agreement and the Plan,
including the provisions thereof relating to increases in the number of shares
covered by this Option upon the occurrence of certain specified events, as
follows:

<TABLE>
<S>                                 <C>
Grant Number.....................
Date of Grant....................
Vesting Commencement Date........
Exercise Price per Share.........   $
Total Number of Shares Granted...
Total Exercise Price.............   $
Type of Option:..................   Incentive Stock Option
                                    Nonqualified Stock Option
Term/Expiration Date: (No more
  than 10 years from date of
  grant, 5 years for certain
  grants)
</TABLE>

  Vesting Schedule

     This Option may be exercised, in whole or in part, in accordance with the
following schedule. Except only as specifically provided elsewhere herein or in
the Plan, this Option shall be exercisable in the following cumulative
installments:

[NOTE: TO BE COMPLETED UPON GRANT OF OPTIONS]

  Termination Period

     You may exercise this Option for three months (or such shorter period
provided for elsewhere herein) after your employment or consulting relationship
with the Company terminates, or for such longer period upon your death or
disability as provided in the Plan. If your status changes from Employee to
Consultant or Consultant to Employee, this Option Agreement shall remain in
effect. In no case may you exercise this Option after the Term/Expiration Date
as provided above. Notwithstanding the foregoing, in the event the Company
terminates your employment for Cause (as defined below), this Option will
terminate on the date of the termination of your employment and will not be
exercisable thereafter. For purposes of this Agreement, "Cause" means the
occurrence of any of the following events or reasons:

          (a) Optionee's conviction for a felony offense or commission by
     Optionee of any act abhorrent to the community that the Company considers
     materially damaging to or tending to discredit the reputation of the
     Company;

          (b) Dishonesty, fraud, willful misconduct, unlawful discrimination or
     theft on the part of Optionee;

<PAGE>   15

          (c) Optionee's using for his or her own benefit any confidential or
     proprietary information of the Company, or willfully or negligently
     divulging any such information to third parties without the prior written
     consent of the Company;

          (d) Optionee's public drunkenness, public use of illegal substances or
     drugs or the use, possession, distribution or being under the influence of
     alcohol or illegal substances or drugs in the workplace (the only exception
     is that Optionee may consume alcohol reasonably and responsibly, if he or
     she so chooses, at legitimate business events and functions where alcohol
     is legally available); or

          (e) the determination by the Company that Optionee has continually
     failed or refused to comply, after notice of and a reasonable opportunity
     to cure such failure or refusal, with the policies, standards, regulations,
     instructions, or directions of the Company as they currently exist or as
     they may be modified from time to time.

II. AGREEMENT

     1. Grant of Option. CapRock Communications Corp. (the "Company") hereby
grants to the Optionee named in Section I hereof (the "Optionee") an option
(the"Option") to purchase the total number of shares of Common Stock (the
"Shares") set forth in Section I hereof, at the exercise price per share set
forth in Section I hereof (the "Exercise Price") subject to the terms,
definitions and provisions of the 1998 Stock Option Plan (the "Plan") adopted by
the Company, which is incorporated herein by reference. Unless otherwise defined
herein, the terms defined in the Plan shall have the same defined meanings in
this Option Agreement.

     If designated in Section I hereof as an Incentive Stock Option, this Option
is intended (subject to Section 5(b) of the Plan) to qualify as an Incentive
Stock Option as defined in Section 422 of the Code.

     2. Exercise of Option.

          (a) Right to Exercise. This Option shall be exercisable during its
     term in accordance with the Vesting Schedule set out in Section I hereof
     and with the applicable provisions of the Plan and this Option Agreement.
     In the event of Optionee's death, disability or other termination of the
     employment or consulting relationship, this Option shall be exercisable in
     accordance with the applicable provisions of the Plan and this Option
     Agreement.

          (b) Method of Exercise. This Option shall be exercisable by written
     notice (in the form attached hereto as Exhibit A) which shall state the
     election to exercise the Option, the number of Shares in respect of which
     the Option is being exercised, and such other representations and
     agreements as to the holder's investment intent with respect to such shares
     of Common Stock as may be required by the Company pursuant to the
     provisions of the Plan. Such written notice shall be signed by the Optionee
     and shall be delivered in person or by certified mail to the Secretary of
     the Company. The written notice shall be accompanied by payment of the
     Exercise Price. This Option shall be deemed to be exercised upon receipt by
     the Company of such written notice accompanied by the Exercise Price.

     The Optionee shall, upon notification of the amount due (if any) as a
result of the exercise of the Option and prior to or concurrent with delivery of
the certificate representing the Shares, pay to the Company as provided in the
Plan amounts necessary to satisfy applicable federal, state and local tax
withholding requirements.

     No Shares will be issued pursuant to the exercise of an Option unless such
issuance and such exercise shall comply with all relevant provisions of law and
the requirements of any stock exchange upon which the Shares may then be listed
or any automatic quotation system upon which the Shares may then be quoted.
Assuming such compliance, for income tax purposes the Shares shall be considered
transferred to the Optionee on the date on which the Option is exercised with
respect to such Shares.

     3. Method of Payment. The purchase price of Optioned Shares acquired
pursuant to the Option shall be paid as set forth in the Plan. THE USE OF SHARES
OF STOCK ACQUIRED OR TO BE ACQUIRED

<PAGE>   16

TO PAY FOR EXERCISED SHARES MAY HAVE INCOME TAX CONSEQUENCES FOR THE OPTIONEE.

     4. Restrictions on Exercise. This Option may not be exercised until such
time as the Plan has been approved by the shareholders of the Company, and may
not be exercised if the issuance of such Shares upon such exercise or the method
of payment of consideration for such shares would constitute a violation of any
applicable federal or state securities or other law or regulation, including any
rule under Part 207 of Title 12 of the Code of Federal Regulations as
promulgated by the Federal Reserve Board.

     5. Non-Transferability of Option. This Option may not be transferred in any
manner otherwise than by will or by the laws of descent or distribution or as
otherwise set forth in the Plan and may be exercised during the lifetime of
Optionee only by Optionee or a permitted transferee as set forth in the Plan.
The terms of the Plan and this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.

     6. Term of Option. This Option may be exercised only within the term set
out in Section I hereof, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Sections 5 and 6 of the Plan regarding Options designated as Incentive Stock
Options and Options granted to more than ten percent (10%) shareholders shall
apply to this Option.

     7. Tax Consequences. The grant and/or exercise of the Option will have
federal and state income tax consequences. THE OPTIONEE SHOULD CONSULT A TAX
ADVISER UPON THE GRANT OF THE OPTION AND BEFORE EXERCISING THE OPTION OR
DISPOSING OF THE SHARES ACQUIRED UPON EXERCISE, PARTICULARLY WITH RESPECT TO HIS
OR HER STATE'S TAX LAWS.

     8. Entire Agreement; Governing Law. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and this Option Agreement may not be
amended except by means of a writing signed by the Company and Optionee. This
Option Agreement is governed by Texas law except for that body of law pertaining
to conflict of laws.

<PAGE>   17

     9. Warranties, Representations and Covenants. The undersigned Optionee
warrants and represents that he or she has reviewed the Plan and this Option
Agreement in their entirety, has had an opportunity to obtain the advice of
counsel prior to executing this Option Agreement and fully understands all
provisions of the Plan and Option Agreement. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Committee
upon any questions relating to the Plan and Option Agreement. Optionee further
agrees to notify the Company upon any change in the residence address indicated
below. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE
WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS
OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES
THAT NOTHING IN THIS OPTION AGREEMENT, NOR IN THE PLAN, WHICH IS INCORPORATED
HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO
CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE
IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S
EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE.

                                            CAPROCK COMMUNICATIONS CORP.

                                            By:
                                               ---------------------------------

                                            Name:
                                                 -------------------------------
                                            Title:
                                                  ------------------------------

                                            Optionee:

                                            ------------------------------------
                                            Signature

                                            ------------------------------------
                                            Print Name

                                            ------------------------------------
                                            Residence Address

                                            ------------------------------------
                                            Area Code/Telephone Number

<PAGE>   18

                                                                       EXHIBIT A

                          CAPROCK COMMUNICATIONS CORP.

                           1998 EQUITY INCENTIVE PLAN
                                 EXERCISE NOTICE

CapRock Communications Corp.
Two Galleria Tower, Suite 1925
13455 Noel Road
Dallas, Texas 75240-6638

Attention: Secretary

     1. Exercise of Option. Effective as of today,        , 199 , the
undersigned ("Purchaser") hereby elects to purchase      shares (the "Shares")
of the Common Stock of CapRock Communications Corp. (the "Company") under and
pursuant to the 1998 Stock Option Plan (the "Plan") and the Stock Option
Agreement dated        , 199 (the "Option Agreement"). The purchase price for
the Shares shall be $     , as specified in the Option Agreement.

     2. Delivery of Payment. Purchaser herewith delivers to the Company the full
purchase price for the Shares of           . THE USE OF SHARES OF STOCK ACQUIRED
OR TO BE ACQUIRED FOR EXERCISED SHARES MAY HAVE INCOME TAX CONSEQUENCES FOR THE
OPTIONEE.

     3. Representations of Purchaser. Purchaser acknowledges that Purchaser has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.

     4. Rights as Shareholder. The Purchaser shall not be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any Shares
subject for which such Option is exercised including, but not limited to, rights
to vote or to receive dividends unless and until the Purchaser has satisfied all
requirements for exercise of the Option pursuant to its terms, the certificates
evidencing such Shares have been issued and the Purchaser has become a record
holder of such Shares. A share certificate for the number of Shares so acquired
shall be issued to the Optionee as soon as practicable after exercise of the
Option. No adjustment will be made for a dividend or other right for which the
record date is prior to the date all the conditions set forth above are
satisfied, except as provided in Section 12 of the Plan.

     5. Tax Consultation. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.

<PAGE>   19

     6. Entire Agreement; Governing Law. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and this Agreement may not be amended except by means of a writing
signed by the Company and Purchaser. This Agreement is governed by Texas law
except for that body of law pertaining to conflict of laws.

Submitted by:                           Accepted by:

PURCHASER:                              CAPROCK COMMUNICATIONS CORP.

------------------------------------    By:
Signature                                   ------------------------------------

------------------------------------    Its:
Print Name                                  ------------------------------------

Address:                                Address:

------------------------------------    Two Galleria Tower, Suite 1925
                                        13455 Noel Road
------------------------------------    Dallas, Texas 75240-6638

<PAGE>   20

                          CAPROCK COMMUNICATIONS CORP.

                               FIRST AMENDMENT TO
                           1998 EQUITY INCENTIVE PLAN

     On or about June 20, 1998, CapRock Communications Corp., a Texas
corporation (the "Company"), adopted the CapRock Communications Corp. 1998
Equity Incentive Plan (the "Plan"). The Company desires to amend the Plan as set
forth herein:

     1. The definition of "Committee" as set forth in Section 2(i) of the Plan
is hereby amended to read in its entirety as set forth below:

          (i) "Committee" means (a) the Compensation Committee of the Board of
     Directors with respect to Awards granted to all Employees and Consultants
     (other than "Non-Employee Directors" of the Company within the meaning of
     Rule 16b-3) and (b) the entire Board of Directors with respect to Awards
     granted to "Non-Employee Directors" of the Company within the meaning of
     Rule 16b-3.

     2. A definition entitled "Continuing Directors of the Company" is hereby
added as new Section 2(m) of the Plan to read in its entirety as set forth
below:

          (m) "Continuing Directors of the Company" means, with the respect to
     any period of 12 consecutive months, (i) any members of the Board of
     Directors of the Company on the first day of such period, (ii) any members
     of the Board of Directors of the Company elected after the first day of
     such period at any annual meeting of shareholders who were nominated by the
     Board of Directors or a committee thereof, if a majority of the members of
     the Board of Directors or such committee were Continuing Directors of the
     Company within the meaning of clause (i) above at the time of such
     nomination, and (iii) any members of the Board of Directors of the Company
     elected to succeed Continuing Directors of the Company by the Board of
     Directors or a committee thereof, if a majority of the members of the Board
     of Directors or such committee were Continuing Directors of the Company
     within the meaning of clause (i) or (ii) above at the time of such
     election.

     3. Existing Section 2(m), "Continuous Status as an Employee or Consultant,"
through existing Section 2(oo), "Tandem Stock Appreciation Right," are hereby
re-lettered as Sections 2(n) through 2(pp), respectively, of the Plan.

     4. The remaining terms and provisions of the Plan shall continue in full
force and effect.

     5. This First Amendment to the Plan was adopted by the Board of Directors
on October 7, 1999.

<PAGE>   21

                          CAPROCK COMMUNICATIONS CORP.

                               SECOND AMENDMENT TO
                           1998 EQUITY INCENTIVE PLAN

     On or about June 20, 1998, CapRock Communications Corp., a Texas
corporation (the "Company"), adopted the CapRock Communications Corp. 1998
Equity Incentive Plan (the "Plan"), which was amended on October 7, 1999. The
Company desires to further amend the Plan as set forth herein:

     1. The first paragraph of Section 4 of the Plan, entitled "Stock Subject to
Plan," is hereby amended to read in its entirety as set forth below:

        "4. STOCK SUBJECT TO PLAN.

     Subject to adjustment as provided in Section 12 of the Plan, the total
number of Shares available for grant under the Plan shall be that number of
shares equal to 20% of the shares of Common Stock of the Company issued and
outstanding (such determination as to the number of Shares available for grant
to be made on June 1, 2000 and October 1, 2000 and, in each calendar year
thereafter, as of January 1, April 1, July 1, and October 1 of each such year
for which the Plan is in effect); provided that in no event may more than fifty
million (50,000,000) Shares be cumulatively available for the grant of Awards
under the Plan and the maximum number of Shares that may be acquired by an
individual Holder under the Plan shall not exceed 2,500,000 (in each case,
subject to adjustment as provided in Section 12 of the Plan). The Shares may be
authorized but unissued or reacquired Common Stock."

     2. The remaining terms and provisions of the Plan shall continue in full
force and effect.

     3. This Second Amendment to the Plan was adopted by the Board of Directors
on April 24, 2000.<PAGE>   1
                                                                   EXHIBIT 10.24

                                                  Re:
                                                     ---------------------------

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

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

RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:

John E. Bromberg, Esq.
Stutzman & Bromberg
A Professional Corporation
2323 Bryan Street, Suite 2200
Dallas, Texas  75201

                      DEED OF TRUST AND SECURITY AGREEMENT
             AND FIXTURE FILING WITH ASSIGNMENT OF LEASES AND RENTS

                                   Cover Sheet

Dated as of April 20, 2000

Trustor:                          FELCOR/MM S-7 HOLDINGS, L.P., a Delaware
                                  limited partnership
                                  (Hereinafter sometimes "Borrower")

Trustor's                         c/o FelCor Lodging Trust Incorporated
Notice Address:                   545 E. John Carpenter Freeway, Suite 1300
                                  Irving, Texas  75062
                                  Attention:  Andrew J. Welch or Joel M. Eastman

Trustee:
                                  ---------------------------------------
Trustee's
Notice Address:                   -------------------------------

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

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

<PAGE>   2

Beneficiary:                 MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY,
                             a Massachusetts corporation, and TEACHERS
                             INSURANCE AND ANNUITY ASSOCIATION
                             OF AMERICA, a New York corporation
                             (Hereinafter sometimes
                             collectively "Lender")

MassMutual                   c/o David L. Babson and Company Incorporated
Notice Address:              1295 State Street
                             Springfield, Massachusetts   01111-0001
                             Attention:         Senior Managing Director
                                                Mortgage Portfolio Department
                                                Real Estate Investment Group

TIAA Notice Address:         730 Third Avenue
                             New York, New York 10017
                             Attn:  Director Portfolio Management
                                    Mortgage and Real Estate

Loan Amount:                 $____________ evidenced by two (2) promissory
                             notes, each in the original principal amount of
                             $____________

Maturity Date:               May 1, 2010

State:
                             -------------

Record Owner of the Land     FELCOR/MM S-7 HOLDINGS, L.P., a Delaware limited
(as defined herein):         partnership

<PAGE>   3

                      DEED OF TRUST AND SECURITY AGREEMENT
             AND FIXTURE FILING WITH ASSIGNMENT OF LEASES AND RENTS

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                               PAGE
                                                                                                               ----
<S>                                                                                                            <C>
GRANTING CLAUSES..................................................................................................1

ARTICLE I - Definition of Terms...................................................................................4

ARTICLE II - Covenants of Borrower...............................................................................16

Section 2.01. - Payment of the Indebtedness......................................................................16
Section 2.02. - Title to the Mortgaged Property..................................................................16
Section 2.03. - Maintenance of the Mortgaged Property............................................................17
Section 2.04. - Insurance; Restoration...........................................................................17
Section 2.05. - Condemnation.....................................................................................23
Section 2.06. - Impositions......................................................................................23
Section 2.07. - Deposits.........................................................................................24
Section 2.08. - Mortgage Taxes...................................................................................25
Section 2.09. - Loan Documents Authorized........................................................................25
Section 2.10. - Maintenance of Existence.........................................................................26
Section 2.11. - Payment of Liens.................................................................................26
Section 2.12. - Costs of Defending and Upholding the Lien........................................................27
Section 2.13. - Costs of Enforcement.............................................................................27
Section 2.14. - Interest on Advances and Expenses................................................................27
Section 2.15. - Indemnification..................................................................................28
Section 2.16. - Financial Statements; Records....................................................................28
Section 2.17. - Prohibition Against Conveyances and Encumbrances.................................................29
Section 2.18. - Estoppel Certificates............................................................................31
Section 2.19. - Assignment of Leases and Property Income.........................................................32
Section 2.20. - Environmental Matters; Warranties; Notice; Indemnity.............................................33
Section 2.21. - Environmental Matters; Remedial Work.............................................................36
Section 2.22. - Environmental Matters; Inspection................................................................36
Section 2.23. - Management.......................................................................................37
Section 2.24. - ERISA............................................................................................37
Section 2.25. - Operating Agreements.............................................................................38
Section 2.26. - Single-Purpose Entity............................................................................38

ARTICLE III - Security Agreement.................................................................................38

Section 3.01. - Warranties, Representations and Covenants of Borrower............................................38
Section 3.02. - Financing Statements.............................................................................40
Section 3.03. - Addresses........................................................................................40
</TABLE>

                                       i
<PAGE>   4

<TABLE>
<S>                                                                                                             <C>
ARTICLE IV - Default and Remedies................................................................................40

Section 4.01. - Events of Default................................................................................40
Section 4.02. - Remedies.........................................................................................42
Section 4.03. - General Provisions Regarding Remedies............................................................44

ARTICLE V - Trustee..............................................................................................53

Section 5.01. - Certain Actions of Trustee.......................................................................53
Section 5.02. - Reconveyance.....................................................................................53
Section 5.03. - Trustee's Covenants and Compensation.............................................................53
Section 5.04. - Substitution of Trustee..........................................................................53
Section 5.05. - Resignation of Trustee...........................................................................53
Section 5.06. - Ratification of Acts of Trustee..................................................................53

ARTICLE VI - Miscellaneous.......................................................................................54

Section 6.01. - Notices..........................................................................................54
Section 6.02. - Binding Obligations; Joint and Several...........................................................54
Section 6.03. - Captions.........................................................................................54
Section 6.04. - Further Assurances...............................................................................54
Section 6.05. - Severability.....................................................................................55
Section 6.06. - Borrower's Obligations Absolute..................................................................55
Section 6.07. - Amendments.......................................................................................55
Section 6.08. - Other Loan Documents and Schedules...............................................................55
Section 6.09. - Legal Construction...............................................................................56
Section 6.10. - Merger...........................................................................................56
Section 6.11. - Time of the Essence..............................................................................56
Section 6.12. - Transfer of Loan.................................................................................56
Section 6.13. - Satisfaction.....................................................................................56
Section 6.14. - Defeasance Requirements..........................................................................57
Section 6.15. - Partial Release..................................................................................58
Section 6.16. - Substitution of Collateral.......................................................................59

Signature Page...................................................................................................62
</TABLE>

Schedule A - Description of Land
Schedule B - Permitted Encumbrances
Exhibit A - Example for Debt Service Coverage Ratio - Mortgaged Properties
Exhibit B - Example for Debt Service Coverage Ratio - Remaining Properties

                                       ii

<PAGE>   5

                      DEED OF TRUST AND SECURITY AGREEMENT
             AND FIXTURE FILING WITH ASSIGNMENT OF LEASES AND RENTS

THIS DEED OF TRUST AND SECURITY AGREEMENT AND FIXTURE FILING WITH ASSIGNMENT OF
LEASES AND RENTS (this "Deed of Trust") is made as of April 20, 2000, by and
between FELCOR/MM S-7 HOLDINGS, L.P., a Delaware limited partnership having an
office at c/o FelCor Lodging Trust Incorporated, 545 E. John Carpenter Freeway,
Suite 1300, Irving, Texas 75062 ("Trustor" and "Borrower"), in favor of
___________________, having an office at ___________________________________
("Trustee"), for the use and benefit of MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY, a Massachusetts corporation having an office at 1295 State Street,
Springfield, Massachusetts 01111-0001 ("MassMutual") and TEACHERS INSURANCE AND
ANNUITY ASSOCIATION OF AMERICA, a New York corporation having an office at 730
Third Avenue, New York, New York 10017 ("TIAA") (MassMutual and TIAA are
collectively referred to herein as "Beneficiary" and "Lender").

                                GRANTING CLAUSES

For good and valuable consideration and to secure and enforce pari passu an
indebtedness in the principal sum of _________________________________
($_____________) lawful money of the United States, to be paid according to (i)
that certain Promissory Note of even date herewith from Borrower to MassMutual
in the principal sum of $_______________ and by this reference made a part
hereof (said Promissory Note, as the same may hereafter be amended, modified,
consolidated or extended, the "MassMutual Note"), and (ii) that certain
Promissory Note of even date herewith from Borrower to TIAA in the principal sum
of $______________ and by this reference made a part hereof (said Promissory
Note as the same may hereafter be amended, modified, consolidated or extended,
the "TIAA Note") (the MassMutual Note and the TIAA Note being hereinafter
collectively referred to as the "Note"), together with all other obligations and
liabilities due or becoming due to Lender pursuant to the Loan Documents
(hereinafter defined) and, all amounts, sums and expenses paid hereunder by or
payable to Lender according to the terms hereof, and all other covenants,
obligations and liabilities of Borrower under the Note, this Deed of Trust, the
Assignment (hereinafter defined) and any other instrument evidencing, securing
or executed in connection with the loan evidenced by the Note (all of the
foregoing instruments, collectively, the "Loan Documents"), and together with
all interest on said indebtedness, obligations, liabilities, amounts, sums,
Advances (as hereinafter defined) and expenses (all of the foregoing,
collectively, the "Indebtedness"), Borrower has created in favor of Lender a
security interest in and mortgaged, warranted, granted, bargained, sold,
conveyed, assigned, pledged,

                                       1
<PAGE>   6

transferred and set over, and does by these presents create a security interest
in and MORTGAGE, WARRANT, GRANT, BARGAIN, SELL, CONVEY, ASSIGN, PLEDGE, TRANSFER
AND SET OVER unto Trustee, as trustee for the benefit of Lender, to its
successors in the trust created by this Deed of Trust, and to its or their
respective assigns forever, in trust, with all POWERS OF SALE and RIGHTS OF
ENTRY AND POSSESSION and all STATUTORY RIGHTS AND COVENANTS in the State
(hereinafter defined), the following property:

The parcel or parcels of land described in Schedule A attached hereto and by
this reference made a part hereof (the "Land");

TOGETHER with the buildings, foundations, structures and improvements (including
fixtures) now or hereafter located on or in the Land (collectively, the
"Improvements");

TOGETHER with all right, title and interest, if any, of Borrower in and to the
streets and roads, opened or proposed, abutting the Land, all strips and gores
within or adjoining the Land, the air space and right to use the air space above
the Land, all rights of ingress and egress to and from the Land, all easements,
rights of way, reversions, remainders, estates, rights, titles, interests,
privileges, servitudes, tenements, hereditaments, and appurtenances now or
hereafter affecting the Land or the Improvements, all royalties and rights and
privileges appertaining to the use and enjoyment of the Land or the
Improvements, including all air, lateral support, streets, alleys, passages,
vaults, drainage, water, oil, gas and mineral rights, development rights, all
options to purchase or lease, and all other interests, estates or claims, in law
or in equity, which Borrower now has or hereafter may acquire in or with respect
to the Land or the Improvements (collectively, the "Appurtenances");

The Land, the Improvements and the Appurtenances are hereinafter sometimes
collectively referred to as the "Premises";

TOGETHER with all of Borrower's possessory or title interest in and to all
equipment, fittings, furniture, furnishings, appliances, apparatus, and
machinery now or hereafter installed in or located upon the Premises and all
building materials, supplies and equipment now or hereafter delivered to the
Premises and intended to be installed therein or located thereon; all of
Borrower's possessory or title interest in and to all fixtures, other goods and
personal property of whatever kind and nature now contained on or in or
hereafter placed on or in the Premises and used or to be used in connection with
the letting or operation thereof (but specifically excluding inventory and other
personal property owned by any lessee under a Lease) and all renewals or
replacements of any of the foregoing property or articles in substitution
thereof (collectively, the "Equipment");

TOGETHER with all right, title and interest of Borrower in and under all present
or future accounts, (including trade accounts, accounts receivables, credit card
receivables, and rights to payments for goods and services, including food,
beverages and other items sold or leased, whether or not

                                       2
<PAGE>   7

earned by performance), escrows, documents, instruments, chattel paper, and
general intangibles, as the foregoing terms are defined in the Code (hereinafter
defined), and all contract rights, including, without limitation, casualty
insurance policies and liability insurance policies (irrespective of whether
such policies are required to be obtained or maintained in force pursuant to
this Deed of Trust or other Loan Documents), trade names, trademarks,
servicemarks, logos, copyrights, goodwill, franchises, books, records, plans,
specifications, permits, licenses, approvals, actions and causes of action which
now or hereafter relate to, are derived from or are used in connection with the
Premises or the use, operation, maintenance, occupancy or enjoyment thereof or
the conduct of any business or activities thereon (collectively, the
"Intangibles");

TOGETHER with all right, title and interest of Borrower in and under all leases,
lettings, tenancies, franchises and licenses of the Premises or any part thereof
now or hereafter entered into and all amendments, extensions, renewals and
guaranties thereof, all security therefor, and all moneys payable thereunder
(collectively, the "Leases");

TOGETHER with all room rentals and charges of room rentals, room deposits,
rents, income, accounts, receivables, issues, profits, security deposits and
other benefits to which Borrower may now or hereafter be entitled from the
Premises, the Equipment or the Intangibles or under or in connection with the
Leases (collectively, the "Property Income"); and

TOGETHER with all proceeds, judgments, claims, compensation, awards of damages
and settlements pertaining to or resulting from or in lieu of any condemnation
or taking of the Premises by eminent domain or any casualty loss or damage to
any of the Premises, the Equipment, the Intangibles, the Leases or the Property
Income, and including also, without limitation, the right to assert, prosecute
and settle claims arising out of or pertaining to such condemnation or taking or
such casualty loss under insurance policies constituting an Intangible and to
apply for and receive payments of proceeds under such insurance policies and in
any condemnation or taking, the right to apply for and receive all refunds with
respect to the payment of property taxes and assessments and all other proceeds
from the conversion, voluntary or involuntary, of the Premises, the Equipment,
the Intangibles, the Leases or the Property Income, or any part thereof, into
cash or liquidated claims. Collectively, all of the foregoing, are herein
referred to as the "Proceeds."

The Equipment, the Intangibles, the Leases, the Property Income and the Proceeds
are hereinafter sometimes collectively referred to as the "Collateral." The
Premises and the Collateral are hereinafter sometimes collectively referred to
as the "Mortgaged Property."

TO HAVE AND TO HOLD the Mortgaged Property, with all the privileges and
appurtenances to the same belonging, and with the possession and right of
possession thereof, unto Trustee, as trustee for the benefit of Lender as
beneficiary, to its successors in the trust created by this Deed of Trust, and
to its or their successors and assigns forever, in trust, upon the terms and
conditions set forth herein.

                                       3
<PAGE>   8

                                    ARTICLE I
                               Definition of Terms

         As used in this Deed of Trust, the terms set forth below shall have the
following meanings:

         "Advances" - All sums, amounts or expenses advanced or paid and all
costs reasonable incurred by Lender, as provided in this Deed of Trust or in any
other Loan Document, upon failure of Borrower to pay or perform any obligation
or covenant contained herein or in such other Loan Document.

         "Agreement Concerning Primary Lease Agreement" - means that certain
Agreement Concerning Primary Lease Agreement of even date herewith between
[FCH/SH Leasing] [FCH/SH Leasing II] and Lender and consented to by Borrower.

         "Allocated Loan Amount" - means the loan amount allocated to each of
the Mortgaged Properties as follows:

<TABLE>
<CAPTION>
Property             Loan Amount
--------             -----------
<S>                  <C>
Arizona              $27,000,000.00
Florida              $13,000,000.00
Georgia              $18,000,000.00
Illinois             $25,000,000.00
Kentucky             $ 7,000,000.00
Pennsylvania         $34,000,000.00
Vermont              $21,000,000.00
</TABLE>

         "Annual Debt Service" - means all principal, interest and other
payments due under the Note and any Related Note for any calendar year.

         "Application" - means that certain MassMutual Application for Real
Estate Loan dated February 23, 2000 executed by Joel M. Eastman.

         "Appurtenances" - See Granting Clauses.

                                       4
<PAGE>   9

         ["Arizona Loan Documents" - means the Arizona Note, the Arizona
Mortgage and any other instrument evidencing, securing or executed in connection
with the loan evidenced by the Arizona Note.

         "Arizona Mortgage" - means that certain Deed of Trust and Security
Agreement and Fixture Filing With Assignment of Leases and Rents of even date
herewith securing the Arizona Note, executed by Borrower for the benefit of
Mortgagee.

         "Arizona Note" - means collectively (i) that certain promissory note of
even date herewith in the original principal amount of $13,500,000.00 executed
by Borrower and payable to the order of MassMutual, and (ii) that certain
promissory note of even date herewith in the original principal amount of
$13,500,000.00 executed by Borrower and payable to the order of TIAA.]

         "Assignment" - The Assignment of Leases and Rents from Borrower to
Lender of even date herewith.

         "Bank"- has the meaning provided in Section 6.17.

         "Bankruptcy Proceeding" - Any proceeding, action, petition or filing
under the Federal Bankruptcy Code or any similar state or federal law now or
hereafter in effect relating to bankruptcy, reorganization or insolvency, or the
arrangement or adjustment of debts.

         "Beneficiary" - Massachusetts Mutual Life Insurance Company and
Teachers Insurance and Annuity Association of America and their respective
successors and assigns (including any other holders from time to time of the
Note), and also herein called "Lender."

         "Borrower" - The party identified and defined as Trustor and Borrower
on the Cover Sheet and in the preamble of this Deed of Trust, any subsequent
owner of the Mortgaged Property, and its successors and assigns.

         "Business Day" - Any day other than a Saturday, Sunday or other day on
which national banks in the State are not open for business.

         "Closing Date" - means the date of this Deed of Trust.

         "Code" - The Uniform Commercial Code of the State.

         "Collateral" - See Granting Clauses.

                                       5
<PAGE>   10

         "Debt Service Coverage Ratio - Mortgaged Properties" - means (i) the
amount of cash flow generated from the Mortgaged Properties available for
payment of principal, interest, escrow deposits and other amounts, if any, due
under the Note and each Related Note, after payment in cash of all other costs,
fees and expenses attributable on an annual basis to the ownership, operation
and maintenance of the Mortgaged Properties (including Impositions, insurance,
and an FF&E reserve equal to four percent (4%) of the aggregate room and suite
income), divided by (ii) the aggregate amount of principal, interest, escrow
deposits and other amounts, if any, due on an annual basis under the Note and
each Related Note; an example of the calculation of which is attached hereto as
Exhibit A.

         "Debt Service Coverage Ratio - Remaining Properties" - means (i) the
amount of cash flow generated from the Remaining Properties available for
payment of principal, interest, escrow deposits and other amounts, if any, due
under each remaining Related Note, after payment in cash of all other costs,
fees and expenses attributable on an annual basis to the ownership, operation
and maintenance of the Remaining Properties (including Impositions, insurance,
and an FF&E reserve equal to four percent (4%) of the aggregate room and suite
income), divided by (ii) the aggregate amount of principal, interest, escrow
deposits and other amounts, if any, due on an annual basis under each remaining
Related Note; an example of the calculation of which is attached hereto as
Exhibit B.

         "Default" - means the occurrence of any event which, but for the giving
of notice or the passage of time, or both, would be an Event of Default.

         "Default Rate" - The per annum interest rate equal to the sum of three
percent (3%) plus the Contract Rate (as defined in the Note).

         "Defeasance Deposit" - means the amount that will be sufficient to
purchase U.S. Obligations (A) having maturity dates on or prior to, but as close
as possible to, successive scheduled Payment Dates (after the Defeasance Release
Date) upon which Payment Dates interest and principal payments would be required
under the Note and the Related Notes and (B) in amounts sufficient to pay all
scheduled principal and interest payments on the Note and the Related Notes.

         "Defeasance Release Date" - has the meaning provided in Section
6.14(b).

         "Defeasance Security Agreement" - has the meaning provided in Section
6.14(d).

         "Entity" - means a (i) corporation, if Borrower is listed as a
corporation in the preamble to this Deed of Trust, (ii) limited partnership, if
Borrower is listed as a limited partnership in the preamble to this Deed of
Trust or (iii) limited liability company, if Borrower is listed as a limited
liability company in the preamble to this Deed of Trust.

                                       6
<PAGE>   11

         "Environmental Law" - Any present or future federal, state or local
law, statute, regulation or ordinance, and any judicial or administrative order
or judgment thereunder, pertaining to health, industrial hygiene or the
environmental or ecological conditions on, under or about the Premises,
including, without limitation, each of the following as to date or hereafter
amended: the Comprehensive Environmental Response, Compensation and Liability
Act; the Resource Conservation and Recovery Act; the Toxic Substances Control
Act; the Federal Water Pollution Control Act (also known as the Clean Water
Act); the Clean Air Act; and the Hazardous Materials Transportation Act; the
Solid Waste Disposal Act; the Safe Drinking Water Act; the Occupational Safety
and Health Act; the Federal Water Pollution Control Act; the Emergency Planning
and Community Right-To-Know Act; the Federal Insecticide, Fungicide and
Rodenticide Act; the National Environmental Policy Act; and, the Rivers and
Harbors Appropriation Act, and all ___________ environmental laws, including
without limitation, those contained in ________________.

         "Equipment" - See Granting Clauses; provided, however, the term
"Equipment" shall not include the following personal property owned by [FCH/SH
Leasing] [FCH/SH Leasing II]: all inventories, supplies, and consumables,
including without limitation, food and beverage inventories, inventories of
stationery, forms and office supplies, cleaning and maintenance supplies, guest
room supplies and other operating supplies, and supplies of linens, terry,
uniforms, chinaware, glassware, silverware and serving utensils located at the
Premises.

         "ERISA" - The Employee Retirement Income Security Act of 1974, as
amended.

         "Event of Default" - Any one or more of the events described in Section
4.01 and includes any one or more Monetary Events of Default and/or Non-Monetary
Events of Default.

         "FCH/PSH" - means FCH/PSH, L.P., a Pennsylvania limited partnership.

         ["FCH/SH Leasing" - means FCH/SH Leasing, L.L.C., a Delaware limited
liability company.]

         ["FCH/SH Leasing II" - means FCH/SH Leasing II, L.L.C., a Delaware
limited liability company.]

         "FF&E" - means furnishings, fixtures and equipment.

         "Fiscal Year" - The 12 month period commencing on January 1 and ending
on December 31 during each year of the term of this Deed of Trust, or such other
fiscal year of Borrower as Borrower may select from time to time with the prior
consent of Lender. During the first year of the term hereof, Borrower's Fiscal
Year shall be deemed to have commenced on the date of this Deed of Trust and
shall end on the regular Fiscal Year ending date as indicated in the immediately
preceding sentence.

                                       7
<PAGE>   12

         ["Florida Loan Documents" - means the Florida Note, the Florida
Mortgage and any other instrument evidencing, securing or executed in connection
with the loan evidenced by the Florida Note.

         "Florida Mortgage" - means that certain Mortgage and Security Agreement
of even date herewith securing the Florida Note, executed by Borrower and
Guarantor for the benefit of Beneficiary.

         "Florida Note" - means collectively (i) that certain promissory note of
even date herewith in the original principal amount of $6,500,000.00 executed by
Borrower and payable to the order of MassMutual, and (ii) that certain
promissory note of even date herewith in the original principal amount of
$6,500,000.00 executed by Borrower and payable to the order of TIAA.]

         ["Georgia Loan Documents" - means the Georgia Note, the Georgia
Mortgage and any other instrument evidencing, securing or executed in connection
with the loan evidenced by the Georgia Note.

         "Georgia Mortgage" - means that certain Deed to Secure Debt and
Security Agreement of even date herewith securing the Georgia Note, executed by
Borrower for the benefit of Beneficiary.

         "Georgia Note" - means collectively (i) that certain promissory note of
even date herewith in the original principal amount of $9,000,000.00 executed by
Borrower and payable to the order of MassMutual, and (ii) that certain
promissory note of even date herewith in the original principal amount of
$9,000,000.00 executed by Borrower and payable to the order of TIAA.]

         "Guarantor" - means FelCor Lodging Limited Partnership, a Delaware
limited partnership, formerly known as FelCor Suites Limited Partnership.

         "Hazardous Substance" - Any material, waste or substances (other than
cleaning solvents and other materials used in the ordinary course of hotel
operations and present in normal quantities) which is:

         (i)      included within the definitions of "hazardous substances,"
                  "hazardous materials," "toxic substances" or "solid waste" in
                  or pursuant to any Environmental Law, or subject to regulation
                  under any Environmental Law;

         (ii)     listed in the United States Department of Transportation
                  Optional Hazardous Materials Table, 49 C.F.R. Section 172.101,
                  as to date or hereafter amended, or in the United States
                  Environmental Protection Agency List of Hazardous Substances
                  and Reportable Quantities, 40 C.F.R. Part 302, as to date or
                  hereafter amended; or

                                       8
<PAGE>   13

         (iii)    explosive, radioactive, asbestos, a polychlorinated biphenyl,
                  oil or a petroleum product.

         ["Illinois Loan Documents" - means the Illinois Note, the Illinois
Mortgage and any other instrument evidencing, securing or executed in connection
with the loan evidenced by the Illinois Note.

         "Illinois Mortgage" - means that certain Mortgage and Security
Agreement of even date herewith securing the Illinois Note, executed by Borrower
and Guarantor for the benefit of Beneficiary.

         "Illinois Note" - means collectively (i) that certain promissory note
of even date herewith in the original principal amount of $12,500,000.00
executed by Borrower and payable to the order of MassMutual, and (ii) that
certain promissory note of even date herewith in the original principal amount
of $12,500,000.00 executed by Borrower and payable to the order of TIAA.]

         "Impositions" - All taxes of every kind and nature, sewer rents,
charges for water, for setting or repairing meters and for all other utilities
serving the Premises, and assessments, levies, inspection and license fees and
all other charges imposed upon or assessed against the Mortgaged Property or any
portion thereof (including the Property Income), and any stamp or other taxes
which might be required to be paid, or with respect to any of the Loan
Documents, any of which might, if unpaid, affect the enforceability of any of
the remedies provided in this Deed of Trust or result in a lien on the Mortgaged
Property or any portion thereof, regardless of to whom assessed.

         "Indebtedness" - See Granting Clauses.

         "Intangibles" - See Granting Clauses.

         "Interest Accrual Period" - means each calendar month, provided the
actual number of days elapsed in the calendar month in which the Closing Date
occurs shall also be an Interest Accrual Period.

         ["Kentucky Loan Documents" - means the Kentucky Note, the Kentucky
Mortgage and any other instrument evidencing, securing or executed in connection
with the loan evidenced by the Kentucky Note.

         "Kentucky Mortgage" - means that certain Mortgage and Security
Agreement of even date herewith securing the Kentucky Note, executed by Borrower
and Guarantor for the benefit of Beneficiary.

         "Kentucky Note" - means collectively (i) that certain promissory note
of even date herewith in the original principal amount of $3,500,000.00 executed
by Borrower and payable to the order of

                                       9
<PAGE>   14

MassMutual, and (ii) that certain promissory note of even date herewith in the
original principal amount of $3,500,000.00 executed by Borrower and payable to
the order of TIAA.]

         "Land" - See Granting Clauses.

         "Late Charge" - Any charge designated as such and payable by Borrower
for tardy performance by Borrower under the Note, this Deed of Trust or any
other Loan Document.

         "Leases" - See Granting Clauses.

         "Lender" - Massachusetts Mutual Life Insurance Company and Teachers
Insurance and Annuity Association of America, the Beneficiary and Lender
identified as such on the Cover Sheet and in the preamble of this Deed of Trust,
and their respective successors and assigns (including any other holders from
time to time of the Note).

         "Lien" - means any mortgage, deed of trust, deed to secure debt, lien
(statutory or other), pledge, easement, restrictive covenant, hypothecation,
assignment, preference, priority, security interest, or any other encumbrance or
charge on or affecting the Mortgaged Property or any portion thereof or any
Collateral or the Borrower, or any interest in any of the foregoing, including,
without limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, the filing of any financing statement or similar instrument under the
UCC or comparable law of any other jurisdiction, domestic or foreign, and
mechanic's, materialman's and other similar liens and encumbrances.

         "Loan" - means the loan from Lender to Borrower and evidenced by the
Note and the Loan Documents.

         "Loan Documents" - See Granting Clauses.

         "Losses" - claims, suits, liabilities (including without limitation,
strict liabilities), actions, proceedings, obligations, debts, damages, losses,
costs, fines, penalties, charges, fees, expenses, judgments, awards, amounts
paid in settlement, punitive damages, foreseeable and unforeseeable
consequential damages of whatever kind or nature (including but not limited to
reasonable attorneys' fees and other costs of defense).

         "Management Agreement" - means that certain Management Agreement dated
_________, by and between [FCH/SH Leasing] [FCH/SH Leasing II], as owner, and
Sheraton, [as operator, as amended by that certain ________________ dated
_____________, by and between [FCH/SH Leasing] [FCH/SH Leasing II] and
Sheraton].

                                       10
<PAGE>   15

         "Material Lease" - as to the Mortgaged Property, none.

         "Monetary Event of Default" - has the meaning provided in Section 6 of
the Note.

         "Mortgaged Property" - See Granting Clauses.

         "Mortgaged Properties" - means collectively the Mortgaged Property and
the properties secured by the [Arizona Mortgage, Florida Mortgage, the Georgia
Mortgage, the Illinois Mortgage, the Kentucky Mortgage, the Pennsylvania
Mortgage, the Vermont Mortgage] or any mortgage, deed of trust or deed to secure
debt securing any Substitute Property.

         "Net Operating Income" - means (a) all payments made under the Primary
Lease and any Related Primary Lease less (b) all expenses payable by Borrower
under the Primary Lease and any Related Primary Lease or with respect to the
ownership and operation of the Mortgaged Properties (i) including Impositions,
insurance, and an FF&E reserve equal to four percent (4%) of the aggregate room
and suite income, but (ii) excluding deductions for federal, state and other
income taxes, debt service expense, depreciation and amortization and other
non-cash expenses.

         "Non-Material Lease" - means any Lease other than the Primary Lease or
the Material Lease.

         "Non-Monetary Event of Default" - has the meaning provided in Section 6
of the Note.

         "Note" - See Granting Clauses.

         "Operating Agreements" - means collectively, the Primary Lease and the
Management Agreement.

         "Operating Period" - means each calendar quarter during the term of the
Loan.

         ["Pennsylvania Loan Documents" - means the Pennsylvania Note, the
Pennsylvania Mortgage and any other instrument evidencing, securing or executed
in connection with the loan evidenced by the Pennsylvania Note.

         "Pennsylvania Mortgage" - means that certain Mortgage and Security
Agreement of even date herewith securing the Pennsylvania Note, executed by
Borrower and FCH/PSH for the benefit of Beneficiary.

         "Pennsylvania Note" - means collectively (i) that certain promissory
note of even date herewith in the original principal amount of $17,000,000.00
executed by Borrower and payable to the order of

                                       11
<PAGE>   16

MassMutual, and (ii) that certain promissory note of even date herewith in the
original principal amount of $17,000,000.00 executed by Borrower and payable to
the order of TIAA.]

         "Permitted Encumbrances" - The liens and security interest created by
this Deed of Trust and the other Loan Documents and those exceptions to title
set forth in Schedule B to this Deed of Trust.

         "Person" - means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization, and any other form of
entity, as the context may require.

         "Premises" - See Granting Clauses.

         "Primary Lease" - means that certain Lease Agreement dated ___________,
by and between _____________, as lessor, and [FCH/SH Leasing] [FCH/SH Leasing
II], as lessee, [as amended by that certain Omnibus Lease Amendment Agreement
dated June 30, 1998, by and among FelCor Lodging Trust Incorporated, Guarantor,
[FCH/SH Leasing] [FCH/SH Leasing II] and certain other lessors and lessees under
separate lease agreements].

         "Proceeds" - See Granting Clauses.

         "Property Income" - See Granting Clauses.

         "Qualified Hotel Operator" - means any reputable Person domiciled in
the United States of America which has the greater of the financial strength,
qualifications and creditworthiness of [FCH/SH Leasing] [FCH/SH Leasing II] or
in Beneficiary's sole determination, a minimum net worth of $30,000,000.00 and
liquid assets of not less than $3,000,000.00, all as of a date which is 30 days
prior to the date of the transfer. Additionally, neither the proposed purchaser
nor any principal of the proposed purchaser, whether on the date for the closing
of the transfer of title to the Mortgaged Property or at any time prior thereto,
may be (i) in default on any indebtedness or loan from Beneficiary or any
affiliate of Beneficiary, (ii) involved as a debtor in any bankruptcy,
reorganization or insolvency proceeding, (iii) the subject of any criminal
charges or proceedings, or (iv) an entity or individual who is or has been
involved in litigation which is in good faith deemed significant by Beneficiary.

         "Qualified Real Estate Investor" - means any reputable Person domiciled
in the United States of America which has equal the financial strength,
qualifications and creditworthiness of Borrower at the time of the disbursement
of the Note, evaluated as of a date which is 30 days prior to the date of the
proposed closing of the transfer of title to the Mortgaged Property and on the
day after the proposed closing of the transfer. Additionally, neither the
proposed purchaser nor any principal of the proposed purchaser, whether on the
date for the closing of the transfer of title to the Mortgaged Property or at
any time prior thereto, may be (i) in default on any indebtedness or loan from

                                       12
<PAGE>   17

Beneficiary or any affiliate of Beneficiary, (ii) involved as a debtor in any
bankruptcy, reorganization or insolvency proceeding, (iii) the subject of any
criminal charges or proceeding, or (iv) an entity or individual who is or has
been involved in litigation which is in good faith deemed significant by Lender.

         "Related Loan Documents" - means collectively the Related Notes, the
Related Mortgages and any other instrument evidencing, securing or executed in
connection with the loans evidenced by the Related Notes.

         "Related Loans" - means collectively the loans from Lender to Borrower
and evidenced by each Related Note and the Related Loan Documents.

         "Related Mortgage" - means collectively the [Arizona Mortgage, Florida
Mortgage, the Georgia Mortgage, the Illinois Mortgage, the Kentucky Mortgage,
the Pennsylvania Mortgage, the Vermont Mortgage] or any mortgage or deed of
trust or deed to secure debt securing any Substitute Property.

         "Related Note" - means collectively the [Arizona Note, Florida Note,
the Georgia Note, the Illinois Note, the Kentucky Note, the Pennsylvania Note,
the Vermont Note] or any promissory note executed in connection with any
Substitute Property.

         "Related Primary Lease" - means collectively any primary lease under
the Related Loan Documents.

         "Release" - Release means and includes the following: the release,
deposit, discharge, emission, leaking, spilling, seeping, migrating, injecting,
pumping, pouring, emptying, escaping, dumping, disposing or other movement of a
Hazardous Substance no matter how or by whom or what caused.

         "Released Property" has the meaning provided in Section 6.16.

         "Remaining Properties" - means the properties securing the [Arizona
Note, Florida Note, the Georgia Note, the Illinois Note, the Kentucky Note, the
Pennsylvania Note, the Vermont Note] or any promissory note executed in
connection with any Substitute Property.

         "Remediation" - Remediation means and includes the following: any
response, remedial, removal or corrective action, any activity to cleanup,
detoxify, decontaminate, contain or otherwise remediate any Hazardous Substance,
any actions to prevent, cure or mitigate any Release of a Hazardous Substance,
any action to comply with any Environmental Laws or with any permits issued
pursuant thereto, any inspection, investigation, study, monitoring, assessment,
audit, sampling and testing, laboratory or other analysis, or evaluation
relating to any Hazardous Substances and to anything referred to in Section
2.20.

                                       13
<PAGE>   18

         "Sheraton" - means ____________________________________.

         "Single-Purpose Entity" - means a corporation, limited partnership, or
limited liability company which, at all times since its formation and thereafter
(i) was and will be organized solely for the purpose of (x) owning the Mortgaged
Properties or (y) acting as the managing member of the limited liability company
or the general partner of a limited partnership which owns the Mortgaged
Properties, (ii) has not and will not engage in any business unrelated to the
(x) the ownership of the Mortgaged Properties or (y) acting as a member of a
limited liability company or general partner of a limited partnership which owns
the Mortgaged Properties, (iii) has not and will not have any assets other than
(x) those related to the Mortgaged Properties or (y) its member interest in the
limited liability company or its general partnership interest in the limited
partnership which owns the Mortgaged Properties, as applicable, (iv) has not and
will not engage in, seek or consent to any dissolution, winding up, liquidation,
consolidation or merger, and, except as otherwise expressly permitted by this
Deed of Trust, has not and will not engage in, seek or consent to any asset
sale, transfer of partnership or membership or shareholder interests, or
amendment of its limited partnership agreement, articles of incorporation,
articles of organization, certificate of formation or operating agreement (as
applicable), (v) if such entity is a limited partnership, has and will have as a
general partner, a general partner which is and will be a Single-Purpose Entity,
(vi) has not and will not fail to correct any known misunderstanding regarding
the separate identity of such entity, (vii) without the unanimous consent of all
of the partners, directors or members, as applicable, has not and will not with
respect to itself or to any other entity in which it has a direct or indirect
legal or beneficial ownership interest (a) file a bankruptcy, insolvency or
reorganization petition or otherwise institute insolvency proceedings or
otherwise seek any relief under any laws relating to the relief from debts or
the protection of debtors generally; (b) seek or consent to the appointment of a
receiver, liquidator, trustee, sequestrator, custodian or any similar official
for such entity or all or any portion of such entity's properties; (c) make any
assignment for the benefit of such entity's creditors; or (d) take any action
that might cause such entity to become insolvent, (x) has maintained and will
maintain its accounts, books and records separate from any other person or
entity, (xi) has maintained and will maintain its books, records, resolutions
and agreements as official records, (xii) has not commingled and will not
commingle its funds or assets with those of any other entity, (xiii) has held
and will hold its assets in its own name, (xiv) has conducted and will conduct
its business in its name, (xv) has maintained and will maintain its financial
statements, accounting records and other entity documents separate from any
other person or entity, (xvi) has paid and will pay its own liabilities out of
its own funds and assets, (xvii) has observed and will observe all partnership,
corporate or limited liability company formalities, as applicable, (xviii) has
maintained and will maintain an arms-length relationship with its affiliates
other than the leases transferred to Borrower and its general partner as part of
their initial capital contributions, (xix) (a) if such entity owns the Mortgaged
Properties, has and will have no indebtedness other than the Indebtedness,

                                       14
<PAGE>   19

equipment leases permitted by this Deed of Trust and unsecured trade payables in
the ordinary course of business relating to the ownership and operation of the
Mortgaged Properties which trade payables (1) do not exceed, at any time, a
maximum amount of one percent (1%) of the Loan Amount and (2) are paid within
thirty (30) days of the date incurred, or (b) if such entity acts as the general
partner of a limited partnership or managing member of a limited liability
company which owns the Mortgaged Properties, has and will have no indebtedness
other than unsecured trade payables in the ordinary course of business relating
to acting as general partner or managing member which owns the Mortgaged
Properties which (1 ) do not exceed, at any time, Ten Thousand Dollars
($10,000.00) and (2) are paid within thirty (30) days of the date incurred, (xx)
has not and will not assume or guarantee or become obligated for the debts of
any other entity or hold out its credit as being available to satisfy the
obligations of any other entity except for the Indebtedness, (xxi) has not
acquired and will not acquire obligations or securities of its partners, members
or shareholders, (xxii) has allocated and will allocate fairly and reasonably
shared expenses, including, without limitation, shared office space and uses
separate stationery, invoices and checks, (xxiii) has not and will not pledge
its assets for the benefit of any other person or entity, (xxiv) has held and
identified itself and will hold itself out and identify itself as a separate and
distinct entity under its own name and not as a division or part of any other
person or entity, (xxv) has not made and will not make loans to any person or
entity, (xxvi) has not and will not identify its partners, members or
shareholders, or any affiliates of any of them as a division or part of it,
(xxvii) other than the leases transferred to Borrower and its general partner as
part of their initial capital contributions has not entered and will not enter
into or be a party to, any transaction with its partners, members, shareholders
or its affiliates except in the ordinary course of its business and on terms
which are intrinsically fair and are no less favorable to it than would be
obtained in a comparable arms-length transaction with an unrelated third party,
(xxviii) has paid and will pay the salaries of its own employees from its own
funds, (xix) has maintained and will maintain adequate capital in light of its
contemplated business operations and (xxx) if such entity is a limited liability
company or limited partnership, then such entity shall continue (and not
dissolve) for so long as a solvent managing member or general partner, as
applicable, exists and such entity's organizational documents shall contain such
provision.

         "State" - The State or Commonwealth in which the Land is situated.

         "Substitute Property" has the meaning provided in Section 6.16.

         "Trustee" - The party or parties identified and defined as Trustee on
the Cover Sheet and in the preamble of this Deed of Trust, and its or their
respective successors in the trust created by this Deed of Trust, and its or
their respective assigns.

                                       15
<PAGE>   20

         "Trustor" - The party identified as such on the Cover Sheet and in the
preamble of this Deed of Trust, any subsequent owner of the Mortgaged Property,
and its successors and assigns. The Trustor is also herein called "Borrower."

         "U.S. Obligations" - means obligations or securities not subject to
prepayment, call or early redemption which are direct obligations of, or
obligations fully guaranteed as to timely payment by, the United States of
America or any agency or instrumentality of the United States of America, the
obligations of which are backed by the full faith and credit of the United
States of America.

         ["Vermont Loan Documents" - means the Vermont Note, the Vermont
Mortgage and any other instrument evidencing, securing or executed in connection
with the loan evidenced by the Vermont Note.

         "Vermont Mortgage" - means that certain Mortgage and Security Agreement
of even date herewith securing the Vermont Note, executed by Borrower for the
benefit of Beneficiary.

         "Vermont Note" - means collectively (i) that certain promissory note of
even date herewith in the original principal amount of $10,500,000.00 executed
by Borrower and payable to the order of MassMutual, and (ii) that certain
promissory note of even date herewith in the original principal amount of
$10,500,000.00 executed by Borrower and payable to the order of TIAA.]

                                   ARTICLE II
                              Covenants of Borrower

         Borrower covenants, warrants, represents and agrees with and to Trustee
and Lender as follows:

         Section 2.01. Payment of the Indebtedness. Borrower shall punctually
pay the Indebtedness at the times and in the manner provided in the Note and the
other Loan Documents, all in lawful money of the United States of America.

         Section 2.02. Title to the Mortgaged Property.

(a)      Borrower has fee simple title (or such lesser estate therein as may be
         specified in Schedule A) to the Premises and good indefeasible title to
         the balance of the Mortgaged Property, free and clear of liens and
         encumbrances except Permitted Encumbrances.

(b)      Borrower has full power and lawful authority to encumber the Mortgaged
         Property in the manner and form herein set forth.

                                       16
<PAGE>   21

(c)      This Deed of Trust is and will remain a valid and enforceable lien on
         and security interest in the Mortgaged Property.

(d)      Borrower will preserve such title and will forever warrant and defend
         the same and the validity and priority of the lien hereof to Trustee
         and Lender against all claims whatsoever.

(e)      The Mortgaged Property is in material compliance with all provisions of
         all zoning, subdivision, land use, environmental, traffic, fire,
         building, and occupational safety and health rules, regulations, codes,
         acts and statutes to which it is subject.

         Section 2.03. Maintenance of the Mortgaged Property. Borrower shall (or
shall enforce its rights under the Primary Lease to cause [FCH/SH Leasing]
[FCH/SH Leasing II] to) maintain the Mortgaged Property in good and safe
condition, working order and repair, and comply with all existing and future
federal, state and local laws, ordinances, rules and regulations and court
orders affecting or which may be interpreted as affecting the Mortgaged
Property. Borrower shall permit Lender to enter upon and inspect the Mortgaged
Property (without prior notice in the event of an emergency) at all reasonable
hours; provided, Lender makes an appointment through the general manager of the
hotel after reasonable notice and in a manner that does not affect normal
business operations. Borrower shall not, without the prior consent of Lender,
(a) change the use of the Premises or cause or permit the use or occupancy of
any part of the Premises to be discontinued if such discontinuance would violate
any zoning or other law, ordinance or regulation; (b) consent to any zoning
reclassification, modification or restriction affecting the Premises; (c)
threaten, commit or permit any waste, structural or material alteration,
demolition or removal of the Mortgaged Property or any portion thereof (provided
that the Equipment included within the Collateral may be removed if replaced
with similar items of equal or greater value); or (d) take any steps whatsoever
to convert the Mortgaged Property, or any portion thereof, to a condominium or
cooperative form of ownership. No provision of this Section 2.03 shall prohibit
Borrower from undertaking and completing tenant improvement work authorized
under Leases previously approved by Lender or not requiring Lender's prior
approval. Notwithstanding the foregoing, Borrower shall enforce its rights under
the Primary Lease to cause [FCH/SH Leasing] [FCH/SH Leasing II] to operate the
Mortgaged Property in a first class manner and at all times during the term of
the Loan as a "Sheraton, Westin or Luxury Collection " hotel or under another
flag acceptable to Lender.

         Section 2.04. Insurance; Restoration.

(a)      Borrower shall keep the Improvements and the Equipment insured against
         damage by fire and the other hazards covered by a comprehensive all
         risk coverage insurance policy in an amount equal to 100% of the full
         insurable value thereof (which shall mean the full repair and actual
         replacement value thereof providing for no deductible in excess of
         $25,000.00, without reduction for depreciation or co-insurance) as
         approved by Lender, and against loss of rents in

                                       17
<PAGE>   22

         an amount not less than 12 months' rental income from all Leases.
         Borrower shall also carry such other insurance, and in such amounts, as
         Lender may from time to time reasonably require, against insurable
         risks which at the time are commonly insured against in the case of
         premises similarly situated, due regard being given to the availability
         of insurance and to the type of construction, location, utilities, use
         and occupancy of the Premises or any replacements or substitutions
         therefor. Such additional insurance may include workers' compensation,
         boiler and machinery, flood, earthquake, demolition and contingent
         liability from the operation of "non-conforming" improvements on the
         Premises, and shall be obtained within 20 days after demand by Lender.
         Notwithstanding the foregoing, in the event Borrower obtains an
         umbrella or a blanket insurance policy or a separate policy or any
         other insurance policy affecting the Mortgaged Property hereunder,
         Borrower shall notify Lender of the same and shall cause certified
         copies of each insurance policy to be delivered as required under
         Section 2.04(c) below. Any umbrella or blanket insurance policy shall
         specifically allocate to the Mortgaged Property the amount of coverage
         from time to time required hereunder and shall otherwise provide the
         same protection as would a separate policy insuring only the Mortgage
         Property in compliance with the provisions of Section 2.04(c), giving
         Lender all of the rights set forth in this Section 2.04. The Proceeds
         of insurance paid on account of any damage to or destruction of the
         Premises or any portion thereof shall be paid over to Lender to be
         applied as hereinafter provided.

(b)      Borrower shall also maintain or cause to be maintained by [FCH/SH
         Leasing] [FCH/SH Leasing II] pursuant to the terms of the Primary Lease
         general liability insurance with respect to the Premises against
         personal injury, death and property damage, with limits of liability in
         amounts reasonably satisfactory to Lender.

(c)      All insurance policies and endorsements required pursuant to this Deed
         of Trust shall (i) be endorsed to name Lender as an insured thereunder,
         as its interest may appear, with loss payable to Lender, without
         contribution, under a long-form, non-contributory mortgagee clause, or
         otherwise endorsed as Lender may reasonably require; (ii) be fully paid
         for and contain such provisions and expiration dates and be in such
         form and issued by such insurance companies licensed to do business in
         the State, with a rating of "A- VIII" or better as established by
         Best's Rating Guide or an equivalent rating with such other publication
         of a similar nature as shall be in current use, as shall be approved by
         Lender; (iii) without limiting the foregoing, provide that such policy
         or endorsement may not be canceled or materially changed except upon 30
         days prior written notice of intention of non-renewal, cancellation or
         material change to Lender, and that no act or thing done by Borrower or
         Lender shall invalidate the policy as against Lender; and (iv) be in
         form and content reasonably satisfactory to Lender. Borrower shall
         deliver all original policies including all endorsements and renewals
         thereof, or copies thereof certified by the insurance company or
         authorized agent as being true copies, to Lender together with all
         endorsements required hereunder, on the date of this Deed of Trust and
         thereafter at least 10

                                       18
<PAGE>   23

         days prior to the expiration date of such policies. Borrower may
         request an extension of time not exceeding 120 days to deliver the
         foregoing policies, endorsements and renewals or certified copies
         thereof if Borrower has done all things necessary to obtain the
         issuance of the policies, endorsements and renewals including, without
         limitation, the payment of all premiums therefor, and Borrower has
         delivered to Lender within the above 10 day period an insurance binder
         reasonably satisfactory to Lender issued by the approved insurer
         showing all required coverage to be in full force and effect for the
         succeeding 12 month period along with evidence reasonably satisfactory
         to Lender of payment in full of all premiums. If Borrower fails to
         maintain insurance in compliance with this Deed of Trust, Lender may
         (but shall not be obligated to) obtain such insurance and pay the
         premium therefor and Borrower shall reimburse Lender on demand for all
         such Advances. Notwithstanding anything to the contrary contained
         herein or in any provision of law, the Proceeds of insurance policies
         coming into the possession of Lender shall not be deemed trust funds
         and Lender shall be entitled to dispose of such Proceeds as hereinafter
         provided.

(d)      In the event of any damage to or destruction of the Premises and/or
         Equipment, Borrower shall give prompt written notice to Lender and
         shall promptly commence and diligently continue to completion the
         repair, restoration and rebuilding of the Premises and/or Equipment so
         damaged or destroyed in full compliance with all legal requirements and
         with the provisions of Section 2.04(h)(i) below, and free and clear
         from any and all liens and claims. Such repair, restoration and
         rebuilding of the Premises are sometimes hereinafter collectively
         referred to as the "Work." If any Event of Default is then existing or
         if in Lender's reasonable judgment the cost of the Work is $1,000,000
         or more, then Borrower shall not adjust, compromise or settle any claim
         for insurance proceeds without the prior consent of Lender. Subject to
         Section 2.04(g), Lender shall have the option in its sole discretion to
         apply any insurance Proceeds it may receive pursuant to this Deed of
         Trust (less any cost to Lender of recovering and paying out such
         Proceeds, including reasonable attorneys' fees) to the payment of the
         Indebtedness or to allow all or a portion of such Proceeds to be used
         for the Work. If any insurance Proceeds are applied to reduce the
         Indebtedness, provided no Event of Default shall have occurred and be
         continuing, Lender shall apply the same, without any prepayment fee, in
         the following order:

         (i)      first, to the payment of interest due on any Advances;

         (ii)     next, to the principal amount of any Advances;

         (iii)    next, to any Late Charges, attorney's fees or any other amount
                  due hereunder or under a Loan Document save for the amounts
                  described in (iv) and (v) immediately below;

         (iv)     next, to accrued interest then due under the Note; and

                                       19
<PAGE>   24

         (v)      finally, to the unpaid principal balance of the Note (in the
                  inverse order of maturity of principal installments thereof).

         If an Event of Default shall have occurred and be continuing, however,
         Lender, at its option, may apply any insurance Proceeds to the
         foregoing items in such order and priority as Lender deems appropriate
         in its sole discretion.

(e)      In the event of the foreclosure of this Deed of Trust or other transfer
         of title to or assignment of the Mortgaged Property in extinguishment
         of the Indebtedness in whole or in part, all right, title and interest
         of Borrower in and to all policies of insurance required by this Deed
         of Trust and any insurance Proceeds shall inure to the benefit of and
         pass to Lender or any purchaser or transferee at the foreclosure sale
         of the Mortgaged Property.

(f)      Borrower hereby irrevocably appoints Lender its attorney-in-fact,
         coupled with an interest, to apply and make claims for insurance
         Proceeds under all insurance policies constituting Intangibles, to
         prosecute and settle such claims and to endorse any checks, drafts or
         other instruments representing any insurance Proceeds whether payable
         by reason of loss thereunder or otherwise. Additionally, Lender may
         notify any and all insurers under casualty and liability insurance
         policies constituting part of the Intangibles that Lender has a
         security interest pursuant to the provisions of this Deed of Trust in
         and to such insurance policies and any proceeds thereof, and that any
         payments under those insurance policies are to be made directly to
         Lender. Lender's rights under this Section 2.04(f) may be exercised by
         Lender or a court appointed receiver appointed upon the request of
         Lender and irrespective of whether or not a default shall have occurred
         under this Deed of Trust.

(g)      Notwithstanding the provisions of Section 2.04(d) above, if in Lender's
         reasonable judgment the cost of the Work shall not exceed 50 percent of
         the then outstanding principal balance of the Note, then Lender shall,
         upon request by Borrower, permit Borrower to use the Proceeds for the
         Work (subject to the provisions of, and less Lender's costs described
         in, Section 2.04(h) below), so long as:

         (i)      no Event of Default shall then exist nor any matter(s) exist
                  which, after notice of default or passage of time or both,
                  would constitute an Event of Default;

         (ii)     the original Borrower named herein continues to be the owner
                  of the Mortgaged Property;

         (iii)    the Work can be completed within 12 months from the date of
                  the damage to or destruction of the Premises;

                                       20
<PAGE>   25

         (iv)     none of the Operating Agreements in effect immediately prior
                  to the damage or destruction shall have been canceled or
                  terminated and not replaced with substitute agreements
                  reasonably acceptable to Lender;

         (v)      all sums necessary to effect the Work over and above any
                  available Proceeds shall be at the sole cost and expense of
                  the Borrower and, at Lender's request, Borrower shall deposit
                  such additional amounts, as reasonably estimated by Lender,
                  with Lender prior to commencing any Work and at all times
                  thereafter;

         (vi)     at all times during any such Work Borrower shall maintain, at
                  its sole cost and expense, workers' compensation, builders
                  risk and public liability insurance in amounts reasonably
                  satisfactory to Lender and in accordance with the provisions
                  of this Section 2.04; and

         (vii)    any unexpended Proceeds, at the sole option of the Lender,
                  shall either be paid over to the Borrower or shall be applied
                  to the reduction of the Indebtedness. If the Proceeds are used
                  to reduce the Indebtedness, they shall be applied in the order
                  provided in Section 2.04(d), without any prepayment fee.

(h)      If any insurance Proceeds are used for the Work, then such Proceeds
         shall be held by Lender and shall be paid out from time to time to
         Borrower as the Work progresses (less any cost to Lender of recovering
         and paying out such Proceeds, including reasonable attorneys' fees and
         costs allocable to inspecting the Work and the plans and specifications
         therefor), subject to each of the following conditions:

         (i)      If the Work is structural or if the cost of the Work is
                  reasonably estimated to exceed Two Hundred Thousand Dollars
                  ($200,000.00), the Work shall be conducted under the
                  supervision of a certified and registered architect or
                  engineer reasonably satisfactory to Lender. Before Borrower
                  commences any Work, other than temporary work to protect
                  persons or property or prevent interference with business,
                  Lender shall have approved the plans and specifications for
                  the Work, which approval shall not be unreasonably withheld or
                  delayed, it being nevertheless understood that such plans and
                  specifications shall provide for Work so that, upon completion
                  thereof, the Premises shall be at least equal in value and
                  general utility to the Premises immediately prior to the
                  damage or destruction.

         (ii)     Each request for payment shall be made on not less than seven
                  Business Days prior notice to Lender and shall be accompanied
                  by a certificate of the architect or engineer in (i) above (or
                  a certificate given by Borrower if no architect or engineer is
                  so required) stating (A) that all of the Work completed has
                  been done in substantial

                                       21
<PAGE>   26

                  compliance with the approved plans and specifications, if
                  required under (i) above, (B) that the sum requested is justly
                  required to reimburse the Borrower for payments by Borrower,
                  or is justly due to the contractor, subcontractors,
                  materialmen, laborers, engineers, architects or other persons
                  rendering services or materials for the Work (giving a brief
                  description of such services and materials), and that when
                  added to all sums previously paid out by Lender does not
                  exceed the value of the Work done to the date of such
                  certificate, (C) if the sum requested is to cover payment
                  relating to repair and restoration of Equipment required or
                  relating to the Premises, that title to the items of Equipment
                  covered by the request for payment is vested in Borrower, and
                  (D) that the amount of such Proceeds remaining in the hands of
                  Lender will be sufficient on completion of the Work to pay for
                  the same in full (giving in such reasonable detail as Lender
                  may require an estimate of the cost of such completion).
                  Additionally, each request for payment shall contain a
                  statement signed by Borrower approving both the Work done to
                  date and the Work covered by the request for payment in
                  question.

         (iii)    Each request for payment shall be accompanied by waivers of
                  lien satisfactory to Lender covering that part of the Work for
                  which payment or reimbursement is being requested and, if
                  required by Lender, a search prepared by a title company or
                  licensed abstractor, or by other evidence satisfactory to
                  Lender that there has not been filed with respect to the
                  Premises any mechanics' or other lien or instrument for the
                  retention of title relating to any part of the Work not
                  discharged of record. Additionally, as to any Equipment
                  covered by the request for payment, Lender shall be furnished
                  with evidence of payment therefor and such further evidence
                  satisfactory to assure Lender of its valid first lien on the
                  Equipment.

         (iv)     Lender shall have the right to inspect the Work at all
                  reasonable times and may condition any disbursement of
                  Proceeds upon the satisfactory completion, as determined in
                  Lender's reasonable discretion, of any portion of the Work for
                  which payment or reimbursement is being requested. Neither the
                  approval by Lender of the plans and specifications for the
                  Work nor the inspection by Lender of the Work shall make
                  Lender responsible for the preparation of such plans and
                  specifications or the compliance of such plans and
                  specifications, or of the Work, with any applicable law,
                  regulation, ordinance, covenant or agreement.

         (v)      Proceeds shall not be disbursed more frequently than every 30
                  days.

         (vi)     Any request for payment made after the Work has been completed
                  shall be accompanied by a copy or copies of any certificate or
                  certificates required by law to render occupancy and full
                  operation of the Premises legal.

                                       22
<PAGE>   27

         (vii)    Upon any failure on the part of Borrower to promptly commence
                  the Work or to proceed diligently and continuously to
                  completion of the Work, Lender may apply any such Proceeds it
                  then or thereafter holds to the payment of the Indebtedness;
                  provided, however, that Lender, at its sole option, shall be
                  entitled to apply at any time all or any portion of insurance
                  Proceeds it then holds to the curing of any Event of Default
                  under this Deed of Trust, the Note or any other Loan Document.

(i)      Notwithstanding any other provision of this Section 2.04, if no Event
         of Default shall exist or be continuing (nor any matters have occurred
         which, after notice or passage of time or both, would constitute an
         Event of Default) and in Lender's reasonable judgment the cost of the
         Work is less than $1,000,000 and the Work can be completed in less than
         180 days, then Lender shall have no rights to apply for or receive the
         insurance Proceeds, provided that Borrower shall apply such insurance
         Proceeds solely to the prompt and diligent commencement and completion
         of such Work and notify Lender as to the foregoing.

         Section 2.05. Condemnation. Borrower shall notify Lender immediately of
the actual or threatened commencement of any proceedings for the condemnation or
taking of the Premises or any portion thereof and shall deliver to Lender copies
of any and all papers served in connection with such proceedings. Lender may
participate in such proceedings and Borrower shall deliver to Lender all
instruments requested by Lender to permit such participation. Lender is hereby
irrevocably appointed as Borrower's attorney-in-fact, coupled with an interest,
with exclusive power to collect, receive and retain the Proceeds of any such
condemnation and to make any compromise or settlement in connection with such
proceedings, subject to the provisions of this Deed of Trust. Borrower shall not
adjust, compromise, settle or enter into any agreement with respect to such
proceedings without the prior consent of Lender. All Proceeds of any
condemnation, or purchase in lieu thereof, of the Premises or any portion
thereof are hereby assigned to and shall be paid to Lender. Borrower hereby
authorizes Lender to collect and receive such Proceeds, to give proper receipts
and acquittances therefor and, in Lender's sole discretion, to apply such
Proceeds (less any cost to Lender of recovering and paying out such Proceeds,
including reasonable attorneys' fees and costs allocable to inspecting any
repair, restoration or rebuilding work and the plans and specifications
therefor) toward the payment of the Indebtedness or to the repair, restoration
or rebuilding of the Premises in the manner and subject to the conditions set
forth in Section 2.04(h). If the Proceeds are used to reduce the Indebtedness,
they shall be applied in the order provided in Section 2.04(d), without any
prepayment fee. Borrower shall promptly execute and deliver all instruments
requested by Lender for the purpose of confirming the assignment of the
condemnation Proceeds to Lender.

         Section 2.06. Impositions.

(a)      Borrower shall pay and discharge all Impositions prior to delinquency
         and shall furnish to Lender validated receipts or other evidence
         satisfactory to Lender showing the payment of

                                       23
<PAGE>   28

         such Impositions within 15 days after the same would otherwise have
         become delinquent. Borrower's obligation to pay Impositions pursuant to
         this Deed of Trust shall include, to the extent permitted by applicable
         law, taxes resulting from future changes in law which impose upon
         Trustee or Lender an obligation to pay any property taxes or other
         Impositions or which otherwise adversely affect Trustee's or Lender's
         interests. Should Borrower default in the payment of any Impositions,
         Lender may (but shall not be obligated to) pay such Impositions or any
         portion thereof and Borrower shall reimburse Lender on demand for all
         such Advances.

(b)      Borrower shall not be required to pay, discharge or remove any
         Imposition so long as Borrower contests in good faith such Imposition
         or the validity, applicability or amount thereof by an appropriate
         legal proceeding which operates to prevent the collection of such
         amounts and the sale of the Mortgaged Property or any portion thereof;
         provided, however, that prior to the date on which such Imposition
         would otherwise have become delinquent Borrower shall have (i) given
         Lender prior notice of such contest and (ii) deposited with Lender, and
         shall deposit such additional amounts as are necessary to keep on
         deposit at all times, an amount equal to at least 110 per cent of the
         total of (A) the balance of such Imposition then remaining unpaid and
         (B) all interest, penalties, costs and charges accrued or accumulated
         thereon. Any such contest shall be prosecuted with due diligence, and
         Borrower shall promptly pay the amount of such Imposition as finally
         determined, together with all interest and penalties payable in
         connection therewith. Lender shall have full power and authority to
         apply any amount deposited with Lender under this Section 2.06(b) to
         the payment of any unpaid Imposition to prevent the sale or forfeiture
         of the Mortgaged Property for non-payment thereof. Lender shall have no
         liability, however, for failure to so apply any amount deposited unless
         Borrower requests the application of such amount to the payment of the
         particular Imposition for which such amount was deposited. Any surplus
         retained by Lender after payment of the Imposition for which a deposit
         was made shall be repaid to Borrower unless an Event of Default shall
         have occurred under the provisions of this Deed of Trust, in which case
         said surplus may be retained by Lender to be applied to the
         Indebtedness. Notwithstanding any provision of this Section 2.06(b) to
         the contrary, Borrower shall pay any Imposition which it might
         otherwise be entitled to contest if, in the reasonable opinion of
         Lender, the Mortgaged Property is in jeopardy or in danger of being
         forfeited or foreclosed. If Borrower refuses to pay any such
         Imposition, Lender may (but shall not be obligated to) make such
         payment and Borrower shall reimburse Lender on demand for all such
         Advances. Additionally, in such event, if Lender is prevented by law or
         judicial or administrative order from paying such Imposition, then
         Lender, at its option, may declare the entire Indebtedness immediately
         due and payable.

         Section 2.07. Deposits. Borrower shall deposit with Lender, monthly, on
the due date of each monthly installment under the Note, 1/12th of the annual
charges (as estimated by Lender) for Impositions, and, if required by Lender,
1/12th of the annual charges for rent (if Borrower is lessee of an interest in
the Mortgaged Property). If required by Lender, Borrower shall also deposit with

                                       24
<PAGE>   29

Lender, simultaneously with such monthly deposits and/or the execution of this
Deed of Trust, a sum of money which together with such monthly deposits will be
sufficient to make the payment of each such charge at least 30 days prior to the
date initially due. Should such charges not be ascertainable at the time any
deposit is required to be made, the deposit shall be made on the basis of the
charges for the prior year or payment period, as reasonably estimated by Lender.
When the charges are fixed for the then current year or period, Borrower shall
deposit any deficiency on demand. All funds deposited with Lender shall be held
without interest (unless the payment of interest thereon is required under
applicable law), may be commingled with Lender's other funds, and shall be
applied in payment of the foregoing charges when and as payable provided that no
Event of Default shall have occurred. Should an Event of Default occur, the
funds so deposited may be applied in payment of the charges for which such funds
shall have been deposited or to the payment of the Indebtedness or any other
charges affecting the Mortgaged Property, as Lender in its sole discretion may
determine, but no such application shall be deemed to have been made by
operation of law or otherwise until actually made by Lender as herein provided.
Borrower shall furnish Lender with bills and all other documents necessary for
the payment of the foregoing charges at least 15 days prior to the date on which
each payment thereof shall first become due.

         Section 2.08. Mortgage Taxes. Borrower shall pay any and all taxes,
charges, filing, registration and recording fees, excises and levies imposed
upon Lender by reason of its ownership of, or measured by amounts payable under,
the Note, this Deed of Trust or any other Loan Document (other than income,
franchise and doing business taxes), and shall pay all stamp taxes and other
taxes required to be paid on the Note or the other Loan Documents. If Borrower
fails to make such payment within five days after notice thereof from Lender,
Lender may (but shall not be obligated to) pay the amount due, and Borrower
shall reimburse Lender on demand for all such Advances. If applicable law
prohibits Borrower from paying such taxes, charges, filing, registration and
recording fees, excises, levies, stamp taxes or other taxes, then Lender may
declare the Indebtedness then unpaid to be immediately due and payable. In such
event, no prepayment fee shall be charged.

         Section 2.09. Loan Documents Authorized.

(a)      The execution and delivery of this Deed of Trust, the Note and the
         other Loan Documents have been duly authorized and there is no
         provision in Borrower's organizational documents, as amended, requiring
         further consent for such action by any other person or entity.

(b)      Borrower is duly organized, validly existing and in good standing under
         the laws of the state of its formation.

(c)      Borrower has all necessary franchises, licenses, authorizations,
         registrations, permits and approvals and full power and authority to
         own and lease its properties, including the

                                       25
<PAGE>   30

         Mortgaged Property, and carry on its business as now conducted in each
         jurisdiction where Borrower conducts its business.

(d)      The execution and delivery of and performance of its obligations under
         the Loan Documents (i) will not result in Borrower being in default
         under any provision of its organizational documents, as amended, any
         court order, or any mortgage, deed of trust or other agreement to which
         it is a party and (ii) do not require the consent of or any filing with
         any governmental authority.

(e)      All necessary and required actions have been duly taken by and on
         behalf of Borrower to make and constitute the Loan Documents, and the
         Loan Documents constitute, legal, valid and binding obligations
         enforceable in accordance with their respective terms, subject only to
         the application of bankruptcy and other laws affecting the rights of
         creditors generally.

         Section 2.10. Maintenance of Existence. So long as it owns the
Mortgaged Property, Borrower shall (or shall enforce its rights under the
Primary Lease to cause [FCH/SH Leasing] [FCH/SH Leasing II] to) do all things
necessary to preserve and keep in full force and effect its existence,
franchises, licenses, authorizations, registrations, permits and approvals under
the laws of the state of its formation and the State, and shall comply with all
regulations, rules, ordinances, statutes, orders and decrees of any governmental
authority or court now or hereafter applicable to Borrower or, to the Mortgaged
Property or any portion thereof.

         Section 2.11. Payment of Liens. Borrower shall pay when due all
payments and charges due under or in connection with any liens and encumbrances
on and security interests in the Mortgaged Property or any portion thereof, all
rents and charges under any ground leases and other leases forming a part of the
Mortgaged Property, and all claims and demands of mechanics, materialmen,
laborers and others which, if unpaid, might result in or permit the creation of
a lien on the Mortgaged Property or any portion thereof, and shall cause the
prompt (but in no event later than 30 days after imposition), full and
unconditional discharge of all liens imposed on or against the Mortgaged
Property or any portion thereof. Borrower shall do or cause to be done, at the
sole cost of Borrower, everything necessary to fully preserve the initial
priority of the lien of this Deed of Trust. If Borrower fails to make any such
payment or if a lien attaches to the Mortgaged Property or any portion thereof,
Lender may (but shall not be obligated to) make such payment or discharge such
lien and Borrower shall reimburse Lender on demand for all such Advances.
Notwithstanding the foregoing, Borrower shall not be in default for failure to
pay or discharge a mechanic's or materialman's lien asserted against the
Mortgaged Property if, and so long as, (a) Borrower shall have notified Lender
of same within five (5) days of obtaining actual knowledge thereof; (b) Borrower
shall diligently and in good faith contest the same by appropriate legal
proceedings which shall operate to prevent the enforcement or collection of the
same and the sale of the Mortgaged Property or any part thereof, to satisfy the
same; (c) Borrower shall have furnished to Lender a cash deposit, or an
indemnity bond satisfactory to Lender with a surety

                                       26
<PAGE>   31

satisfactory to Lender, in the amount of the mechanic's or materialman's lien
claim, plus a reasonable additional sum to pay all costs, interest and penalties
that may be imposed or incurred in connection therewith, to assure payment of
the matters under contest and to prevent any sale or forfeiture of the Mortgaged
Property or any part thereof; (d) Borrower shall promptly upon final
determination thereof pay the amount of any such claim so determined, together
with all costs, interest and penalties which may be payable in connection
therewith; (e) the failure to pay the mechanic's or materialman's lien claim
does not constitute a default under any other deed of trust, mortgage or
security interest covering or affecting any part of the Mortgaged Property; and
(f) notwithstanding the foregoing, Borrower shall immediately upon request of
Lender pay any such claim notwithstanding such contest, if in the opinion of
Lender, the Mortgaged Property or any part thereof or interest therein may be in
danger of being sold, forfeited, foreclosed, terminated, canceled or lost.

         Section 2.12. Costs of Defending and Upholding the Lien. Lender and, to
the extent authorized by Lender, Trustee may, after notice to Borrower, (a)
appear in and defend any action or proceeding, in the name and on behalf of
either Lender or Borrower, in which Trustee or Lender is named or which Lender
in its sole discretion determines may adversely affect the Mortgaged Property,
this Deed of Trust, the lien hereof or any other Loan Document; and (b)
institute any action or proceeding which Lender in its sole discretion
determines should be instituted to protect the interest or rights of Lender or
Trustee's interest in the Mortgaged Property or under this Deed of Trust or any
other Loan Document, including, without limitation, foreclosure proceedings.
Borrower agrees to bear and shall pay or reimburse Trustee and Lender on demand
for all Advances and expenses (including reasonable attorneys' fees) relating to
or incurred by Lender in connection with any such action or proceeding.

         Section 2.13. Costs of Enforcement. Borrower agrees to bear and shall
pay or reimburse Trustee and Lender on demand for all Advances and expenses
(including reasonable attorneys' and appraisers' fees and the expenses and
reasonable fees of any receiver or similar official) of or incidental to the
collection of the Indebtedness, any foreclosure of this Deed of Trust or any
other Loan Document, any enforcement, compromise or settlement of this Deed of
Trust, any other Loan Document or the Indebtedness, or any defense or assertion
of the rights or claims of Trustee or Lender in respect of any thereof, by
litigation or otherwise.

         Section 2.14. Interest on Advances and Expenses. All Advances made and
any reasonable expenses incurred at any time by Trustee or Lender pursuant to
the provisions of this Deed of Trust or the other Loan Documents or under
applicable law shall be secured by this Deed of Trust as part of the
Indebtedness, with equal rank and priority. All such Advances and expenses shall
bear interest at the Default Rate from the date that each such Advance or
expenses is made or incurred to the date of repayment and all such Advances and
expenses with interest thereon shall be payable to Lender on demand.

                                       27
<PAGE>   32

         Section 2.15. Indemnification. Borrower shall indemnify and hold
Trustee and Lender and their respective directors, officers, employees and
agents harmless from and against and reimburse them for all Losses which may be
imposed upon, asserted against, or incurred or paid by any of them (a) by reason
of, on account of or in connection with any act or occurrence relating to the
Mortgaged Property or any bodily injury, death, other personal injury or
property damage occurring in, upon or in the vicinity of the Premises from any
cause whatsoever, (b) as a result of the failure of Borrower to perform any of
its obligations under any of the Loan Documents, or (c) on account of any
transaction otherwise arising out of or in any way connected with the Mortgaged
Property, this Deed of Trust or the Indebtedness.

         Section 2.16. Financial Statements; Records. Borrower shall keep
adequate books and records of account in accordance with generally accepted
accounting principles ("GAAP"), or in accordance with other methods acceptable
to Lender in its reasonable discretion, consistently applied, and shall furnish
to Lender:

(a)      all annual operating statements of the Premises received from [FCH/SH
         Leasing] [FCH/SH Leasing II] or Sheraton detailing the total revenues
         received, total expenses incurred, total cost of all capital
         improvements, total debt service and total cash flow, and certified by
         [FCH/SH Leasing] [FCH/SH Leasing II] or Sheraton, as appropriate, in
         the form received by Borrower, or if requested by Lender and to the
         extent available, an audited annual operating statement prepared and
         certified by an independent certified public accountant acceptable to
         Lender, within 120 days after the close of each Fiscal Year of
         Borrower;

(b)      an annual balance sheet and profit and loss statement of Borrower and
         Guarantor, in a form reasonably approved by Lender, prepared and
         certified by Borrower or Guarantor as applicable, and, such statements,
         if requested by Lender and to the extent available, shall be audited
         financial statements prepared and certified by an independent certified
         public accountant acceptable to Lender. All statements shall be
         delivered to Lender within 120 days after the close of each Fiscal Year
         of Borrower;

(c)      annual operating budgets and management plans presented on a monthly
         basis consistent with the annual operating statements described above
         for the Premises, including cash flow projections for the upcoming
         year, and all proposed capital replacements and improvements on or
         before February 1 of each Fiscal Year;

(d)      an annual occupancy and average daily rate statement detailing the
         occupancy rates and average daily room rates to be prepared and
         certified by Borrower in a form approved by Lender, within 120 days
         after the end of each Fiscal Year of Borrower;

                                       28
<PAGE>   33

(e)      an annual FF&E budget which will be submitted by Borrower to Lender, no
         later than December 30 of each loan year; and

(f)      upon request from Lender, the following:

         (i)      such other financial or management information as may, from
                  time to time, be reasonably required by Lender and in form and
                  substance reasonably satisfactory to Lender; and,

         (ii)     Borrower's books and records regarding the Premises for
                  examination, review, copying and audit by Lender or its
                  auditors during normal business hours and convenient
                  facilities for such examination review, copying and audit of
                  Borrower's books and records of account.

(g)      Borrower's agreements as set forth in this Section 2.16 constitute
         material inducements to Lender in making the loan secured by this Deed
         of Trust. Accordingly, in the event Borrower fails to furnish any
         financial report or tax return required by this section as and when
         required, time being of the essence, then, in addition to all other
         remedies available to Lender under this Deed of Trust, Borrower agrees
         to pay Lender a late charge of $100.00 for each day or part thereof
         that any such financial report or tax return shall be overdue. The
         foregoing late charges and the costs and expenses of the auditor shall
         be due and payable to Lender upon demand and shall constitute a part of
         the Indebtedness.

         Section 2.17. Prohibition Against Conveyances and Encumbrances. Except
with the prior consent of Lender or as permitted by Section 3.01(b), Borrower
shall not and shall not permit others to convey, assign, sell, mortgage,
encumber, pledge, hypothecate, grant a security interest in, grant options with
respect to, or otherwise dispose of (directly or indirectly, voluntarily or
involuntarily, by operation of law or otherwise, and whether or not for
consideration or of record) all or any portion of any legal or beneficial
interest (a) in all or any portion of the Mortgaged Property (other than the
sale of goods used in the operation of a hotel business or replacement of
Equipment in the ordinary course of business) including the Leases; or (b) in
Borrower. All requests for Lender's consent under this Section 2.17 shall be on
a form previously approved by Lender and shall be accompanied by the payment of
Lender's standard processing fee for such transactions then in effect not to
exceed one percent (1%) of the then outstanding balance of the Loan. Lender's
consent to any of the foregoing actions, if given (in Lender's sole discretion),
may be conditioned upon a change in the interest rate, maturity date,
amortization period or other terms under the Note, the payment of a transfer fee
not to exceed one percent (1%) of the then outstanding balance of the Loan
and/or any other requirements of Lender. In addition to the standard processing
fee and the transfer fee referred to in this Section 2.17, Borrower agrees to
bear and shall pay or reimburse Lender on demand for all reasonable expenses

                                       29
<PAGE>   34

(including reasonable attorneys' fees, title search costs, and title insurance
endorsement premiums) incurred by Lender in connection with the review, approval
and documentation of any such transaction.

         Notwithstanding the prohibition against conveyances and encumbrances
set forth in this Section 2.17, Lender will permit Borrower the right to a
one-time sale, transfer or assignment in whole (but not in part) of its interest
in the Mortgaged Property, without modification of the terms of the Loan,
provided each and every one of the following conditions is satisfied:

(a)      At least thirty (30) days prior to such transfer, Borrower shall have
         provided Lender with written notice of the proposed transfer along with
         the name(s), address(es) and organizational documents of the proposed
         purchaser and principals of the proposed purchaser. Additionally,
         Borrower shall furnish to Lender along with such notice the following:
         (i) detailed and complete financial statements of the proposed
         purchaser and principals of proposed purchaser, (ii) information with
         respect to the business and business experience of the proposed
         purchaser and the proposed purchaser's principals' experience in the
         ownership and operation of properties similar to the Mortgaged Property
         and other commercial real estate, (iii) evidence that the Mortgaged
         Property as of the proposed date of transfer of title and thereafter
         will be managed by a hotel management company and under a hotel
         management agreement meeting the requirements of Section 2.17(d) below,
         (iv) the terms and conditions of the proposed sale and a copy of the
         purchase and sales agreement, and (v) such other information as Lender
         may request to permit it to determine the creditworthiness and
         management abilities of the proposed transferee, its management plan
         for the Mortgaged Property and the proposed transferee's status as a
         "Qualified Real Estate Investor".

(b)      The Loan must be current in all respects and may not be in default
         either as of the date of the notice given Lender under subparagraph (a)
         above or thereafter through the date of transfer of title to the
         Mortgaged Property nor may any event have occurred which, after notice
         or passage of time or both, would constitute an Event of Default under
         the Loan.

(c)      The purchaser is a "Qualified Real Estate Investor".

(d)      The Mortgaged Property as of the date of transfer and thereafter must
         be managed by Sheraton or another hotel management company reasonably
         approved by Lender under the Management Agreement or another hotel
         management agreement reasonably satisfactory to Lender. The flag under
         which the Mortgaged Property is operated shall remain the same or, if
         changed, be satisfactory to Lender.

(e)      The proposed purchaser of the Mortgaged Property shall assume the Loan
         under documents in form and substance satisfactory to Lender, subject
         to the non-recourse provisions of the Loan Documents existing as of the
         date of the closing of the sale of the Mortgaged Property.

                                       30
<PAGE>   35

         Additionally, at the time of the assumption of the Loan, the proposed
         purchaser shall furnish to Lender an environmental indemnity in form
         and substance satisfactory to Lender from a financially responsible
         person or entity approved by the Lender. Borrower and the proposed
         purchaser and any other person as reasonably required by Lender's
         counsel shall also execute financing statements and such other
         documents as Lender's counsel shall reasonably require in order to
         effectuate the transaction as contemplated by this Section 2.17 and
         shall furnish evidence of fire and extended coverage insurance as
         required by the Loan Documents.

(f)      Along with the notice of transfer under subparagraph (a) above,
         Borrower shall pay to Lender a fee in the amount of one percent (1%) of
         the then outstanding balance of the Loan in cash or certified funds.
         Such fee shall be retained by Lender whether or not the transfer occurs
         except in the situation described in the succeeding sentence and is
         being paid in order to induce Lender to allow the proposed purchaser to
         assume the obligations of the Borrower under the Loan Documents and to
         release Borrower from liability thereunder for all periods from and
         after the transfer in accordance with these provisions. Such fee shall
         be returned to Borrower only if Lender disapproves of such transfer as
         not meeting the requirements of this Section 2.17.

(g)      The cash flow from the Mortgaged Property (i.e., gross rents received
         less property taxes, insurance and a reasonable reserve for capital
         improvements, but excluding principal and interest payments on the
         Loan, depreciation and other non-cash charges and proceeds from
         casualty policies) for the 12 month period ending on the last day of
         the month which is two months prior to the month of the anticipated
         date of such transfer of title shall be not less than 1.65X times the
         required payments of principal and interest on the Loan for the same
         twelve month period as determined by Lender in its sole discretion from
         financial statements for the Mortgaged Property in form and substance
         satisfactory to Lender and submitted to Lender.

(h)      The unpaid principal balance of the Loan shall be not more than sixty
         percent (60%) of the appraised value of the Mortgaged Property
         according to a current appraisal furnished to and satisfactory to
         Lender and prepared by an MAI appraiser acceptable to Lender.

(i)      Borrower shall pay all of Lender's reasonable outside costs and
         expenses incurred in connection with the proposed sale of the Mortgaged
         Property whether or not the sale actually occurs including, without
         limitations, attorneys' fees, recording charges, title charges and any
         endorsement to Lender's title policy that Lender's counsel may require.

         Section 2.18. Estoppel Certificates. Within 10 Business Days of a
request by Lender, Borrower shall furnish to Lender a duly acknowledged written
statement confirming the amount of the outstanding Indebtedness, the terms of
payment and maturity date of the Note, the date to which interest has been paid,
and whether any offsets or defenses exist against the Indebtedness. If any such
offsets or defenses are alleged to exist, the nature thereof shall be set forth
in detail. Borrower shall

                                       31
<PAGE>   36

also furnish to Lender within 30 days of its request therefor tenant estoppel
letters from such tenants of the Premises as Lender may require, but such
requests as to any one tenant shall not be made more often than once in a
calendar year period.

         Section 2.19.     Assignment of Leases and Property Income.

(a)      Borrower hereby absolutely and unconditionally assigns and transfers to
         Lender the Leases and the Property Income. Borrower shall not otherwise
         assign, transfer or encumber in any manner the Leases or the Property
         Income or any portion thereof. Borrower shall have a license to collect
         and use the Property Income as the same becomes due and payable,
         revocable by Lender, so long as no Event of Default has occurred, but
         may not collect any Property Income more than 30 days in advance of the
         date the same becomes due. The assignment in this Section 2.19 shall
         constitute an absolute and present assignment of the Leases and the
         Property Income, and not an additional assignment for security, and the
         existence or exercise of the Borrower's revocable license to collect
         Property Income shall not operate to subordinate this assignment to any
         subsequent assignment. The exercise by Lender of any of its rights or
         remedies under this Section 2.19 shall not be deemed or construed to
         make Lender a mortgagee-in-possession. The assignments contained in
         this Section 2.19(a) shall automatically terminate and be null and void
         ab initio upon the repayment of the Indebtedness or the release of this
         Deed of Trust.

(b)      Borrower shall furnish Lender with executed copies of all Leases within
         10 days after execution thereof. All proposed Leases and renewals of
         existing Leases shall be at rental rates and on terms comparable to
         existing local market rates and terms and shall be arms-length
         transactions with bona fide, independent third party tenants; provided,
         however, that renewals of existing Leases may be made with the existing
         parties thereto and upon substantially the same terms as such existing
         Leases. All new Leases shall provide that they are subordinate to this
         Deed of Trust and that the lessee agrees to attorn to Lender. All
         proposed Leases and renewals of existing Leases (other than Leases
         described in Subsection 2.19(d)) shall be subject to the prior review
         and reasonable approval of Lender and its counsel, at Borrower's
         expense.

(c)      Borrower shall perform all obligations as lessor under all Leases and
         shall enforce all of the terms, covenants and conditions contained in
         upon the part of the lessee thereunder to be performed or observed.
         Additionally, Borrower shall not take any action which would cause any
         Lease to cease to be in full force and effect. Except with the prior
         consent of Lender, not to be unreasonably withheld, Borrower shall not
         (i) cancel, terminate (other than exercising Borrower's rights to
         terminate any Lease upon a lessee's default thereunder and subject to
         the terms of Section 2.25(d) hereof), surrender, sublet or assign any
         Lease or consent to any cancellation, termination, surrender,
         subletting or assignment thereof; (ii) amend, modify or subordinate any
         Lease to any mortgage, deed of trust or other security interest that is

                                       32
<PAGE>   37

         subordinate to this Deed of Trust; (iii) enter into any new Lease
         (except as permitted in Section 2.19(d) below); (iv) waive any default
         under or breach of any Lease; (v) consent to or accept any prepayment
         or discount of rent or advance rent under any Lease; (vi) other than
         exercising Borrower's rights to terminate any Lease upon a lessee's
         default thereunder (and subject to the terms of Section 2.25(d)
         hereof), take any other action in connection with any Lease which may
         impair or jeopardize the validity of such Lease or the Lender's
         interest therein; or (vii) alter, modify or change the terms of any
         guaranty, letter of credit or other credit support with respect to any
         of the Leases or cancel or terminate such guaranty, letter of credit or
         other credit support without the prior written consent of Lender.

(d)      Notwithstanding Section 2.19(b), Lender's prior consent shall not be
         required for entering into any new Lease covering 1,000 square feet of
         net rentable area or less, or renewals thereof, provided that (i) the
         Lease or renewal thereof represents an arm's-length transaction and
         provides for the payment of market rents, and (ii) neither the Lease
         nor renewal thereof nor the activity of the lessee will violate any
         provision of any other Lease or restriction or covenant affecting the
         Premises or this Deed of Trust or any other Loan Document, including
         Section 2.20(b) hereof. Except for Leases to which Lender's consent is
         not required, notice and copies of which shall be furnished only upon
         request, Borrower shall give Lender notice of any Lease or renewal
         thereof described in this Section 2.19(d), together with a
         fully-executed and complete copy of such Lease, not later than 10 days
         after the execution thereof.

(e)      In addition to the foregoing, Borrower shall comply with all terms and
         provisions of the Assignment.

         Section 2.20.  Environmental Matters; Warranties; Notice; Indemnity.

(a)      Borrower represents and warrants to Lender, based upon an environmental
         assessment of the Premises and the Equipment and information that
         Borrower knows, as follows:

         (i)      Borrower has not installed, used, generated, manufactured,
                  produced, stored, released, discharged or disposed of in, on,
                  under or about the Premises, or transported to or from any
                  portion of the Premises, any Hazardous Substance or allowed
                  any other person or entity to do so, except under conditions
                  permitted by applicable Environmental Laws;

         (ii)     there are no Hazardous Substances or underground storage tanks
                  in, on, or under or about the Premises, except those that are
                  both (A) in compliance with Environmental Laws and with
                  permits issued pursuant thereto, if necessary, and (B) fully
                  disclosed to Lender in writing pursuant to the written reports
                  resulting from environmental

                                       33
<PAGE>   38

                  assessments of the Mortgaged Property delivered to Lender (the
                  "Environmental Report");

         (iii)    there are no past, present or threatened Releases of any
                  Hazardous Substance in, on, under or about the Premises except
                  as defined in the Environmental Report;

         (iv)     there is no condition known to Borrower which is expected to
                  result in any Release of Hazardous Substances migrating to the
                  Premises except as described in the Environmental Report;

         (v)      there is no past or present non-compliance with Environmental
                  Laws, or with permits issued pursuant thereto, in connection
                  with the Premises or the Equipment except as described in the
                  Environmental Report;

         (vi)     Borrower does not know of, and has not received, any written
                  or oral notice or other communication from any person or
                  entity (including, but not limited to, a governmental entity)
                  relating to Hazardous Substances or Remediation thereof, of
                  possible liability of any person or entity pursuant to any
                  Environmental Law, other environmental conditions in
                  connection with the Premises or Equipment, or any actual or
                  potential administrative or judicial proceedings in connection
                  with any of the foregoing; and,

         (vii)    Borrower has truthfully and fully provided to Lender, in
                  writing, any and all information relating to any presence or
                  Release of Hazardous Materials in, on, under and about the
                  Premises that is known by Borrower and that is contained in
                  Borrower's files and records, including but not limited to any
                  reports relating to Hazardous Substances in, on, under or
                  about the Premises and/or to the environmental condition of
                  the Premises.

(b)      Borrower shall not install, use, generate, manufacture, produce, store,
         Release, discharge or dispose of on, under or about the Premises, or
         transport to or from any portion of the Premises, any Hazardous
         Substance or allow any other person or entity to do so, except under
         conditions permitted by applicable Environmental Laws. Additionally,
         except with the prior written consent of Lender, no portion of the
         Premises shall be leased, used or occupied for dry cleaning operations
         (except for drop off dry cleaning operations in the ordinary course of
         business) or the storage of any chemicals used in the dry cleaning
         process.

(c)      Borrower shall keep and maintain the Premises in compliance with, and
         shall not cause or permit the Premises to be in violation of,
         applicable Environmental Laws.

(d)      Borrower shall promptly provide notice to Lender of:

                                       34
<PAGE>   39

         (i)      any proceeding, investigation or inquiry commenced by any
                  governmental authority with respect to the presence of any
                  Hazardous Substance on, under or about the Premises or the
                  migration of any Hazardous Substance to or from adjoining
                  property to which Borrower has knowledge or has received
                  notice;

         (ii)     all claims made or threatened by any person or entity against
                  Borrower, or to Borrower's knowledge, any other party
                  occupying the Premises or any portion thereof, or the
                  Premises, relating to any loss or injury allegedly resulting
                  from any Hazardous Substance; and

         (iii)    the discovery of any occurrence or condition on the Premises
                  or on any real property adjoining or in the vicinity of the
                  Premises, of which Borrower becomes aware, which might cause
                  the Premises or any portion thereof to be in violation of any
                  Environmental Law or subject to any restriction on ownership,
                  occupancy, transferability or use under any Environmental Law
                  (collectively, an "Environmental Violation").

(e)      Lender and, to the extent authorized by Lender, Trustee may join and
         participate in, as a party if Lender so determines, any legal or
         administrative proceeding or action concerning the Premises or
         Equipment under any Environmental Law. Borrower agrees to bear and
         shall pay or reimburse Lender on demand for all Advances and expenses
         (including reasonable attorneys' fees) relating to or incurred by
         Lender in connection with any such action or proceeding.

(f)      Borrower shall indemnify and hold Trustee and Lender and their
         respective directors, officers, employees and agents harmless from and
         against any and all claims, demands, liabilities, losses, damages,
         judgments, penalties, costs and expenses (including reasonable
         attorneys' fees) directly or indirectly arising out of or attributable
         to a breach of any warranty, representation or other provision
         contained in this Section 2.20 including, without limitation, (i) all
         actual and consequential damages, (ii) the costs of any required
         Remediation, and (iii) the costs of the preparation and implementation
         of any plans for Remediation, closure or other required plans. This
         indemnity shall survive the satisfaction, release or extinguishment of
         the lien of this Deed of Trust including any extinguishment of such
         lien by foreclosure or deed in lieu thereof. Notwithstanding anything
         to the contrary contained herein, the indemnification provided for
         herein shall survive payment of the Note, but shall become null and
         void and of no further force and effect in the event Lender or any
         other party obtains title to the Mortgaged Property through foreclosure
         or exercise of power of sale under this Deed of Trust or deed-in-lieu
         of foreclosure or exercise of power of sale.

                                       35
<PAGE>   40

         Section 2.21.  Environmental Matters; Remedial Work.

(a)      If any investigation, site monitoring, containment, cleanup, removal,
         restoration or other Remediation of any kind or nature (collectively,
         the "Remedial Work") is required to be performed by Borrower under any
         applicable Environmental Law because of or in connection with the
         current or future presence, suspected presence, release or suspected
         release of a Hazardous Substance into the air, soil, ground water,
         surface water, or soil vapor on, under or about the Premises or any
         portion thereof, Borrower shall promptly commence and diligently
         prosecute to completion all such Remedial Work. In all events, such
         Remedial Work shall be commenced within 45 days after any demand
         therefor by Lender or such shorter period as may be required under any
         applicable Environmental Law.

(b)      All Remedial Work shall be performed by contractors, and under the
         supervision of a consulting engineer, each approved in advance by
         Lender. All costs and expenses of such Remedial Work and Lender's
         monitoring or review of such Remedial Work (including reasonable
         attorneys' fees) shall be paid by Borrower. If Borrower does not timely
         commence and diligently prosecute to completion the Remedial Work,
         Lender may (but shall not be obligated to) cause such Remedial Work to
         be performed. Borrower agrees to bear and shall pay or reimburse Lender
         on demand for all Advances and expenses (including reasonable
         attorneys' fees) relating to or incurred by Lender in connection with
         monitoring, reviewing or performing any Remedial Work.

(c)      Except with Lender's prior consent (not to be unreasonably withheld),
         Borrower shall not commence any Remedial Work or enter into any
         settlement agreement, consent decree or other compromise relating to
         any Hazardous Substances or Environmental Laws which might, in Lender's
         sole judgment, impair the value of Lender's security hereunder.
         Lender's prior consent shall not be required, however, if the presence
         or threatened presence of Hazardous Substances on, under or about the
         Premises poses an immediate threat to the health, safety or welfare of
         any person or is of such a nature that an immediate remedial response
         is necessary, and it is not possible to obtain Lender's prior consent.
         In such event Borrower shall notify Lender as soon as practicable of
         any action taken.

         Section 2.22.  Environmental Matters; Inspection.

(a)      Lender shall have the right at all reasonable times to enter upon and
         inspect all or any portion of the Premises, provided that Lender makes
         an appointment through the general manager of the hotel after
         reasonable notice and that such inspections shall not unreasonably
         interfere with the normal business operations of the Premises. Lender
         may select a consulting engineer to conduct and prepare reports of such
         inspections. The inspection rights granted to Lender in this Section
         2.22 shall be in addition to, and not in limitation of, any other
         inspection rights granted to Lender in this Deed of Trust, and shall
         expressly include the right to conduct

                                       36
<PAGE>   41

         reasonable soil borings and other customary environmental tests,
         assessments and audits, so long as Lender restores the Mortgaged
         Property to its previous condition.

(b)      Borrower agrees to bear and shall pay or reimburse Lender on demand for
         all Advances and expenses (including reasonable attorneys' fees)
         relating to or incurred by Lender in connection with the inspections
         and reports described in this Section 2.22 in the following situations:

         (i)      If Lender has reasonable grounds to believe, at the time any
                  such inspection is ordered, that there exists an Environmental
                  Violation or that a Hazardous Substance is present on, under
                  or about the Premises or is migrating to or from adjoining
                  property, except under conditions permitted by applicable
                  Environmental Laws and not prohibited by any Loan Document;

         (ii)     if any such inspection reveals an Environmental Violation or
                  that a Hazardous Substance is present on, under or about the
                  Premises or is migrating to or from adjoining property, except
                  under conditions permitted by applicable Environmental Laws
                  and not prohibited by any Loan Document; or

         (iii)    if an Event of Default exists at the time any such inspection
                  is ordered.

         Section 2.23. Management. At all times prior to the payment in full of
the Indebtedness, the Mortgaged Property shall be managed by Sheraton or another
management company satisfactory to Lender, and pursuant to the Management
Agreement or another management agreement reasonably satisfactory to Lender.
Such management agreement, and any leasing commissions agreement affecting the
Mortgaged Property, shall be subordinate to this Deed of Trust.

         Section 2.24. ERISA. As of the date hereof and throughout the term of
this Deed of Trust, (i) Borrower is not and will not be an "employee benefit
plan" as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA:
(ii) the assets of Borrower do not and will not constitute "plan assets" of one
or more such plans for purposes of Title I of ERISA: (iii) Borrower is not and
will not be a "governmental plan" within the meaning of Section 3(3) of ERISA;
(iv) transactions by or with Borrower are not and will not be subject to state
statutes applicable to Borrower regulating investments of fiduciaries with
respect to governmental plans; and (v) Borrower shall not engage in any
transaction which would cause any obligation, or action taken or to be taken,
hereunder (or the exercise by Lender of any of its rights under this Deed of
Trust, the Note, or the other Loan Documents) to be a non-exempt (under a
statutory or administrative class exemption) prohibited transaction under ERISA.
Borrower further agrees to deliver to Lender such certifications or other
evidence of compliance with the provisions of this Section 2.24 as Lender may
from time to time request.

                                       37
<PAGE>   42

         Section 2.25. Operating Agreements. In connection with the Operating
Agreements, Trustor acknowledges and agrees as follows:

(a)      no Operating Agreement shall be amended, modified, supplemented,
         restated or otherwise altered by Trustor, nor shall Trustor consent or
         otherwise acquiesce in any of the foregoing, without in each instance
         Beneficiary's prior written consent, which consent shall not be
         unreasonably withheld;

(b)      no Operating Agreement shall be terminated by Trustor unless such
         terminated Operating Agreement is replaced with a similar agreement
         upon terms and conditions, and with such third parties, as are
         reasonably acceptable to Lender;

(c)      Trustor will deliver to Beneficiary, at the same time received or sent
         by Trustor, copies of all notices, demands or requests sent or
         otherwise made by Trustor or any other Person under or pursuant to any
         Operating Agreement;

(d)      the term of any Operating Agreement shall not be extended or otherwise
         renewed by Trustor (unless pursuant to a right currently afforded
         Trustor thereunder) without in each instance Beneficiary's prior
         written approval, such approval not to be unreasonably withheld;

(e)      Trustor agrees to observe, perform and discharge all obligations,
         covenants and warranties required to be kept and performed by Trustor
         under the Operating Agreements; and

(f)      Trustor shall use best efforts to enforce or secure the performance of
         each and every material obligation, term, covenant, condition and
         agreement to be performed by any other party to any of the Operating
         Agreements.

         Section 2.26. Single-Purpose Entity. Borrower shall at all times be a
Single-Purpose Entity.

                                   ARTICLE III
                               Security Agreement

         Section 3.01. Warranties, Representations and Covenants of Borrower.
Borrower covenants, warrants, represents and agrees with and to Trustee and
Lender as follows:

(a)      This Deed of Trust constitutes a security agreement under the Code and
         serves as a fixture filing in accordance with the Code. This Deed of
         Trust creates a security interest in favor of Lender as secured party
         under the Code with respect to all property (specifically including the
         Collateral) included in the Mortgaged Property which is covered by the
         Code. The mention of

                                       38
<PAGE>   43

         any portion of the Mortgaged Property in a financing statement filed in
         the records normally pertaining to personal property shall not derogate
         from or impair in any manner the intention of Borrower and Lender
         hereby declared that all items of Collateral described in this Deed of
         Trust are part of the real property encumbered hereby to the fullest
         extent permitted by law, regardless of whether any such item is
         physically attached to the Improvements or whether serial numbers are
         used for the better identification of certain items. Specifically, the
         mention in any such financing statement of (i) the rights in or the
         Proceeds of any policy of insurance, (ii) any condemnation Proceeds,
         (iii) Borrower's interest in any Leases or Property Income, or (iv) any
         other item included in the Mortgaged Property, shall not be construed
         to alter, impair or impugn any rights of Lender as determined by this
         Deed of Trust or the priority of Lender's lien upon and security
         interest in the Mortgaged Property. Any such mention shall be for the
         protection of Lender in the event that notice of Lender's priority of
         interest as to any portion of the Mortgaged Property is required to be
         filed in accordance with the Code to be effective against or take
         priority over the interest of any particular class of persons,
         including the federal government or any subdivision or instrumentality
         thereof.

(b)      Except for the security interest granted by the Loan Documents,
         Borrower is and, as to portions of the Collateral to be acquired after
         the date hereof, will be the sole owner of the Collateral, free from
         any lien, security interest, encumbrance or adverse claim thereon of
         any kind whatsoever except Permitted Encumbrances. Borrower shall
         notify Lender of, and shall defend the Collateral against, all claims
         and demands of all persons at any time claiming the same or any
         interest therein. Notwithstanding anything to the contrary contained in
         the Loan Documents, Borrower shall have the right during the term of
         the Loan to secure the purchase of up to $300,000 of Equipment for the
         Mortgaged Property with secondary financing including equipment leases.

(c)      Except as otherwise provided in this Deed of Trust, Borrower shall not
         lease, sell, convey or in any manner transfer the Collateral without
         the prior consent of Lender.

(d)      The Collateral is not used or bought for personal, family or household
         purposes.

(e)      The Collateral shall be kept on or at the Premises, and Borrower shall
         not remove the Collateral from the Premises without the prior consent
         of Lender, except such portions or items of the Collateral as are
         consumed or worn out in ordinary usage, all of which shall be promptly
         replaced by Borrower with items of equal or greater value.

(f)      In the event of any change in name, identity or structure of Borrower,
         Borrower shall notify Lender thereof and promptly after request shall
         execute, file and record such Code forms as are necessary to maintain
         the priority of Lender's lien upon and security interest in the
         Collateral, and shall pay all reasonable expenses and fees in
         connection with the filing and recording

                                       39
<PAGE>   44

         thereof. If Lender shall require the filing or recording of additional
         Code forms or continuation statements, Borrower shall, promptly after
         request, execute, file and record such Code forms or continuation
         statements as Lender shall deem necessary (subject to Lender's right to
         sign such statements on behalf of Borrower as provided in Subsection
         3.01(g)), and shall pay all reasonable expenses and fees in connection
         with the filing and recording thereof. If Lender shall initially pay
         such expenses, Borrower shall promptly reimburse Lender for the
         expenses.

(g)      Borrower hereby irrevocably appoints Lender as its attorney-in-fact,
         coupled with an interest, to execute in the name of and on behalf of
         Borrower any and all financing statements and continuations thereof and
         to file with the appropriate public office on its behalf and at its
         expense any financing or other statements signed only by Lender, as
         secured party, in connection with the Collateral covered by this Deed
         of Trust.

         Section 3.02. Financing Statements. A CARBON, PHOTOGRAPHIC OR OTHER
REPRODUCTION OF THIS DEED OF TRUST OR ANY FINANCING STATEMENT RELATING TO THIS
DEED OF TRUST SHALL BE SUFFICIENT AS A FINANCING STATEMENT.

         Section 3.03. Addresses. The mailing address of Borrower and the
address of Lender from which information concerning the security interest
granted hereby may be obtained are set forth on the Cover Sheet of this Deed of
Trust. Borrower maintains its sole place of business or its chief executive
office at the address shown on said Cover Sheet, and Borrower shall immediately
notify Lender in writing of any change in said place of business or chief
executive office.

                                   ARTICLE IV
                              Default and Remedies

         Section 4.01. Events of Default. Each of the following shall, after the
expiration of any notice and cure period provided for in the Note, constitute an
Event of Default under this Deed of Trust, the Note and the other Loan
Documents:

(a)      failure in the payment of any amount due as and when due under this
         Deed of Trust, the Note or any other Loan Document;

(b)      failure to pay any Imposition as and when due or to maintain insurance
         as required by this Deed of Trust;

(c)      default in the due observance or performance of any term, covenant or
         condition contained in this Deed of Trust, the Note or any other Loan
         Document;

                                       40
<PAGE>   45

(d)      if any representation made herein or in any other Loan Document shall
         prove to be untrue in any material respect;

(e)      violation of any of the covenants set forth in Section 2.17 with
         respect to conveyances, sales, encumbrances or other prohibited
         dispositions of the Mortgaged Property or Borrower or any portion
         thereof or any interest therein;

(f)      violation of any of the covenants set forth in Section 2.19(a) with
         respect to the further assignment, transfer or encumbrance by Borrower
         of the Leases or the Property Income or any portion thereof;

(g)      violation of any of the covenants set forth as items (i) through (vi)
         of Section 2.19(c) with respect to certain actions concerning Leases
         which shall not be taken by Borrower without the prior consent of
         Lender;

(h)      if Borrower, any general partner of Borrower or Guarantor consents to
         the filing of, or commences or consents to the commencement of, any
         Bankruptcy Proceeding with respect to Borrower or Guarantor;

(i)      if any Bankruptcy Proceeding shall have been filed against Borrower,
         any general partner of Borrower or Guarantor and the same is not
         withdrawn, dismissed, canceled or terminated within 90 days of such
         filing;

(j)      if Borrower, any general partner of Borrower or Guarantor is
         adjudicated bankrupt or insolvent or a petition for reorganization of
         Borrower or any such general partner or Guarantor is granted;

(k)      if a receiver, liquidator or trustee of Borrower, any general partner
         of Borrower or Guarantor or of any of the properties of Borrower or any
         such general partner or Guarantor shall be appointed;

(l)      if Borrower, any general partner of Borrower or Guarantor shall make an
         assignment for the benefit of its creditors or shall admit in writing
         the inability to pay its debts generally as they become due;

(m)      except as otherwise permitted herein, if Borrower, any general partner
         of Borrower, or Guarantor shall die or shall institute or cause to be
         instituted any proceeding for the termination or dissolution of
         Borrower or any such general partner or Guarantor;

                                       41
<PAGE>   46

(n)      if a default or event of default shall occur under any mortgage, deed
         of trust, encumbrance, lien or security agreement (except for equipment
         leases) encumbering all or any portion of the Mortgaged Property which
         is subordinate or superior to the lien of this Deed of Trust or if any
         party under any such instrument shall commence a foreclosure or other
         collection or enforcement action in connection therewith, provided,
         however, that this provision shall not be deemed to be a waiver of the
         provisions of Section 2.17 prohibiting further encumbrances or of any
         other provision of this Deed of Trust, it being understood that it is
         an event of default under this Deed of Trust to permit any further
         mortgage, encumbrance, lien or security agreement to encumber all or
         any portion of the Mortgaged Property except as expressly permitted
         herein;

(o)      except as permitted in this Deed of Trust, the actual or threatened
         alteration, demolition or removal of any of the Improvements without
         the prior consent of Lender, which shall not be unreasonably withheld;

(p)      damage to any of the Mortgaged Property in any manner which is not
         covered by insurance as a result of Borrower's failure to maintain
         insurance required in accordance with this Deed of Trust;

(q)      default by [FCH/SH Leasing] [FCH/SH Leasing II] in the due observance
         or performance of any term, covenant or condition contained in any
         Operating Agreement or the Agreement Concerning Primary Lease Agreement
         without Borrower timely curing such default pursuant to its contractual
         rights to do so; or

(r)      default by Guarantor in the due observance or performance of any term,
         covenant or condition contained in any separate guaranty or separate
         indemnity agreement executed by Guarantor in connection with the Loan.

         In the event of a conflict between the provisions of this Section
4.01., and the provisions of the Note, the provisions of the Note shall control.

         Section 4.02. Remedies. Upon the occurrence of any Event of Default,
Lender may take such actions against Borrower and/or the Mortgaged Property or
any portion thereof as it deems advisable, subject to Section 11 of the Note, to
protect and enforce its rights against Borrower and in and to the Mortgaged
Property, without notice or demand except as set forth below. Any such actions
taken by Lender shall be cumulative and concurrent and may be pursued
independently, singly, successively, together or otherwise, at such time and in
such order as Lender may determine in its sole discretion, to the fullest extent
permitted by law, without impairing or otherwise affecting the other rights and
remedies of Lender permitted by law, equity or contract or as set forth herein
or in the other Loan Documents. All actions shall be subject to Section 11 of
the Note and may include the following:

                                       42
<PAGE>   47

(a)      Subject to any applicable provisions of the Note, Lender may declare
         the entire principal balance under the Note then unpaid, together with
         all accrued and unpaid interest thereon, and all other unpaid
         Indebtedness, to be immediately due and payable.

(b)      Lender may enter into or upon the Mortgaged Property, personally or by
         its agents, nominees or attorneys, and may dispossess Borrower and its
         agents and servants therefrom, and thereupon Lender at its sole
         discretion may: (i) use, operate, manage, control, insure, maintain,
         repair, restore and otherwise deal with all and every portion of the
         Mortgaged Property and conduct business thereon, in any case either in
         the name of Lender or in such other name as Lender shall deem best;
         (ii) complete any construction on the Mortgaged Property in such manner
         and form as Lender deems advisable; (iii) make alterations, additions,
         renewals, replacements and improvements to or on the Mortgaged
         Property; (iv) exercise all rights and powers of Borrower with respect
         to the Mortgaged Property, whether in the name of Borrower or
         otherwise, including the right to make, cancel, enforce or modify
         Leases, obtain and evict tenants, and demand, sue for, collect and
         receive all Property Income; and (v) apply the receipts of Property
         Income to the payment of the Indebtedness (including any prepayment fee
         payable under the Note) in such order as Lender shall determine in its
         sole discretion, after deducting therefrom all expenses (including
         reasonable attorneys' fees) incurred in connection with the aforesaid
         operations and all amounts necessary to pay the Impositions, insurance
         and other charges in connection with the Mortgaged Property, as well as
         just and reasonable compensation for the services of Lender, its
         agents, nominees and attorneys.

(c)      Subject to any applicable provisions of the Note, with or without
         entry, personally or by its agents, nominees or attorneys, Lender may
         require Trustee to sell all or any portion of the Mortgaged Property
         and all or any portion of Borrower's estate, right, title, interest,
         claim and demand therein and right of redemption thereof at one or more
         private or public sales in the manner and to the extent permitted by
         law, as an entirety or in parcels or portions, and Trustee shall have
         any statutory power of sale as may be provided by law in the State.

(d)      Subject to any applicable provisions of the Note, Lender may institute
         proceedings for the complete foreclosure of this Deed of Trust, in
         which case the Mortgaged Property may be sold for cash or upon credit,
         as an entirety or in parcels or portions.

(e)      Subject to any applicable provisions of the Note, Lender may institute,
         or require Trustee to institute, proceedings for the partial
         foreclosure of this Deed of Trust for the portion of the Indebtedness
         then due and payable, subject to the continuing lien of this Deed of
         Trust for the balance of the Indebtedness not then due.

                                       43
<PAGE>   48

(f)      Lender may institute, or require Trustee to institute, an action, suit
         or proceeding at law or in equity for the specific performance of any
         covenant, condition or agreement contained herein or in the Note or any
         other Loan Document, or in aid of the execution of any power granted
         hereunder or for the enforcement of any other appropriate legal or
         equitable remedy.

(g)      Lender and Trustee shall have the rights and may take such actions as
         are permitted by the laws of the State.

(h)      Subject to any applicable provisions of the Note, Lender may recover
         judgment on the Note, either before, during or after any proceedings
         for the foreclosure or enforcement of this Deed of Trust.

(i)      Lender may secure the appointment of a receiver, trustee, liquidator or
         similar official of the Mortgaged Property or any portion thereof, and
         Borrower hereby consents and agrees to such appointment, without notice
         to Borrower and without regard to the adequacy of the security for the
         Indebtedness and without regard to the solvency of Borrower or any
         other person, firm or entity liable for the payment of the
         Indebtedness, and such receiver or other official shall have all rights
         and powers permitted by applicable law and such other rights and powers
         as the court making such appointment may confer, but the appointment of
         such receiver or other official shall not impair or in any manner
         prejudice the rights of Lender to receive the Property Income pursuant
         to this Deed of Trust or the Assignment.

(j)      Lender may exercise any or all of the remedies available to a secured
         party under the Code, but any sale of the Equipment shall be subject to
         any applicable provisions of the Note.

(k)      Lender may pursue, or require Trustee to pursue, any other rights and
         remedies of Lender permitted by law, equity or contract or as set forth
         herein or in the other Loan Documents.

(l)      Lender may apply any funds then on deposit with Lender for payment of
         Impositions, ground rent or insurance premiums in the manner provided
         for in Section 2.07.

(m)      Lender in its sole discretion may surrender any insurance policies and
         collect the unearned premiums and apply such sums against the
         Indebtedness.

         Section 4.03.     General Provisions Regarding Remedies.

(a)      Effect of Judgment. No recovery of any judgment by Lender or Trustee
         and no levy of an execution under any judgment upon the Mortgaged
         Property or upon any other property of Borrower shall affect in any
         manner or to any extent the lien of this Deed of Trust upon the
         Mortgaged Property or any portion thereof, or any rights, powers or
         remedies of Lender or

                                       44
<PAGE>   49

         Trustee hereunder. Such lien, rights, powers and remedies of Lender and
         Trustee shall continue unimpaired as before.

(b)      Continuing Power of Sale. The power of sale conferred upon Lender in
         this Deed of Trust shall not be exhausted by any one or more sales as
         to any portion of the Mortgaged Property remaining unsold, but shall
         continue unimpaired until all of the Mortgaged Property is sold or all
         of the Indebtedness is paid.

(c)      Right to Purchase. At any sale of the Mortgaged Property or any portion
         thereof pursuant to the provisions of this Deed of Trust, Lender or
         Trustee shall have the right to purchase the Mortgaged Property being
         sold, and in such case shall have the right to credit against the
         amount of the bid made therefor (to the extent necessary) all or any
         portion of the Indebtedness then due.

(d)      Right to Terminate Proceedings. Lender or Trustee may terminate or
         rescind any proceeding or other action brought in connection with its
         exercise of the remedies provided in Section 4.02 at any time before
         the conclusion thereof, as determined in Lender's sole discretion and
         without prejudice to Lender.

(e)      No Waiver or Release. Lender may resort, or require Trustee to resort,
         to any remedies and the security given by the Loan Documents, in whole
         or in part, and in such portions and in such order as determined in
         Lender's sole discretion. No such action shall in any way be considered
         a waiver of any rights, benefits or remedies evidenced or provided by
         the Loan Documents. The failure of Lender or Trustee to exercise any
         right, remedy or option provided in the Loan Documents shall not be
         deemed a waiver of such right, remedy or option or of any covenant or
         obligation secured by the Loan Documents. No acceptance by Lender or
         Trustee of any payment after the occurrence of an Event of Default and
         no payment by Lender or Trustee of any Advance or obligation for which
         Borrower is liable hereunder shall be deemed to waive or cure such
         Event of Default or Borrower's liability to pay such obligation. No
         sale of all or any portion of the Mortgaged Property, no forbearance on
         the part of Lender or Trustee, and no extension of time for the payment
         of the whole or any portion of the Indebtedness or any other indulgence
         given by Lender or Trustee to Borrower or any other person or entity,
         shall operate to release or in any manner affect Lender's or Trustee's
         interest in the Mortgaged Property or the liability of Borrower to pay
         the Indebtedness, except to the extent that such liability shall be
         reduced by Proceeds of the sale of all or any portion of the Mortgaged
         Property received by Lender. No waiver by Lender or Trustee shall be
         effective unless it is in writing and then only to the extent
         specifically stated.

(f)      No Impairment; No Release. The interests and rights of Lender or
         Trustee under the Loan Documents shall not be impaired by any
         indulgence, including (i) any renewal, extension or

                                       45
<PAGE>   50

         modification which Lender may grant with respect to any of the
         Indebtedness; (ii) any surrender, compromise, release, renewal,
         extension, exchange or substitution which Lender or Trustee may grant
         with respect to the Mortgaged Property or any portion thereof; or (iii)
         any release or indulgence granted to any maker, endorser, guarantor or
         surety of any of the Indebtedness. Subject to Section 11 of the Note,
         if the Mortgaged Property is sold and Lender enters into any agreement
         with the then owner of the Mortgaged Property extending the time of
         payment of the Indebtedness, or otherwise modifying the terms hereof or
         of any other Loan Document, Borrower shall continue to be liable to pay
         the Indebtedness according to the tenor of any such agreement unless
         expressly released and discharged in writing by Lender.

(g)      WAIVERS AND AGREEMENTS REGARDING REMEDIES. TO THE FULLEST EXTENT THAT
         BORROWER MAY LEGALLY DO SO, BORROWER:

         (i)      AGREES THAT BORROWER WILL NOT AT ANY TIME INSIST UPON, PLEAD,
                  CLAIM OR TAKE THE BENEFIT OR ADVANTAGE OF ANY LAWS NOW OR
                  HEREAFTER IN FORCE PROVIDING FOR ANY APPRAISAL OR
                  APPRAISEMENT, VALUATION, STAY, EXTENSION OR REDEMPTION, AND
                  WAIVES AND RELEASES ALL RIGHTS OF REDEMPTION, VALUATION,
                  APPRAISAL OR APPRAISEMENT, STAY OF EXECUTION, EXTENSION AND
                  NOTICE OF ELECTION TO ACCELERATE OR DECLARE DUE THE WHOLE OF
                  THE INDEBTEDNESS;

         (ii)     WAIVES ALL RIGHTS TO A MARSHALING OF THE ASSETS OF BORROWER,
                  BORROWER'S PARTNERS, IF ANY, AND OTHERS WITH INTERESTS IN
                  BORROWER, INCLUDING THE MORTGAGED PROPERTY, OR TO A SALE IN
                  INVERSE ORDER OF ALIENATION IN THE EVENT OF FORECLOSURE OF THE
                  INTERESTS HEREBY CREATED, AND AGREES NOT TO ASSERT ANY RIGHT
                  UNDER ANY LAWS PERTAINING TO THE MARSHALING OF ASSETS, THE
                  SALE IN INVERSE ORDER OF ALIENATION, HOMESTEAD EXEMPTION, THE
                  ADMINISTRATION OF ESTATES OF DECEDENTS, OR ANY OTHER MATTERS
                  WHATSOEVER TO DEFEAT, REDUCE OR AFFECT THE RIGHT OF LENDER
                  UNDER THE LOAN DOCUMENTS TO A SALE OF THE MORTGAGED PROPERTY
                  FOR THE COLLECTION OF THE INDEBTEDNESS WITHOUT ANY PRIOR OR
                  DIFFERENT RESORT FOR COLLECTION, OR THE RIGHT OF LENDER OR
                  TRUSTEE TO THE PAYMENT OF THE INDEBTEDNESS OUT OF THE PROCEEDS
                  OF SALE OF THE MORTGAGED PROPERTY IN PREFERENCE TO EVERY OTHER
                  CLAIMANT WHATSOEVER;

         (iii)    WAIVES ANY RIGHT TO BRING OR UTILIZE ANY DEFENSE, COUNTERCLAIM
                  OR SETOFF, OTHER THAN ONE IN GOOD FAITH, WHICH DENIES THE
                  EXISTENCE OR SUFFICIENCY OF THE FACTS UPON WHICH THE
                  FORECLOSURE ACTION IS GROUNDED OR WHICH IS BASED ON LENDER'S
                  OR TRUSTEE'S WRONGFUL ACTIONS. IF ANY DEFENSE, COUNTERCLAIM OR
                  SETOFF (OTHER THAN ONE PERMITTED BY THE PRECEDING SENTENCE) IS
                  RAISED BY BORROWER IN SUCH FORECLOSURE ACTION, SUCH DEFENSE,
                  COUNTERCLAIM OR SETOFF SHALL BE DISMISSED. IF SUCH DEFENSE,
                  COUNTERCLAIM OR SETOFF IS BASED ON A CLAIM WHICH COULD BE
                  TRIED IN AN ACTION FOR MONEY DAMAGES, THE FOREGOING WAIVER
                  SHALL NOT BAR A SEPARATE

                                       46
<PAGE>   51

                  ACTION FOR SUCH DAMAGE (UNLESS SUCH CLAIM IS REQUIRED BY LAW
                  OR APPLICABLE RULES OF PROCEDURE TO BE PLEADED IN OR
                  CONSOLIDATED WITH THE ACTION INITIATED BY LENDER OR TRUSTEE),
                  BUT SUCH SEPARATE ACTION SHALL NOT THEREAFTER BE CONSOLIDATED
                  WITH LENDER'S OR TRUSTEE'S FORECLOSURE ACTION. THE BRINGING OF
                  SUCH SEPARATE ACTION FOR MONEY DAMAGES SHALL NOT BE DEEMED TO
                  AFFORD ANY GROUNDS FOR STAYING ANY SUCH FORECLOSURE ACTION;

         (iv)     WAIVES AND RELINQUISHES ANY AND ALL RIGHTS AND REMEDIES WHICH
                  BORROWER MAY HAVE OR BE ABLE TO ASSERT BY REASON OF THE
                  PROVISIONS OF ANY LAWS PERTAINING TO THE RIGHTS AND REMEDIES
                  OF SURETIES, INCLUDING WITHOUT LIMITATION,
                  _________________________, OR ANY CORRESPONDING FUTURE STATUTE
                  OR RULE OF LAW;

         (v)      WAIVES THE DEFENSE OF LACHES AND ANY APPLICABLE STATUTES OF
                  LIMITATION; AND

         (vi)     WAIVES ANY RIGHT TO HAVE ANY TRIAL, ACTION OR PROCEEDING TRIED
                  BY A JURY.

(h)      Lender's Discretion. Lender may exercise its rights, options and
         remedies and may make all decisions, judgments and determinations under
         this Deed of Trust and the other Loan Documents in its sole unfettered
         discretion.

(i)      Recitals of Facts. Intentionally Deleted.

(j)      Lender's Right to Waive, Consent or Release. Lender may at any time, in
         writing, (i) waive compliance by Borrower with any covenant herein made
         by Borrower to the extent and in the manner specified in such writing;
         (ii) consent to Borrower's doing any act which Borrower is prohibited
         hereunder from doing, or consent to Borrower's failing to do any act
         which Borrower is required hereunder to do, to the extent and in the
         manner specified in such writing; or (iii) release or require Trustee
         to release any portion of the Mortgaged Property, or any interest
         therein, from this Deed of Trust and the lien of the other Loan
         Documents. No such act shall in any way impair the rights of Lender or
         Trustee hereunder except to the extent specified by Lender in such
         writing.

(k)      Possession of the Mortgaged Property. Upon the occurrence of any Event
         of Default hereunder and demand by Lender at its option, Borrower shall
         immediately surrender or cause the surrender of possession of the
         Premises to Lender subject to the Permitted Encumbrances. Except as
         expressly provided in any separate written agreement between Lender and
         any other occupant of the Premises, if Borrower or such occupant is
         permitted to remain in possession, such possession shall be as tenant
         of Lender and such occupant (i) shall on demand pay to Lender monthly,
         in advance, reasonable use and occupancy charges for the space so
         occupied, and (ii) in default thereof, may be dispossessed by the usual
         summary proceedings. Upon

                                       47
<PAGE>   52

         demand, Borrower shall assemble the Collateral and make it available at
         the Premises to allow Lender to take possession and/or dispose of the
         Collateral. The covenants herein contained may be enforced by a
         receiver of the Mortgaged Property or any portion thereof. Nothing in
         this Section 4.03(k) shall be deemed a waiver of the provisions of this
         Deed of Trust prohibiting the sale or other disposition of the
         Mortgaged Property without Lender's consent except as and to the extent
         expressly permitted in the Loan Documents.

(l)      Limitations on Liability

         (i)      Notwithstanding anything to the contrary contained in any of
                  the Loan Documents or the Related Loan Documents but subject
                  to the provisions of this Section 4.03(l), in any action or
                  proceedings brought on this Deed of Trust, the Note or on any
                  of the Loan Documents in which a money judgment is sought,
                  Lender and Trustee will look solely to the Mortgaged Property
                  (including the Property Income) for payment of the
                  Indebtedness and, specifically and without limitation, Lender
                  and Trustee agree to waive any right to seek or obtain a
                  deficiency judgment against Borrower.

         (ii)     The provisions of Section 4.03(1)(i) shall not

                  (u) constitute a waiver, release or impairment of any
                  obligation evidenced or secured by this Deed of Trust, the
                  Note or any other Loan Document by either Lender or Trustee to
                  the extent of the Mortgaged Property securing such obligation;

                  (v) be deemed to be a waiver of any right which Lender or
                  Trustee may have under Sections 506(a), 506(b), 1111(b) or any
                  other provisions of the U.S. Bankruptcy Code to file a claim
                  for the full amount of the Indebtedness secured by this Deed
                  of Trust or to require that all Collateral shall continue to
                  secure all of the Indebtedness owing to Lender in accordance
                  with the Note, this Deed of Trust and the Loan Documents;

                  (w) impair the right of the Lender or Trustee to name the
                  Borrower or any principals of Borrower or any guarantor of the
                  Note as a party or parties defendant in any action or suit for
                  judicial foreclosure and sale under this Deed of Trust;

                  (x) affect the validity or enforceability of, or limit
                  recovery under, any separate indemnity agreement (including
                  the environmental indemnity set forth in any separate
                  environmental indemnity agreement, however designated), or
                  guaranty made in connection with this Deed of Trust, the Note
                  or the Loan Documents;

                                       48
<PAGE>   53

                  (y) impair the right of the Lender or Trustee to obtain the
                  appointment of a receiver; or,

                  (z) impair Lender's or Trustee's rights and remedies under
                  Section 2.19 of this Deed of Trust regarding the assignment of
                  Leases and Property Income to Lender or under the Assignment.

         (iii)    Notwithstanding any provisions of this Subsection 4.03(l),
                  nothing herein shall be deemed to impair or prejudice in any
                  way the right of Lender or Trustee (which right is
                  specifically reserved) to pursue or obtain personal recourse
                  liability against Borrower, or Guarantor to recover Losses
                  incurred by Lender or Trustee arising out of or resulting
                  from:

                  (u) obligations and liabilities under any separate guaranty or
                  separate indemnity agreement;

                  (v) fraud or material misrepresentation in connection with the
                  Application or the making of the Loan;

                  (w) insurance and/or condemnation proceeds received but not
                  paid over or applied in accordance with the Loan Documents;

                  (x) misappropriation of any security deposits, advances or
                  prepaid rents, cancellation or termination payments or other
                  similar sums received by Borrower from any tenants or other
                  occupants of the Premises;

                  (y) personal property covered by Lender's security interest
                  obtained in connection with the Loan which is taken from the
                  Mortgaged Property by or on behalf of Borrower and not
                  replaced in the ordinary course of business with personal
                  property of the same utility and of the same or greater value;

                  (z) any act of arson, malicious destruction or material waste
                  by Borrower, any principal, affiliate, member or general or
                  limited partner of Borrower, or by any guarantor or indemnitor
                  under any of the Loan Documents given to Lender in connection
                  with the making of the Loan;

                  (aa) revenues of the Mortgaged Property which are not applied
                  to payments due under the Loan or to operating expenses of the
                  Mortgaged Property (including, without limitation, any
                  reserves or escrows required by any Loan Document) thereby
                  resulting in, or contributing materially to, a default under
                  the

                                       49
<PAGE>   54

                  Loan Documents. Lender, however, shall have no right to
                  recover distributions from the revenues of the Mortgaged
                  Property to Borrower or Guarantor or any principal of Borrower
                  or Guarantor made in good faith (after determining the
                  sufficiency of revenues to cover the payments on the Loan and
                  the foregoing operating and capital expenses) more than ninety
                  (90) days prior to a default occurring under any Loan
                  Document;

                  (bb) [FCH/SH Leasing] [FCH/SH Leasing II]'s pledge in
                  violation of the Loan Documents of the revenues or operating
                  accounts relating to the Mortgaged Property, Lessee's Personal
                  Property (as defined in the Primary Lease) or any other rights
                  of [FCH/SH Leasing] [FCH/SH Leasing II] under the Primary
                  Lease or [FCH/SH Leasing] [FCH/SH Leasing II]'s failure to
                  keep all of the foregoing lien free in violation of the Loan
                  Documents;

                  (cc) any fraudulent conveyance or transfer (or claim of any
                  fraudulent conveyance or transfer) of any of the Mortgaged
                  Properties (or any interest therein) to Borrower;

                  (dd) the bankruptcy or insolvency of any fee owner of any of
                  the Mortgaged Properties other than Borrower; or

                  (ee) any transfer or mortgage tax (or claim of any transfer or
                  mortgage tax) arising from the transfer to Borrower or
                  mortgage by the fee owner or Borrower of any of the Mortgaged
                  Properties or any interest therein.

         (iv)     Notwithstanding the foregoing and subject to the last sentence
                  of this paragraph, the agreement of Lender and Trustee not to
                  pursue recourse liability as set forth in Section 4.03(l)(i)
                  above SHALL AUTOMATICALLY BECOME NULL AND VOID and be of no
                  further force and effect in the event (x) Borrower, any
                  general partner or member (if Borrower shall be a limited
                  liability company) of Borrower or any guarantor of the
                  Indebtedness files or consents to the filing of any petition
                  under the U.S. Bankruptcy Code respecting its or their debts,
                  or (y) any such petition shall have been filed against any of
                  the foregoing which is not dismissed within 90 days of such
                  filing; except for an involuntary bankruptcy filed by Lender
                  and provided further, that if: (1) after ninety (90) days
                  following the filing of an involuntary bankruptcy proceeding,
                  such proceeding is dismissed with prejudice and without
                  adversely affecting the enforceability or priority of any of
                  the Loan Documents; and (2) such dismissal occurs prior to the
                  occurrence of any of the following: (v) the entry of any order
                  that adversely affects the enforceability or priority of any
                  of the Loan Documents (other than solely by reason of the
                  automatic stay), (w) the entry of

                                       50
<PAGE>   55

                  any order granting any person relief from the automatic stay
                  to foreclose against, enforce any lien or security interest,
                  levy upon, or repossess any material assets of Borrower that
                  constitute a part of, or that relate to the Mortgaged
                  Properties, or to terminate any Management Agreement or
                  Primary Lease, (x) the liquidation of any material assets of
                  Borrower that constitute a part of, or that relate to, the
                  Mortgaged Properties, (y) the entry of any order approving the
                  rejection or termination of any Primary Lease or any
                  Management Agreement, or (z) the entry of any order approving
                  any plan of reorganization for Borrower; and (3) throughout
                  the period following the filing of such bankruptcy proceeding,
                  Borrower or one or more of Borrower and persons or entities
                  having an interest in Borrower have continued to make regular
                  payments of debt service on a timely basis in accordance with
                  the provisions of the Loan Documents. Borrower or one or more
                  of Borrower and Guarantor shall be personally liable only for
                  the actual damages, losses, costs, and expenses (including
                  attorneys' fees) incurred by Lender (expressly including any
                  diminution, loss or damage to the Collateral) as a result of
                  such bankruptcy filing.

(m)      Subrogation. If all or any portion of the proceeds of the Note or any
         Advance shall be used directly or indirectly to pay off, discharge or
         satisfy, in whole or in part, any prior lien or encumbrance upon the
         Mortgaged Property or any portion thereof, then Lender and Trustee
         shall be subrogated to, and shall have the benefit of the priority of,
         such other lien or encumbrance and any additional security held by the
         holder thereof.

(n)      Additional Provisions Regarding Remedies.

         (i)      Should Lender elect to foreclose by exercise of power of sale
                  set forth in this Deed of Trust, then upon receipt of such
                  notice from Lender, Trustee shall cause to be recorded,
                  published, posted and mailed to Borrower and other persons as
                  required by law a Notice of Trustee's Sale in the manner
                  required by law. Without further notice to Borrower and after
                  the lapse of such time as may then be required by law, Trustee
                  shall sell the Mortgaged Property at the time and place of
                  sale fixed by it in said Notice of Trustee's Sale or as
                  otherwise provided by law. The Mortgaged Property may be sold
                  as a whole or in such separate lots, parcels or items as
                  Trustee shall deem expedient, and such order as Trustee may
                  determine, at public auction in the manner provided by law.
                  Trustee shall deliver to the purchaser or purchasers its good
                  and sufficient deed or deeds conveying the property so sold,
                  but without any covenant or warranty, express or implied. Any
                  person, including Borrower, Trustee or Lender, may purchase at
                  such sale.

                                       51
<PAGE>   56

         (ii)     After deducting all costs, fees and expenses of Trustee and of
                  this Deed of Trust, including reasonable attorneys' fees and
                  all costs of title reports and other evidence of title and any
                  appraisals, environmental and other professional reports
                  obtained by Lender or Trustee in connection with the sale,
                  Trustee shall apply the proceeds of sale to payment of the
                  Indebtedness and the remainder, if any, to the person or
                  persons legally entitled thereto, or as provided in
                  _________________.

         (iii)    Trustee may postpone the sale of all or any portion of the
                  Mortgaged Property or change the place of sale in the manner
                  provided by law.

         (iv)     The power of sale under this Deed of Trust shall not be
                  exhausted by any one or more sales (or attempted sales) as to
                  all or any portion of the Mortgaged Property remaining unsold,
                  but shall continue unimpaired until all of the Mortgaged
                  Property has been sold and all of the Indebtedness has been
                  paid in full.

(o)      Additional Remedies. Subject to the provisions of Section 4.03(l)
         hereof, Lender shall have, in addition to all other rights and remedies
         provided herein and in the Loan Documents and at law or in equity, the
         rights and remedies afforded by _________________, without regard to
         the adequacy of the security or to the solvency of Borrower or to
         whether Trustee or Lender has commenced to exercise any other right or
         remedy herein or in any other Loan Document or at law or in equity.

(p)      Accurate Reflection. Borrower hereby acknowledges and agrees that the
         Loan Documents accurately reflect the agreements and understandings of
         the parties thereto with respect to the subject matter thereof, and
         hereby waives any claims against Lender that Borrower may now have or
         may hereafter acquire to the effect that the actual agreements and
         understandings of the parties to the Loan Documents, with respect to
         the subject matter thereof, may not be accurately set forth in the Loan
         Documents.

                                       52
<PAGE>   57

                                    ARTICLE V
                                     Trustee

         Section 5.01. Certain Actions of Trustee. Upon the written request of
Lender, Trustee may at any time (a) reconvey all or any portion of the Mortgaged
Property, (b) consent to the making of any map or plat thereof, (c) join in
granting any easement thereon or in creating any covenants or conditions
restricting the use or occupancy thereof, or (d) join in any extension agreement
or in any agreement subordinating the lien or charge hereof. Any such action may
be taken by Trustee without notice, and shall not affect the personal liability
of any person for the payment of the Indebtedness or the lien of this Deed of
Trust upon the Mortgaged Property for the full amount of the Indebtedness.

         Section 5.02. Reconveyance. Upon the written request of Lender stating
that all sums secured hereby have been paid, and upon payment of its fees,
Trustee shall reconvey without warranty the Mortgaged Property then held by
Trustee hereunder.

         Section 5.03. Trustee's Covenants and Compensation. Trustee, by its
acceptance hereof, covenants faithfully to perform and fulfill the trust herein
created, being liable, however, only for negligence or willful misconduct.
Trustee hereby waives any statutory fee and shall be entitled to, and hereby
agrees to accept, reasonable compensation in lieu thereof for all services
rendered or expenses incurred in the administration or execution of the trust
hereby created. Borrower hereby agrees to pay such compensation subject to any
applicable legal limitations.

         Section 5.04. Substitution of Trustee. Lender at any time in its sole
discretion may select and appoint a successor or substitute Trustee hereunder by
instrument in writing in any manner now or hereafter provided by law. Such
writing, upon recordation in the county where the Land is located, shall be
conclusive proof of proper substitution of such successor or substitute Trustee
which shall thereupon and without conveyance from the predecessor Trustee
succeed to all its title, estate rights, powers and duties.

         Section 5.05. Resignation of Trustee. Trustee may resign at any time
upon giving 30 days' notice to Borrower and to Lender.

         Section 5.06. Ratification of Acts of Trustee. Borrower hereby ratifies
and confirms any and all acts which Trustee named herein or its successors or
assigns in this trust shall do lawfully by virtue hereof.

                                       53
<PAGE>   58

                                   ARTICLE VI
                                  Miscellaneous

         Section 6.01. Notices.

(a)      All notices, consents, approvals and requests required or permitted
         hereunder or under any other Loan Document shall be given in writing
         and shall be effective for all purposes if hand delivered or sent by
         (i) certified or registered United States mail, postage prepaid, or
         (ii) expedited prepaid delivery service, either commercial or United
         States Postal Service, with proof of attempted delivery, addressed in
         either case to any party hereto at its address as stated on the Cover
         Sheet of this Deed of Trust, or at such other address and person as
         shall be designated from time to time by Lender or Borrower, as the
         case may be, in a written notice to the other party in the manner
         provided for in this Section 6.01. A notice shall be deemed to have
         been given: in the case of hand delivery, at the time of delivery; in
         the case of registered or certified mail, three Business Days after
         deposit in the United States mail; or in the case of expedited prepaid
         delivery, upon the first attempted delivery on a Business Day. A party
         receiving a notice which does not comply with the technical
         requirements for notice under this Section 6.01 may elect to waive any
         deficiencies and treat the notice as having been properly given.

(b)      Borrower shall notify Lender promptly of the occurrence of any of the
         following: (i) receipt of notice from any governmental authority of
         material violations of applicable law relating to the Mortgaged
         Property; (ii) receipt of any notice from the holder of any other lien
         or security interest in the Mortgaged Property; or (iii) commencement
         of any judicial or administrative proceedings by, against or otherwise
         materially adversely affecting Borrower or Guarantor, the Mortgaged
         Property, or any other action by any creditor thereof as a result of
         any default under the terms of any loan.

         Section 6.02. Binding Obligations; Joint and Several. The provisions
and covenants of this Deed of Trust shall run with the land, shall be binding
upon Borrower, its successors and assigns, and shall inure to the benefit of
Lender and Trustee and their respective successors and assigns. If there is more
than one Borrower, all their obligations and undertakings hereunder are and
shall be joint and several.

         Section 6.03. Captions. The captions of the sections and subsections of
this Deed of Trust are for convenience only and are not intended to be a part of
this Deed of Trust and shall not be deemed to modify, explain, enlarge or
restrict any of the provisions hereof.

         Section 6.04. Further Assurances. Borrower shall do, execute,
acknowledge and deliver, at its sole cost and expense, such further acts,
instruments or documentation, including additional title insurance policies or
endorsements, as Lender or Trustee may reasonably require from time to time to
better assure, transfer and confirm unto Lender the rights now or hereafter
intended to be granted to Lender and/or Trustee under this Deed of Trust or any
other Loan Document.

                                       54
<PAGE>   59

         Section 6.05. Severability. If any one or more of the provisions
contained in this Deed of Trust shall for any reason be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Deed of Trust, but
this Deed of Trust shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.

         Section 6.06. Borrower's Obligations Absolute. Except as expressly
permitted by the Loan Documents, all sums payable by Borrower hereunder shall be
paid without notice, demand, counterclaim, setoff, deduction or defense and
without abatement, suspension, deferment, diminution or reduction, and the
obligations and liabilities of Borrower hereunder shall in no way be released,
discharged, or otherwise affected (except as expressly provided herein) by
reason of: (a) any damage to or destruction of or any condemnation or similar
taking of the Mortgaged Property or any portion thereof; (b) any restriction or
prevention of or interference with any use of the Mortgaged Property or any
portion thereof; (c) any title defect or encumbrance or any eviction from the
Premises or any portion thereof by title paramount or otherwise; (d) any
Bankruptcy Proceeding relating to Borrower, any general partner of Borrower, or
any guarantor or indemnitor, or any action taken with respect to this Deed of
Trust or any other Loan Document by any trustee or receiver of Borrower or any
such general partner, guarantor or indemnitor, or by any court, in any such
proceeding; (e) any claim presently known to Borrower which Borrower has or
might have against Lender or Trustee; (f) any default or failure on the part of
Lender or Trustee prior to the date hereof to perform or comply with any of the
terms hereof or of any other agreement with Borrower; or (g) any other
occurrence whatsoever, whether similar or dissimilar to the foregoing. Except as
expressly provided herein, Borrower waives all rights now or hereafter conferred
by statute or otherwise to any abatement, suspension, deferment, diminution or
reduction of any sum secured hereby and payable by Borrower.

         Section 6.07. Amendments. This Deed of Trust cannot be altered,
amended, modified or discharged orally and no executory agreement shall be
effective to modify or discharge it in whole or in part, unless in writing and
signed by the party against which enforcement is sought.

         Section 6.08. Other Loan Documents and Schedules. All of the
agreements, conditions, covenants, provisions and stipulations contained in the
Note and the other Loan Documents, and each of them, which are to be kept and
performed by Borrower are hereby made a part of this Deed of Trust to the same
extent and with the same force and effect as if they were fully set forth in
this Deed of Trust, and Borrower shall keep and perform the same, or cause them
to be kept and performed, strictly in accordance with their respective terms.
The Cover Sheet and each schedule attached to this Deed of Trust are integral
parts of this Deed of Trust and are incorporated herein by this reference. In
the event of any conflict between the provisions of any such schedule and the
remainder of this Deed of Trust, the provisions of such schedule or rider shall
prevail.

                                       55
<PAGE>   60

         Section 6.09.     Legal Construction.

(a)      The enforcement of this Deed of Trust shall be governed by, and
         construed and interpreted in accordance with, the laws of the State.

(b)      All terms contained herein shall be construed, whenever the context of
         this Deed of Trust so requires, so that the singular number shall
         include the plural, and the plural the singular, and the use of any
         gender shall include all genders.

(c)      The terms "include" and "including" as used in this Deed of Trust shall
         be construed as if followed by the phrase "without limitation".

(d)      Any provision of this Deed of Trust permitting the recovery of
         attorneys' fees and costs shall be deemed to include such fees and
         costs incurred in all appellate proceedings.

         Section 6.10. Merger. So long as any Indebtedness shall remain unpaid,
fee title to and any other estate in the Mortgaged Property shall not merge, but
shall be kept separate and distinct, notwithstanding the union of such estates
in any person or entity.

         Section 6.11. Time of the Essence. Time shall be of the essence in the
performance of all obligations of Borrower under this Deed of Trust.

         Section 6.12. Transfer of Loan. Lender, in the management of its
investments or for any other reason, may, at any time, sell, transfer or assign
the Note, the Deed of Trust and the other Loan Documents and the servicing
rights with respect thereto or grant participations therein or issue mortgage
pass-through certificates or other securities evidencing a beneficial interest
in the Note, Deed of Trust and other Loan Documents (collectively, a
"Transfer"). As part of a Transfer, Lender may forward to each transferee,
assignee, servicer, participant or investor all documents and information which
Lender now has or may hereafter acquire relating to the Indebtedness, the Loan
Documents and the Mortgaged Property. Borrower agrees to cooperate with Lender
at no cost to Borrower in connection with a Transfer including, without
limitation, the delivery of any estoppel certificates required under Section
2.18 and such other documents as may be reasonably be requested by Lender.

         Section 6.13. Satisfaction. If all of the Indebtedness is paid in full
in accordance with the Note and the other Loan Documents, then in that event
only all rights of Lender and Trustee under this Deed of Trust and the other
Loan Documents shall terminate and the Mortgaged Property shall become wholly
clear of the liens, grants, security interests, conveyances and assignments
evidenced hereby and thereby, and Lender shall release or cause to be released
such liens, grants, assignments, conveyances and security interests in due form
at Borrower's cost (to the extent permitted by the law of the State), and this
Deed of Trust shall be void; provided, however, that no provision of this Deed
of

                                       56
<PAGE>   61

Trust or any other Loan Document which, by its own terms, is intended to survive
such payment and release (nor the rights of Lender or Trustee under any such
provision) shall be affected in any manner thereby and such provision shall, in
fact, survive. Recitals of any matters or facts in any release instrument
executed by Lender or Trustee under this Section 6.13 shall be prima facie
evidence of the truthfulness thereof. To the extent permitted by law, such an
instrument may describe the grantee or releasee as "the person or persons
legally entitled thereto" and Lender and Trustee shall not have any duty to
determine the rights of persons claiming to be rightful grantees or releasees of
any of the Mortgaged Property. When this Deed of Trust has been fully released
or discharged by Lender and/or Trustee, the release or discharge hereof shall
operate as a release and discharge of the Assignment and as a reassignment of
all future Leases and Property Income with respect to the Mortgaged Property to
the person or persons legally entitled thereto, unless such release expressly
provides to the contrary.

         Section 6.14.     Defeasance Requirements.

(a)      Five (5) years after the Closing Date, Borrower may voluntarily defease
         all of the Loan and the Related Loans.

(b)      Any defeasance of the Loan and the Related Loans by Borrower shall be
         made on a Payment Date.

(c)      Borrower shall not be permitted at any time to defease all or any part
         of the Loan or the Related Loans except as expressly provided in this
         Section 6.14.

(d)      Subject to the terms and conditions of this Deed of Trust, Borrower may
         defease the Loan and the Related Loans if Borrower: (i) has provided
         not less than thirty (30) days prior written notice to Lender
         specifying a Payment Date (the "Defeasance Release Date") on which the
         payments provided in clauses (ii) and (iii) below are to be made and
         the deposit provided in clause (iv) below is to be made, (ii) pays all
         interest accrued and unpaid on the outstanding principal amount of the
         Loan and the Related Loans to and including the Defeasance Release
         Date, (iii) pays all other sums then due and payable under the Loan
         Documents and the Related Loan Documents, (iv) deposits with Lender an
         amount equal to the Defeasance Deposit, (v) delivers to Lender (A) a
         security agreement, in form and substance satisfactory to Lender and
         Borrower, creating a first priority perfected Lien on the deposits
         required pursuant to this Section 6.14 and the U.S. Obligations
         purchased on behalf of Borrower in accordance with this Section 6.14
         (the "Defeasance Security Agreement"), (B) a release of the Mortgaged
         Property from the lien of the Deed of Trust in a form appropriate for
         the jurisdiction in which the Mortgaged Property is located, to be
         executed by Lender, (C) an officer's certificate of Borrower certifying
         that the requirements set forth in this Section 6.14 have been
         satisfied, and (D) such other certificates, documents or instruments as
         Lender may reasonably request, and (vi) assigns to such other entity or
         entities established or designated by Lender (the "Successor

                                       57
<PAGE>   62

         Obligor") all of Borrower's rights, interests and obligations under the
         Note, each Related Note, the other Loan Documents and the other Related
         Loan Documents and the Defeasance Security Agreement together with the
         pledged U.S. Obligations. The Successor Obligor shall assume, in a
         writing or writings reasonably satisfactory to Lender in Lender's
         discretion, all of Borrower's obligations under the Note, each Related
         Note, the other Loan Documents and the other Related Loan Documents and
         the Defeasance Security Agreement and, upon such assignment Borrower
         and Guarantor shall, except as set forth herein, be relieved of its
         obligation under all the Loan Documents and all of the Related Loan
         Documents.

(e)      The U.S. Obligations shall mature on or be redeemable, or provide for
         payment thereon, on or prior to the Business Day immediately preceding
         the date on which payments under the Note and each Related Note are due
         and payable and the proceeds thereof shall be payable directly to
         Lender. In connection with the foregoing, Borrower appoints Lender as
         Borrower's agent for the purpose of applying the amounts delivered
         pursuant to clause (d)(iv) above to purchase U.S. Obligations.

(f)      If any notice of defeasance is given, Borrower shall be required to
         defease the Loan and the Related Loans on the specified Payment Date
         (unless such notice is revoked in writing by Borrower prior to the date
         specified therein in which event Borrower shall immediately reimburse
         Lender for any costs incurred by Lender in connection with Borrower's
         giving of such notice and revocation).

(g)      Upon defeasance of the Loan and the Related Loans in accordance with
         the requirements of this Section 6.14, the Mortgaged Property shall be
         released from the lien of the Deed of Trust and the Remaining
         Properties shall be released from the liens of the Related Mortgages.
         Notwithstanding the foregoing, Borrower acknowledges that Borrower only
         has the right to simultaneously defease the Loan and the Related Loans
         and shall have no right to defease any such loan in and of itself.

(h)      Nothing in this Section 6.14 shall release Borrower from any liability
         or obligation relating to any environmental matters arising under
         Sections 2.20 through 2.22 hereof.

         Section 6.15. Partial Release. Borrower shall be entitled at any time
to a release of the lien of this Deed of Trust (but not any other Related
Mortgage) only if each of the following conditions has been satisfied:

(a)      A release under this Section 6.15 and Section 5.15 of each Related
         Mortgage may not take place more than three (3) times (in the
         aggregate) during the term of this Loan and the Related Loans;

                                       58
<PAGE>   63

(b)      No more than a total of three (3) of the Mortgaged Properties may be
         released under this Section 6.15 and Section 5.15 of each Related
         Mortgage, and no more than a total of three (3) of the Mortgaged
         Properties may be released under (i) this Section 6.15 and Section 5.15
         of each Related Mortgage, and (ii) Section 6.16 of this Deed of Trust
         and Section 5.16 of each Related Mortgage;

(c)      After the proposed release, the Debt Service Coverage Ratio - Remaining
         Properties for the twelve (12) months prior to the release and
         projected twelve (12) months following the release must be at least
         equal to or greater than the greater of (x) 1.65, or (y) the current
         Debt Service Coverage Ratio - Mortgaged Properties calculated for the
         twelve (12) month period prior to the release;

(d)      After the proposed release, the loan to value ratio of the remaining
         Related Loans must be less than or equal to 60% as calculated
         immediately prior to the release based upon appraisals furnished to
         Lender in form and substance reasonably satisfactory to Lender and
         prepared by an MAI appraiser approved by Lender at Borrower's cost or
         as determined by Lender;

(e)      Borrower shall pay Lender in reduction of the principal balance of the
         Loan a sum equal to 115% of the original Allocated Loan Amount for the
         Mortgaged Property, plus Borrower shall in addition pay to Lender a
         "prepayment premium" applied to said sum and computed in the manner
         specified in the Note;

(f)      Neither the Loan nor the Related Loans shall be in Default at the time
         such request for release is made through the completion of the release;

(g)      Borrower must pay all of Lender's costs associated with the partial
         release plus a fee of .5% of the original Allocated Loan Amount for the
         Mortgaged Property to be released;

(h)      The original Borrower named in the Loan Documents and the Related Loan
         Documents continues to be the owner of the Remaining Mortgaged
         Properties; and

(i)      All documents relating to the release shall be in form and substance
         satisfactory to Lender.

         Section 6.16. Substitution of Collateral. Borrower shall be entitled to
substitute a property (being defined as releasing a property that then
constitutes security for the Loan (the "Released Property")) and substituting
another property owned in fee by Borrower (the "Substitute Property") in its
place on the following terms and conditions:

(a)      A substitution may not take place more than three (3) times during the
         term of the Loan and the Related Loans;

                                       59
<PAGE>   64

(b)      No more than three (3) properties (in the aggregate) may be released
         under this Section 6.16 and Section 5.16 of each Related Mortgage, and
         no more than a total of three (3) of the Mortgaged Properties may be
         released under (i) Section 6.15 above and Section 5.15 of each Related
         Mortgage, and (ii) this Section 6.16 and Section 5.16 of each Related
         Mortgage;

(c)      After the proposed substitution, the Debt Service Coverage Ratio -
         Remaining Properties for the twelve (12) months prior to the
         substitution and projected twelve (12) months following the
         substitution must be at least equal to or greater than the greater of
         (i) 1.65, or (ii) the current Debt Service Coverage Ratio - Mortgaged
         Properties calculated for the twelve (12) month period prior to the
         substitution;

(d)      After the proposed substitution, the loan to value ratio of the
         remaining Related Loans must be less than or equal to the lesser of (i)
         60%, or (ii) the current loan to value ratio of the existing Loan and
         Related Loans calculated immediately prior to the substitution based
         upon appraisals furnished to Lender in form and substance reasonably
         satisfactory to Lender and prepared by an MAI appraiser approved by
         Lender at Borrower's cost;

(e)      The net operating income and/or RevPar (as reported by Smith Travel) of
         the Substitute Property must not show a downward trend for any of the
         three (3) years prior to the substitution;

(f)      The appraised value (based upon appraisals furnished to Lender in form
         and substance reasonably satisfactory to Lender and prepared by an MAI
         appraiser approved by Lender at Borrower's cost), the net operating
         income and current debt service coverage ratio of the Substitute
         Property must be 120% greater than the appraised value, net operating
         income and the debt service coverage ratio of the Released Property;

(g)      Lender may at its sole discretion reject any property substitution that
         in Lender's sole determination would not be in compliance with the
         terms and provisions of the Loan Application, would be detrimental to
         the overall quality and/or value of the Mortgaged Properties, or would
         not be in compliance with Lender's then existing underwriting standards
         and criteria;

(h)      The Substitute Property must be franchised as a "Sheraton or Sheraton
         Suites", or other franchise reasonably acceptable to Lender, and
         managed by the manager under the Management Agreement or another a
         nationally recognized hotel management company with a franchise and
         hotel agreement similar to the Management Agreement or otherwise
         reasonably acceptable to Lender;

                                       60
<PAGE>   65

(i)      Borrower must pay (i) all of Lender's costs (all of which must be paid,
         whether or not such substitution is actually approved or completed)
         associated with the substitution including but not limited to legal
         fees, appraised fees, market studies and expenses, title insurance
         premiums on the new property, engineering fees and expenses, recording
         fees and transfer taxes, and (ii) a fee of 1% of the original Allocated
         Loan Amount for the Released Property;

(j)      The Loan and any Related Loan shall not be in Default at the time such
         request for substitution is made through the completion of the
         substitution;

(k)      The original Borrower named in the Loan Documents and Related Loan
         Documents continues to be the owner of the Remaining Mortgaged
         Properties; and

(l)      In order to substitute one property for another as security for the
         Loan or any Related Loan, Borrower acknowledges that such substitute
         property shall be subject to all of Lender's underwriting and due
         diligence requirements and criteria, including, without limitation,
         environmental assessment, review of leases, receipt of tenant
         subordination letters, title policy endorsements, etc. Borrower agrees
         that the Substitute Property shall be subject to all the terms and
         conditions of the Loan Application.

                       [SEE FOLLOWING PAGE FOR SIGNATURES]

                                       61
<PAGE>   66

IN WITNESS WHEREOF, this Deed of Trust has been duly executed and delivered as
of the day and year first above written.

                                     BORROWER

                                     FELCOR/MM S-7 HOLDINGS, L.P., a Delaware
                                     limited partnership

                                     By:  FelCor/MM S-7 Hotels, L.L.C., a
                                          Delaware limited liability company,
                                          its general partner

                                          By:
                                              ----------------------------------
                                              Joel M. Eastman,
                                              Vice President

                                       62
<PAGE>   67

                                 ACKNOWLEDGMENT

STATE OF TEXAS                 )
                               )
COUNTY OF DALLAS               )

         This instrument was acknowledged before me on this _____ day of April,
2000, by Joel M. Eastman, as Vice President of FelCor/MM S-7 Hotels, L.L.C., a
Delaware limited liability company, which is the general partner of FelCor/MM
S-7 Holdings, L.P., a Delaware limited partnership, on behalf of said entities.

My Commission expires:               -------------------------------------------
                                     Notary Public in and for the State of Texas
----------------------

                                     -------------------------------------------
                                     Printed/Typed Name of Notary

<PAGE>   68

                                   SCHEDULE A

                               DESCRIPTION OF LAND

<PAGE>   69

                                   SCHEDULE B

                             PERMITTED ENCUMBRANCES

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