Document:

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                                                                   EXHIBIT 10.19

                                  $275,000,000

                                 LOAN AGREEMENT

                                     between

                                [PROJECT HOLDCO],
                                   as Borrower

                                       and

                                    [LENDCO],
                                    as Lender

                         Dated [           ] [  ], 2005

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                                 LOAN AGREEMENT

      THIS LOAN AGREEMENT (this "AGREEMENT") dated [     ] [      ], 2005, by
[PROJECT HOLDCO], a ____________________, with offices at
________________________________ ("BORROWER") and [LENDCO], a __________________
(together with its successors and assigns, hereinafter referred to as "LENDER"),
with offices at ____________________________________________.

                                    RECITALS

      Borrower has requested that Lender extend credit (the "FACILITY") to
Borrower in an aggregate amount of up to $275,000,000 for the purposes
hereinafter set forth, and the Lender is willing to do so on the terms and
subject to the conditions set forth in this Agreement.

      NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants, conditions and agreements contained herein, Borrower and Lender agree
as follows:

                                   SECTION 1
                                  DEFINITIONS

1.1 GENERAL DEFINITIONS. In addition to any other terms defined in this
Agreement, the following terms shall have the following meanings:

      "ACCOUNTING CHANGES" means (A) changes in accounting principles required
by the Accounting Rules, consistently applied and implemented by Borrower and
its Subsidiaries; and (B) changes in accounting principles recommended or
approved by Borrower's certified public accountant, with the approval of Lender,
which approval shall not be unreasonably withheld.

      "ACCOUNTING RULES" means GAAP (a) as modified by, where applicable, the
Uniform System of Accounts and (b) with respect to determinations of the Net
Worth, as determined using the current methodology (consistent with past
practices) employed in the financial statements of JQH and the JQH Trust, as
compiled by BKD, Ltd. dated December 31, 2004, and as same may be verified using
the Net Worth Agreed-Upon Procedures, in each case, consistently applied.

      "ACTION" means any action, suit, claim, litigation, proceeding,
arbitration, audit, investigation or hearing (whether civil, criminal,
administrative, investigative or informal) commenced, brought, conducted or
heard by or before, any Governmental Authority.

      "ADDITIONAL HOTEL PROJECT" means a Hotel Project (other than an Existing
Hammons Hotel Project) to be developed, constructed or renovated by a Project
Owner after the date of this Agreement and approved by Lender in accordance with
Section 3.3.

      "AFFILIATE" means, with respect to any Person, any other Person: (A)
directly or indirectly controlling, controlled by, or under common control with,
such Person; (B) directly or indirectly owning or holding ten percent (10%) or
more of the voting stock or other Equity Interests in such Person; or (C) ten
percent (10%) or more of whose voting stock or other Equity

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Interest is directly or indirectly owned or held by such other Person. When used
with respect to Borrower, the term "Affiliate" shall also include the spouse,
ancestors, descendents and siblings of any Affiliate of Borrower (such Persons
being sometimes referred to as "FAMILY MEMBERS"), Affiliates of such Family
Members and trusts for the benefit of another Affiliate of Borrower.

      "AGREEMENT" means this loan agreement (including all schedules, exhibits,
annexes and appendices hereto).

      "ALTERNATE RATE" means, in the event the LIBOR Rate is no longer
published, as of any date of determination, (a) the "prime rate" (or "base
rate") reported in the Money Rates column or section of The Wall Street Journal
published on the second full Business Day preceding the first day of the
applicable Interest Period as having been the rate in effect for corporate loans
at large U.S. money center commercial banks (whether or not such rate has
actually been charged by any such bank) or, if The Wall Street Journal ceases
publication of such "prime rate" or "base rate," the annual rate of interest
announced by JP Morgan Chase Bank (or another financial institution with a main
or branch office in New York, New York, selected, from time to time, by Lender)
from time to time as its "prime rate" or "base rate" in effect at its principal
office in New York, New York at 5:00 p.m., New York City time (in either case,
the "PRIME RATE"), for such date minus (b) two percent (2.00%). Such rate of
interest shall be computed on the basis of a 360-day year for the actual number
of days elapsed.

      "APPRAISAL" means a written appraisal report of the Property as the term
"appraisal" is defined in the Code of Professional Ethics of the American
Institute of Appraisers, meeting the requirements of the FIRREA, prepared by a
state certified appraiser retained by Lender at Borrower's expense, who is a
member of the Appraisal Institute, addressed either to Lender or to the lender
of the Underlying Loan or accompanied by an agreement from the appraiser that it
may be relied upon by Lender and in form and scope satisfactory to Lender,
setting forth such appraiser's determination of the Appraised Value.

      "APPRAISED VALUE" means the fair market value of the applicable Hammons
Hotel or any other Property owned by Guarantor constituting an asset used in
determining Net Worth, as completed and operating, that would be obtained in an
arms' length transaction between an informed and willing buyer and an informed
and willing seller, under no compulsion to buy or sell, respectively, on the
appraisal date of the Appraisal.

      "AVAILABILITY PERIOD" means, with respect to the Loans, the period from
the Closing Date to the earliest of (a) the seventh (7th) anniversary of the
Closing Date, and (b) the date of termination of the commitment of Lender to
make Loans; provided, that, with respect to Loans the proceeds of which will be
used solely to pay interest payable under this Agreement and the Note, the
period described in clause (a) above shall extend to the eighth (8th)
anniversary of the Closing Date.

      "BANKRUPTCY CODE" means Title 11 of the United States Code entitled
"Bankruptcy," as amended from time to time and all rules and regulations
promulgated thereunder.

      "BANKRUPTCY EVENT" means, with respect to any Person, the occurrence of
any of the following: (a) the entry of a decree or order for relief by a
Governmental Authority in an

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involuntary case under the Bankruptcy Code or any other applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or the appointment
by a Governmental Authority of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of such Person or for any
substantial part of its property or the ordering of the winding up or
liquidation of its affairs by a Governmental Authority; or (b) the commencement
against such Person of an involuntary case under the Bankruptcy Code or any
other applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or of any Action for the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of such Person
or for any substantial part of its property or for the winding up or liquidation
of its affairs, and such involuntary case or other Action shall not have been
dismissed within ninety (90) days, or the repossession or seizure by a creditor
of such Person of a substantial part of its property; or (c) the commencement by
such Person of a voluntary case under the Bankruptcy Code or any other
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or consent to the entry of an order for relief in an involuntary case
under any such law, or consent to the appointment of or the taking possession by
a receiver, liquidator, assignee, creditor in possession, custodian, trustee,
sequestrator (or similar official) of such Person or for any substantial part of
its property or the making of any general assignment for the benefit of
creditors; or (d) such Person shall be unable to, or shall admit in writing its
inability to, pay its debts generally as they become due.

      "BASE RATE" means, for each Interest Period, a variable rate per annum
equal to the sum of (a) the greater of (i) the LIBOR Rate or the Alternate Rate,
as the case may be for such Interest Period or (ii) 3.22% per annum, plus (b)
one percent (1.0%), increasing or decreasing with each increase or decrease in
the LIBOR Rate or the Alternate Rate, as the case may be (as and when the LIBOR
Rate or the Alternate Rate changes as described herein).

      "BORROWER PLEDGE AGREEMENT" means each pledge agreement delivered by
Borrower in favor of Lender granting Lender a security interest in 100% of the
Equity Interests of the applicable Project Owner.

      "BOTTOM GUARANTIES" means those certain guaranties given by JQH and listed
on SCHEDULE 1.1(A) and any similar guaranties (i.e. provided for tax purposes)
provided hereafter in support of Additional Hotel Projects.

      "BUSINESS DAY" means any day other than a Saturday, Sunday or any other
day that is a legal holiday under the laws of the State of New York or is a day
on which banking institutions located in such state are required or authorized
to close.

      "CAPITAL LEASE" means any lease of any property (whether real, personal or
mixed) that, in conformity with GAAP, should be accounted for as a capital
lease.

      "CHANGE IN CONTROL" means the occurrence of any one or more of the
following: (i) JQH and the JQH Trust shall collectively cease to directly or
indirectly own greater than fifty percent (50%) of the Equity Interests in
Borrower or (ii) JQH or the JQH Trust shall cease to directly or indirectly
Control the business and affairs of Borrower.

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      "CHARLEVOIX" means the proposed condominium/hotel addition to The Chateau
on the Lake in Branson, Missouri.

      "CLOSING" means the execution and delivery of this Agreement, the
satisfaction or written waiver of all conditions for disbursement of the Initial
Loan to or for the benefit of Borrower and the disbursement of the Initial Loan
to, or upon the order of, Borrower.

      "CLOSING DATE" means the date on which the Closing occurs.

      "CODE" means the United States Internal Revenue Code of 1986, and any rule
or regulation promulgated thereunder from time to time.

      "COLLATERAL" means the assets pledged to Lender as collateral security for
repayment of the Loans.

      "COMMENCEMENT OF CONSTRUCTION" means, with respect to any Hammons Hotel,
commencement of construction of the applicable Improvements, excluding design,
demolition and site preparation.

      "CONFIDENTIAL INFORMATION" is defined in Section 9.12.

      "CONTINGENT OBLIGATION," as applied to any Person, means any direct or
indirect liability, contingent or otherwise, of that Person: (A) with respect to
any indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto; (B) with
respect to any letter of credit issued for the account of that Person or as to
which that Person is otherwise liable for reimbursement of drawings; (C) under
any interest rate swap agreement, interest rate cap agreement, interest rate
collar agreement or other similar agreement or arrangement designed to protect
the applicable Person against fluctuations in interest rates; or (D) under any
foreign exchange contract, currency swap agreement or other similar agreement or
arrangement designed to protect that Person against fluctuations in currency
values. Contingent Obligations shall include (1) the direct or indirect
guaranty, endorsement (other than for collection or deposit in the ordinary
course of business), co-making, discounting with recourse or sale with recourse
by such Person of the obligation of another, (2) the obligation to make
take-or-pay or similar payments if required regardless of nonperformance by any
other party or parties to an agreement, and (3) any liability of such Person for
the obligations of another through any agreement to purchase, repurchase or
otherwise acquire such obligation or any property constituting security
therefor, to provide funds for the payment or discharge of such obligation or to
maintain the solvency, financial condition or any balance sheet item or level of
income of another. The amount of any Contingent Obligation shall be equal to the
amount of the obligation so guaranteed or otherwise supported or, if not a fixed
and determined amount, the maximum amount so guaranteed.

      "CONTRACTUAL OBLIGATION," as applied to any Person, means any indenture,
mortgage, deed of trust, contract, undertaking, agreement or other instrument,
including without limitation, Franchise Agreements, whether written or oral, to
which that Person is a party or by which it or

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any of its properties is bound or to which it or any of its properties is
subject, including the Loan Documents.

      "CONTROL" (including with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with") means the possession directly
or indirectly of the right to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.

      "DEFAULT" means a condition or event that, after notice or lapse of time
or both, would constitute an Event of Default if that condition or event were
not cured or removed within any applicable grace or cure period.

      "DEFAULT INTEREST" is defined in Section 2.2(A)(ii).

      "DEFAULT RATE" means a rate per annum equal to the Base Rate or Unapplied
Preferred Default Rate, as applicable, plus five percent (5.00%).

      "DEMISE" means the death of JQH, a judicial determination of incompetency
of JQH or analogous judicial determination of JQH, or the physical or mental
incapacity of JQH to such an extent that he is prevented from performing his
executive functions on a full time basis.

      "DOLLARS" and the sign "$" mean the lawful money of the United States of
America.

      "EARLY REDEMPTION PRICE" has the meaning specified in the Partnership
Agreement.

      "EMBARGOED PERSON" is defined in Section 4.7.

      "EMPLOYEE BENEFIT PLAN" means an employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding standards under
Part 3 of Title I of ERISA or Section 412 of the Code and is either (a)
maintained by any Person or any member of a Controlled Group for employees of
such Person or any member of such Controlled Group or (b) maintained pursuant to
a collective bargaining agreement or any other arrangement under which more than
one employer makes contributions and to which such Person or any member of a
Controlled Group is then making or has any obligation to make contributions or,
within the preceding five (5) plan years, has made or has had any obligation to
make contributions.

      "ENVIRONMENTAL CLAIMS" is defined in Section 4.11.

      "ENVIRONMENTAL LAWS" means all present and future Legal Requirements
imposing liability, standards of conduct or otherwise pertaining or relating to,
or for, the environment, industrial hygiene, the regulation of Hazardous
Materials, natural resources, pollution or waste management, including the
Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C.
Section 9601, et seq.); the Hazardous Materials Transportation Act (49 U.S.C.
Section 1801, et seq.); the Resource Conservation and Recovery Act (42 U.S.C.
Section 6901, et seq.); Sections 25117, 25281, 25316 or 25501 of the California
Health & Safety Code; any so-called "Superfund" or "Superlien" law; the Toxic
Substance Control Act of 1976 (15 U.S.C. Section 2601 et seq.); the Clean Water
Act (33 U.S.C. Section 1251 et seq.); and the Clean Air Act (42 U.S.C. Section
7901 et seq.).

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      "ENVIRONMENTAL REPORT" means all Phase I Environmental Site Assessments,
Phase II Environmental Site Assessments or other environmental investigation or
assessment report obtained by or on behalf of Borrower or Affiliate with respect
to any Property.

      "EQUITY INTERESTS" means any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation, any
and all equivalent ownership interests in a Person (other than a corporation),
including, without limitation, partnership interests and membership interests,
and any and all warrants, rights or options to purchase or other arrangements or
rights to acquire any of the foregoing.

      "ERISA" means the Employee Retirement Income Security Act of 1974, and all
rules and regulations promulgated thereunder.

      "ERISA AFFILIATE" means any Person who is a member of a group which is
under common control with another Person, who together with such other Person is
treated as a single employer within the meaning of Sections 414(b), (c), (m) and
(o) of the IRC or Sections 4001 of ERISA. Carveout Guarantor shall be deemed to
be an ERISA Affiliate of Borrower for purposes of this Agreement, irrespective
of whether it and Borrower would be treated as a single employer.

      "EVENT OF DEFAULT" is defined in Section 7.1.

      "EXCESS INTEREST" is defined in Section 2.2(C).

      "EXISTING HAMMONS HOTEL PROJECT" means any Hotel Project owned directly or
indirectly by JQH and/or the JQH Trust as of the Closing Date and listed on
SCHEDULE 1.1(B) attached hereto.

      "FACILITY" has the meaning given to such term in the Recitals to this
Agreement.

      "FACILITY AVAILABILITY AMOUNT" means (a) the principal amount opposite
each applicable period below, with each "YEAR" meaning the period from the
Closing Date (for Year 1, or the applicable anniversary of the Closing Date for
subsequent years) to and including the day immediately preceding the next
subsequent anniversary of the Closing Date:

<TABLE>
<CAPTION>
     PERIOD                                    AMOUNT
     ------                                    ------
<S>                                         <C>
     Year 1                                 $ 75,000,000
     Year 2                                 $175,000,000
     Year 3                                 $225,000,000
     Year 4                                 $250,000,000
Year 5 and later                            $275,000,000
</TABLE>

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less, (b) (1) 100% of any amount required to be prepaid (but not yet prepaid)
pursuant to Section 2.4(D)(i), (ii), (iv) or (v), (2) 100% of any amount prepaid
pursuant to Section 2.4(D)(iii); provided that such deduction under this clause
(b)(2) shall be reduced to 50% of the amount prepaid under Section 2.4(d)(iii)
if, at the applicable date of determination, the Net Worth (as evidenced by the
latest Net Worth Certificate) is at least equal to the Minimum Net Worth Amount
and (3) 50% of the amount of the Unapplied Early Redemption Price.

      "FINANCING STATEMENTS" mean the UCC-1 financing statements naming
Borrower, as debtor, and Lender, as secured party, indicating the Collateral as
collateral and filed with such filing offices as Lender may require.

      "FIRREA" means The Financial Institutions Reform, Recovery and Enforcement
Act of 1989, Pub. L. No. 101-73 Stat. 183 (1989) and the regulations adopted
pursuant thereto, as the same may be amended from time to time.

      "FRANCHISE AGREEMENT" means an agreement pursuant to which a Project Owner
or Manager is granted the right to operate the Land and Improvements as a
franchise.

      "FRANCHISOR" means any franchisor under a Franchise Agreement, together
with its successors and assigns.

      "GAAP" means generally accepted accounting principles in the United States
of America, consistently applied, as of the date in question.

      "GOVERNMENTAL AUTHORITY" means any (i) federal, state, local, provincial,
municipal, foreign or other government, (ii) governmental or quasi-governmental
authority of any nature, or (iii) other body exercising any statutory
administrative, judicial, arbitrative, legislative, police, regulatory or taxing
authority or power.

      "GUARANTORS" mean JQH, the JQH Trust and Hammons, Inc..

      "GUARANTOR PLEDGE AGREEMENT" means the pledge agreement delivered by the
Guarantors in favor of Lender granting Lender a security interest in the
Preferred Equity Interests and 100% of the Equity Interests in Borrower. The
Guarantor Pledge Agreement will include consent rights with respect to notice
and approval rights granted to the Hammons Limited Partners which shall be
exercisable by Lender at all times prior to the payment of the Obligations in
full.

      "GUARANTY" means that certain Guaranty of the Guarantors in favor of
Lender of even date herewith.

      "HAMMONS HOTELS" means, collectively, the Existing Hammons Hotel Projects
and the Additional Hotel Projects.

      "HAZARDOUS MATERIALS" means (a) any pollutants, toxic substances, oil,
gasoline, petroleum products, asbestos, materials or substances containing
asbestos, explosives, chemical liquids or solids, radioactive materials,
polychlorinated biphenyls or related or similar materials, or any other solid,
liquid or other emission, substance, material, product or by-product defined,

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listed or regulated as a hazardous, noxious, toxic or solid substance, material
or waste or defined, listed or regulated as causing cancer or reproductive
toxicity, or otherwise defined, listed or regulated as hazardous or toxic in,
pursuant to, or by any Environmental Law, now or hereafter enacted, amended or
modified, (b) any substance which is or contains asbestos, radon,
polychlorinated biphenyl, urea formaldehyde foam insulation, explosive or
radioactive material, lead paint, motor fuel or other petroleum hydrocarbons,
(c) fungus, mold, mildew, or other biological agents the presence of which may
adversely affect the health of individuals or other animals or materially
adversely affect the value or utility of any Hammons Hotel, and/or (d) any other
substance which causes or poses a threat to cause a contamination with respect
to all or any portion of any Hammons Hotel or any adjacent property or a hazard
to the environment or to the health or safety of Persons.

      "HOTEL PROJECT" means any full service or extended-stay hotel project,
including any adjacent convention facilities, condo/hotels, restaurants and
ancillary retail components.

      "IMPOSITIONS" means all real estate and personal property taxes, and vault
charges and all other taxes, levies, assessments and other similar charges,
general and special, ordinary and extraordinary, foreseen and unforeseen, of
every kind and nature whatsoever, which at any time prior to, at or after the
execution of this Agreement may be assessed, levied or imposed by, in each case,
a Governmental Authority upon any Hammons Hotel or upon the ownership, use,
leasing, occupancy, operation or enjoyment thereof, and any interest, cost or
penalties imposed by such Governmental Authority with respect to any of the
foregoing. Impositions shall not include any sales or use taxes or any net
income taxes payable by Borrower.

      "IMPROVEMENTS" means, with respect to any Hammons Hotel, all buildings,
improvements, alterations or appurtenances now, or at any time hereafter,
located upon, in, under or above the applicable Land or any part thereof.
Improvements also include all buildings, improvements, alterations or
appurtenances not located on, in, under or above the Land to the extent of the
applicable Project Owner's right, title and interest therein.

      "INDEBTEDNESS" means, with respect to any Person, without duplication, (a)
any indebtedness of such Person for borrowed money (whether by loan, the
issuance and sale of debt securities or the sale of any property or asset of
such Person to another Person subject to an understanding or agreement,
contingent or otherwise, to repurchase such property from such Person), (b) any
obligations of such Person for the deferred purchase price of property or
services, (c) any obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, (d) any obligations of such Person
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (e) any obligations of
such Person as lessee under leases that have been or should be, in accordance
with GAAP, recorded as Capital Leases, (f) any obligations of such Person as a
result of any final judgment rendered against such Person or any settlement
agreement entered into by such Person with respect to any litigation unless such
obligations are stayed upon appeal (for so long as such appeal shall be
maintained) or are fully discharged or bonded within thirty (30) days after the
entry of such judgment or execution of such settlement agreement, (g) any
obligations, contingent or otherwise, of such Person in respect of acceptances,
letters of credit or similar extensions of credit, (h) any

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Contingent Obligations, (i) any Indebtedness of others referred to in clauses
(a) through (h) above or clause (j) below guaranteed directly or indirectly in
any manner by such Person, or in effect guaranteed directly or indirectly by
such Person through an agreement (1) to pay or purchase such Indebtedness or to
advance or supply funds for the payment or purchase of such Indebtedness, (2) to
purchase, sell or lease (as lessee or lessor) property, or to purchase or sell
services, primarily for the purpose of enabling the debtor to make payment of
such Indebtedness or to assure the holder of such Indebtedness against loss, (3)
to supply funds to or in any other manner invest in the debtor (including any
agreement to pay for property or services irrespective of whether such property
is received or such services are rendered), or (4) otherwise to assure a
creditor against loss, and (j) any Indebtedness referred to in clauses (a)
through (i) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any Lien on
property (including accounts and contract rights) owned by such Person, even
though such Person has not assumed or become liable for the payment of such
Indebtedness.

      "INDEMNIFIED LIABILITIES" is defined in Section 9.3.

      "INDEMNITEES" is defined in Section 9.3.

      "INDEPENDENT PERSON" has the meaning ascribed to it in SCHEDULE 6.8.

      "INITIAL LOAN" means the initial Loan made by Lender to Borrower pursuant
to this Agreement.

      "INTEREST PERIOD" means the period commencing on a Payment Date and ending
on and including the day immediately prior to the next succeeding Payment Date.

      "INTEREST RATE" means the applicable of the Base Rate, the Suspension
Default Rate, the Unapplied Preferred Default Rate or the Default Rate.

      "INTERIM LINE OF CREDIT" means the line of credit in the principal amount
of up to $25,000,000 granted by Lender, as lender, to JQH, the JQH Trust, as
borrowers, pursuant to that certain Loan Agreement, dated as of June 14, 2005.

      "INVESTMENT" means (A) any direct or indirect purchase or other
acquisition by Borrower or any of its Subsidiaries of any beneficial interest
in, including stock, partnership interest or other Equity Interests of, any
other Person or (B) any direct or indirect loan, advance or capital contribution
by Borrower or any of its Subsidiaries to any other Person, including all
Indebtedness and accounts receivable issued or incurred by that other Person
that are not current assets or did not arise from sales to that other Person in
the ordinary course of business.

      "ISTAR" means iStar Financial Inc.

      "JQH" means John Q. Hammons, an individual.

      "JQH TRUST" means the John Q. Hammons Revocable Living Trust, dated
December 28, 1989, as amended and restated.

                                       9
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      "LAND" means, with respect to any Hammons Hotel, the land underlying the
Hammons Hotel and upon which the applicable improvements are or will be located,
including any easements or other appurtenances.

      "LATE CHARGE" is defined in Section 2.2(D).

      "LEGAL REQUIREMENTS" means all federal, state, county, municipal and other
governmental statutes, laws, rules, orders, regulations, ordinances, judgments,
decrees and injunctions of Governmental Authorities affecting Borrower, any
Project Owner, any Hammons Hotel or any part thereof, the construction, use,
leasing, alteration or operation thereof, or any part thereof, or any or all of
the Collateral, whether now or hereafter enacted and in force, and all permits,
licenses and authorizations and regulations relating thereto, and all covenants,
agreements, restrictions and encumbrances contained in any instruments of record
at any time in force affecting Borrower, any Project Owner, any Hammons Hotel,
or any part thereof, or any or all of the Collateral.

      "LIBOR RATE" or "LONDON INTERBANK OFFERED RATE" means a floating interest
rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to
the London Interbank Offered Rate (LIBOR) with a one month maturity as reported
in the "Money Rates" column or section of The Wall Street Journal published on
the second full Business Day preceding the first day of the applicable Interest
Period.

      "LIEN" means any lien, mortgage, pledge, security interest, charge or
encumbrance of any kind, whether voluntary or involuntary (including any
conditional sale or other title retention agreement, any lease, and any
agreement to give any security interest).

      "LIQUIDATION EVENT" means, with respect to any Hammons Hotel (i) any
casualty or condemnation resulting in the payment of any insurance proceeds or
condemnation awards to the applicable Project Owner under the terms of the
related Underlying Loan for any purpose other than restoration of the applicable
Improvements, (ii) a Transfer of ownership interests in such Hammons Hotel
(other than granting a mortgage lien in connection with obtaining an Underlying
Loan in accordance with this Agreement), or (iii) any refinancing of the
Underlying Loan or any other Indebtedness secured by such Hammons Hotel or the
Equity Interests in the Project Owner.

      "LOAN" and "LOANS" are defined in Section 2.1.

      "LOAN DOCUMENTS" means this Agreement, the Note, the Pledge Agreements,
the Guaranty, the Financing Statements, the Subordination of Management
Agreement and all other documents, instruments, certificates and other
deliveries made by Borrower to Lender in accordance herewith or which otherwise
evidence, secure and/or govern the Loans.

      "LOAN MONTH" means a calendar month.

      "LOAN PARTIES" means Borrower and the Guarantors.

      "LOAN QUARTER" means a calendar quarter.

                                       10
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      "LOAN REQUEST" means a written request for a Loan substantially in the
form of Exhibit A.

      "MANAGEMENT AGREEMENT" means the _________________ [Management Agreement]
between a Project Owner and Manager.

      "MANAGER" means John Q. Hammons Hotels Management, LLC.

      "MANDATORY PREPAYMENT DUE DATE" means the date that is five (5) days after
the event that gave rise to Borrower's obligation to repay (in whole or in part)
the applicable Loan or Loans except that with respect to prepayments due under
Sections 2.4(D)(i) and (iii), five (5) Business Days after written notice from
Lender.

      "MATERIAL ADVERSE EFFECT" means (A) a material adverse effect upon the
business, operations, properties, assets or financial condition of Borrower or
(B) the impairment, in any material respect, of the ability of any Loan Party to
perform its obligations under any of the Loan Documents or of Lender to enforce
or collect any of the Obligations. In determining whether any individual event
would result in a Material Adverse Effect, notwithstanding that such event does
not of itself have such effect, a Material Adverse Effect shall be deemed to
have occurred if the cumulative effect of such event and all other events
occurring prior to such event would result in a Material Adverse Effect.

      "MATERIAL CHANGE" means, with respect to any Hammons Hotel, any of the
following events occurring after the grant by Lender of a Project Approval or
delivery of the applicable Project File:

            (A) a change in the plans and specifications for the applicable
      Improvements that represents a material change in the scope or nature of
      the applicable Hammons Hotel as reasonably determined by Lender, including
      any such change that would require additional permits, approvals or
      variances of a material nature from any applicable Governmental
      Authorities;

            (B) a material change to the applicable Project Budget, including
      any change that would result in (i) the principal amount of the applicable
      Underlying Loan exceeding 75% of the total budgeted cost, or (ii) the
      actual or projected total budgeted cost of a Hammons Hotel exceeds the
      approved Project Budget by 3% or more, unless the difference is
      contributed by Borrower or the Project Owner as a cash equity
      contribution;

            (C) a change to the pro forma statements of operations for the
      applicable Hammons Hotel that indicates that such Hammons Hotel will not
      produce sufficient gross revenue to become a Stabilized Hotel plus fund
      the debt service (as reasonably determined by Lender) on any Loans or
      portions thereof, the proceeds of which would be used to finance such
      Hammons Hotel;

            (D) the termination of the commitment with respect to the applicable
      Underlying Loan or the amendment or modification of the terms of such
      commitment in a manner materially adverse to the applicable Project Owner;

                                       11
<PAGE>

            (E) the discovery of any materially adverse environmental, seismic
      or physical condition with respect to the applicable Property not
      previously disclosed in the studies and reports furnished by Borrower to
      Lender;

            (F) the applicable Property shall become subject to any Lien other
      than Permitted Encumbrances;

            (G) any change in applicable Legal Requirements that materially
      adversely affects the applicable Project Owner's ability to complete or
      operate the applicable Hammons Hotel; or

            (H) any other event that materially adversely affects the applicable
      Hammons Hotel.

      "MATURITY DATE" means [    ], 20[18] or such earlier date as the Loans are
prepaid in full or accelerated.

      "MAXIMUM RATE" is defined in Section 2.2(C).

      "MINIMUM NET WORTH AMOUNT" means an amount equal to $250,000,000.

      "MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA to which Borrower or any ERISA Affiliate is making, or is
accruing an obligation to make, contributions or has made, or been obligated to
make, contributions within the preceding six (6) years, or for which Borrower or
any ERISA Affiliate has any liability, including contingent liability.

      "NET LIQUIDATION PROCEEDS AFTER DEBT SERVICE" means, with respect to any
Liquidation Event, all amounts paid to or received by or on behalf of the
applicable Project Owner in connection with such Liquidation Event, including
proceeds of any sale, refinancing or other disposition or liquidation, less (a)
in the case of casualty or condemnation proceeds, the reasonable third party
out-of-pocket costs incurred by such Project Owner in connection with a
restoration of the Property made in accordance with the terms of the applicable
Underlying Loan, (b) amounts required to be paid pursuant to the terms of the
applicable Underlying Loan to the lender thereof, (c) the amount of all accrued
but unpaid interest on that portion of the Outstanding Amount that is required
by Section 2.4(D)(iv) to be prepaid following such Liquidation Event, and (d) in
the case of a refinancing of an Underlying Loan or a Transfer, the reasonable
and customary out-of-pocket costs and expenses actually incurred to third
parties in connection with such refinancing or Transfer, including brokerage
fees, transfer taxes, reasonable attorneys' fees and similar costs.

      "NET WORTH" means at any time:

      (a) the total assets of JQH and the JQH Trust that would be shown as
assets on a consolidated balance sheet of JQH and the JQH Trust as of such time
prepared in accordance with the Accounting Rules, (i) valuing such assets on a
current fair market value basis, except that until a Hammons Hotel is either
Substantially Completed and open for business or materially impaired as a result
of an occurrence that could prevent the Hammons Hotel from becoming

                                       12
<PAGE>

Substantially Completed within the originally contemplated time frame, the value
of the equity in such Hammons Hotel shall be considered equal to the principal
amount of the Loans advanced with respect to such Hammons Hotel, (ii) excluding
(A) the Preferred Equity Interest and any interest of JQH in JQH, Inc., and (B)
any Unapplied Early Redemption Price, and (iii) after eliminating all amounts
properly attributable to minority interests in any Subsidiary, minus

      (b) the total liabilities of JQH and his Subsidiaries that would be shown
as liabilities on a consolidated balance sheet of JQH and his Subsidiaries as of
such time prepared in accordance with the Accounting Rules, (i) excluding the
Loans, (ii) including Contingent Obligations whether or not JQH is personally
liable therefor, but excluding any Contingent Obligations under the Bottom
Guaranties.

      "NET WORTH AGREED-UPON PROCEDURES" means procedures acceptable to Lender
to be used to verify the Net Worth, such as, but not limited to the following:
________________. Borrower shall have the right to request modifications to the
Net Worth Agreed-Upon Procedures from time to time, subject to Lender's
approval, which approval shall not be unreasonably withheld. Prior to January 31
of any year Lender shall have the right to require reasonable changes to the Net
Worth Agreed-Upon Procedures from time to time following any material change in
the composition, nature or relative valuations of the assets of JQH and his
Subsidiaries. [TO BE COMPLETED PRIOR TO CLOSING.]

      "NET WORTH CERTIFICATE" means a certificate from JQH delivered to Lender
certifying the Net Worth as of December 31 of the prior calendar year and
compiled by a nationally recognized firm of certified public accountants,
including BKD, LLP, a member of Moores Rowland International, in accordance with
the Accounting Rules and setting forth such additional information regarding the
assets and liabilities of JQH, the JQH Trust and their respective Subsidiaries
as shall be necessary to fully and fairly reflect the Net Worth.

      "NOTE" means the Promissory Note, together with any Substitute Notes and
all future advances, extensions, renewals, substitutions, modifications and
amendments of the Promissory Note and any Substitute Notes.

      "OBLIGATIONS" means, in the aggregate, all obligations, liabilities and
indebtedness of every nature of any Loan Party from time to time owed to Lender
under the Loan Documents, including the principal amount of the Loans, accrued
and unpaid interest and all fees, costs and expenses, whether primary,
secondary, direct, contingent, fixed or otherwise, heretofore, now and/or from
time to time hereafter owing, due or payable to Lender under the Loan Documents
whether before or after the filing of an Action under the Bankruptcy Code by or
against any Loan Party. The term "Obligations" shall also include any judgment
against any Loan Party with respect to such obligations, liabilities and
indebtedness of any Loan Party.

      "OFAC" is defined in Section 4.7.

      "OFAC LIST" is defined in Section 4.7.

      "ORGANIZATIONAL DOCUMENTS" means, as applicable, for any Person, such
Person's articles or certificate of incorporation, by-laws, partnership
agreement, trust agreement, certificate of limited partnership, articles of
organization, certificate of formation, shareholder

                                       13
<PAGE>

agreement, voting trust agreement, operating agreement, limited liability
company agreement and/or analogous documents.

      "OUTSTANDING AMOUNT" means with respect to the Loans, on any date of
determination, the aggregate outstanding principal amount thereof after giving
effect to any borrowings and prepayments or repayments of the Loans, as the case
may be, occurring on such date.

      "PARTNERSHIP " means [John Q. Hammons Hotels, L.P.], a Delaware limited
partnership.

      "PARTNERSHIP AGREEMENT" means the Fourth Amended and Restated Agreement of
Limited Partnership of [      ], L.P., dated as of [         ], 2005 among JQH,
the JQH Trust, Hammons, Inc. and others.

      "PAYMENT DATE" means the first Business Day of each Loan Month.

      "PERMITTED ENCUMBRANCES" means, collectively, (a) the Liens created by the
Loan Documents, (b) Liens securing the applicable Underlying Loan, (c) all Liens
and other matters disclosed in the title insurance policy issued to the lender
of the Underlying Loan and reasonably approved by Lender relating to the
applicable Hammons Hotel or any part thereof, (d) Liens, if any, for taxes
imposed by any Governmental Authority not yet delinquent or being contested in
good faith by appropriate proceedings, (e) other Liens that are being contested
in good faith, (f) the rights of the lessors or secured parties under any
equipment lease agreements, purchase money security agreements, capital leases
and other security agreements (i) incurred in the ordinary course of business
and consistent with past practices, which are described in the submissions to
Lender under Sections 3.1 or 3.3 and approved by Lender, such approval not to be
unreasonably withheld or delayed and (ii) which do not, when combined with the
Underlying Loan, exceed (y) prior to Substantial Completion, 75% of the project
cost shown on the Project Budget for the applicable Hammons Hotel and (z) if the
construction loan is refinanced following Substantial Completion, then the
greater of 75% of the project cost shown on the Project Budget or 70% of
Appraised Value (or if no Appraisal of the Hammons Hotel is available, Lender's
determination of fair market value), and any financing statements filed as
evidence of such lessors' or secured parties' rights, (g) the Sponsor Entity
Right of First Refusal Agreement dated the Closing Date, among JQH, the JQH
Trust, JD Holdings, LLC and others, and (h) such other title and survey
exceptions and other Liens as Lender has approved or may approve in writing in
Lender's sole discretion.

      "PERMITTED INDEBTEDNESS" means (a) with respect to Borrower, (i) the
Indebtedness under the Loan Documents, and (ii) unsecured amounts not more than
ninety (90) days outstanding payable by or on behalf of Borrower for or in
respect of its customary corporate administration and customary administrative
overhead and which are incurred by Borrower in the ordinary course of its
ownership of each Project Owner and (b) with respect to each Project Owner, (i)
the Indebtedness under the applicable Underlying Loan, (ii) Indebtedness under
any refinancings of any Underlying Loan so long as the principal amount thereof
does not exceed (y) prior to Substantial Completion, 75% of the Appraised Value
of the applicable Hammons Hotel and (z) after Substantial Completion, 70% of the
Appraised Value of the applicable Hammons Hotel, (iii) the Contractual
Obligations in connection with construction of the applicable Improvements, (iv)
trade payables incurred in the ordinary course of such Project Owner's

                                       14
<PAGE>

ownership and operation of the Property and not more than ninety (90) days
outstanding, (v) guaranties by Borrower of the Underlying Loans, and (vi)
capital leases, purchase money security interests and other financing on the
condition that all of the Indebtedness described in clauses (b) (i), (ii) and
(vi) does not exceed (y) prior to Substantial Completion, 75% of the project
cost shown on the Project Budget for the applicable Hammons Hotel and (z) if the
construction loan is refinanced following Substantial Completion, then the
greater of 75% of the project cost shown on the Project Budget or 70% of
Appraised Value (or if no Appraisal of the Hammons Hotel is available, Lender's
determination of fair market value).

      "PERSON" means and includes natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and Governmental Authorities and their respective permitted
successors and assigns (or in the case of a Governmental Authority, the
successor functional equivalent of such Person).

      "PLEDGE AGREEMENTS" means, collectively, the Borrower Pledge Agreement and
the Guarantor Pledge Agreement.

      "PREFERRED EQUITY INTEREST" means the aggregate Hammons Preferred Units
(as defined in the Partnership Agreement) issued to the JQH Trust and their
Affiliates by the Partnership.

      "PREFERRED REDEMPTION PRICE" has the meaning specified in the Partnership
Agreement.

      "PRESCRIBED LAWS" means, collectively, (a) the Uniting and Strengthening
America by Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism Act of 2001 (Public Law 107-56) (The USA PATRIOT Act), (b) Executive
Order No. 13224 on Terrorist Financing, effective September 24, 2001, and
relating to Blocking Property and Prohibiting Transactions With Persons Who
Commit, Threaten to Commit, or Support Terrorism and implementing regulations
thereto, (c) the International Emergency Economic Power Act, 50 U.S.C. Section
1701 et. seq., (d) all other Legal Requirements administered by the Office of
Foreign Assets Control, and (e) all other Legal Requirements relating to money
laundering or terrorism.

      "PROJECT APPROVAL" is defined in Section 3.3(A).

      "PROJECT BUDGET" means a construction budget setting forth the projected
costs and expenses for the acquisition, construction and development of the
related Hammons Hotel.

      "PROJECT FILE" means, collectively, the items specified in Section 3.4(A).

      "PROJECT OWNER" means a Special Purpose Bankruptcy Remote Entity that is a
wholly-owned Subsidiary of Borrower and is formed to acquire, own, develop,
construct and operate Hammons Hotels or Land is acquired in contemplation of
construction of a Hammons Hotel.

      "PROMISSORY NOTE" means the Promissory Note dated of even date herewith
made by Borrower to the order of Lender in the original principal amount of
$275,000,000.

                                       15
<PAGE>

      "PROPERTY" means, collectively, with respect to any Hammons Hotel, the
Land and Improvements comprising such Hammons Hotel.

      "PROPRIETARY RIGHTS" is defined in Section 4.9.

      "SPECIAL PURPOSE BANKRUPTCY REMOTE ENTITY" is defined in SCHEDULE 6.8.

      "STABILIZED HOTEL" means any Hammons Hotel (A) as to which all
construction, renovation or improvement contemplated by the applicable Project
Budget has been fully completed (including any so-called "punch list items") and
(B) that has demonstrated to the reasonable satisfaction of Lender (on the basis
of financial statements delivered to Lender in accordance with the terms of this
Agreement) the ability to generate annual operating revenue sufficient to pay as
and when due (i) all operating expenses incurred by the applicable Project Owner
over the course of an operating year for such Hammons Hotel and (ii) all
scheduled debt service on the applicable Underlying Loan during such period.

      "SUBORDINATION OF MANAGEMENT AGREEMENT" means an agreement between Lender
and Manager providing for the subordination of Manager's rights under the
Management Agreement.

      "SUBSIDIARY" means, with respect to any Person (the "PARENT") at any date,
any corporation, limited liability company, partnership, association or other
entity the accounts of which would be consolidated with those of the parent in
the parent's consolidated financial statements if such financial statements were
prepared in accordance with GAAP as of such date, as well as any other
corporation, limited liability company, partnership, association or other entity
(a) of which Equity Interests representing more than fifty percent (50%) of the
Equity Interests or more than fifty percent (50%) of the ordinary voting power
or, in the case of a partnership, more than fifty percent (50%) of the general
partnership interests are, as of such date, owned, controlled or held, and (b)
that is, as of such date, otherwise Controlled, by the parent or one or more
Subsidiaries of the parent or by the parent and one or more Subsidiaries of the
parent.

      "SUBSTANTIALLY COMPLETED" and "SUBSTANTIAL COMPLETION" mean (a) the
Improvements contemplated by the applicable Project Budget and plans and
specifications submitted to and approved by Lender as part of a Project Approval
have been completed in substantial accordance with such plans and specifications
and without any Material Change unless approved by Lender, (b) all material
permits and approvals required for the normal use and occupancy of the
applicable Property (including a certificate of occupancy if required for
occupancy under applicable Legal Requirements) shall have been issued by the
appropriate Governmental Authority and shall be in full force and effect, (c)
the applicable Improvements shall have been equipped with all furnishings,
fixtures, equipment and furniture required for the intended use and operation of
the Improvements, and (d) all material revenues generating components of the
Improvements are open for business to the public.

      "SUBSTITUTE NOTE" means all notes given in substitution or exchange for
the Promissory Note or another Substitute Note.

      "SUSPENSION DEFAULT RATE" means for each Interest Period following the
occurrence of a Suspension Event, a variable rate per annum equal to the sum of
the LIBOR Rate or the

                                       16
<PAGE>

Alternate Rate, as the case may be for such Interest Period, plus five percent
(5%) increasing or decreasing with each increase or decrease in the LIBOR Rate,
or the Alternate Rate, as the case may be (as and when the LIBOR Rate or the
Alternate Rate changes as described herein).

      "SUSPENSION EVENT" is defined in Section 7.2(D).

      "TAX LIABILITIES" is defined in Section 2.6.

      "TRANSFER" means, (a) when used as a verb, to, directly or indirectly,
lease, sell, assign, convey, give, exchange, devise, mortgage, encumber, pledge,
hypothecate, alienate, grant a security interest, or otherwise create or suffer
to exist any Lien, transfer or otherwise dispose, or to contract or agree to do
any of the foregoing, whether by operation of law, voluntarily, involuntarily or
otherwise as well as any other action or omission which has the practical effect
of initiating or completing any of the foregoing and (b) when used as a noun, a
direct or indirect, lease, sale, assignment, conveyance, gift, exchange, devise,
mortgage, encumbrance, pledge, hypothecation, alienation, grant of a security
interest or other creation or sufferance of a Lien, transfer or other
disposition, or contract or agreement by which any of the foregoing may be
effected, whether by operation of law, voluntary or involuntary and any other
action or omission which has the practical effect of initiating or completing
any of the foregoing.

      "UCC" means the Uniform Commercial Code as in effect in the State of New
York.

      "UNAPPLIED PREFERRED DEFAULT RATE" is defined in Section 2.2(A)(i).

      "UNAPPLIED EARLY REDEMPTION PRICE" is defined in Section 2.4(D)(i).

      "UNDERLYING LOAN" means, with respect to any Hammons Hotel, a loan or
loans made to a Project Owner by a lender that is not an Affiliate of Borrower
(a) which loan shall be secured by a first priority mortgage or deed of trust
encumbering the applicable Property, (b) the proceeds of which will be used to
finance a portion of the costs of acquisition, development, construction and
renovation of such Hammons Hotel in accordance with the applicable Project
Budget, and (c) the maximum aggregate principal amount of which shall not exceed
75% of the hard and soft costs set forth in the Project Budget.

      "UNIFORM SYSTEM OF ACCOUNTS" means Uniform System of Accounts for Hotels,
9th Edition, International Association of Hospitality Accountants (19__), as
from time to time amended.

      "UPDATED NET WORTH CERTIFICATE" means a Net Worth Certificate updated as
of the end of the applicable Loan Quarter and calculated in accordance with the
Accounting Rules.

      "W&H AGREEMENTS" means the agreements between the applicable Project
Owners and Winegardner and Hammons with respect to the provision of certain
accounting services for the Hammons Hotels.

1.2 TERMS; UTILIZATION OF ACCOUNTING RULES FOR PURPOSES OF FINANCIAL STATEMENTS
UNDER AGREEMENT. For purposes of this Agreement, all accounting terms not
otherwise defined herein shall have the meanings assigned to such terms in
conformity with the Accounting Rules.

                                       17
<PAGE>

Financial statements and other information furnished to Lender pursuant to
Section 5.1 shall be prepared in accordance with the Accounting Rules as in
effect at the time of such preparation. No Accounting Changes shall affect
standards or terms in this Agreement; provided, that, Borrower shall prepare
footnotes to the financial statements required to be delivered hereunder that
describe any Accounting Changes impacting such financial statements.

1.3 OTHER DEFINITIONAL PROVISIONS. References to "SECTIONS," "SUBSECTIONS,"
"EXHIBITS" and "SCHEDULES" shall be to Sections, Subsections, Exhibits and
Schedules, respectively, of this Agreement unless otherwise specifically
provided. Any of the terms defined in Section 1.1 may, unless the context
otherwise requires, be used in the singular or the plural depending on the
reference. In this Agreement, "HEREOF," "HEREIN," "HERETO," "HEREUNDER" and the
like mean and refer to this Agreement as a whole and not merely to the specific
section, paragraph or clause in which the respective word appears; words
importing any gender include the other genders; references to "WRITING" include
printing, typing, lithography and other means of reproducing words in a tangible
visible form; the words "INCLUDING," "INCLUDES" and "INCLUDE" shall be deemed to
be followed by the words "WITHOUT LIMITATION"; the phrase "AND/OR" shall mean
that either "and" or "or" may apply; the phrases "ATTORNEYS' FEES," "LEGAL FEES"
and "COUNSEL FEES" shall include any and all reasonable attorneys', paralegal
and law clerk fees and disbursements, including court costs, fees and
disbursements at the pre-trial, trial and appellate levels incurred or paid by
Lender in protecting its interest in the Collateral and enforcing its rights
hereunder and/or the other Loan Documents; references to agreements and other
contractual instruments shall be deemed to include subsequent amendments,
assignments, and other modifications thereto, but only to the extent such
amendments, assignments and other modifications are not prohibited by the terms
of this Agreement or any other Loan Document; references to Persons include
their respective permitted successors and assigns or, in the case of
governmental Persons, Persons succeeding to the relevant functions of such
Persons; references to a Person's "KNOWLEDGE" in this Agreement or the other
Loan Documents refers to the actual knowledge of the Person in question and such
knowledge as a reasonably prudent Person would have acquired by virtue of such
inquiry and due diligence as a reasonably prudent Person would have undertaken;
and all references to statutes and related regulations shall include any
amendments of same and any successor statutes and regulations. Where any
provision of this Agreement or any of the other Loan Documents refers to action
to be taken by any Person, or to an action which a Person is prohibited from
taking, such provisions shall be applicable whether such action is taken
directly by such Person or indirectly under the control of such Person.

                                   SECTION 2
                          AMOUNTS AND TERMS OF THE LOAN

2.1 LOAN DISBURSEMENT AND NOTE.

            (A) Upon the terms and subject to the conditions set forth in this
      Agreement, Lender agrees to make loans (the "LOANS" and each such loan, a
      "LOAN") to Borrower from time to time, on any Business Day during the
      Availability Period, in an aggregate amount not to exceed at any time
      outstanding the Facility Availability Amount. Subject to the other terms
      and conditions of this Agreement, Borrower may borrow under this Section
      2.1, prepay under Section 2.4, and re-borrow under this Section 2.1. The
      proceeds of the Loans shall be used to (i) fund equity investments in
      Project Owners, which funds shall be used to pay

                                       18
<PAGE>

      capital expenses (as classified under GAAP) relating to Existing Hammons
      Hotel Projects and Additional Hotel Projects, (ii) make interest payments
      under this Agreement and the Note, and (iii) repay in full the outstanding
      amount of the Interim Line of Credit. The Loans shall be evidenced by the
      Note. The Obligations of Borrower under this Agreement, the Note and the
      other Loan Documents are secured by, among other things, the Liens created
      or arising under this Agreement and the other Loan Documents.

            (B) Each Loan shall be made upon Borrower's irrevocable delivery to
      Lender of a Loan Request appropriately completed and signed by Borrower.
      Each such Loan Request must be received by Lender not later than 11:00
      a.m. ten (10) Business Days prior to the requested date of the applicable
      Loan. Each Loan shall be in a principal amount of $5,000,000 or a whole
      multiple of $1,000,000 in excess thereof (provided that a Loan requested
      solely to fund interest may be in a lesser amount). Each Loan Request
      shall specify (i) the requested date of the Loan, (which shall be a
      Business Day and shall not be a day less than five (5) Business Days prior
      to the last day of any Loan Month), (ii) the principal amount of the Loan
      to be borrowed, and (iii) a detailed break-down of the proposed use of the
      proceeds of the Loan, including designation of the applicable Hammons
      Hotel(s). Borrower may not request more than one Loan per Loan Month
      except that two (2) times in any calendar year, Borrower may request a
      second Loan in a Loan Month.

            (C) Upon satisfaction of the applicable conditions set forth in
      Section 3, Lender shall make Loans available to Borrower by the wire
      transfer of immediately available federal funds, in each case in
      accordance with instructions provided to (and reasonably acceptable to)
      Lender by Borrower. Lender hereby agrees that it shall make good faith
      efforts to fund each Loan not later than 11:00 a.m. as of the requested
      date of such Loan as set forth in the applicable Loan Request.

2.2 INTEREST.

            (A) INTEREST RATE. The outstanding principal balance of the Loans
      shall bear interest at the Base Rate from the date each such Loan is made
      until such Loan is paid in full. The foregoing notwithstanding:

               (i) if (1) Borrower has elected in accordance with Section
         2.4(D)(i) not to apply all or any part of the Unapplied Early
         Redemption Price to the repayment of the Outstanding Amount and (2) the
         death of JQH occurs prior to the fifth (5th) anniversary of the Closing
         Date, then from and after the first day of the first Interest Period
         commencing after the first payment of the Early Redemption Price is
         made, a portion of the Outstanding Amount equal to the amount of the
         Unapplied Early Redemption Price shall bear interest at the LIBOR Rate
         or the Alternate Rate, as the case may be, plus four percent (4.0%)
         (the "UNAPPLIED PREFERRED DEFAULT RATE"), any subsequent mandatory
         prepayment of the Outstanding Amount shall be applied first to the
         portion of the Outstanding Amount bearing interest at the Base Rate
         until all such amounts have been repaid and any subsequent optional
         prepayment of the Outstanding Amount shall be applied first to the
         portion of the Outstanding Amount bearing interest at the Unapplied
         Preferred Default Rate until all such amounts have been repaid; and

                                       19
<PAGE>

               (ii) (1) upon and during the continuance of any Default by
         Borrower in the payment of any sum of principal, interest or other
         Obligations of Borrower owing to Lender when due, (2) during the
         existence of any Event of Default (unless but only for so long as such
         Event of Default is deemed to be a Suspension Event under Section
         7.2(D)), or (3) after the Maturity Date or earlier upon acceleration of
         the Loans, the principal amount of each Loan shall bear interest
         ("DEFAULT INTEREST") at the Default Rate. With respect to any scheduled
         payments of principal and interest (excluding the payment due on the
         Maturity Date), Borrower will be entitled to a grace period of two (2)
         days from the date on which such scheduled payment was due before
         Default Interest is imposed by reason of such late payment; provided,
         that such grace period will not be available more than twice in any
         calendar year, and if Borrower fails to make the required payment
         within said two (2) day period, Default Interest will be calculated
         from the original due date. Except as set forth in the preceding
         sentence, Default Interest shall commence, without notice, immediately
         upon and from the occurrence of the events described in (1), (2) or (3)
         above, as the case may be, and shall continue until all Defaults are
         cured and all sums that have become due and payable under the Loan
         Documents are paid in full. Default Interest shall be payable upon
         demand, and, to the extent unpaid, shall be compounded monthly at the
         Default Rate.

               (iii) upon and during the continuance of any Suspension Event the
         principal amount of each Loan shall bear interest at the Suspension
         Default Rate.

            (B) COMPUTATION AND PAYMENT OF INTEREST. Interest on the Loans and
      all other Obligations owing to Lender shall be computed on the daily
      Outstanding Amount on the basis of actual days elapsed and a 360-day year.
      Interest on the Loans is payable in arrears on each Payment Date to Lender
      as specified in Section 2.3. In addition, all accrued and unpaid interest
      shall be paid to Lender on the earlier of the date of any prepayment (to
      the extent prepayment is permitted or required under Section 2.4) and
      maturity, whether by acceleration or otherwise.

            (C) INTEREST LAWS. Notwithstanding any provision to the contrary
      contained in this Agreement or the other Loan Documents, Borrower shall
      not be required to pay, and Lender shall not be permitted to collect, any
      amount of interest in excess of the maximum amount of interest permitted
      by law ("EXCESS INTEREST"). If any Excess Interest is provided for or
      determined by a court of competent jurisdiction to have been provided for
      in this Agreement or in any other Loan Document, then in such event: (1)
      the provisions of this Section shall govern and control; (2) Borrower
      shall not be obligated to pay any Excess Interest; (3) any Excess Interest
      that Lender may have received hereunder shall be, at Lender's option, (a)
      applied as a credit against the outstanding principal balance of the
      Obligations due and owing to Lender (without any prepayment penalty or
      premium therefor) or for accrued and unpaid interest thereunder (not to
      exceed the maximum amount permitted by law), (b) refunded to the payor
      thereof, or (c) any combination of the foregoing; (4) the interest rate(s)
      provided for herein shall be automatically reduced to the maximum lawful
      rate allowed from time to time under applicable law (the "MAXIMUM RATE"),
      and this Agreement and the other Loan Documents shall be deemed to have
      been and shall be, reformed and modified to reflect such reduction; and
      (5) Borrower shall not have any action against Lender for any damages
      arising out of the payment or collection of any Excess

                                       20
<PAGE>

      Interest. Notwithstanding the foregoing, if for any period of time
      interest on any Obligation due and owing to Lender is calculated at the
      Maximum Rate rather than the applicable rate under this Agreement, and
      thereafter such applicable rate becomes less than the Maximum Rate, the
      rate of interest payable on such Obligations due and owing to Lender
      shall, to the extent permitted by law, remain at the Maximum Rate until
      Lender shall have received or accrued the amount of interest which Lender
      would have received or accrued during such period on Obligations due and
      owing to Lender had the rate of interest not been limited to the Maximum
      Rate during such period.

            (D) LATE CHARGES. If any scheduled payment of principal and/or
      interest or other Obligation owing pursuant to this Agreement or the other
      Loan Documents is not paid when due, Borrower shall pay to Lender, in
      addition to all sums otherwise due and payable, a late charge ("LATE
      CHARGE") in an amount equal to three percent (3%) of the unpaid amount.
      With respect to regular monthly payments of interest (excluding the
      payment due on the Maturity Date), Borrower will be entitled to a grace
      period of two (2) days from the applicable date due before a Late Charge
      is imposed by reason of such late payment; provided, that such grace
      period will not be available more than twice in any calendar year. Any
      unpaid Late Charge shall bear interest at the Default Rate until paid.

2.3 INTEREST PAYMENTS. On each Payment Date Borrower shall pay to Lender
interest on the Outstanding Amount accrued from and including the immediately
preceding Payment Date, to, but not including, the Payment Date on which such
payment is to be made.

2.4 PRINCIPAL PAYMENTS AND PREPAYMENTS ON THE LOANS.

            (A) MANNER AND TIME OF PAYMENT. Borrower shall pay all of the
      Obligations arising under this Agreement and the other Loan Documents
      relating to the Loans as such amounts become due or are declared due
      pursuant to the terms of this Agreement and the other Loan Documents. All
      payments shall be made without deduction, defense, setoff or counterclaim,
      by the wire transfer of immediately available funds to Lender's account at
      JP Morgan Chase for the account of iStar Financial Inc., Account No.
      9102757938, JP Morgan Chase Bank ABA 021000021 Reference: JQH Lendco Loan,
      or at such other place as Lender may direct from time to time by notice to
      Borrower. Borrower shall receive credit for such funds on the date
      received if such funds are received by Lender by 2:00 P.M. (New York time)
      on such day. If such funds are received after 2:00 P.M. (New York time),
      such funds shall be deemed to have been paid by Borrower on the following
      Business Day. Whenever any payment to be made under the Loan Documents
      shall be stated to be due on a day that is not a Business Day, or any time
      period relating to a payment to be made hereunder is stated to expire on a
      day that is not a Business Day, the payment may be made on the following
      Business Day, the period will not expire until such following Business Day
      and interest will continue to accrue during any such extended period.

            (B) MATURITY. The entire outstanding principal balance of the Loans,
      together with all accrued and unpaid interest thereon and all other
      Obligations owing to Lender pursuant to the Loan Documents, shall be due
      and payable on the Maturity Date.

                                       21
<PAGE>

            (C) OPTIONAL PREPAYMENTS. The Outstanding Amount may be prepaid, in
      whole or in part (in increments of not less than $1,000,000), upon not
      less than thirty (30) days irrevocable prior notice to Lender.

            (D) MANDATORY PREPAYMENTS.

               (i) Borrower shall be obligated to repay the Outstanding Amount,
         in whole or in part, together with any accrued and unpaid interest on
         the amount repaid, to the extent of any proceeds whenever received on
         or with respect to Preferred Equity Interest (including, without
         limitation, from the redemption, repurchase or liquidation of the
         Preferred Equity Interest); provided, that, so long as (A) no Default
         or Event of Default (including a Suspension Event) shall have occurred
         and be continuing, (B) the Net Worth, as evidenced by the most recent
         Net Worth Certificate delivered to Lender, is equal to or greater than
         the Minimum Net Worth Amount, and (C) the unpaid Preferred Redemption
         Price (after deduction of the Early Redemption Price) of the Preferred
         Equity Interest is greater than the sum of the Outstanding Amount plus
         the unfunded Facility Availability Amount, then JQH's estate may elect
         by notice to Lender that the mandatory prepayment requirements of this
         Section 2.4(D)(i) not apply to all or any portion of the proceeds of
         the exercise of the Early Redemption Rights (as defined in the
         Partnership Agreement) (any such proceeds being referred to herein as
         the "UNAPPLIED EARLY REDEMPTION PRICE").

               (ii) In the event of (A) a foreclosure of any Underlying Loan or
         (B) a Bankruptcy Event shall occur with respect to any Project Owner,
         Borrower shall be obligated to repay the portion of the Loans, together
         with any accrued and unpaid interest on the amount repaid, made with
         respect to the Hammons Hotel related to the Bankruptcy Event or the
         Underlying Loan related to the Affected Project Owner.

               (iii) Borrower shall be obligated to repay a portion of the
         Outstanding Amount, together with any accrued and unpaid interest on
         the Outstanding Amount, in the event that the Net Worth should, at any
         time, be less than the Minimum Net Worth Amount, such that after such
         prepayment the Outstanding Amount does not exceed the lesser of (A)
         $100,000,000 and (B) forty percent (40%) of the Net Worth at such time.

               (iv) Borrower shall be obligated to repay a portion of the
         Outstanding Amount, together with any accrued and unpaid interest on
         the amount repaid, to the extent of any Net Liquidation Proceeds After
         Debt Service of any Hammons Hotel if the applicable Liquidation Event
         occurs at any time (A) that the Net Worth is less than the Minimum Net
         Worth Amount, or (B) a Default (unless such Default is cured within the
         applicable cure period) or an Event of Default (including a Suspension
         Event) has occurred and is continuing.

               (v) In the event Borrower requests a disbursement of a Loan in
         connection with the Charlevoix in accordance with Section 3.4 and such
         Loan is greater than $20,000,000 as permitted under Section 3.4, then
         Borrower shall be obligated to repay a portion of the Outstanding
         Amount, together with any accrued and unpaid interest on the

                                       22
<PAGE>

         amount repaid, within three (3) years following Substantial Completion
         of such project to the extent of the difference between such Loan and
         $20,000,000.

               (vi) Borrower shall be obligated to make a prepayment as required
         by Section 3.5(C).

            (E) PAYMENT OF PREPAYMENTS; COMPENSATION. Any mandatory prepayments
      made pursuant to subsection (D) above shall be made on or before the
      Mandatory Prepayment Due Date, unless otherwise provided herein. In the
      event of (a) the payment of any principal of the Loans other than on a
      Payment Date or the Mandatory Prepayment Due Date (including as a result
      of an Event of Default) or (b) the failure to borrow or prepay the Loans
      as specified in any notice delivered pursuant to this Agreement or the
      other Loan Documents, then, in any such event and, in addition to the
      payments to be made to Lender pursuant to this Section 2.4, Borrower
      agrees to compensate Lender for all losses, costs, expenses and damages
      Lender may incur attributable to such event. A reasonably detailed notice
      by Lender setting forth any amount or amounts that Lender is entitled to
      receive pursuant to this Section 2.4(E) shall be delivered to Borrower and
      shall be conclusive absent manifest error. Borrower shall pay Lender the
      amount shown as due on any such notice within ten (10) Business Days after
      receipt thereof.

2.5 LENDER'S RECORDS; MUTILATED, DESTROYED OR LOST NOTES. The balance on
Lender's books and records shall be presumptive evidence (absent manifest error)
of the amounts due and owing to Lender by Borrower; provided, that, any failure
to so record or any error in so recording shall not limit or otherwise affect
Borrower's obligation to pay the Obligations. In case any Note shall become
mutilated or defaced, or be destroyed, lost or stolen, Borrower shall, upon
request from Lender, execute and deliver a Substitute Note of like principal
amount in exchange and substitution for the mutilated or defaced Note, or in
lieu of and in substitution for the destroyed, lost or stolen Note. In the case
of a mutilated or defaced Note, the mutilated or defaced Note shall be
surrendered to Borrower upon delivery to Lender of the Substitute Note. In the
case of any destroyed, lost or stolen Note, Lender shall furnish to Borrower,
upon delivery to Lender of the Substitute Note (i) certification of the
destruction, loss or theft of such Note and (ii) such security or indemnity as
may be reasonably required by Borrower to hold Borrower harmless.

2.6 TAXES. Any and all payments or reimbursements made under this Agreement, the
Note or the other Loan Documents shall be made free and clear of and without
deduction for any and all taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto arising out of or in
connection with the transactions contemplated by the Loan Documents; excluding,
however, the following: taxes imposed on the income of Lender by any
jurisdiction or any political subdivision thereof; taxes that are not directly
attributable to the Loans; and any "doing business" taxes, however denominated,
charged by any state or other jurisdiction (all such taxes, levies, imposts,
deductions, charges or withholdings and all liabilities with respect thereto,
excluding such taxes imposed on income, taxes not directly attributable to the
Loans and any "doing business" taxes, herein "TAX LIABILITIES"). If Borrower
shall be required by law to deduct any such amounts from or in respect of any
sum payable hereunder to Lender, then the sum payable hereunder shall be
increased as may be necessary so that, after making all required deductions,
Lender receives an amount equal to the sum it would have

                                       23
<PAGE>

received had no such deductions been made. In the event that, subsequent to the
Closing Date, (1) any changes in any existing law, regulation, treaty or
directive or in the interpretation (by the taxing authority) or application (by
the taxing authority) thereof, (2) any new law, regulation, treaty or directive
enacted or any interpretation (by the taxing authority) or application (by the
taxing authority) thereof, or (3) compliance by Lender with any new request or
directive (whether or not having the force of law) from any Governmental
Authority, does or shall subject Lender to any tax of any kind whatsoever with
respect to this Agreement, the other Loan Documents or the Loans, or change the
basis of taxation of payments to Lender of principal, fees, interest or any
other amount payable hereunder (except for income taxes, or franchise taxes
imposed in lieu of income taxes, imposed generally by federal, state or local
taxing authorities with respect to interest or commitment or other fees payable
hereunder or changes in the rate of interest or tax on the overall income of
Lender, taxes that are not directly attributable to the Loan and any "doing
business" taxes, however denominated, charged by any state or other
jurisdiction) and the result of any of the foregoing is to increase the cost to
Lender of making or continuing the Loans hereunder, as the case may be, or to
reduce any amount receivable hereunder, then, in any such case, Borrower shall
promptly pay to Lender, within thirty (30) days after its demand, any additional
amounts necessary to compensate Lender, on an after-tax basis, for such
additional cost or reduced amount receivable, as determined by Lender with
respect to this Agreement or the other Loan Documents. If Lender becomes
entitled to claim any additional amounts pursuant to this Section 2.6, it shall
promptly notify Borrower of the event by reason of which Lender has become so
entitled.

2.7 APPLICATION OF PAYMENTS. Except as otherwise expressly provided in the last
sentence of this Section 2.7, all payments made hereunder shall be applied
first, to the payment of any Late Charges and other sums (other than principal
and interest) due from Borrower to Lender under the Loan Documents, second, to
any Default Interest (including interest at the Suspension Default Rate), third
to interest other than Default Interest, and last to the Outstanding Amount.
Following and during the continuance of an Event of Default, all sums collected
by Lender shall be applied in such order of priority to such items set forth
below as Lender shall determine, in its sole discretion: (i) to the costs and
expenses, including attorneys' fees incurred in the collection of any or all of
the Loans due or the realization of any Collateral and (ii) to any or all unpaid
amounts owing pursuant to the Loan Documents.

2.8 PLEDGE AGREEMENT. Pursuant to the Pledge Agreements, to secure the payment,
performance and discharge of the Obligations, the Loan Parties will grant,
assign, transfer, convey and set over unto Lender a continuing first priority,
perfected security interest in and Lien upon (i) the Preferred Equity Interest,
(ii) 100% of the Equity Interests in the Borrower, and (iii) Borrower's Equity
Interests in each Project Owner.

                                    SECTION 3
                               CONDITIONS TO LOANS

3.1 CONDITIONS TO INITIAL LOAN. The obligation of Lender to make the Initial
Loan hereunder is subject to satisfaction of the following conditions precedent,
any or all of which may be waived in whole or in part by Lender, in its sole
discretion:

                                       24
<PAGE>

            (A) LOAN DOCUMENTS. On or before the Closing Date, each Loan Party
      shall execute and deliver and cause to be executed and delivered, to
      Lender each Loan Document (to which it is a party), each, unless otherwise
      noted, dated the Closing Date, duly executed, in form and substance
      satisfactory to Lender and in quantities designated by Lender (except for
      the Promissory Note, of which only the original shall be executed).
      Borrower hereby authorizes Lender to file the Financing Statements in such
      filing offices as Lender elects.

            (B) OPINION OF COUNSEL. Lender shall have received written opinions
      of counsel for the Loan Parties in form and substance reasonably
      satisfactory to Lender and its counsel, dated the Closing Date.

            (C) ORGANIZATIONAL AND AUTHORIZATION DOCUMENTS. Lender shall have
      received all documents reasonably requested by Lender, including all
      corporate resolutions and Organizational Documents (if applicable), with
      regard to the due organization, existence, internal governance, power and
      authority, due authorization, execution and delivery, authorization to do
      business and good standing of the Loan Parties, each Project Owner, the
      Partnership and such other Persons as Lender may reasonably designate, the
      validity and binding effect of the Loan Documents and other matters
      relating thereto, in each case in form and substance satisfactory to
      Lender.

            (D) PARTNERSHIP AGREEMENT. Lender shall have approved the form and
      substance of the Partnership Agreement and received a certificate,
      duly-executed by Atrium GP, LLC, as general partner of the Partnership
      attaching a copy of the Partnership Agreement and certifying to Lender
      that (i) such attached copy is true and complete, (ii) the Partnership
      Agreement is in full force and effect and has not been amended, modified
      or supplemented, and (iii) neither JQH nor any other partner of the
      Partnership is in default in the payment or performance of his or its
      obligations under the Partnership Agreement.

            (E) FINANCIAL STATEMENTS. Lender shall have received financial
      statements of JQH and the JQH Trust, including pro forma balance sheets
      dated December 31, 2004 giving effect to the making of the Initial Loan
      and the other transactions occurring on the Closing Date.

            (F) SEARCHES, PERFECTION AND PRIORITY. Lender shall have received
      and approved copies of Financing Statement, judgment, tax lien, bankruptcy
      and litigation search reports of such jurisdictions and offices as Lender
      may reasonably designate with respect to the Loan Parties and such other
      Persons as Lender may reasonably require. Lender shall have received such
      other evidence as Lender may require confirming that Lender has a
      continuing first priority, perfected security interest in and Lien upon
      the Collateral, including all Financing Statements.

            (G) INTERIM LINE OF CREDIT. Lender shall have received evidence, in
      form and substance satisfactory to it, that the Interim Line of Credit has
      been paid or, on the Closing Date, will be paid by Borrower, which payment
      may be funded with the proceeds of the Initial Loan.

                                       25
<PAGE>

            (H) CONSENTS. Lender shall have received evidence that all
      governmental, equity holder and third-party consents and approvals
      necessary or desirable in connection with the consummation of the
      transactions described herein have been obtained.

            (I) CONSUMMATION OF MERGER. The merger between JQH, Inc. and a
      Subsidiary of JD Holdings, LLC shall have been consummated as contemplated
      by that certain merger agreement dated June 14, 2005.

            (J) CERTIFIED COPY OF THE TRUST AGREEMENT. Lender shall have
      received a certified copy of the Trust Agreement together with such
      additional certifications and agreements as Lender may require.

            (K) CLOSING STATEMENT. Lender shall have received a closing
      statement executed by Borrower.

            (L) RECOGNITION OF PLEDGE AND AGREEMENT. An agreement recognizing
      the pledge of the Loan and all security therefor to iStar and containing
      such agreements in connection therewith as iStar may reasonably require.

            (M) MINIMUM COLLATERAL. The Pledge Agreements executed under Section
      3.4(H) shall include a pledge of the Loan Parties' interest in the Chateau
      on the Lake, Branson, Missouri. In addition to the pledge of the equity
      interests in the Chateau on the Lake, the minimum cash equity investment
      in the Existing Hammons Hotels that are owned indirectly by Borrower
      through its ownership of the Project Owners will not be less than
      $25,000,000.

            (N) OTHER DOCUMENTS AND DELIVERIES. Borrower shall have delivered
      such other documents and deliveries reasonably related to the Initial Loan
      as Lender may reasonably request.

3.2 CONDITIONS TO ALL LOANS. The obligation of Lender to make any Loan
(including the Initial Loan) is subject to the following conditions precedent,
any or all of which may be waived in whole or in part by the Lender, in its sole
discretion:

            (A) LOAN REQUEST. Lender shall have received a Loan Request in
      accordance with the requirements hereof.

            (B) FACILITY AVAILABILITY AMOUNT. The principal amount of such Loan,
      when added to the Outstanding Amount, shall not exceed the Facility
      Availability Amount.

            (C) DEFAULTS; EVENTS OF DEFAULT; SUSPENSION EVENTS. No Default or
      Event of Default (including a Suspension Event) shall exist or would
      result from such proposed Loan.

            (D) TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
      warranties of the Loan Parties contained herein or in any other Loan
      Document, or which are contained in any document furnished at any time
      under or in connection herewith or therewith, shall be true and correct in
      all material respects on the Closing Date and on and as of the date of
      such Loan as if made on such date, except to the extent that such

                                       26
<PAGE>

      representations and warranties specifically refer to an earlier date, in
      which case they shall be true and correct in all material respects as of
      such earlier date.

            (E) NO LITIGATION. No Legal Requirements shall have been adopted
      which would have a Material Adverse Effect; no order, judgment or decree
      of any Governmental Authority shall have been issued or entered, and no
      Action shall be pending or threatened which, in the reasonable judgment of
      Lender, would enjoin, prohibit or restrain, the making, borrowing or
      repayment of the Loans or the execution, delivery or performance of the
      Loan Documents; and no Action shall be pending or threatened which shall
      impose or result in a Material Adverse Effect upon the making, borrowing
      or repayment of the Loans or the execution, delivery or performance of the
      Loan Documents.

            (F) MATERIAL ADVERSE EFFECT. No event, circumstance, or condition
      shall exist or shall have occurred and be continuing which has, or could
      reasonably be expected to have, either individually or in the aggregate, a
      Material Adverse Effect.

            (G) MAXIMUM NUMBER OF PROJECTS. There shall be (i) no more than
      twelve (12) Hammons Hotels as to which the construction, renovation or
      improvements contemplated by the applicable Project Budget and plans and
      specifications approved by Lender have not been Substantially Completed
      (no more than six (6) of which shall be full service Hotel Projects) and
      (ii) no more than twenty (20) Hammons Hotels that are not Stabilized
      Hotels (including the Hammons Hotels described in clause (i) above).

            (H) MANAGEMENT AGREEMENTS. The Management Agreement shall be in
      effect with respect to each Hammons Hotel.

            (I) UNDERLYING LOAN CONDITIONS. No circumstance shall exist whereby
      the applicable Project Owner would not satisfy the conditions set forth in
      its Underlying Loan with respect to an advance under such Underlying Loan,
      other than a condition relating to the funding by such Project Owner of
      its required equity investment in such Project Owner.

            (J) MATERIAL CHANGE. No Material Change shall have occurred with
      respect to the applicable Hammons Hotel.

3.3 CONDITIONS TO LOANS FOR ADDITIONAL HOTEL PROJECTS. In addition to the
conditions set forth in Sections 3.1 and 3.2, the obligation of Lender to make
any Loan with respect to an Additional Hotel Project is subject to the following
conditions precedent, any or all of which may be waived in whole or in part by
the Lender, in its reasonable discretion:

            (A) APPROVAL OF PROJECT. Lender shall have completed a due diligence
      investigation of the applicable Additional Hotel Project and approved such
      Additional Hotel Project in its reasonable business judgment (a "PROJECT
      APPROVAL"), exercised in good faith, which approval shall not be
      unreasonably delayed, which due diligence investigation may include,
      without limitation, delivery by Borrower to Lender and review by Lender
      of:

               (i) a narrative description of the applicable Property including
         local market analysis and description of the planned construction,
         renovation or re-positioning;

                                       27
<PAGE>

               (ii) preliminary plans and specifications or construction
         drawings (to the extent then available) for the contemplated
         construction, improvements or renovation;

               (iii) a preliminary Project Budget;

               (iv) pro forma statements of operations for the first five (5)
         years of the proposed Additional Hotel Project;

               (v) (x) a binding commitment from a chartered bank or other
         institutional lender with respect to the applicable Underlying Loan,
         which may be conditioned on funding of the Loan hereunder and on
         satisfaction of typical funding conditions, and the Underlying Loan
         shall be made pursuant to such commitment; or

                   (y) if Borrower or Project Owner does not have such a binding
         commitment, a letter of intent from a chartered bank or other
         institutional lender with respect to the applicable Underlying Loan on
         the conditions that (1) in no event shall Lender be obligated to Loan
         more than $5,000,000 on an Additional Hotel Project before satisfaction
         of the condition in clause (v)(x) above; (2) in no event shall there be
         more than $25,000,000, in the aggregate at any time, in Loans
         outstanding with respect to Additional Hotel Projects which have not
         satisfied the condition in clause (v)(x) above and under Section 3.5;
         and (3) in no event shall there be more than 5 Additional Hotel
         Projects, at any time, for which the condition in clause (v)(x) above
         has not been satisfied;

               (vi) an environmental assessment with respect to the applicable
         Property;

               (vii) an engineering/seismic study with respect to the applicable
         Property to the extent obtained in connection with the Underlying Loan;

               (viii) if the applicable Additional Hotel Project involves
         acquisition of the applicable Land, a copy of the contract of sale or
         other agreement by which the Project Owner will acquire its interest in
         such Land and at closing of the acquisition, a copy of the buyer-seller
         closing statement;

               (ix) an owners title insurance policy or commitment with respect
         to the applicable Property;

               (x) an independent Appraisal of the Additional Hotel Project
         indicating the Appraised Value of such Additional Hotel Project and
         satisfactory to Lender in all respects;

               (xi) evidence that the proposed Additional Hotel Project will,
         when completed, comply with all applicable Legal Requirements, which
         evidence may consist of an architect's certificate and a certificate of
         Borrower listing all permits required to construct and complete the
         Additional Hotel Project and attaching copies of all of such permits
         that have been obtained so long as Lender is satisfied that Borrower,
         at all times, has obtained permits required for the applicable stage of
         construction; and

                                       28
<PAGE>

               (xii) evidence that the proposed Additional Hotel Project will be
         adequately serviced by all necessary utilities.

            (B) ORGANIZATIONAL AND AUTHORIZATION DOCUMENTS OF PROJECT OWNER.
      Lender shall have received all documents reasonably requested by Lender,
      including all resolutions and Organizational Documents, with regard to the
      due organization, existence, internal governance, power and authority, due
      authorization, execution and delivery, authorization to do business and
      good standing of the applicable Project Owner, and other matters relating
      thereto, in each case in form and substance satisfactory to Lender.

            (C) MANAGEMENT AGREEMENT. Lender shall have received and approved
      true, correct and complete certified copies (by Borrower) of the
      Management Agreement.

            (D) FRANCHISE AGREEMENT. Lender shall have received and approved a
      true, correct and complete certified copy (by Borrower) of any applicable
      Franchise Agreement.

            (E) SEARCHES, PERFECTION AND PRIORITY. Lender shall have received
      and approved a copy of Financing Statement, judgment, tax lien, bankruptcy
      and litigation search reports of such jurisdictions and offices as Lender
      may reasonably designate with respect to the applicable Project Owner.

            (F) PLEDGE AGREEMENT. Borrower shall have duly executed and
      delivered to Lender a Pledge Agreement in form and substance satisfactory
      to Lender and pledging to Lender 100% of the Equity Interests in the
      applicable Project Owner, as additional security for the Obligations.
      Lender shall have received such other evidence as Lender may require
      confirming that Lender has a continuing first priority, perfected security
      interest in and Lien upon the Equity Interests in the applicable Project
      Owner, including all Financing Statements.

            (G) MAXIMUM AMOUNT. The principal amount of such Loan, when added to
      the aggregate principal amount of all Loans (or portions thereof) made
      with respect to such Additional Hotel Project, shall not exceed (i)
      $20,000,000 for any Existing Hammons Hotel Project other than Charlevoix
      and (ii) $30,000,000 for Charlevoix.

            (H) OTHER DOCUMENTS AND DELIVERIES. Borrower shall have delivered
      such other documents and deliveries reasonably related to the Additional
      Hotel Project as Lender may reasonably request.

3.4 CONDITIONS TO LOANS FOR EXISTING HAMMONS HOTEL PROJECTS. In addition to the
conditions set forth in Sections 3.1 and 3.2, the obligation of Lender to make
any Loan with respect to an Existing Hammons Hotel Project is subject to the
following conditions precedent, any or all of which may be waived in whole or in
part by the Lender, in its sole discretion:

            (A) PROJECT FILE. Lender shall have received with respect to such
      Existing Hammons Hotel Project copies of:

               (i) the current plans and specifications or construction
         drawings;

                                       29
<PAGE>

               (ii) the current Project Budget;

               (iii) pro forma statements of operations;

               (iv) all loan documents with respect to the applicable Underlying
         Loan;

               (v) all Environmental Reports with respect to the applicable
         Property;

               (vi) all engineering/seismic studies obtained by or on behalf of
         Borrower or its Affiliates with respect to the applicable Property;

               (vii) the title insurance policy for the applicable Property;

               (viii) the most current survey available for the Property, which
         may be a pre-construction survey for the Property or if the
         improvements are completed, an "as built" survey; and

               (ix) copies of all construction reports, if any, obtained by or
         on behalf of Borrower or its Affiliates with respect to the applicable
         Property.

            (B) PROJECT OWNER. Title to the applicable Existing Hammons Hotel
      Project shall have been transferred to a Project Owner.

            (C) ORGANIZATIONAL AND AUTHORIZATION DOCUMENTS OF PROJECT OWNER.
      Lender shall have received all documents reasonably requested by Lender,
      including all resolutions and Organizational Documents, with regard to the
      due organization, existence, internal governance, power and authority, due
      authorization, execution and delivery, authorization to do business and
      good standing of the applicable Project Owner, and other matters relating
      thereto, in each case in form and substance satisfactory to Lender.

            (D) MANAGEMENT AGREEMENT. Lender shall have received and approved
      (such approval not to be unreasonably withheld) a true, correct and
      complete certified copies of the Management Agreement.

            (E) FRANCHISE AGREEMENT. Lender shall have received and approved
      (such approval not to be unreasonably withheld) a true, correct and
      complete certified copy of any applicable Franchise Agreement.

            (F) SEARCHES, PERFECTION AND PRIORITY. Lender shall have received
      and approved copies of Financing Statement, judgment, tax lien, bankruptcy
      and litigation search reports of such jurisdictions and offices as Lender
      may reasonably designate with respect to the applicable Project Owner.

            (G) PLEDGE AGREEMENT. Borrower shall have duly executed and
      delivered to Lender a Pledge Agreement in form and substance satisfactory
      to Lender and pledging to Lender 100% of the Equity Interests in the
      applicable Project Owner, as additional security for the Obligations.
      Lender shall have received such other evidence as Lender may require
      confirming that Lender has a continuing first priority, perfected security
      interest in and Lien

                                       30
<PAGE>

      upon the Equity Interests in the applicable Project Owner, including all
      Financing Statements.

            (H) MAXIMUM AMOUNT. The principal amount of such Loan, when added to
      the aggregate principal amount of all Loans made with respect to such
      Existing Hammons Hotel Project, shall not exceed (i) $20,000,000 for any
      Existing Hammons Hotel Project other than Charlevoix and (ii) $30,000,000
      for Charlevoix.

            (I) OTHER DOCUMENTS AND DELIVERIES. Borrower shall have delivered
      such other documents and deliveries reasonably related to the Existing
      Hammons Hotel Project as Lender may reasonably request.

3.5 CONDITIONS TO LOANS FOR LAND ACQUISITION FOR ADDITIONAL HOTEL PROJECTS. In
addition to the conditions set forth in Sections 3.1 and 3.2, the obligation of
Lender to make any Loan solely for Land acquisition costs for an Additional
Hotel Project is subject to the following conditions precedent, all or any of
which may be waived in whole or in party by Lender, in its reasonable judgment:

            (A) LIMITATION ON LOANS. In no event shall the Loan, under this
      Section 3.5, be in an amount greater than $3,000,000 with respect to any
      parcel of Land or more than $15,000,000 in the aggregate.

            (B) GENERAL CONDITIONS. Borrower shall have satisfied all of the
      conditions of Sections 3.3(A)(i), (vi), (viii) and (ix), 3.3(B), 3.3(E),
      3.3(F) and 3.3(H), which conditions are hereby incorporated by reference.

            (C) REPAYMENT. Any Loan under this Section must be repaid within
      twenty-four (24) months from the initial disbursement thereof if Borrower
      has not satisfied all of the conditions under Section 3.3 with respect to
      such Land to qualify it as an Additional Hotel Project.

3.6 ADVANCES AFTER THE DEMISE. In addition to the conditions set forth in
Section 3.1 through Section 3.4, no Loan shall be advanced to Borrower following
the Demise unless, subject to the other provisions of this Agreement, such Loan
relates to (a) an Existing Hammons Hotel Project or an Additional Hotel Project
with respect to which (i) a Project Approval was granted by Lender and (ii)
either (x) Commencement of Construction occurred prior to the Demise or (y) the
applicable Project Owner is contractually obligated by a written agreement with
a Person not Affiliated with Borrower to complete construction of the Hammons
Hotel, the breach of which would result in damages in excess of $3,000,000, or
(b) the funding of any installment of interest due hereunder and the Outstanding
Amount (after taking into account any Loan being requested as of the applicable
date of determination) is less than $200,000,000.

3.7 ADVANCES TO PAY INTEREST, FEES AND OTHER AMOUNTS. Borrower hereby
irrevocably authorizes Lender to make Loans to pay interest accrued on the Note
as it comes due and to pay any fees or other amounts payable by Borrower under
this Agreement or the other Loan Documents (other than the principal of any
Loan) as and when such amounts are due and payable in accordance with the terms
of the Loan Documents. Lender shall have the right, but not the obligation to
make such Loans without notice to Borrower whether or not Lender shall have

                                       31
<PAGE>

received a Loan Request with respect thereto and regardless of whether any of
the conditions set forth in Section 3.2, 3.3, 3.4 or Section 3.5, as applicable,
shall have been satisfied or waived.

                                   SECTION 4
                         REPRESENTATIONS AND WARRANTIES

      Borrower represents and warrants to Lender that, after giving effect to
the Loans, as of the Closing Date:

4.1 ORGANIZATION, POWERS, QUALIFICATION AND ORGANIZATION CHART. Borrower is a
[limited liability company] duly organized, validly existing and in good
standing under the laws of Missouri. Each Project Owner is a corporation or
limited liability company duly organized, validly existing and in good standing
under the laws of Missouri. Each of Borrower and each Project Owner has all
requisite power and authority to own and operate its properties and to carry on
its business as now conducted and proposed to be conducted. The organization
chart attached hereto as SCHEDULE 4.1 (as updated from time to time by notice to
Lender pursuant to Section 5.1(J) and, upon request by Lender no more often than
quarterly) correctly identifies each Affiliate of JQH and the JQH Trust,
including Borrower and each Project Owner.

4.2 AUTHORIZATION OF BORROWING; NO CONFLICTS; GOVERNMENTAL CONSENTS; BINDING
OBLIGATIONS AND SECURITY INTERESTS IN COLLATERAL. Borrower has all requisite
power and authority to incur the Obligations evidenced by the Note and other
Loan Documents, to execute and deliver the Loan Documents and to perform the
terms thereof, to own the Hammons Hotels (whether directly or indirectly) and to
continue its businesses and affairs as presently conducted. The incurring of the
Obligations and the execution, delivery and performance by Borrower of each of
the Loan Documents to which it is a party and the consummation of the
transactions contemplated thereby have been duly authorized by all necessary
action. The incurring of the Obligations and the execution, delivery and
performance by Borrower of the Loan Documents to which it is a party and the
consummation of the transactions contemplated thereby do not and will not: (1)
violate any Legal Requirements applicable to Borrower, the Organizational
Documents of, or applicable to, Borrower, or any order, judgment or decree of
any Governmental Authority binding on Borrower or its properties; (2) conflict
with, result in a breach of, or constitute (with due notice or lapse of time or
both) a default under any material Contractual Obligation to which Borrower is a
party or by which Borrower or its property may be bound; (3) result in or
require the creation or imposition of any Lien upon the assets of Borrower
(other than the Liens of Lender); or (4) require any registration with, approval
or consent of, or notice to, or other action to, with or by any Person,
including under any material Contractual Obligation to which Borrower is a party
or by which Borrower or its property may be bound (except to the extent such
registrations, approvals or consents and notices have been unconditionally given
or obtained on or before the Closing Date). The Loan Documents, when executed
and delivered by Borrower, will be the legally valid and binding obligations of
Borrower enforceable against Borrower, subject to bankruptcy, insolvency,
moratorium, reorganization and other similar laws affecting creditors' rights
generally and to the application of general equitable principles in connection
with the enforcement thereof. The Pledge Agreements, together with the Financing
Statements to be filed in connection therewith, create a valid, enforceable and
perfected first priority lien and security interest in the Collateral, subject
to no other Liens.

                                       32
<PAGE>

4.3 FINANCIAL STATEMENTS. All financial statements concerning Borrower and any
Project Owner which have been or will hereafter be furnished by Borrower to
Lender pursuant to this Agreement have been or will be prepared in accordance
with the Accounting Rules and do or will, in all material respects, present
fairly the financial condition of the Persons covered thereby as at the dates
thereof and the results of their operations for the periods then ended.

4.4 TITLE TO PROPERTY; LIENS; ZONING; CONTRACTUAL OBLIGATIONS.

            (A) Each Project Owner has good and marketable fee simple or
      leasehold title to the Land, the Improvements and the other components of
      the applicable Hammons Hotel, subject only to the Permitted Encumbrances.
      Each Project Owner owns or leases all real and personal property necessary
      for the operation of the applicable Hammons Hotel, subject only to the
      Permitted Encumbrances. Except for the Permitted Encumbrances, the Hammons
      Hotels are free and clear of any Liens. No Improvements lie outside the
      boundaries and building restriction lines of the Land or encroach onto any
      easements, and no improvements on adjoining properties encroach upon the
      Land to any extent which would materially impair the related Hammons
      Hotel. The Permitted Encumbrances do not and will not materially interfere
      with the use or operation of any Hammons Hotel, or the marketability or
      fair market value of any Hammons Hotel.

            (B) Each Hammons Hotel complies with all applicable zoning, land use
      and Legal Requirements. No Actions are pending or, to Borrower's
      knowledge, threatened, with respect to the compliance of any Hammons Hotel
      with Legal Requirements. Neither the zoning nor any other right to
      construct, use or operate each Hammons Hotel is in any way dependent upon
      any real estate other than the related Property. In the event that all or
      any part of the Improvements are destroyed or damaged, said Improvements
      can be legally reconstructed to their condition prior to such damage or
      destruction, and thereafter exist for the same use without violating any
      zoning or other Legal Requirements applicable thereto and without the
      necessity of obtaining any variances or special permits (i.e. other than
      those customarily obtained in the ordinary course of construction). Each
      Hammons Hotel contains, or will contain, enough permanent parking spaces
      on the Land, or pursuant to perpetual easements or shared parking
      agreements, to satisfy all requirements imposed by applicable Legal
      Requirements with respect to parking.

            (C) Borrower has provided Lender with true and complete copies of
      all material Contractual Obligations affecting each Hammons Hotel, all of
      which are listed on SCHEDULE 4.4, which may be updated from time to time
      by Borrower pursuant to written notice to Lender. Neither Borrower nor any
      Project Owner is a party to and neither Borrower nor any Project Owner is
      bound by any material agreement, document or instrument which affects a
      Hammons Hotel, other than the Loan Documents, the Permitted Encumbrances,
      the other material Contractual Obligations required to be listed on
      SCHEDULE 4.4, if any, and such Person's Organizational Documents, true,
      correct and complete copies of which have been delivered to Lender. Except
      for the Loan Documents, no Loan Party or any Project Owner is a party to
      or bound by, and no Loan Party's or any Project Owner's property is
      subject to or bound by, any Contractual Obligation which restricts its
      ability to conduct its business in the ordinary course or, either
      individually or in the aggregate, has a Material Adverse Effect or could
      reasonably be expected to have a Material Adverse Effect. No Loan Party or
      any

                                       33
<PAGE>

      Project Owner is in default in the performance, observance or fulfillment
      of any of the obligations, covenants or conditions contained in any
      material Contractual Obligation which could have a Material Adverse
      Effect.

4.5 LITIGATION. Except as set forth on SCHEDULE 4.5, there are no judgments
outstanding against Borrower or any Project Owner or affecting any Hammons
Hotel, nor is there any Action pending or, to Borrower's knowledge, threatened,
against Borrower or any Project Owner or affecting any Hammons Hotel. The
Actions and judgments set forth on SCHEDULE 4.5 will not result, if adversely
determined, and could not reasonably be expected to result, either individually
or in the aggregate, in any Material Adverse Effect and do not relate to and
will not affect the consummation of the transactions contemplated hereby. No
petition in bankruptcy, whether voluntary or involuntary, or assignment for the
benefit of creditors, or any other Action involving debtors' and creditors'
rights has ever been filed under the laws of the United States of America or any
state thereof, or threatened, by or against, Borrower or any Project Owner or
affecting any Hammons Hotel. Other than inchoate mechanics liens, there are no
mechanics' or materialmen's liens, alienable bills or other claims constituting
or that may constitute a Lien on any Property or any part thereof, and no work
for which any such Lien could be asserted has been performed which has not been
fully paid for. Borrower has not received any notice from any Governmental
Authority or from any other Person with respect to (and Borrower does not know
of) any actual or threatened taking of the Land or Improvements, or any portion
thereof, for any public or quasi-public purpose or of any moratorium which may
affect the use, leasing, operation or ownership of any Hammons Hotel.

4.6 PAYMENT OF TAXES. All tax returns and reports of Borrower and each Project
Owner required to be filed by such Persons have been timely filed, and all
taxes, assessments, fees and other governmental charges upon such Person and
upon any Hammons Hotel, assets, income and franchises which are due and payable
have been paid in full. To Borrower's knowledge, Borrower has delivered written
notice to Lender of each tax return of Borrower or any Project Owner that is
under audit. No tax liens have been filed and, to Borrower's knowledge, no
claims are being asserted with respect to any such taxes. The charges, accruals
and reserves on the books of Borrower and each Project Owner in respect of any
taxes or other governmental charges are in accordance with the Accounting Rules.
SCHEDULE 4.6 contains a complete and accurate list of all audits of all tax
returns that were filed by Borrower and each Project Owner since January 1,
1999, including a reasonably detailed description of the nature and outcome (if
any) of each audit. All deficiencies proposed as a result of such audits have
been paid, reserved against, settled, or, as described in SCHEDULE 4.6, are
being contested in good faith by appropriate proceedings. SCHEDULE 4.6 describes
all adjustments to the United States federal income tax returns filed by
Borrower and each Project Owner for all taxable years since 1998, and the
resulting deficiencies proposed by the Internal Revenue Service. Except as
described in SCHEDULE 4.6, none of Borrower or any Project Owner has given or
been requested to give waivers or extensions (or is or would be subject to a
waiver or extension given by any other Person) of any statute of limitations
relating to the payment of taxes of Borrower and any Project Owner or for which
Borrower and any Project Owner may be liable. All taxes that Borrower and each
Project Owner is or was required by Legal Requirements to withhold or collect
have been duly withheld or collected and, to the extent required, have been paid
to the applicable Governmental Authority. All tax returns filed by (or that
include on a consolidated basis) Borrower and each Project Owner are true,
correct and complete. There is no tax sharing

                                       34
<PAGE>

agreement that will require any payment by Borrower or any Project Owner after
the Closing Date.

4.7 GOVERNMENTAL REGULATION; MARGIN LOAN. Borrower and each Project Owner are or
none of them after giving effect to the Loans, will be, subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act or
the Investment Company Act of 1940 or to any other Legal Requirement limiting
its ability to incur indebtedness for borrowed money. Borrower shall use the
proceeds of the Loans only for the purposes set forth in this Agreement and
consistent with all Legal Requirements. No portion of the proceeds of the Loans
shall be used by Borrower in any manner that might cause the borrowing or the
application of such proceeds to violate Regulation U, Regulation T or Regulation
X or any other regulation of the Board of Governors of the Federal Reserve
System or to violate the Exchange Act or any other Legal Requirements. The Loans
are an exempt transaction under the Truth-in-Lending Act (15 U.S.C.A. Sections
1601 et seq.). Borrower is not a non-resident alien for purposes of U.S. income
taxation and none of Borrower or any Project Owner is a foreign corporation,
partnership, foreign trust or foreign estate (as said terms are defined in the
Code). Borrower and each Project Owner and their respective Affiliates are not,
and shall not become, a Person with whom Lender is restricted from doing
business with under regulations of the Office of Foreign Asset Control ("OFAC")
of the Department of the Treasury (including, but not limited to, those named on
OFAC's Specially Designated and Blocked Persons list (the "OFAC LIST")) or under
any statute, executive order (including, but not limited to, the September 24,
2001 Executive Order Blocking Property and Prohibiting Transactions With Persons
Who Commit, Threaten to Commit, or Support Terrorism) or other governmental
action relating to terrorism financing, terrorism support and/or otherwise
relating to terrorism and are not and shall not engage in any dealings or
transactions or otherwise be associated with Persons named on the OFAC List. At
all times throughout the term of the Facility, including after giving effect to
any Transfers, (a) none of the funds or other assets of Borrower or any Project
Owner constitute property of, or are beneficially owned, directly or indirectly,
by any Governmental Authority or other Person subject to trade restrictions
under U.S. law including, but not limited to, the International Emergency
Economic Powers Act, 50 U.S.C. Sections 1701 et. seq., The Trading with the
Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Orders or regulations
promulgated thereunder or any other laws, regulations or executive orders
administered by the Office of Foreign Assets Control with the result that an
investment in Borrower or any Project Owner, as applicable (whether directly or
indirectly), is prohibited by law or the Loans made by the Lender are in
violation of law ("EMBARGOED PERSON"); (b) no Embargoed Person has any interest
of any nature whatsoever in Borrower or any Project Owner, as applicable, with
the result that the investment in Borrower or any Project Owner, as applicable
(whether directly or indirectly), is prohibited by law or the Loans are in
violation of law; and (c) none of the funds of Borrower or any Project Owner, as
applicable, have been derived from any unlawful activity with result that the
investment in Borrower or any Project Owner, as applicable (whether directly or
indirectly), is prohibited by law or the Loans are in violation of law.

4.8 EMPLOYEE BENEFIT PLANS; ERISA; EMPLOYEES. Except for the Employee Benefit
Plans set forth on SCHEDULE 4.8, neither Borrower nor any ERISA Affiliate of
Borrower maintains or contributes to, or has any obligation under, any Employee
Benefit Plans. None of Borrower or any Project Owner is an "employee benefit
plan" (within the meaning of section 3(3) of ERISA) to which ERISA applies, and
the Hammons Hotels and assets of Borrower and the Project

                                       35
<PAGE>

Owners do not constitute plan assets. No actions, suits or claims under any laws
and regulations promulgated pursuant to ERISA are pending or, to Borrower's
knowledge, threatened, against Borrower or any Project Owner. Borrower has no
knowledge of any material liability incurred by Borrower or any Project Owner
which remains unsatisfied for any taxes or penalties with respect to any
employee benefit plan or any Multiemployer Plan, or of any lien which has been
imposed on the assets of Borrower and the Project Owners pursuant to section 412
of the Code or section 302 or 4068 of ERISA. The Loans, the execution, delivery
and performance of the Loan Documents and the transactions contemplated by this
Agreement are not a non-exempt prohibited transaction under ERISA.

4.9 INTELLECTUAL PROPERTY. Borrower and each Project Owner possesses, owns or
has valid licenses, permits, certificates of public convenience, service marks,
authorizations, licenses, patents, patent rights or licenses and trademarks
(collectively, together with the goodwill associated therewith, "PROPRIETARY
RIGHTS") presently required or necessary to own or lease, as the case may be,
and to operate, its respective properties and to carry on its business as now
conducted or proposed to be conducted, except where the failure to obtain same
would not, individually or in the aggregate, have a Material Adverse Effect.
Borrower and each Project Owner has fulfilled and performed all of its
respective obligations with respect to such permits, and no event has occurred
which allows, or after notice or lapse of time would allow, revocation or
termination thereof or could result in any other material impairment of the
rights of the holder of any such permit; and none of Borrower or any Project
Owner has received any notice of any proceeding relating to unenforceability,
invalidity, revocation or modification of any Proprietary Rights, except where
such revocation, unenforceability, invalidity, or modification would not,
individually or in the aggregate, have a Material Adverse Effect. None of
Borrower or any Project Owner has received any notice that any Proprietary
Rights have been declared unenforceable or otherwise invalid by any Governmental
Authority other than notices relating to Proprietary Rights the loss of which
would not, individually or in the aggregate, have a Material Adverse Effect.
None of Borrower or any Project Owner has received any notice of infringement
of, or conflict with, and Borrower does not know of any such infringement of or
conflict with, asserted rights of others with respect to any Proprietary Rights
which, if such assertion of infringement or conflict were sustained, would have
a Material Adverse Effect.

4.10 BROKER'S FEES. No broker's or finder's fee, commission or similar
compensation will be payable by Borrower or any Affiliate of Borrower with
respect to the Facility, the issuance of the Note or any of the other
transactions contemplated hereby or by any Loan Document other than as indicated
on SCHEDULE 4.10.

4.11 ENVIRONMENTAL COMPLIANCE. There are no Actions, whether pending or, to
Borrower's knowledge, threatened, or judgments or orders relating to any
Hazardous Materials (collectively, "ENVIRONMENTAL CLAIMS") asserted or
threatened against Borrower or any Project Owner or any predecessor owner,
tenant or operator or relating to any Hammons Hotel. Except as disclosed in the
environmental reports furnished to Lender, to Borrower's knowledge, neither
Borrower nor any other Person has caused or permitted any Hazardous Material to
be used, generated, reclaimed, transported, released, treated, stored or
disposed of in a manner which could form the basis for an Environmental Claim
against Borrower or any Project Owner. Except as disclosed in the Environmental
Reports, to Borrower's knowledge, no Hazardous Materials in violation of
applicable Environmental Laws are or were stored or otherwise located, and no
underground

                                       36
<PAGE>

storage tanks or surface impoundments are or were located on any Land, or to the
knowledge of Borrower, on adjacent parcels of real property, and no part of such
real property or, to the knowledge of Borrower, no part of such adjacent parcels
of real property, including the groundwater located thereon, is presently
contaminated by Hazardous Materials in violation of applicable Environmental
Laws or to any extent which has, or might reasonably be expected to have, a
Material Adverse Effect. Except as disclosed in the Environmental Reports, to
Borrower's knowledge, Borrower, each Project Owner and each Hammons Hotel have
been and are currently in compliance with all applicable Environmental Laws,
including obtaining and maintaining in effect all permits, licenses or other
authorizations required by applicable Environmental Laws.

4.12 SOLVENCY. As of the date of this Agreement and after giving effect to the
consummation of the transactions contemplated by the Loan Documents, each Loan
Party: (A) owns and will own assets the fair saleable value of which are (1)
greater than the total amount of liabilities (including Contingent Obligations)
of such Loan Party, and (2) greater than the amount that will be required to pay
the probable liabilities of such Loan Party's then debts as they become absolute
and matured considering all financing alternatives and potential asset sales
reasonably available to such Loan Party; (B) has capital that is not
insufficient in relation to its business as presently conducted or any
contemplated or undertaken transaction; and (C) does not intend to incur and
does not believe that it will incur debts beyond its ability to pay such debts
as they become due. No Loan Party has entered into the Loan Documents (to which
it is a party) or the transactions contemplated under the Loan Documents with
the actual intent to hinder, delay, or defraud any creditor. After giving effect
to the transactions occurring on the Closing Date, no Default or Event of
Default exists.

4.13 DISCLOSURE. The representations and warranties of Borrower contained in the
Loan Documents, the financial statements referred to in Section 5.1(A), and any
other documents, certificates or written statements furnished to Lender by or on
behalf of Borrower for use in connection with the Facility do not contain any
untrue statement of a material fact or omit or will omit to state a material
fact necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances in which the same were made. There is
no material fact known to Borrower that has had or will have a Material Adverse
Effect that has not been disclosed in this Agreement or in such other documents,
certificates and statements furnished to Lender by or, on behalf of, Borrower
for use in connection with the Facility.

4.14 INSURANCE. SCHEDULE 4.14 sets forth a complete and accurate description of
all policies of insurance that will be in effect as of the Closing Date for
Borrower and each Project Owner and such policies of insurance satisfy all of
the requirements of Section 5.3. All premiums thereon have been paid in full
through the first anniversary of the policy date or if not paid annually, are
current in the payment of premiums. No notice of cancellation has been received
with respect to such policies and Borrower and each Project Owner is in
compliance, in all material respects, with all conditions contained in such
policies.

4.15 MANAGEMENT AGREEMENT. Other than in connection with, and pursuant to, the
Management Agreement and the W&H Agreements, neither Borrower nor any Affiliate
of Borrower has contracted with any managing agent to assist in the management
and operation of any Hammons Hotel. The Management Agreement is in full force
and effect and there is no

                                       37
<PAGE>

material default, breach or violation existing thereunder by any party thereto
and, to Borrower's knowledge, no event has occurred, that, with the passage of
time or the giving of notice, or both, would constitute a material default,
breach or violation by any party thereunder. Neither the incurring of the
Obligations, the execution and delivery of the Loan Documents, nor the exercise
of any remedies by Lender, will materially adversely affect Borrower's or its
Affiliate's rights under the Management Agreement.

4.16 SPECIAL ASSESSMENTS; TAXES. There are no pending or, to the knowledge of
Borrower, proposed, special or other assessments for public improvements or
otherwise affecting any Hammons Hotel, nor, to Borrower's knowledge, are there
any contemplated Improvements to any Hammons Hotel that may result in such
special or other assessments. Borrower has provided Lender with true, correct
and complete copies of all bills and invoices for Impositions which have been
levied or assessed against or are outstanding with respect to any Hammons Hotel.
To the knowledge of Borrower, no portion of any Hammons Hotel constitutes an
"omitted" tax parcel. No Impositions are currently delinquent or outstanding
with respect to any Hammons Hotel. No tax contests of any Impositions or
assessments are currently pending. The Land and Improvements constitute a
separate tax lot or lots, with a separate tax assessment or assessments,
independent of any other land or improvements not constituting a part of the
Hammons Hotels and no other land or improvements is assessed and taxed together
with any portion of the Hammons Hotels.

4.17 REPRESENTATIONS REMADE. Borrower warrants and covenants that the foregoing
representations and warranties will be true and correct and shall be deemed
remade as of the Closing Date and as of the date of each other Loan pursuant to
this Agreement. All representations and warranties made in the other Loan
Documents or in any certificate or other document delivered to Lender by or on
behalf of Borrower pursuant to the Loan Documents shall be deemed to have been
relied upon by Lender, notwithstanding any investigation made by or on behalf of
Lender. All such representations and warranties shall survive the making of the
Loans and shall continue in full force and effect until such time as the Loans
have been paid in full.

                                   SECTION 5
                              AFFIRMATIVE COVENANTS

      Borrower covenants and agrees that so long as this Agreement shall remain
in effect or the Note shall remain outstanding, Borrower shall perform and
comply with all covenants in this Section 5.

5.1 FINANCIAL STATEMENTS AND OTHER REPORTS. Borrower will maintain or cause to
be maintained a system of accounting in accordance with sound business practices
to permit preparation of financial statements in conformity with the Accounting
Rules and proper and accurate books, records and accounts reflecting all of the
financial affairs of Borrower and each Project Owner with respect to all items
of income and expense in connection with the operation of the Hammons Hotels.

            (A) FINANCIAL STATEMENTS. Within one hundred twenty (120) days after
      the end of each calendar year, Borrower shall provide to Lender true and
      complete annual audited consolidated financial statements for Borrower and
      each Project Owner prepared in

                                       38
<PAGE>

      accordance with the Accounting Rules. Such financial statements shall (x)
      be audited by a so-called "Big-4" accounting firm or another independent
      certified public accounting firm reasonably satisfactory to Lender (BKD,
      LLP, a member of Moores Rowland International, being acceptable to Lender)
      and (y) include a balance sheet as of the end of such year, profit and
      loss statements for such year and a statement of cash flow for such year,
      with such detailed supporting schedules (which need not be separately
      audited) covering the operation of each Hammons Hotel as Lender shall
      reasonably require including a reconciliation to the monthly reports and
      statements delivered to Lender. As soon as reasonably practicable (but in
      any event within forty-five (45) days) after the end of each Loan Quarter
      (other than each fourth Loan Quarter), Borrower shall provide to Lender a
      true and complete quarterly cash flow and operating statement for each
      Project Owner of a completed Hammons Hotel, and a true and complete
      balance sheet for each Project Owner of a Hammons Hotel prior to
      completion, certified by the chief financial officer (or similar position)
      of Borrower which quarterly statements shall be in form reasonably
      satisfactory to Lender. Such quarterly statements shall be compared to the
      prior year's quarter and year-to-date. As soon as reasonably practicable
      (but in any event within twenty (20) days) after the end of each Loan
      Month, Borrower shall provide to Lender a true and complete monthly cash
      flow and operating statement for each Project Owner certified by the chief
      financial officer (or similar position) of Borrower. Such monthly
      statements shall also be in form reasonably satisfactory to Lender and
      include a comparison to the prior year's month and year-to-date. Borrower
      shall also provide (and cause each Project Owner to provide), such other
      financial information as Lender may, from time to time, reasonably request
      certified (if requested by Lender) by the applicable chief financial
      officer (or similar position). Borrower will deliver, concurrently with
      the annual and quarterly statements, a certificate certifying that no
      Default or Event of Default has occurred. As soon as available, and in any
      event within twenty (20) days after the end of each Loan Month, Borrower
      will deliver to Lender a copy of the monthly reporting package, if any,
      required to be delivered to Borrower by Manager pursuant to the Management
      Agreement.

            (B) ACCOUNTANTS' CERTIFICATION. Together with each delivery of
      annual financial statements pursuant to subsection 5.1(A), Borrower shall
      deliver a written statement by its independent certified public
      accountants (1) stating that the examination has included a review of the
      terms of this Agreement as such terms relate to accounting matters, (2)
      stating whether, in connection with the examination, any condition or
      event that constitutes a Default or an Event of Default (of which said
      accountants may be aware from said review, and without obligation to
      review other aspects of this Agreement or to review any of the other Loan
      Documents) has come to their attention, and (3) if such a condition or
      event has come to their attention, specifying the nature and period of
      existence thereof.

            (C) ACCOUNTANTS' REPORTS. Promptly upon receipt thereof, Borrower
      shall deliver copies of all significant reports submitted to Borrower or
      any Project Owner, as applicable, by independent public accountants in
      connection with each annual, interim or special audit of its financial
      statements, as applicable, made by such accountants, including any comment
      letters submitted by such accountants to management in connection with
      their annual audit.

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<PAGE>

            (D) BUDGETS. Together with each delivery of annual financial
      statements pursuant to subsection 5.1(A), Borrower shall deliver to Lender
      an annual plan (which shall include an operating budget for the succeeding
      year) and for each Hammons Hotel that has been Substantially Completed. As
      soon as practicable and in any event within ten (10) Business Days after
      any revision to any Project Budget, operating budget or marketing plan
      with respect to any Hammons Hotel, Borrower shall deliver to Lender a copy
      of the revised Project Budget, operating budget or marketing plan.

            (E) NOTICES, EVENTS OF DEFAULT AND LITIGATION. Borrower shall
      promptly deliver, or cause to be delivered, copies of all notices,
      demands, reports or requests given to, or received by, Borrower or any
      Project Owner from, (i) any Governmental Authorities with respect to
      failure to comply with any material Legal Requirements, (ii) with respect
      to the acceleration of or default with respect to any Indebtedness of a
      Project Owner involving a liability on account of a default in the amount
      of $100,000 or more, (iii) any Franchisor with respect to any termination
      of a Franchise Agreement or delivery of a "property improvement plan," or
      (iv) any other Person with respect to default under any material
      Contractual Obligations, and shall notify Lender within two (2) Business
      Days after Borrower receives notice or acquires knowledge of any material
      violation of Legal Requirements, investigation, subpoena or audit by any
      Governmental Authority or any default with respect to such Indebtedness
      involving a liability on account of a default in the amount of $100,000 or
      more or Franchise Agreement or any material default of any Contractual
      Obligation. Promptly upon Borrower obtaining knowledge of any of the
      following events or conditions, Borrower shall deliver a certificate of
      such Person's chief financial officer or similar officer specifying the
      nature and period of existence of such condition or event and what action
      Borrower has taken, is taking and proposes to take with respect thereto:
      (1) any condition or event that constitutes an Event of Default or
      Default; (2) receipt by Borrower of any "property improvement plan" from
      any Franchisor under any Franchise Agreement; (3) any Material Change,
      and/or (4) any fact, circumstance, event or condition which has, or would
      reasonably be expected to have or cause, a Material Adverse Effect.
      Promptly upon Borrower obtaining knowledge of (1) the institution of any
      Action against or affecting Borrower or any Project Owner or (2) any
      material development in any Action at any time pending against or
      affecting Borrower or any Project Owner, Borrower shall give notice
      thereof to Lender and provide such other information as may be available
      to it to enable Lender and its counsel to evaluate such matters.

            (F) ERISA. Borrower shall deliver to Lender such certifications or
      other evidence from time to time throughout the term of the Facility, as
      Lender, in its sole discretion, may request, that (A) none of Borrower or
      any Project Owner is and none of them maintains an "employee benefit plan"
      as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA,
      or a "governmental plan" within the meaning of Section 3(3) of ERISA; (B)
      none of Borrower or any Project Owner is subject to state statutes
      regulating investments and fiduciary obligations with respect to
      governmental plans; and (C) one or more of the following circumstances is
      true: (i) Equity Interests in Borrower are publicly offered securities,
      within the meaning of 29 C.F.R. Section 2510.3-101(b)(2); (ii) less than
      twenty-five percent (25%) of each outstanding class of Equity Interests in
      Borrower are held by "benefit plan investors" within the meaning of 29
      C.F.R. Section 2510.3-101(f)(2); or (iii) Borrower

                                       40
<PAGE>

      qualifies as an "operating company" or a "real estate operating company"
      within the meaning of 29 C.F.R. Section 2510.3-101(c) or (e).

            (G) TAX RETURNS. Borrower shall deliver to Lender copies of all
      federal and state income and other tax returns, schedules, statements and
      reports relating to Borrower and each Project Owner within ten (10) days
      after the earlier of filing or delivery of such tax returns or other items
      with the Internal Revenue Service or the applicable Governmental
      Authority.

            (H) ESTOPPEL CERTIFICATES. Within ten (10) Business Days following a
      request by Lender, which shall be made not more frequently than once per
      Loan Quarter (unless an Event of Default has occurred and is continuing)
      Borrower shall provide to Lender, a duly acknowledged written statement
      confirming the amount of the outstanding Obligations, the terms of payment
      and maturity date of the Note, the date to which interest has been paid,
      the existence of any Event of Default, the existence of any default under
      Indebtedness of a Project Owner involving a liability on account of a
      default in the amount of $100,000 or more, and whether, to Borrower's
      knowledge, any offsets or defenses exist against the Obligations, and if
      any such offsets or defenses are alleged to exist, the nature thereof
      shall be set forth in detail.

            (I) NET WORTH CERTIFICATE. No later than April 30 following the end
      of each calendar year, Borrower shall cause JQH and the JQH Trust to
      deliver to Lender a Net Worth Certificate which shall, among other things,
      show that JQH and the JQH Trust continue to maintain a Net Worth no less
      than the Minimum Net Worth Amount. In addition, if either (i) (x) sales
      having a gross consideration and (y) gifts or other Transfers of assets
      having a gross value exceed $200,000,000, in the aggregate, over the life
      of the Loan, or (ii) for any period the Net Worth is less than
      $750,000,000, then within thirty (30) days following the end of each Loan
      Quarter, Borrower shall cause JQH and the JQH Trust to deliver to Lender
      the Updated Net Worth Certificate. In the event that Lender does not agree
      with the Net Worth as reflected in a Net Worth Certificate or in an
      Updated Net Worth Certificate, Lender shall be entitled to obtain from an
      independent appraiser Appraisals of any or all of the assets of JQH and
      the JQH Trust, and to engage an independent auditor, to recalculate the
      Net Worth. The cost of such appraisers and the auditor will be borne by
      Lender, unless the Net Worth is determined to be materially less than
      reported on the Net Worth Certificate or the Updated Net Worth
      Certificate, in which case the cost of the appraisers and the auditor will
      be borne by Borrower.

            (J) OTHER. With reasonable promptness, Borrower shall deliver such
      other information and data with respect to Borrower or any Project Owner
      as from time to time may be reasonably requested by Lender. In addition,
      Borrower shall deliver, or cause to be delivered to Lender, to the extent
      not included in the matters described above in Section 5.1, a copy
      (certified as correct and complete by the chief financial officer (or
      similar officer) of Borrower) of all tax returns and tax schedules
      relating to each Project Owner as such items are prepared. Borrower shall
      also provide, or cause to be provided, to Lender a copy (certified as
      correct and complete by the chief financial officer (or similar officer)
      of Borrower) of each report or statement filed by Borrower with any
      Governmental Authority including the United States Securities and Exchange
      Commission and the United States Internal Revenue Service not later than
      five (5) Business Days after filing thereof. Borrower

                                       41
<PAGE>

      shall, promptly after it obtains knowledge of such change, notify Lender
      of any change in the information set forth in SCHEDULE 4.1 and, upon
      request from Lender from time to time, will, within five (5) Business Days
      after such request is given to Borrower, provide Lender with either an
      updated SCHEDULE 4.1 certified by Borrower as true and complete or a
      certificate of Borrower to the effect that the information set forth on
      SCHEDULE 4.1 has not changed except as previously expressly disclosed in
      writing to Lender.

            (K) ELECTRONIC FORMAT. To the extent Borrower maintains such items
      in electronic format, Borrower shall provide to Lender a copy of any
      reports, notices, statements or other deliveries required pursuant to this
      Section 5.1 in an electronic format reasonably satisfactory to Lender.

5.2 EXISTENCE; QUALIFICATION. Borrower shall and shall cause each Project Owner
to, at all times preserve and keep in full force and effect its existence, and
all rights and franchises material to its respective businesses. Borrower shall
continue, and shall cause each Project Owner to continue, to be qualified in all
jurisdictions in which failure to qualify will have a Material Adverse Effect.

5.3 INSURANCE. Borrower shall maintain in full force and effect insurance with
respect to its assets and operations and of each Project Owner in such amounts,
covering such risks and liabilities and with such deductibles or self retentions
as are customarily carried by companies engaged in similar businesses and owning
similar properties and, in any event, in compliance with the requirements set
forth in SCHEDULE 5.3 attached hereto.

5.4 MAINTENANCE OF HAMMONS HOTELS. Borrower will maintain or cause the Hammons
Hotels to be maintained in compliance with all contractual obligations and
material Legal Requirements and in good repair, working order and condition and
will make or cause to be made all appropriate repairs, renewals and replacements
thereof.

5.5 INSPECTION; LENDER MEETING. Borrower shall, upon request from Lender, permit
(and cause to be permitted) Lender's designated representatives to (a) visit,
examine, audit, photograph and inspect any Hammons Hotel, (b) examine, audit,
inspect, copy, duplicate and abstract the financial, accounting and other books
and records of Borrower and each Project Owner relating to any Hammons Hotel,
(c) discuss the affairs, finances and business of Borrower and each Project
Owner with officers, senior management, representatives, independent public
accountants and agents (including the Manager) of Borrower and each Project
Owner. Borrower shall cause the books and records of Borrower and each Project
Owner to be maintained at Winegardner and Hammons, Inc. in Cincinnati, Ohio.
Borrower will not change the location where such books and records are kept
without giving at least thirty (30) days' advance notice to Lender. Borrower
shall pay Lender's costs and expenses incurred in connection with such audit if
an Event of Default has occurred or if any audit reveals any material
discrepancy in the financial information provided by Borrower. All audits,
inspections and reports shall be made for the sole benefit of Lender. Neither
Lender nor Lender's auditors, inspectors, representatives, agents or contractors
assumes any responsibility or liability (except to Lender) by reason of such
audits, inspections or reports. Borrower will not rely upon any of such audits,
inspections or reports. The performance of such audits, inspections and reports
will not constitute a waiver of any of the provisions of the Loan Documents.
Neither Lender nor any other of Lender's

                                       42
<PAGE>

inspectors, representatives, agents or contractors, shall be responsible for any
matters related to design or construction of any Improvements. Borrower shall
cooperate, from time to time, with Lender and use reasonable efforts to assist
Lender in obtaining an Appraisal of any Hammons Hotels. Such cooperation and
assistance from Borrower shall include reasonable access to each Hammons Hotel
and books and records pertaining to each Hammons Hotel for Lender and its
appraiser. The appraiser performing any such Appraisal shall be engaged by
Lender. Borrower shall not be responsible for the expenses of any such Appraisal
performed under the provisions of this Section; provided, that Borrower shall
pay the fees of such appraiser in connection with one Appraisal of the Hammons
Hotels during the term of the Loan and any Appraisal when conducted following
the occurrence of an Event of Default. Borrower shall cooperate with Lender with
respect to any Actions which may in any way affect the rights of Lender under
any of the Loan Documents and, in connection therewith, not prohibit Lender, at
its election, from participating in any such Actions.

5.6 ENVIRONMENTAL COMPLIANCE. Borrower shall: (a) comply (or cause compliance)
at all times with all applicable Environmental Laws in all material respects,
and (b) promptly take, or cause to be taken, any and all necessary remedial
actions upon obtaining knowledge of the presence, storage, use, disposal,
transportation, release or discharge of any Hazardous Materials on, under or
about any Property which could be reasonably anticipated to have a Material
Adverse Effect or is in violation of any Environmental Laws. Borrower shall
cause all remedial action with respect to Hazardous Material on, under or about
any Property, to comply with all applicable Environmental Laws and the
applicable policies, orders and directives of all Governmental Authorities. If
Lender at any time has a reasonable basis to believe that there may be a
violation of any Environmental Law by, or any liability arising thereunder of,
Borrower, any Project Owner or related to any Property, Borrower shall, upon
request from Lender, provide Lender with a copy of any existing reports,
certificates, engineering studies and other written material or data as Lender
may reasonably require to confirm compliance by Borrower and each Project Owner
with all applicable Environmental Laws. Borrower shall permit Lender, its
authorized representatives, consultants or other Persons retained by Lender to
enter upon, examine, test and inspect any Hammons Hotel with regard to
compliance with Environmental Laws, the presence of Hazardous Materials and the
environmental condition of each Hammons Hotel. Such entry, examination, testing
and inspecting and reporting shall be at the expense of Borrower if (x) an Event
of Default has occurred or (y) a violation of Environmental Law or any liability
arising under Environmental Law has occurred, which expense shall be paid by
Borrower to Lender upon demand.

5.7 ENVIRONMENTAL DISCLOSURE. Borrower shall immediately upon becoming aware
thereof advise Lender in writing and in reasonable detail of: (1) any release,
disposal or discharge of any Hazardous Material at any Property required to be
reported to any Governmental Authority under all applicable Environmental Laws;
(2) any and all written communications sent or received by Borrower or any
Project Owner or their agents with respect to any Environmental Claims or any
release, disposal or discharge of Hazardous Material required to be reported to
any Governmental Authority; (3) any remedial action taken by Borrower or any
other Person in response to any Hazardous Material on, under or about any real
property owned, leased or operated by Borrower or any Project Owner or their
agents, the existence of which could result in an Environmental Claim; (4) the
discovery by Borrower or any Project Owner or their agents of any occurrence or
condition on any real property adjoining or in the vicinity of any Property

                                       43
<PAGE>

could cause such real property or any part thereof to be classified as
"border-zone property" or to be otherwise subject to any restrictions on the
ownership, occupancy, transferability or use thereof under any Environmental
Laws; and (5) any request for information from any Governmental Authority that
indicates such Governmental Authority is investigating whether Borrower or any
Project Owner or another present or former occupant of any Property may be
potentially responsible for a release, disposal or discharge of Hazardous
Materials from any Property. Borrower shall promptly notify Lender of any
proposed action to be taken by Borrower or any Project Owner to commence any
operations that could reasonably be expected to subject Borrower or any Project
Owner to additional Legal Requirements, including Legal Requirements requiring
additional or amended environmental permits or licenses. Borrower shall, at its
own expense, provide copies of such documents or information as Lender may
reasonably request in relation to any matters disclosed pursuant to this Section
5.7.

5.8 COMPLIANCE WITH LAWS, EMPLOYEE BENEFIT PLANS AND CONTRACTUAL OBLIGATIONS.
Borrower will promptly and faithfully (A) comply and cause each Project Owner to
comply, in all material respects, with the requirements of all Legal
Requirements including the Prescribed Laws, and the orders and requirements of
any Governmental Authority in all jurisdictions in which they are now doing
business or may hereafter be doing business and of every board of fire
underwriters or similar body exercising similar functions and (B) maintain all
licenses, certificates of occupancy, permits and Proprietary Rights now held or
hereafter acquired by them or with respect to which a Material Adverse Effect
will result if same are not existing and held by Borrower or any Project Owner.
None of Borrower or any Project Owner is a party to, and will not establish, any
Employee Benefit Plan. Borrower will not commence making contributions to (or
obligate itself to make contributions to) any Employee Benefit Plan.

5.9 FURTHER ASSURANCES. Borrower shall, from time to time, at its sole cost and
expense, execute and/or deliver, or cause execution and/or delivery of, such
documents, agreements and reports, and perform such acts as Lender at any time
may reasonably request to implement the terms and provisions provided for in the
Loan Documents. Borrower shall execute any documents and take any other actions
necessary to provide Lender with a first priority, perfected security interest
in the Collateral, subject to the Permitted Exceptions. Borrower shall, at
Borrower's sole cost and expense: (i) upon Lender's request therefore given from
time to time (but not more frequently than once per calendar year unless an
Event of Default then exists) pay for (a) current reports of Uniform Commercial
Code, federal tax lien, state tax lien, judgment and pending litigation searches
with respect to Borrower and any Project Owner and (b) current good standing and
existence certificates with respect to Borrower and each Project Owner; and (ii)
execute and deliver to Lender such documents, instruments, certificates,
assignments and other writings, and do such other acts necessary, to evidence,
preserve and/or protect the Collateral at any time securing or intended to
secure the Obligations, as Lender may require in Lender's reasonable discretion.
Borrower shall promptly execute, acknowledge, deliver, file or do, at its sole
cost and expense, all acts, assignments, notices, agreements or other
instruments as Lender may require in order to effectuate, assure, convey,
secure, assign, transfer and convey unto Lender any of the rights granted by
this Agreement and to more fully perfect and protect any assignment, pledge,
lien and security interest confirmed or purported to be created under the Loan
Documents or to enable Lender to exercise and enforce its rights and remedies
hereunder, in respect of the Collateral.

                                       44
<PAGE>

                                   SECTION 6
                               NEGATIVE COVENANTS

      Borrower covenants and agrees that from the date hereof and so long as
this Agreement shall remain in effect or the Note remains outstanding, Borrower
shall comply with all covenants and agreements in this Section 6.

6.1 INDEBTEDNESS. Borrower will not, and will not cause or permit any Project
Owner, directly or indirectly, to create, incur, assume, guaranty, or otherwise
become or remain directly or indirectly liable with respect to any Indebtedness,
except Permitted Indebtedness.

6.2 LIENS AND RELATED MATTERS. Borrower will not directly or indirectly create,
incur, assume or permit to exist any Lien on or with respect to the Collateral
whether now owned or hereafter acquired, or any income or profits therefrom,
except as provided in this Agreement and the other Loan Documents. Borrower will
not Transfer any of the Collateral in violation of the Loan Documents.

6.3 RESTRICTION ON FUNDAMENTAL CHANGES. Borrower will not, and will not cause or
permit any Project Owner to: (1) amend, modify or waive in any material respect
any term or provision of its Organizational Documents, (2) liquidate, wind-up or
dissolve itself (or suffer any liquidation or dissolution) until after it no
longer owns a Hammons Hotel and has satisfied all of its obligations with
respect thereto, including repayment of all indebtedness related thereto; or (3)
acquire by purchase or otherwise all or any part of the business or assets of,
or stock or other evidence of beneficial ownership of, any Person; provided,
however, that each Project Owner may, from time to time, buy Land and
Improvements that will be a Hammons Hotel. Borrower will not permit any Project
Owner to issue, sell, assign, pledge, convey, dispose or otherwise encumber any
partnership, stock, membership, beneficial or other ownership interests or grant
any options, warrants, purchase rights or other similar agreements or
understandings with respect thereto, except as provided in this Agreement and
the other Loan Documents; provided, however, Borrower may issue or sell
membership interests so long as (A) such Transfer will not result in a Change in
Control, and (B) no such additional membership interest shall be issued or sold
to any Person on the OFAC List. Borrower will not permit any Project Owner to
establish any Subsidiaries or make any Investments in any other Person.

6.4 TRANSACTIONS WITH AFFILIATES. Other than as contemplated hereunder,
including the execution and delivery of the Management Agreement and the W&H
Agreements, Borrower shall not permit to exist any transaction by any Project
Owner (including the purchase, sale, lease or exchange of any property or the
rendering of any service) with any director, officer, employee or Affiliate of
Borrower, except transactions in the ordinary course of and pursuant to the
reasonable requirements of the business of Borrower and Borrower's Affiliates
and upon fair and reasonable terms which are fully disclosed to Lender and are
no less favorable to Borrower and Borrower's Affiliates than would be obtained
in a comparable arm's length transaction with a Person that is not an Affiliate,
director, officer or employee of Borrower or Borrower's Affiliates. Each such
agreement with any Affiliate, director, officer or employee of Borrower or
Borrower's Affiliates shall provide that the same may be terminated by Lender at
its option if an Event of Default exists. Other than pursuant to the Management
Agreement and the W&H

                                       45
<PAGE>

Agreements approved by Lender, Borrower shall not permit the payment of any
management, consulting, director or similar fees to any director, officer,
employee or Affiliate of Borrower.

6.5 CONDUCT OF BUSINESS. From and after the Closing Date, Borrower will not
permit any Project Owner to engage in any business other than the ownership and
operation of the Hammons Hotels. Borrower shall not permit use of the Hammons
Hotels or any part thereof, or allow the same to be used or occupied, for any
purpose other than for the purposes of a full service or extended-stay hotel and
related amenities, or for any unlawful purpose, or in violation of any
certificate of occupancy or other permit or certificate, or any Legal
Requirement. Borrower will not permit the sufferance of any act to be done or
any condition to exist on the Hammons Hotels or any part thereof or any article
to be brought thereon, or which may void or make voidable any insurance then in
force with respect thereto.

6.6 USE OF LENDER'S NAME. Borrower shall not use the names of Lender or any of
Lender's Subsidiaries or Affiliates in connection with the development,
marketing, leasing, use and operation of the Hammons Hotels. Borrower shall not
disclose or permit any Affiliate, officer, director, partner, manager, member or
employee of Borrower to disclose any of the terms and conditions of the Facility
to any Person, except (a) to the extent disclosed in the Financing Statements,
(b) to the extent such disclosure is required pursuant to the Loan Documents or
applicable legal process, or (c) to the extent Lender consents to such
disclosure. Lender hereby consents to Borrower disclosing the terms of the Loan
Agreement if requested by the Underlying Lender in connection with the
development and construction of a Hammons Hotel.

6.7 COMPLIANCE WITH ERISA. Borrower shall not adopt, modify or terminate any
Employee Benefit Plans except as described in SCHEDULE 4.8. Borrower shall not
fail to maintain and operate each existing Employee Benefit Plan in compliance
in all material respects with the provisions of ERISA, the Code and all other
applicable laws and the regulations and interpretations thereof. Borrower shall
not engage in any transaction which would cause the Obligations or any action
taken or to be taken under this Agreement or the other Loan Documents or
otherwise (or the exercise by Lender of any of its rights under the Loan
Documents) to be a non-exempt prohibited transaction under ERISA. Borrower shall
not become an "employee benefit plan" (within the meaning of Section 3(3) of
ERISA) to which ERISA applies and Borrower shall not permit its assets to be
plan assets.

6.8 SPECIAL PURPOSE BANKRUPTCY REMOTE ENTITIES. Borrower hereby represents,
warrants, agrees and covenants that Borrower and each Project Owner have, at all
times, from their formation, been, and, at all times will be, a Special Purpose
Bankruptcy Remote Entity and, in the case of Borrower but not the Project
Owners, will have one (1) Independent Persons. Borrower will not, directly or
indirectly, make any change, amendment or modification to its Organizational
Documents or the Organizational Documents of any Project Owner or otherwise take
any action which could result in it or any Project Owner not being a Special
Purpose Bankruptcy Remote Entity.

6.9 MANAGEMENT. The Management Agreement shall not be materially modified,
amended or terminated without Lender's prior written consent. Borrower shall
provide Lender with written notice of the occurrence of any event of default or
condition which with the giving of notice or passage of time, or both, would
constitute an event of default under the Management

                                       46
<PAGE>

Agreement or which would entitle the Manager to terminate the Management
Agreement. Borrower shall cause the Hammons Hotels to be managed pursuant to the
Management Agreement or another management agreement reasonably satisfactory to
Lender, with Manager or another experienced, reputable hotel management company
reasonably satisfactory to Lender.

                                   SECTION 7
                          DEFAULT, RIGHTS AND REMEDIES

7.1 EVENT OF DEFAULT. "EVENT OF DEFAULT" means the occurrence or existence of
any one or more of the following:

            (A) PAYMENT. Failure of Borrower to pay (i) on the Maturity Date,
      the outstanding principal of, accrued interest in, and other Indebtedness
      owing pursuant to this Agreement, the Note and the other Loan Documents,
      (ii) on the applicable Mandatory Prepayment Due Date the portion of the
      Outstanding Amount required to be paid in accordance with Section 2.4(D),
      (iii) within two (2) Business Days after the due date, any installment of
      interest due under the Note; provided, however, the aforesaid two (2)
      Business Day grace period may be utilized by Borrower no more than twice
      in any calendar year, or (iv) within two (2) Business Days after the
      respective due date, any other amount due under the Loan Documents;
      provided, however, the aforesaid two (2) Business Day grace period may be
      utilized by Borrower no more than twice in any calendar year.

            (B) BREACH OF CERTAIN PROVISIONS. Failure of Borrower to perform or
      comply with any term, agreement, covenant, representation, warranty or
      condition contained in (i) Sections 5.3 or 6, or (ii) Section 5.1 (other
      than Section 5.1(I) of this Agreement to the extent it requires
      maintenance of the Minimum Net Worth Amount) within five (5) Business Days
      after notice from Lender.

            (C) BREACH OF REPRESENTATION AND WARRANTY. Any representation,
      warranty, certification or other statement made by Borrower in any Loan
      Document or in any statement or certificate at any time given in writing
      pursuant to or in connection with any Loan Document (other than
      occurrences described in other provisions of this Section 7.1 for which a
      different grace or cure period is specified or which constitute immediate
      Events of Default) is false in any material respect on the date made which
      remains uncured for two (2) Business Days after notice, but no grace or
      cure period will apply if the representation, warranty, certification or
      other statement was known by Borrower to be false when made or deemed
      made.

            (D) OTHER DEFAULTS UNDER LOAN DOCUMENTS. A default by any Loan Party
      shall occur in the performance of or compliance with any term contained in
      this Agreement (other than Section 5.1(I) of this Agreement to the extent
      it requires maintenance of the Minimum Net Worth Amount) or the other Loan
      Documents and such default is not remedied or waived within thirty (30)
      days after receipt by such Loan Party of notice from Lender of such
      default (other than occurrences described in other provisions of this
      Section 7.1 or in the applicable Loan Document, as to which such different
      grace or cure period shall apply, for which a different grace or cure
      period is specified or which constitute immediate Events of Default);
      provided, however, that (i) if such default cannot be remedied with
      reasonably

                                       47
<PAGE>

      diligent effort within a period of thirty (30) days, but is susceptible to
      cure within a period of one hundred twenty (120) days and (ii) the
      continued default in performance will not have a Material Adverse Effect,
      such longer period, not to exceed ninety (90) additional days, as such
      Loan Party may need to remedy such default, if Borrower is proceeding with
      diligent effort to remedy such default throughout said one hundred twenty
      (120)-day period. The rights to notice and cure periods granted herein
      shall not be cumulative with any other rights to notice or a cure period
      in any other Loan Document and the giving of notice or a cure period
      pursuant to this section shall satisfy any and all obligations of Lender
      to grant any such notice or cure period pursuant to any of the Loan
      Documents. [subject to revision to integrate with defaults in Loan
      Documents]

            (E) INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (1) A
      court enters a decree or order for relief with respect to any Loan Party
      or three (3) or more Project Owners (at any time during the term of the
      Facility and not necessarily at the same time with respect to such Project
      Owners) in an involuntary case under the Bankruptcy Code or any applicable
      bankruptcy, insolvency or other similar law now or hereafter in effect,
      which decree or order is not stayed or other similar relief is not granted
      under any applicable federal or state law; or (2) the continuance of any
      of the following events for sixty (60) days unless dismissed, bonded or
      discharged: (a) an involuntary case is commenced against any Loan Party or
      three (3) or more Project Owners (at any time during the term of the
      Facility and not necessarily at the same time with respect to such Project
      Owners) under any applicable bankruptcy, insolvency or other similar law
      now or hereafter in effect; or (b) a decree or order of a court for the
      appointment of a receiver, liquidator, sequestrator, trustee, custodian or
      other officer having similar powers over any Loan Party or such Project
      Owners or over all or a substantial part of their property, is entered; or
      (c) an interim receiver, trustee or other custodian is appointed without
      the consent of such Loan Party or such Project Owners for all or a
      substantial part of the property of Borrower or such Project Owners.

            (F) VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (1) An order
      for relief is entered with respect to any Loan Party or three (3) or more
      Project Owners or any Loan Party or three (3) or more Project Owners (at
      any time during the term of the Facility and not necessarily at the same
      time with respect to such Project Owners) commence a voluntary case under
      the Bankruptcy Code or any applicable bankruptcy, insolvency or other
      similar law now or hereafter in effect, or consents to the entry of an
      order for relief in an involuntary case or to the conversion of an
      involuntary case to a voluntary case under any such law or consents to the
      appointment of or taking possession by a receiver, trustee or other
      custodian for all or a substantial part of its property; or (2) any Loan
      Party or three (3) or more Project Owners (at any time during the term of
      the Facility and not necessarily at the same time with respect to such
      Project Owners) make any assignment for the benefit of creditors; or (3)
      partners, shareholders, or members in any Loan Party or three (3) or more
      Project Owners (at any time during the term of the Facility and not
      necessarily at the same time with respect to such Project Owners) adopt
      any resolution or otherwise authorizes action to approve any of the
      actions referred to in this Section 7.1(F).

            (G) JUDGMENT AND ATTACHMENTS. Any money judgment, writ or warrant of
      attachment, or similar process involving (1) an amount in any individual
      case in excess of $250,000 or (2) an amount in the aggregate at any time
      in excess of $1,000,000 (in either

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<PAGE>

      case not adequately covered by insurance as to which the insurance company
      has acknowledged coverage) is entered or filed against Borrower or any
      Project Owner and remains undischarged, unvacated, unbonded, uninsured or
      unstayed for a period of thirty (30) days or in any event later than five
      (5) days prior to the date of any proposed sale thereunder.

            (H) DISSOLUTION. Any order, judgment or decree is entered against
      Borrower decreeing the dissolution or split up of Borrower and such order
      remains undischarged or unstayed for a period in excess of twenty (20)
      days.

            (I) INJUNCTION. Either (i) Borrower is enjoined, restrained or in
      any way prevented by the order of any court or any administrative or
      regulatory agency from conducting all or any material part of its business
      relating to the Hammons Hotels and such order continues for more than
      thirty (30) days; or (ii) any order or decree is entered by any court of
      competent jurisdiction directly or indirectly enjoining or prohibiting
      Lender or Borrower from performing any of their material obligations under
      this Agreement or any of the other Loan Documents.

            (J) INVALIDITY OF LOAN DOCUMENTS. Any of the Loan Documents for any
      reason, other than a partial or full release in accordance with the terms
      of the Loan Documents, ceases to be in full force and effect or is
      declared to be null and void by a court of competent jurisdiction, or
      Borrower denies that it has any further liability under any Loan Documents
      to which it is party, or gives notice to such effect.

            (K) EVENT OF DEFAULT. The occurrence of an Event of Default
      specified in any of the other Loan Documents which constitutes an
      immediate default thereunder. [subject to revision to integrate with
      defaults in Loan Documents]

            (L) CROSS-DEFAULT. The acceleration of the Underlying Loan of three
      (3) or more Project Owners (at any time during the term of the Facility
      and not necessarily at the same time) or the loss or termination of any
      Proprietary Rights which, in Lender's reasonable judgment, could have a
      Material Adverse Effect.

            (M) INDEPENDENT PERSON. Borrower shall at any time cease to have at
      least one (1) Independent Person for more than ten (10) consecutive
      Business Days.

            (N) PRESCRIBED LAWS. If any Loan Party or any Project Owner fails to
      comply with any covenants, with respect to Prescribed Laws as provided in
      Section 5.9.

            (O) CHANGE IN CONTROL. The occurrence of any Change in Control.

            (P) JQH. The indictment or conviction of JQH of any crime for which
      incarceration is an allowable penalty.

7.2 ACCELERATION AND REMEDIES. Upon the occurrence of any Event of Default
specified in Sections 7.1(E) and 7.1(F), payment of all Obligations shall be
accelerated without notice, presentment, demand, protest or notice of protest
and shall be immediately due and payable and, in addition, Lender may in
addition to any other rights and remedies available to Lender at law or in
equity or under any other Loan Documents, exercise one of more of the rights and
remedies

                                       49
<PAGE>

set forth below as it, in its sole discretion, deems necessary or advisable.
Upon the occurrence of any Event of Default (other than Events of Default
specified in Sections 7.1(E) and 7.1(F)), Lender, in addition to any other
rights or remedies available to Lender at law or in equity, or under any of the
other Loan Documents, may exercise any one or more of the following rights and
remedies as it, in its sole discretion, deems necessary or desirable:

            (A) ACCELERATION. Declare immediately due and payable, without
      further notice, protest, presentment, notice of protest or demand, all
      Obligations including all monies advanced under this Agreement, the Note
      and/or any of the Loan Documents which are then unpaid, together with all
      interest then accrued thereon and all other amounts then owing (including
      any Default Interest owed as a result of such acceleration). If payment of
      the Obligations is accelerated, Lender may, in its sole discretion,
      exercise all rights and remedies hereunder and under the Note and/or any
      of the other Loan Documents at law, in equity or otherwise.

            (B) NO FURTHER OBLIGATIONS. Terminate Lender's obligations under
      this Agreement.

            (C) INJUNCTIVE RELIEF. Institute appropriate proceedings for
      injunctive relief (including specific performance of the obligations of
      Borrower).

            (D) SUSPENSION EVENT. Notwithstanding the foregoing, Lender may not
      accelerate this Loan or exercise the other remedies described in this
      Section 7.2 upon the occurrence of an Event of Default under (i) Section
      7.1(B) (with respect to Sections 6.6, 6.7, 6.8, 6.9 and 5.1), (ii) Section
      7.1(C), unless the representation, warranty, certification or other
      statement was known by Borrower to be false when made or deemed made,
      (iii) Section 7.1(G), (iv) Section 7.1(I), [(v) SECTION 5.1(K)], or (vi)
      Section 7.1(M), each a "SUSPENSION EVENT") until the first to occur of (i)
      the death of JQH, or (ii) Lender's determination, in its sole judgment,
      that the Suspension Event is likely to have a Material Adverse Effect or
      that the value of the Preferred Equity Interest is less than the stated
      amount thereof, at which time the suspension of such rights and remedies
      shall cease and Lender shall be immediately entitled to exercise all of
      its rights and remedies under this Agreement and the Loan Documents. [TO
      BE RESOLVED PRIOR TO CLOSING.]

7.3 REMEDIES CUMULATIVE; WAIVERS; REASONABLE CHARGES. All of the remedies given
to Lender in the Loan Documents or otherwise available at law or in equity to
Lender shall be cumulative and may be exercised separately, successively or
concurrently. Failure to exercise any one of the remedies herein provided shall
not constitute a waiver thereof by Lender, nor shall the use of any such
remedies prevent the subsequent or concurrent resort to any other remedy or
remedies vested in Lender by the Loan Documents or at law or in equity. To be
effective, any waiver by Lender must be in writing and such waiver shall be
limited in its effect to the condition or default specified therein, and no such
waiver shall extend to any subsequent condition or default. It is agreed that
(i) the actual costs and damages that Lender would suffer by reason of an Event
of Default (exclusive of the attorneys' fees and other costs incurred in
connection with enforcement of Lender's rights under the Loan Documents) or a
prepayment would be difficult and needlessly expensive to calculate and
establish, and (ii) the amounts of the Default Rate, the Unapplied Preferred
Default Rate, the Suspension Default Rate, the Late

                                       50
<PAGE>

Charge and payments to be made pursuant to Section 2.4(E) are reasonable, taking
into consideration the circumstances known to the parties at this time, and
(iii) the Default Rate, the Unapplied Preferred Default Rate, the Suspension
Default Rate, the Late Charges and Lender's reasonable attorneys' fees and other
costs and expenses incurred in connection with enforcement of Lender's rights
under the Loan Documents shall be due and payable as provided herein, and (iv)
the Default Rate, the Unapplied Preferred Default Rate, the Suspension Default
Rate, Late Charges, the payments to be made pursuant to Section 2.4(E) and the
obligation to pay Lender's reasonable attorneys' fees and other enforcement
costs do not, individually or collectively, constitute a penalty.

                                   SECTION 8
                              ASSIGNMENT BY LENDER

8.1 ASSIGNMENT BY LENDER. So long as no Event of Default exists and is
continuing, Lender, during the Availability Period, shall not assign its rights
or obligations hereunder, unless Lender agrees in writing to continue to be
bound by its obligations to provide Loans under this Agreement. In either event,
any assignee shall acknowledge, in writing, its assumption of all obligations of
Lender under the Loan Documents. Upon the expiration of the Availability Period
or if an Event of Default exists and is continuing, Lender may assign its rights
and/or its obligations hereunder without the consent of Borrower. In connection
with any permitted assignment, Borrower shall, upon request from Lender,
cooperate, and Borrower shall, cause its Affiliates to cooperate, in all
reasonable respects in connection with any such assignment. Borrower will not be
required to incur more than de minimis expenses or costs pursuant to this
Section 8.1. Any assignee of Lender's interest in the Facility shall take the
same free and clear of all offsets, counterclaims or defenses which are
unrelated to the Facility which Borrower may otherwise have against any assignor
of the Facility.

                                    SECTION 9
                                  MISCELLANEOUS

9.1 FEES AND EXPENSES.

            (A) Borrower agrees to promptly pay all fees, costs and expenses
      (including attorneys' fees, court costs, cost of appeal and the reasonable
      fees, costs and expenses of other professionals retained by Lender and
      travel costs and expenses) incurred by Lender in connection with the
      following, and all such fees, costs and expenses shall be part of the
      Obligations, payable on demand: (i) the giving or withholding of any
      consents, approvals, or permissions, disbursements of the Loan (except
      that attorneys fees and costs shall not be payable in connection with
      disbursements) and in connection with any amendments, modifications and
      waivers relating to the Loan Documents requested by Borrower, or (ii)
      enforcement of this Agreement or the other Loan Documents, the collection
      of any payments due from any Loan Party under the Loan Documents or any
      refinancing or restructuring of the credit arrangements provided under the
      Loan Documents, whether in the nature of a "workout" or in connection with
      any insolvency or bankruptcy proceedings or otherwise.

            (B) Each of Borrower and Lender agree to pay, without right of
      reimbursement from the other, all costs and expenses incurred by Borrower
      or Lender incident to the

                                       51
<PAGE>

      performance of their obligations hereunder, including, without limitation,
      the fees and disbursements of counsel, accountants, financial advisors,
      experts and consultants employed by the respective parties in connection
      with the transactions contemplated hereby, except as otherwise provided in
      this Agreement.

9.2 CERTAIN LENDER MATTERS. Lender may, in accordance with Lender's customary
practices, destroy or otherwise dispose of all documents, schedules, invoices or
other papers, delivered by Borrower to Lender unless Borrower requests, at the
time of delivery, in writing that same be returned. Borrower and Lender intend
that the relationships created hereunder and under the other Loan Documents be
solely that of borrower and lender. Nothing herein or therein is intended to
create a joint venture, partnership, tenancy-in-common, or joint tenancy
relationship between Borrower and Lender nor to grant Lender any interest in the
Hammons Hotels. No provision in this Agreement or in any of the other Loan
Documents and no course of dealing between the parties shall be deemed to create
any fiduciary duty by Lender to Borrower or any other Person. All attorneys,
accountants, appraisers, and other professional Persons and consultants retained
by Lender shall have the right to act exclusively in the interest of Lender and
shall have no duty of loyalty, duty of care or any other duty to Borrower or any
of its Affiliates or any other Person. By accepting or approving anything
required to be observed, performed or fulfilled or to be given to Lender
pursuant to the Loan Documents, Lender shall not be deemed to have warranted or
represented the sufficiency, legality, effectiveness or legal effect of the
same, or of any term, provision or condition thereof, and such acceptance or
approval thereof shall not be or constitute any warranty or representation with
respect hereto or thereto by Lender. Borrower shall rely solely on its own
judgment and advisors in entering into this Agreement without relying in any
manner on any statements, representations or recommendations of Lender or any
parent, Subsidiary or Affiliate of Lender or their respective attorneys,
advisors, accountants, officers, representatives, directors, employees,
partners, shareholders, trustees, members or managers. Lender shall not be
subject to any limitation whatsoever in the exercise of any rights or remedies
available to it under any of the Loan Documents or any other agreements or
instruments which govern the Facility by virtue of the ownership by it or any
parent, Subsidiary or Affiliate of Lender of any equity interest any of them may
acquire in an Affiliate of Borrower, and Borrower hereby irrevocably waives the
right to raise any defense or take any action on the basis of the foregoing with
respect to Lender's exercise of any such rights or remedies. Borrower
acknowledges that Lender engages in the business of real estate financings and
other real estate transactions and investments which may be viewed as adverse to
or competitive with the business of Borrower or its Affiliates. LENDER SHALL
HAVE NO LIABILITY HEREUNDER FOR ANY CONSEQUENTIAL, SPECIAL, PUNITIVE OR INDIRECT
DAMAGES. In the case of any receivership, insolvency, bankruptcy,
reorganization, arrangement, adjustment, composition or other proceedings
affecting Borrower, or its respective creditors or property, Lender, to the
extent permitted by law, shall be entitled to file such proofs of claim and
other documents as may be necessary or advisable in order to have the claims of
Lender allowed in such proceedings for the entire secured Obligations at the
date of the institution of such proceedings and for any additional amount which
may become due and payable by Borrower after such date. Lender shall have the
right from time to time to designate, appoint and replace one or more servicers
and to allow servicer to exercise any and all rights of Lender under the Loan
Documents. All documents and other matters required by any of the provisions of
this Agreement to be submitted or provided to Lender shall be in form and
substance reasonably satisfactory to Lender, unless a different standard of
review is specified in

                                       52
<PAGE>

a particular section. Borrower shall not be entitled to (and does hereby waive
any and all rights to receive) any notices of any nature whatsoever from Lender
except with respect to matters for which the Loan Documents expressly provide
for the giving of notice by Lender to Borrower. In any action or proceeding
brought by Borrower against Lender claiming or based upon an allegation that
Lender unreasonably withheld its consent to or approval of a proposed act by
Borrower which requires Lender's consent hereunder, Borrower's sole and
exclusive remedy in said action or proceeding shall be injunctive relief or
specific performance requiring Lender to grant such consent or approval.

9.3 INDEMNITY. In addition to the payment of expenses pursuant to Section 9.1
and the indemnification obligations set forth in other portions of this
Agreement or the other Loan Documents, whether or not the transactions
contemplated hereby shall be consummated, Borrower agrees to indemnify, pay,
defend and hold Lender, its officers, directors, members, partners,
shareholders, participants, beneficiaries, trustees, employees, agents,
successors and assigns, any subsequent holder of the Note, any trustee, fiscal
agent, servicer, underwriter and placement agent, (collectively, the
"INDEMNITEES") harmless from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, causes of action, suits, claims,
tax liabilities, broker's or finder's fees, costs, expenses and disbursements of
any kind or nature whatsoever (including the fees and disbursements of counsel
for such Indemnitees in connection with any investigative, administrative or
judicial proceeding commenced or threatened, whether or not such Indemnitee
shall be designated a party thereto) that may be imposed on, incurred by, or
asserted against that Indemnitee, based upon any third-party claims against such
Indemnitees in any manner related to or arising out of (A) any breach by any
Loan Party of any representation, warranty, covenant, or other agreement
contained in any of the Loan Documents, (B) the actual or threatened presence,
release, disposal, spill, escape, leakage, transportation, migration, seepage,
discharge, removal, or cleanup of any Hazardous Material located on, about,
within, under, affecting, from or onto any Hammons Hotel or any violation of any
applicable Environmental Law by Borrower or any Project Owner, or (C) the use or
intended use of the proceeds of any of the Loans (the foregoing liabilities
herein collectively referred to as the "INDEMNIFIED LIABILITIES"); provided,
that Borrower shall have no obligation to an Indemnitee hereunder with respect
to Indemnified Liabilities arising from the gross negligence or willful
misconduct of that Indemnitee as determined in a final order by a court of
competent jurisdiction. To the extent that the undertaking to indemnify, pay,
defend and hold harmless set forth in the preceding sentence may be
unenforceable because it is violative of any law or public policy, Borrower
shall contribute the maximum portion that it is permitted to pay and satisfy
under applicable law to the payment and satisfaction of all Indemnified
Liabilities incurred by the Indemnitees or any of them. If any such action or
other proceeding shall be brought against Lender, upon written notice from
Borrower to Lender (given reasonably promptly following Lender's notice to
Borrower of such action or proceeding), Borrower shall be entitled to assume the
defense thereof, at Borrower's expense, with counsel reasonably acceptable to
Lender and Borrower; provided, however, Lender may, at its own expense, retain
separate counsel to participate in such defense, but such participation shall
not be deemed to give Lender a right to control such defense, which right
Borrower expressly retains. Notwithstanding the foregoing, each Indemnitee
shall, following notice to and consultation with Borrower, have the right to
employ separate counsel at Borrower's expense if, in the reasonable opinion of
independent legal counsel, a conflict or potential conflict exists between the
Indemnitee and Borrower that would make such separate representation advisable.
Borrower shall have no obligation to indemnify an

                                       53
<PAGE>

Indemnitee for damage or loss resulting from such Indemnitee's gross negligence
or willful misconduct.

9.4 AMENDMENTS AND WAIVERS. Except as otherwise provided herein, no amendment,
modification, termination or waiver of any provision of this Agreement, the Note
or any other Loan Document, or consent to any departure therefrom, shall in any
event be effective unless the same shall be in writing and signed by Lender
(and, with respect to any amendment or modification, unless also signed by
Borrower). Each amendment, modification, termination or waiver shall be
effective only in the specific instance and for the specific purpose for which
it was given. No notice to or demand on Borrower in any case shall entitle
Borrower, or any other Person to any other or further notice or demand in
similar or other circumstances. Borrower hereby waives the right to assert a
counterclaim, other than a compulsory counterclaim, in any action or proceeding
brought against it by Lender or its agents. No failure or delay on the part of
Lender or any holder of any Note in the exercise of any power, right or
privilege hereunder or under the Note or any other Loan Document shall impair
such power, right or privilege or be construed to be a waiver of any default or
acquiescence therein, nor shall any single or partial exercise of any such
power, right or privilege preclude other or further exercise thereof or of any
other right, power or privilege. All rights and remedies existing under this
Agreement, the Note and the other Loan Documents are cumulative to, and not
exclusive of, any rights or remedies otherwise available. Lender shall not be
under any obligation to marshal any assets in favor of any Person or against or
in payment of any or all of the Obligations. To the extent that any Person makes
a payment or payments to Lender, or Lender enforces its remedies or exercise its
rights of setoff, and such payment or payments or the proceeds of such
enforcement or setoff or any part thereof are subsequently invalidated, declared
to be fraudulent or preferential, set aside and/or required to be repaid to a
trustee, receiver or any other party under any bankruptcy law, state or federal
law, common law or equitable cause, then to the extent of such recovery, the
Obligations or part thereof originally intended to be satisfied, and all Liens,
if any, rights and remedies therefore, shall be revived and continued in full
force and effect as if such payment had not been made or such enforcement or
setoff had not occurred. Borrower agrees (to the extent that it may lawfully do
so) that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension law
or any usury or other law wherever enacted, now or at any time hereafter in
force, which would prohibit or forgive Borrower from paying all or any portion
of the principal of, premium, if any, or interest on the Loans contemplated
herein or in any of the other Loan Documents or which may affect the covenants
or the performance of this Agreement; and Borrower (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the holders, but will suffer and permit the execution of
every such power as though no such law had been enacted.

9.5 NOTICES. All notices or other communications required or permitted hereunder
shall be in writing and shall be deemed given or delivered (i) when delivered
personally or by private courier, (ii) when actually delivered by registered or
certified United States mail, return receipt requested, or (iii) when sent by
facsimile transmission (provided, that it is confirmed by a means specified in
clause (i) or (ii)), addressed as specified on SCHEDULE 9.5 or to other address
as such party may indicate by a notice delivered to the other parties hereto.

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<PAGE>

9.6 SURVIVAL OF WARRANTIES AND CERTAIN AGREEMENTS. All agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement, the making of the Loans hereunder and the execution
and delivery of the Notes. Notwithstanding anything in this Agreement or implied
by law to the contrary, the provisions of Sections 2.6, 5.7, 9.1, 9.2, 9.3 and
9.14 shall survive the payment of the Loans and the termination of this
Agreement. Subject to this Section 9.6, all other representations, warranties
and agreements of Borrower and Lender set forth in this Agreement shall
terminate upon indefeasible payment in full of the Loans and the termination of
this Agreement.

9.7 MISCELLANEOUS. Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect. All covenants and
agreements hereunder shall be given in any jurisdiction independent effect so
that if a particular action or condition is not permitted by any of such
covenants, the fact that it would be permitted by an exception to, or be
otherwise within the limitations of, another covenant shall not avoid the
occurrence of a Default or an Event of Default if such action is taken or
condition exists. The invalidity, illegality or unenforceability in any
jurisdiction of any provision in or obligation under this Agreement, the Note or
other Loan Documents shall not affect or impair the validity, legality or
enforceability of the remaining provisions or obligations under this Agreement,
the Note or other Loan Documents or of such provision or obligation in any other
jurisdiction. This Agreement is made for the sole benefit of Borrower and
Lender, and no other Person shall be deemed to have any privity of contract
hereunder nor any right to rely hereon to any extent or for any purpose
whatsoever, nor shall any other person have any right of action of any kind
hereon or be deemed to be a third party beneficiary hereunder. This Agreement,
the Note, and the other Loan Documents referred to herein embody the final,
entire agreement among the parties hereto and supersede any and all prior
commitments, agreements, representations, and understandings, whether written or
oral, relating to the subject matter hereof and may not be contradicted or
varied by evidence of prior, contemporaneous, or subsequent oral agreements or
discussions of the parties hereto. There are no oral agreements among the
parties hereto. Borrower and Lender acknowledge that each of them has had the
benefit of legal counsel of its own choice and has been afforded an opportunity
to review this Agreement and the other Loan Documents with its legal counsel and
that this Agreement and the other Loan Documents shall be construed as if
jointly drafted by Borrower and Lender. If any term, condition or provision of
this Agreement shall be inconsistent with any term, condition or provision of
any other Loan Document, this Agreement shall control. This Agreement and any
amendments, waivers, consents, or supplements may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all of
which counterparts together shall constitute but one and the same instrument.
This Agreement shall become effective upon the execution of a counterpart hereof
by each of the parties hereto. Upon indefeasible payment and performance in full
of the Borrower's Obligations, the Lender shall, at the sole cost and expense of
the Borrower, release the Liens securing the Borrower's Obligations.

9.8 APPLICABLE LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH, AND
THIS AGREEMENT AND ALL MATTERS ARISING OUT OF OR RELATING IN ANY WAY WHATSOEVER
TO THIS AGREEMENT (WHETHER IN CONTRACT, TORT OR OTHERWISE) SHALL BE GOVERNED BY
THE LAW OF THE STATE OF NEW YORK.

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<PAGE>

9.9 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns, except that Borrower may not assign its rights or obligations hereunder
or under any of the other Loan Documents without the prior written consent of
Lender. Lender may assign its rights and obligations hereunder in accordance
with Section 8.1.

9.10 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. BORROWER AND LENDER HEREBY
CONSENT TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE
COUNTY OF COOK, STATE OF ILLINOIS AND IRREVOCABLY AGREE THAT ALL ACTIONS OR
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS. BORROWER AND LENDER EACH ACCEPTS
THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF
FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT
RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT, THE NOTE, SUCH OTHER LOAN
DOCUMENTS OR SUCH OBLIGATION. BORROWER AND LENDER EACH DESIGNATES AND APPOINTS
CT CORPORATION SYSTEM AND SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY
BORROWER, AS APPLICABLE, WITH LENDER'S APPROVAL OR BY LENDER WITH BORROWER'S
APPROVAL WHICH IRREVOCABLY AGREE IN WRITING TO SO SERVE AS ITS AGENT TO RECEIVE
ON ITS BEHALF SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT,
SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY BORROWER TO BE EFFECTIVE AND BINDING
SERVICE IN EVERY RESPECT. A COPY OF ANY SUCH PROCESS SO SERVED SHALL BE MAILED
BY REGISTERED MAIL TO BORROWER OR LENDER, AS APPLICABLE, AT ITS ADDRESS PROVIDED
IN SUBSECTION 9.5 EXCEPT THAT UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY
FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS.
IF ANY AGENT APPOINTED BY BORROWER OR LENDER, AS APPLICABLE, AS ITS AGENT FOR
SERVICE OF PROCESS REFUSES TO ACCEPT SERVICE OF PROCESS, BORROWER AND LENDER, AS
APPLICABLE, HEREBY AGREE THAT SERVICE UPON IT BY MAIL SHALL CONSTITUTE
SUFFICIENT SERVICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW.

9.11 WAIVER OF JURY TRIAL. BORROWER AND LENDER HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT, ANY OF THE LOAN DOCUMENTS, OR ANY DEALINGS BETWEEN THEM
RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION AND LENDER/BORROWER
RELATIONSHIP THAT IS BEING ESTABLISHED. BORROWER AND LENDER ALSO WAIVE ANY BOND
OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE
REQUIRED OF BORROWER OR LENDER. THE SCOPE OF THIS WAIVER IS INTENDED TO BE
ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING CONTRACT CLAIMS,
TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY
CLAIMS.

                                       56
<PAGE>

BORROWER AND LENDER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO
ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER
IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THE
WAIVER IN THEIR RELATED FUTURE DEALINGS. BORROWER AND LENDER FURTHER WARRANT AND
REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT
EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT,
THE LOAN DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE
FACILITY. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.

9.12 PUBLICITY. Upon Borrower's written consent (not to be unreasonably withheld
or delayed) with respect to any advertising using the "Hammons" name, but not
otherwise, Lender (and Lender's Affiliates) may and Borrower does hereby
authorize Lender (and its Affiliates) to, refer, in its sole discretion, to the
Facility from time to time, in connection with any proposed transfer of any
interest in the Facility, press releases and other releases of information to
members of the public, reports to investors and in other media, which
references, may include use of photographs, drawings and other depictions and
images of the Land and other components of any Hammons Hotel, a description of
the Facility (including the stated principal amount), use of Borrower's name,
the address of any Hammons Hotel and the logo of Borrower and/or its Affiliates
and which references may be reproduced and distributed, electronically or
otherwise, from time to time. Borrower shall cause the owner of such "logo"
rights to consent to such use upon request from Lender. Lender hereby agrees
that, without the prior consent of Borrower, any written information relating to
Borrower which is provided to Lender in connection with the making of the Loans
which is either confidential, proprietary, or otherwise not generally available
to the public (but excluding information Lender has obtained independently from
third-party sources without Lender's knowledge that the source has violated any
fiduciary or other duty not to disclose such information) (the "CONFIDENTIAL
INFORMATION"), will be kept confidential by Lender, using the same standard of
care in safeguarding the Confidential Information as Lender employs in
protecting its own proprietary information which Lender desires not to
disseminate or publish. Notwithstanding the foregoing, Confidential Information
may be disseminated (a) pursuant to the requirements of applicable law or stock
exchanges, (b) pursuant to judicial process, administrative agency process or
order of Governmental Authority, (c) in connection with litigation, arbitration
proceedings or administrative proceedings before or by any Governmental
Authority, (d) to Lender's attorneys, accountants, advisors and actual or
prospective financing sources who will be instructed to comply with this Section
9.12, (e) upon prior written notice to Borrower, to actual or prospective
assignees, pledgees, participants or agents, (f) pursuant to the requirements or
rules of a stock exchange or stock trading system on which the securities of
Lender or its Affiliates may be listed or traded and (g) to any rating agency in
connection with the rating of iStar Financial Inc. In addition, notwithstanding
any other provision, any party (and its employee, representative or other agent)
may disclose to any and all Persons, without limitation of any kind, any
information with respect to the tax treatment and tax structure of the
transactions contemplated hereby and all materials of any kind (including

                                       57
<PAGE>

opinions or other tax analyses) that are provided to such party relating to such
tax treatment and tax structure. Borrower authorizes Lender to obtain, reproduce
and distribute photographs of any Hammons Hotel. For purposes of this Section
9.12, Confidential Information will not be deemed to include the amount of the
Loans and the other terms, conditions and provisions of the Loan Documents, the
street address and common name, if any, of the Land and Improvements, the name
of Borrower and the logo of Borrower and/or its Affiliates, and photographs,
images or other depictions of any Hammons Hotel.

9.13 PERFORMANCE BY LENDER/ATTORNEY-IN-FACT. In the event that Borrower shall at
any time fail to duly and punctually pay, perform, observe or comply with any of
its covenants and agreements hereunder or under the other Loan Documents or if
any Event of Default hereunder shall exist, then Lender may (but shall in no
event be required to) make any such payment or perform any such term, provision,
condition, covenant or agreement or cure any such Event of Default. Lender shall
not take action under this Section 9.13 prior to the occurrence of an Event of
Default unless in Lender's good faith judgment reasonably exercised, such action
is necessary or appropriate in order to preserve the value of the Collateral, to
protect Persons or property, or Borrower has abandoned any Hammons Hotel or any
portion thereof. Lender shall not be obligated to continue any such action
having commenced the same and may cease the same without notice to Borrower. Any
amounts expended by Lender in connection with such action shall constitute
additional Loans hereunder, the payment of which is additional Indebtedness,
secured by the Loan Documents and shall become due and payable upon demand by
Lender, with interest at the Default Rate from the date of disbursement thereof
until fully paid. No further direction or authorization from Borrower shall be
necessary for such disbursements. The execution of this Agreement by Borrower
shall and hereby does constitute an irrevocable direction and authorization to
Lender to so disburse such funds. Borrower hereby irrevocably appoints Lender,
as its attorney-in-fact, coupled with an interest, with full authority in the
place and stead of Borrower and in the name of Borrower or otherwise in the
reasonable discretion of Lender, to take any action and to execute any
instrument which Lender may deem reasonably necessary to accomplish the terms
and conditions of this Agreement or any other Loan Document, including the
following: (i) to execute and/or file, without the signature of Borrower any
Financing Statements, continuation statements, or other filing, and any
amendment thereof, relating to the Collateral; (ii) to give notice to any third
parties which may be required to perfect Lender's security interest in the
Collateral; and (iii) during the existence of an Event of Default, to register,
purchase, sell, assign, transfer, pledge or take any other action with respect
to any Collateral in accordance with this Agreement or any Loan Document. Lender
shall notify Borrower of Lender's taking of any action as attorney-in-fact, or
otherwise in Borrower's name, pursuant to the provisions of this Section 9.13.

9.14 BROKERAGE CLAIMS. Borrower shall protect, defend, indemnify and hold Lender
harmless from and against all loss, cost, liability and expense incurred as a
result of any claim for a broker's or finder's fee against Lender or any Person,
in connection with the transaction herein contemplated, including any such
claims by Banc of America Securities or any affiliate, provided such claim is
made by or arises through or under Borrower or is based in whole or in part upon
alleged acts or omissions of Borrower. Lender shall protect, defend, indemnify
and hold Borrower harmless from and against all loss, cost, liability and
expense incurred as a result of any claim for a broker's or finder's fee against
Borrower or any other Person in connection

                                       58
<PAGE>

with the transaction herein contemplated, provided such claim is made by or
arises through or under Lender or is based in whole or in part upon alleged acts
or omissions of Lender.

9.15 AGREEMENT. THE RIGHTS AND OBLIGATIONS OF BORROWER AND LENDER SHALL BE
DETERMINED SOLELY FROM THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS, AND
ANY PRIOR ORAL OR WRITTEN AGREEMENTS BETWEEN LENDER AND BORROWER CONCERNING THE
SUBJECT MATTER HEREOF AND OF THE OTHER LOAN DOCUMENTS ARE SUPERSEDED BY AND
MERGED INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS MAY NOT BE VARIED BY ANY ORAL AGREEMENTS OR DISCUSSIONS
THAT OCCUR BEFORE, CONTEMPORANEOUSLY WITH, OR SUBSEQUENT TO THE EXECUTION OF
THIS AGREEMENT OR THE LOAN DOCUMENTS. THIS WRITTEN AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENTS BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.

                                       59
<PAGE>

      Witness the due execution hereof by the undersigned as of the date first
written above.

                                        BORROWER:

                                        [PROJECT HOLDCO]

                                        By: ___________________________________
                                        Name: _________________________________
                                        Its: __________________________________

                                        LENDER:

                                        [LENDCO]

                                        By: ___________________________________
                                        Name: _________________________________
                                        Its: __________________________________Ex-10.1 Securities Purchase Agreement

 

EXHIBIT 10.1

     SECURITIES PURCHASE AGREEMENT, dated as of June 14, 2005 (the “Agreement”), between
COMPREHENSIVE CARE CORPORATION, a Delaware corporation (the “Company”) and WOODCLIFF HEALTHCARE
INVESTMENT PARTNERS LLC, a Delaware limited liability company (the “Buyer”).

     Whereas, at the Closing and on the terms and conditions set forth in this Agreement, the
Company wishes to issue and sell to the Buyer, and the Buyer wishes to purchase from the Company,
an aggregate of 14,400 shares of the authorized but unissued Series A Convertible Preferred Stock,
par value $50.00 per share, of the Company (the “Series A Preferred Shares”), at an aggregate
purchase price of $3,600,000 ($250.00 per share);

     Whereas, on the terms and conditions set forth in this Agreement, the Buyer has agreed to
purchase Put Option Shares at the Put Option Closings in FY 2006 and FY 2007.

     NOW, THEREFORE, in consideration of the premises and the mutual covenants contained in this
Agreement and for other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound, the parties agree as follows:

ARTICLE 1

DEFINITIONS

     Unless otherwise indicated in this Agreement, all terms defined in the Certificate of
Designation shall be deemed to have the same definitions in this Article 1.

     “Affiliate” of any Person means any other Person, directly or indirectly, controlling
or controlled by or under direct or indirect common control with such specified Person. For the
purposes of this definition, “control” when used with respect to any Person means the power to
direct the management and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms “controlling” and
“controlled” have meanings correlative to the foregoing.

     “Balance Sheet” means the unaudited consolidated balance sheet of the Company as at
February 28, 2005.

     “Balance Sheet Date” means February 28, 2005.

     “Basic Documents” means this Agreement, the Preferred Shares, the Certificate of
Designation, the Registration Rights Agreement, each of the Employment Agreement Amendments and
each of the Employee Waivers.

     “Benefit Plans” means as defined in Section 3.24 of this Agreement.

 

 

     “Business Day” means a day other than a Saturday, Sunday or other day on which
commercial banks in New York City are authorized-or required by law to close.

     “capital stock” of any Person means any and all shares, interests, participations or
other equivalents (however designated) of such Person’s capital stock (or equivalent ownership
interests in a Person not a corporation) whether now outstanding or issued after the date of this
Agreement, including, without limitation, all Common Stock and Preferred Stock and any rights,
warrants or options to purchase such Person’s capital stock.

     “Certificate of Designation” means the Certificate of Designation to be filed by the
Company with the Secretary of State of the State of Delaware on, and to be effective as of, the
Closing Date, and amending the Certificate of Incorporation of the Company and authorizing the
issuance of the Series A Preferred Shares, a form of which is attached hereto as Exhibit A.

     “Change of Control” means for the purposes of this Agreement only, any event or series
of events by which (i) other than a result of a re-sale of the Securities by the Buyer, any Person
or group obtains a majority (by voting or otherwise) of the securities of the Company ordinarily
having the right to vote in the election of directors, (ii) other than as a result of a re-sale or
conversion of the Securities by the Buyer, during any two-year period, Persons who at the beginning
of any such two-year period constituted the Board of Directors of the Company (together with any
new directors whose election by such Board or whose nomination for election by the stockholders of
the Company was approved by a vote of the majority of the directors then still in office who were
either directors at the beginning of such period or whose election, recommendation or nomination
for election was previously so approved) cease for any reason to constitute a majority of the Board
of Directors of the Company if, as a result, the stockholders of the Company as of the Closing Date
no longer own more than 50% of the voting securities of the Company, (iii) any sale, lease,
exchange or other transfer of all or substantially all of the assets of the Company in one or a
series of transactions, (iv) the adoption of a plan leading to the liquidation or dissolution of
the Company.

     “Closing” means the consummation of the issuance and sale by the Company to the Buyer
of the Series A Preferred Shares in accordance with the terms and conditions of this Agreement.

     “Closing Date” means the date on which the Closing occurs.

     “Code” means the Internal Revenue Code of 1986 and the U.S. Treasury Department
regulations promulgated thereunder, all as amended from time to time.

     “Common Shares” means the shares of Common Stock issuable to the Buyer upon conversion
of the Series A Preferred Shares or exercise by the Company of the First Put Option, the Second Put
Option or the Variable Price Put Option, or otherwise in accordance with the terms and conditions
of this Agreement and the other Basic Documents.

     “Common Stock” means the common stock of the Company, par value $0.01 per share.

     “Company” has the meaning set forth in the preamble.

-2-

 

     “Contingent Obligation” as to any Person shall mean any obligation of such Person
guaranteeing or intended to guarantee any Indebtedness, leases, dividends or other obligations
(“primary obligations”) of any other Person (the “primary obligor”) in any manner, whether directly
or indirectly, including, without limitation, any obligation of such Person, whether or not
contingent, (a) to purchase any such primary obligation or any property constituting direct or
indirect security therefor, (b) to advance or supply funds (i) for, the purchase or payment of any
such primary obligation or (ii) to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase
property, securities or services primarily for the purpose of assuring the owner of any such
primary obligation of the ability of the primary obligor to make payment of such primary obligation
or (d) otherwise to assure or hold harmless the owner of such primary obligation against loss in
respect thereof; provided, however, that the term Contingent Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such Contingent Obligation is
made or, if not stated or determinable, the maximum reason-ably anticipated liability in respect
thereof (assuming such Person is required to perform thereunder) as determined by such Person in
good faith.

     “DGCL” means the Delaware General Corporation Law, as amended from time to time.

     “Employee Waivers” means those Waivers of Certain Employment Agreement Entitlements,
dated as of the Closing Date, executed and delivered by each of Mary Jane Johnson and Robert
Landis, substantially final copies of each of which are attached as Exhibits C-1 and C-2,
respectively.

     “Employment Agreement Amendments” means the amendments, dated as of the date of the
Closing Date, to each of: (i) the employment agreement, dated as of February 7, 2003 and as amended
to date, between the Company and Mary Jane Johnson, and (ii) the employment agreement, dated as of
February 7, 2003 and as amended to date, between the Company and Robert Landis, substantially final
copies of which are attached hereto as Exhibits D-1 and D-2, respectively.

     “Environmental Law (s)” means the Comprehensive Environmental Response, Compensation
and Liability Act, the Resource Conservation and Recovery Act, the Clean Air Act, and the Clean
Water Act, Solid Waste Disposal Act, Toxic Substance Control Act, Oil Pollution Act of 1990, and
any other federal, state, local or foreign law, regulation or legal requirement relating to: (a)
the release, containment, removal, remediation, response, cleanup or abatement of any Hazardous
Material; (b) the manufacture, generation, formulation, processing, labeling, distribution,
introduction into commerce, use, treatment, handling, storage, recycling, disposal or
transportation of any Hazardous Material; (c) exposure of Persons to any Hazardous Material; (d)
the physical structure, use or condition of a building, facility, fixture or other structure,
including those relating to the management, use, storage, disposal, cleanup or removal of asbestos,
asbestos-containing materials, poly-chlorinated biphenyls or any other Hazardous Material; (e) the
pollution, protection or clean up of the environment; or (f) noise.

-3-

 

     “Environmental Permit” means any permit or authorization from any Governmental
Authority required under, issued pursuant to, or authorized by any Environmental Law.

     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from
time to time.

     “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder.

     “Financials” means as defined in Section 3.7 of this Agreement.

     “First Put Option” means the right of the Company to issue and sell Common Shares to
the Buyer in accordance with and subject to Section 5.1(a) of this Agreement.

     “First Put Option Closing” means the issuance and sale of the First Put Option Shares
by the Company to the Buyer in accordance with Section 5.1(a) of this Agreement.

     “First Put Option Shares” means the Common Shares to be issued and sold by the Company
to the Buyer at the First Put Option Closing in accordance with Section 5.1(a) of this Agreement.

     “Funded Indebtedness” means at a particular date, all Indebtedness, whether secured or
unsecured, having a final maturity (or which by the terms thereof is renewable or extendable at the
option of the obligor for a period ending) more than one year after the date of creation (or
renewal or extension) thereof.

     “FY 2006” means the fiscal year of the Company ending on May 31, 2006.

     “FY 2007” means the fiscal year of the Company ending on May 31, 2007.

     “GAAP” means generally accepted accounting principles in the United States in effect
from time to time.

     “Governmental Authority” means any nation or government, any state, local or other
political subdivision thereof and any entity, department, authority, bureau, agency or commission
exercising executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.

     “Hazardous Material” means any (i) pollutant, contaminant, chemical; (ii) industrial,
solid, liquid or gaseous toxic or hazardous substance, material or waste, (iii) petroleum or any
fraction or product thereof; (iv) asbestos or asbestos-containing material; (v) poly-chlorinated
biphenyl; (vi) chlorofluorocarbons; and (vii) other substance, material or waste; any of which are
regulated under any Environmental Law.

     “Indebtedness” of a Person, at a particular date, means (a) all indebtedness of such
Person for borrowed money or for the deferred purchase price of property, (b) the face amount of
all letters of credit issued for the account of such Person and, without duplication, all drafts
drawn

-4-

 

thereunder, and (c) all Indebtedness of the type described in paragraph (a) or (b) of this
definition secured by any Lien on any property owned by such Person, to the extent attributable to
such Person’s interest in such property, even though such Person has not assumed or become liable
for the payment thereof; but excluding trade and other accounts payable in the ordinary course of
business in accordance with customary trade terms and which are not overdue for a period of more
than sixty (60) days or, if overdue for more than sixty (60) days, as to which a dispute exists and
adequate reserves in conformity with GAAP have been established on the books of such Person.

     “Indemnified Person” shall have the meaning given to such term in Article 8 of this
Agreement.

     “Indemnifier” shall have the meaning given to such term in Article 8 of this
Agreement.

     “IRC” or “Internal Revenue Code” means the Internal Revenue Code of 1986, as
amended and the U.S. Treasury Department regulations promulgated thereunder.

     “IRS” means the U.S. Internal Revenue Service.

     “Lease Obligations” of the Company and its Significant Subsidiaries means, for any
period, the rental commitments of the Company on a consolidated basis for such period, if any,
under leases for real and/or Personal property (net of income from sub-leases thereof, but
excluding taxes, insurance, maintenance and similar expenses which the lessee is obligated to pay
under the terms of said leases), excluding however, obligations under leases which are classified
as Indebtedness hereunder.

     “Lien” means any mortgage, pledge, hypothecation, assignment, security interest, lien,
charge or encumbrance, or preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (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, and the filing of, or agreement to give, any financing statement
under the UCC or comparable law of any jurisdiction).

     “Liquidation Preference” means as defined in Section 3.1 of the Certificate of
Designation.

     “Material Adverse Effect” means a material adverse change to the Company’s assets,
business, prospects, liabilities, properties, condition (financial or otherwise) or results of
operations.

     “New Securities” means shares of Common Stock and any other securities or rights
convertible or exchangeable into shares of Common Stock; provided, however, that “New Securities”
shall not include (i) Common Shares issued or issuable upon conversion of the Series A Preferred
Shares, (ii) the Put Option Shares, (iii) securities issued in connection with any stock split,
stock dividend or other recapitalization of the Company, (iv) equity securities and options to
purchase equity securities issued to management, directors or employees of the Company pursuant to
plans outstanding on the Closing Date, or any additional stock option plans approved
by the Board of Directors or any class of holders of Preferred Stock or Common Stock, or (v)

-5-

 

Common Stock or other securities issued or issuable upon conversion of rights, options, warrants
or convertible securities issued and outstanding prior to the Closing Date.

     “Obligations” means all indebtedness, liabilities and obligations of the Company to
the Buyer, whether now existing or hereafter incurred, direct or indirect, absolute or contingent,
secured or unsecured, matured or unmatured, whether for principal, interest, fees or otherwise,
arising out of this Agreement.

     “Permit” means as defined in Section 3.10 of this Agreement.

     “Person” means any individual, corporation, partnership, limited liability
partnership, limited liability company, joint venture, association, joint stock company, sole
proprietorship, business trust, unincorporated organization or government or other agency or
political subdivision thereof.

     “Purchase Price” means as defined in Section 2.2 of this Agreement.

     “Preferred Stock” means any class or series of Preferred Stock of the Company, par
value $50.00 per share.

     “Put Option Closings” means, as may be used herein collectively from time to time, the
First Put Option Closing, the Second Put Option Closing and the Variable Price Put Option Closing.

     “Series A Preferred Shares” has the meaning set forth in the recitals of this
Agreement.

     “Put Option Shares” means, as may be used herein collectively from time to time, the
First Put Option Shares, the Second Put Option Shares and the Variable Price Put Option Shares.

     “Registration Rights Agreement” means the registration rights agreement to be entered
into between the Buyer and the Company on the Closing Date, a substantially final copy of which is
attached as Exhibit E hereto.

     “Requirements of Law” means as to any Person, the Certificate of Incorporation and
Bylaws or other organizational or governing documents of such Person, and any law, treaty, rule or
final regulation, or final determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of its assets or to which
such Person or any of its assets is subject.

     “Responsible Officer” means the chief financial officer or the treasurer of the
Company.

     “SEC Reports” means as defined in Section 3.7 of this Agreement.

     “Second Put Option” means the right of the Company to issue and sell Common Shares to
the Buyer in accordance with and subject to Section 5.1(b) of this Agreement.

-6-

 

     “Second Put Option Closing” means the issuance and sale of the Second Put Option
Shares by the Company to the Buyer in accordance with Section 5.1(b) of this Agreement.

     “Second Put Option Shares” means the Common Shares to be issued and sold by the
Company to the Buyer at the Second Put Option Closing in accordance with Section 5.1(b) of this
Agreement.

     “Securities” means, collectively, the Series A Preferred Shares (and the Common Shares
issuable upon conversion of the Series A Preferred Shares) and the Put Option Shares issued at the
Put Option Closings, all in accordance with the terms and conditions of this Agreement.

     “Securities Act” means the Securities Act of 1933, as amended and the rules and
regulations promulgated thereunder.

     “Securities Laws” means the Securities Act, the Exchange Act, the Sarbanes-Oxley Act
of 2002, and any applicable state securities laws.

     “Significant Subsidiaries” means Comprehensive Behavioral Care, Inc., Comprehensive
Provider Network of Texas, Inc., Healthcare Management Services, Inc., Comprehensive Care
Integration, Inc., Healthcare Management Services of Michigan, Inc., Comprehensive Behavioral Care
of Connecticut, Inc., CompCare of Pennsylvania, Inc. and any other subsidiaries of the Company that
constitute “Significant Subsidiaries” of the Company as that term is defined under Regulation S-X
of the Exchange Act.

     “Subsidiary,” with respect to any Person, means (i) a corporation a majority of whose
Capital Stock with voting power to elect directors is at the time, directly or indirectly, owned by
such Person, by such Person and one or more subsidiaries of such Person or by one or more
subsidiaries of such Person or (ii) any other Person (other than a corporation) in which such
Person, one or more subsidiaries of such Person, or such Person and one or more subsidiaries of
such Person, directly or indirectly, at the date of determination thereof has at least majority
ownership interest.

     “2005 Stockholders’ Meeting” means the meeting of the Company’s stockholders to be
held in accordance with DGCL and the Company’s organizational documents and in connection with,
among other things, the amendments to the Certificate of Incorporation and Bylaws required to be
approved after the Closing and the election of directors of the Company contemplated by this
Agreement, all as described in this Agreement.

     “Tangible Property” means as defined in Section 3.19 of this Agreement.

     “Tax Settlement Agreement” means that certain Offer in Compromise as amended on March
13, 2002 and accepted by the IRS on January 22, 2003, with respect to assessments relating to tax
years 1985 and 1986, pursuant to which the Company paid a total of $2,257,949 in conditional
settlement of its obligations thereunder, with the final installment of $2,167,949 being paid to
the IRS on February 26, 2003, which settlement remains subject to the IRC’s rules and regulations.

- 7 -

 

     “Variable Price Put Option” means the right of the Company to issue and sell Common
Shares to the Buyer in accordance with and subject to Section 5.1(c) of this Agreement.

     “Variable Price Option Closing” means the issuance and sale of the Variable Price Put
Option Shares by the Company to the Buyer in accordance with Section 5.1(c) of this Agreement.

     “Variable Price Put Option Shares” means the Common Shares to be issued and sold by
the Company to the Buyer at the Variable Price Put Option Closing in accordance with Section 5.1(c)
of this Agreement.

ARTICLE 2

PURCHASE AND SALE

     Section 2.1 Authorization of the Series A Preferred Shares.

     The Company has authorized the sale and issuance to the Buyer of an aggregate of 14,400 Series
A Preferred Shares having the designation, preferences, rights and privileges set forth in the
Certificate of Designation.

     Section 2.2 Agreement to Purchase and Sell at the Closing.

     The Company hereby agrees to issue and sell to the Buyer, and the Buyer, in reliance upon the
representations, warranties, covenants and agreements of the Company contained herein, and subject
to the terms and conditions of this Agreement, hereby agrees to purchase from the Company, at the
Closing, an aggregate of 14,400 Series A Preferred Shares at a price per share of $250.00, for an
aggregate purchase price of $3,600,000 (the “Purchase Price”). Each Series A Preferred Share shall
be convertible into 294.12 Common Shares, subject to adjustment as described herein and in the
Certificate of Designation.

     Section 2.3 Payment of Purchase Price; Issuance of the Series A Shares.

     The consummation of the sale and purchase of the Series A Preferred Shares shall take place at
the Closing at the offices of Holland & Knight LLP, at 10:00 a.m. (E.S.T.) on June 14, 2005, or at
such other place, date and time as may be mutually agreed upon by the Company and the Buyer in
writing. Upon the Buyer’s purchase of the Series A Preferred Shares at the Closing, the Company
shall issue and deliver to the Buyer, against delivery of the Purchase Price therefor, a stock
certificate or certificates in definitive form, registered in the name of the Buyer and
representing ownership of the Series A Preferred Shares purchased at the Closing. As payment in
full for the Series A Preferred Shares being purchased by it at the Closing, and against delivery
of the stock certificate or certificates therefor on the Closing Date, the Buyer shall deliver to
the Company by wire transfer, in immediately available funds, an amount of $3,600,000, to one or
more accounts designated by the Company to the Buyer not fewer than two (2) days prior to the
Closing.

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ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     The Company hereby represents and warrants, for itself and for its Significant Subsidiaries
(or subsidiaries, as the case may be) as follows:

     Section 3.1 Organization; Good Standing, etc.

     Each of the Company and the Significant Subsidiaries is a duly organized and validly existing
corporation under the jurisdiction of its incorporation, and their respective statuses are active
under the laws of such jurisdictions Each of the Company and its Significant Subsidiaries has all
requisite corporate power and corporate authority for the ownership and operations of its assets
and for the conduct of its business as now conducted and as now proposed to be conducted. Each of
the Company and its Significant Subsidiaries is duly qualified and is in good standing as a foreign
corporation and authorized to do business in all jurisdictions wherein the character of the
property owned or leased by it, or the nature of the activities conducted by it, makes such
qualification or authorization necessary, except where the failure to so qualify or be so
authorized would not have a Material Adverse Effect.

     Section 3.2 Authority to Execute and Perform Agreements.

     The Company has all requisite corporate power and corporate authority to execute and deliver
the Basic Documents and to perform all its obligations thereunder, and to issue, sell and deliver
the Series A Preferred Shares and the Common Shares issuable under this Agreement. The Company has
the full legal right and power and all authority and approval required to enter into, execute and
deliver the Basic Documents and to perform fully the Company’s obligations thereunder. Each of the
Basic Documents has been duly executed and delivered and constitutes the valid and binding
obligation of the Company enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’
rights generally or the effect of general principles of equity. No approval or consent of any
Governmental Authority, and (except as otherwise specified in this Agreement or any Schedule hereto
or except as delivered at the Closing) no approval or consent of any other Person, is required in
connection with the execution and delivery by the Company of the Basic Documents and the
consummation and performance by the Company of the transactions contemplated thereby. The
execution and delivery of the Basic Documents, the consummation of the transactions contemplated
under the Basic Documents, and the performance by the Company of the Basic Documents in accordance
with their respective terms and conditions will not conflict with or result in the breach or
violation of any of the terms and conditions of, or constitute (or with notice or lapse of time or
both would constitute) a default under, (i) the Certificate of Incorporation or Bylaws of the
Company; (ii) any instrument, contract or other agreement by or to which the Company is a party or
by or to which it or its assets or properties are bound or subject; (iii) any statute or any
regulation, order, judgment or decree of any Governmental Authority; or (iv) any Permit.

- 9 -

 

     Section 3.3 Capitalization.

     Upon the filing of the Certificate of Designation, the authorized capital stock of the Company
shall consist of: (i) 12,500,000 shares of Common Stock, and (ii) 14,400 shares of Preferred Stock,
all of which have been designated Series A Preferred Shares. Schedule 3.3 sets forth a
capitalization table of the Company on a fully-diluted, post-Closing basis. Immediately prior to
the Closing, 5,582,547 shares of Common Stock will be issued and outstanding, and no Series A
Preferred Shares will be issued and outstanding. All issued and outstanding shares of Common Stock
and all issued and outstanding shares of the capital stock of each of the Subsidiaries are duly
authorized and validly issued, and are fully paid and non-assessable. Following receipt of payment
pursuant to Section 2.3 or Sections 5.1(a), 5.1(b) and 5.1(c) hereof (as the case may be), all
Securities issuable in connection with the transactions contemplated hereby will be duly authorized
and validly issued, and will be fully paid and non-assessable. The designations, powers,
preferences, rights, qualifications, limitations and restrictions in respect of the Series A
Preferred Shares will be as set forth in the Certificate of Designation, and all such designations,
powers, preferences, rights, qualifications, limitations and restrictions are in accordance with
all applicable laws and are legal, valid and binding obligations of the Company, enforceable in
accordance with their terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting enforcement of
creditors’ rights generally, or (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies. Except as set forth on Schedule 3.3,
no subscription, warrant, option, convertible security or other right (contingent or other) to
purchase or otherwise acquire from the Company (or, to the best of the Company’s knowledge, from
any other Person) any equity securities of the Company is authorized or outstanding, and (ii) there
are no additional commitments by the Company to issue shares, subscriptions, warrants, options,
convertible securities or other such rights or to distribute to holders of any of its equity
securities any evidence of indebtedness or assets. Schedule 3.3 sets forth, accurately and
completely, the number of options granted under the 1995 Incentive Compensation Plan, the 2002
Incentive Compensation Plan and the Directors’ Compensation Plan, as well as the date of grant, the
exercise price and the vesting schedules of all such options granted. Except as provided for in
the Certificate of Designation or as set forth on Schedule 3.3, the Company has no obligation to
purchase, redeem or otherwise acquire any of its equity securities or any interest therein or to
pay any dividend or make any other distribution in respect thereof. Except as set forth on
Schedule 3.3, to the best of the Company’s knowledge, there are no voting trusts or agreements,
shareholders’ agreements, pledge agreements, buy-sell agreements, rights of first refusal,
preemptive rights (statutory or contractual) or proxies relating to any securities of the Company
(where the Company is not a party thereto). There are no restrictions on the transfer of shares of
capital stock of the Company, other than those imposed by relevant federal and state securities
laws. The issuance of the Series A Preferred Shares and the Common Shares issuable upon conversion
thereof will not result in any adjustment under the antidilution or exercise rights of any holders
of any outstanding shares of capital stock, options, warrants or other rights to acquire any
security of the Company, except under the indenture for the Company’s 7-1/2% convertible
subordinated debentures and the 1995 Incentive Compensation Plan. The offer and sale of all shares
of Common Stock and other securities of the Company

- 10 -

 

issued before the Closing hereunder complied with or were exempt from applicable
Securities Laws.

     Section 3.4 Consents and Approvals.

     Except as set forth on Schedule 3.4 and as otherwise expressly set forth in this Agreement, no
authorization, consent, approval, license, filing or registration with any Governmental Authority
or Person is or will be necessary for the valid execution, delivery and performance by the Company
of the Basic Documents, the issuance, sale and delivery of the Securities, other than filings
pursuant to the Securities Laws (all of which filings have been made or will be made by the
Company) in connection with the sale of the Securities.

     Section 3.5 Subsidiaries.

     Schedule 3.5 sets forth a complete and accurate list of all subsidiaries of the Company,
showing as to each such subsidiary, the jurisdiction of its incorporation. Except as set forth on
Schedule 3.5, all of such subsidiaries are either directly wholly owned by the Company, or by or
through subsidiaries of the Company.

     Section 3.6 Certificate of Incorporation and Bylaws.

     The Certificate of Incorporation and Bylaws of the Company, and all amendments to each to
date, copies of all of which have been delivered to the Buyer, are true, correct and complete.

     Section 3.7 SEC Reports; Financial Statements. 

     (a) The Company has delivered or made available to the Buyer true and complete copies of all
periodic and current reports, statements and other documents that the Company has filed under the
Exchange Act since May 31, 2004 (collectively, the “SEC Reports”), each in the form (including
exhibits and any amendments thereto) required to be filed with the SEC. As of their respective
dates, each of the SEC Reports (i) complied in all material respects with all applicable
requirements of the Securities Laws, (ii) were filed in a timely manner, and (iii) did not contain
any false or untrue statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. None of the Significant Subsidiaries is required to
file any forms, reports or other documents with the SEC.

     (b) The audited consolidated financial statements (including the notes thereto) of the Company
and its Subsidiaries for the fiscal year ended May 31, 2004 contained in the Company’s Annual
Report on Form 10-K for such fiscal year and the unaudited consolidated financial statements
(including the notes thereto) of the Company and its Subsidiaries for the fiscal quarter ended
February 28, 2005 contained in the Company’s Quarterly Report on 10-Q for such fiscal quarter
(collectively, the “Financials”) present fairly, in all material respects, the financial position
of the Company and its Subsidiaries on a consolidated basis as of the dates thereof and its results
of operations for the periods covered thereby (subject, in the case of unaudited financial
statements, to normal year-end audit adjustments), and the Financials have been prepared in
accordance with GAAP consistently applied and in accordance with Regulation S-X (except (i) as

- 11 -

 

may be otherwise set forth in such Financials or (ii) in the case of unaudited
financial statements, to the extent they may not include footnotes or may be consolidated or
summary statements). Except as and to the extent set forth (or incorporated by reference) in such
Quarterly Report on Form 10-Q or except as set forth on Schedule 3.8, (i) neither the Company nor
any of its Subsidiaries has any material liabilities, contingent or otherwise, other than (a)
liabilities incurred in the ordinary course of business since the Balance Sheet Date, and (b)
obligations under contracts and commitments incurred in the ordinary course of business and not
required under GAAP to be reflected in the Financials; (ii) there has been no material adverse
change in the assets, business, liabilities, properties, prospects, condition (financial or
otherwise) or results of operations of the Company or any of the Subsidiaries; (iii) neither the
business, condition or operations of the Company or any of the Subsidiaries nor any of their
properties or assets has been materially or adversely affected as a result of any legislative or
regulatory change, any revocation or change in any franchise, license or right to do business, or
any other event or occurrence, whether or not insured against; and (iv) neither the Company nor any
of its Subsidiaries has entered into any transaction outside of the ordinary course of business or
made any distribution on its capital stock or other ownership interest.

     Section 3.8 No Material Adverse Change.

     Since the Balance Sheet Date, except as set forth on Schedule 3.8 hereto, there has been no
material adverse change in the assets, properties, operations, prospects, business or condition
(financial or otherwise) of the Company, and the Company does not know of any such change which is
threatened, nor has there been any damage, destruction or loss materially affecting the assets,
properties, prospects, business or condition of the Company, whether or not covered by insurance.

     Section 3.9 Tax Matters.

     The Company has filed all tax returns, statements, reports and forms required to be filed by
it and has paid or caused to be paid all taxes shown thereon to be due for the periods covered
thereby, including interest and penalties, or has provided reserves for payment thereof to the
extent required under GAAP. The charges, accruals and reserves on the books of the Company in
respect of taxes and other governmental charges are adequate to cover the tax liabilities accruing
with respect to or payable by the Company with respect to any tax return of the Company. There is
no action, suit, proceedings, investigation, audit or claim now pending or to the Company’s
knowledge, proposed, relating to any tax due with respect to any tax return of the Company, and
there are no liens for taxes upon the assets of the Company except liens for current taxes not yet
due. The Company has made all payments and has taken any and all actions on a timely basis
required under, and is in compliance with, the Tax Settlement Agreement, and the Company has
incurred no additional liabilities thereunder.

     Section 3.10 Compliance with Laws.

     There is no (i) action, suit, claim, proceeding or investigation pending or involving or, to
the best of the Company’s knowledge, threatened against or affecting the Company or any Significant
Subsidiary, at law or in equity, or before or by any Governmental Authority;

- 12 -

 

(ii) arbitration proceeding relating to the Company or any Significant Subsidiary pending
under collective bargaining agreements or otherwise; or (iii) governmental inquiry pending or, to
the best of the Company’s knowledge, threatened, against or affecting the Company or any
Significant Subsidiary (including, without limitation, any inquiry as to the qualification of the
Company or any Significant Subsidiary to hold or receive any license or permit), and, to the best
of the Company’s knowledge, there is no reasonable basis for any of the foregoing. Neither the
Company nor any of its Significant Subsidiaries is in default with respect to any order, writ,
judgment, injunction or decree of any Governmental Authority known to the Company or served upon
the Company or any Significant Subsidiary of any court or of any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign.
There is no action or suit by the Company or any Significant Subsidiary pending or threatened
against others. The Company and each Significant Subsidiary has complied in all material respects
with all laws, rules, regulations and orders applicable to its business, operations, properties,
assets and services, and the Company and each Significant Subsidiary has all necessary Permits,
licenses and other authorizations required to conduct its business as currently conducted. There
is no existing law, rule, regulation or order, and the Company is not aware of any proposed law,
rule, regulation or order, that would prohibit or materially restrict the Company or any
Significant Subsidiary from, or otherwise materially adversely affect the Company or any
Significant Subsidiary in, conducting its business in any jurisdiction in which it is now
conducting business. Schedule 3.10 lists accurately and completely all licenses, permits,
authorizations, orders or approvals of any Governmental Authority that are material to or necessary
for the conduct of the business of the Company (collectively the “Permits”). Except as set forth
on Schedule 3.10, all Permits are in full force and effect, and no violations are or have been
recorded in respect of any Permit, and no proceeding is pending, or to the knowledge of the
Company, threatened, to revoke or limit any Permit. Except as set forth on Schedule 3.10, the
Company does not know of any dispute with any Person under contract with the Company which could
adversely affect, the Company’s assets, properties, business or condition. The Company does not
know of any present or threatened walkout, strike or any other similar occurrence which materially
and adversely affects, or may materially and adversely affect, the assets, properties, business or
condition of the Company or of any attempt to organize or represent the labor force of the Company.

     Section 3.11 No Pending Transactions.

     Except for the transactions contemplated by this Agreement and except as set forth on Schedule
3.11 hereto, neither the Company nor any Significant Subsidiary is a party to or bound by or the
subject of any agreement, undertaking, commitment or discussions or negotiations with any Person
that could result in (i) the sale, merger, consolidation or recapitalization of the Company or any
Significant Subsidiary, (ii) the sale of all or substantially all of the assets of the Company or
any Significant Subsidiary in one or a series of transactions, or (iii) a change of control of more
than 5% of the outstanding capital stock of the Company or any Significant Subsidiary.

- 13 -

 

     Section 3.12 Brokers’ Fees.

     The Company has not, directly or indirectly, incurred any liability for brokerage or finders’
fees in connection with this Agreement.

     Section 3.13 Proprietary Information of Third Parties.

     Except as set forth on Schedule 3.13, to the best of the Company’s knowledge, no third party
has claimed or has reason to claim that any Person employed by or affiliated with the Company or
any Significant Subsidiary has (a) violated or may be violating to any material extent any of the
terms or conditions of his employment, non-competition or non-disclosure agreement with such third
party, (b) disclosed or may be disclosing or utilized or may be utilizing any trade secret or
proprietary information or documentation of such third party, or (c) interfered or may be
interfering in the employment relationship between such third party and any of its present or
former employees, or has requested information from the Company or any Significant Subsidiary which
suggests that such a claim might be contemplated. To the best of the Company’s knowledge, no
Person employed by or affiliated with the Company or any Significant Subsidiary has utilized or
proposes to utilize any trade secret or any information or documentation proprietary to any former
employer, and to the best of the Company’s knowledge, no Person employed by or affiliated with the
Company or any Significant Subsidiary has violated any confidential relationship which such Person
may have had with any third party, in connection with the development, manufacture or sale of any
product or proposed product or the development or sale of any service or proposed service of the
Company or any Significant Subsidiary, and the Company has no reason to believe there will be any
such employment or violation. To the best of the Company’s knowledge, none of the execution or
delivery of this Agreement or the other Basic Documents, or the carrying on of the business of the
Company as officers, employees or agents by any officer, director or key employee of the Company or
any Significant Subsidiary, or the conduct or proposed conduct of the business of the Company and
each Significant Subsidiary, will materially conflict with or result in a material breach of the
terms, conditions or provisions of or constitute a material default under any contract, covenant or
instrument under which any such Person is obligated.

     Section 3.14 Agreements.

     Schedule 3.14 sets forth all of the following contracts and other agreements, whether written
or oral, to which the Company or any Significant Subsidiary is a party or by or to which it or its
assets or properties are bound or subject with respect to which the Company or Significant
Subsidiary may have any obligations to pay, or the right to receive, in each case, in excess of
$25,000 over a twelve-month period: (i) contracts and other agreements with any current or former
officer, director, employee, consultant or shareholder; (ii) agreement with any labor union or
association representing any employee; (iii) contracts and other agreements for the purchase, sale
or other acquisition of materials, supplies, equipment, merchandise or services; (iv)
representative, management, marketing, sales agency, printing or advertising agreements; (including
without limitation, all contracts with customers, providers, Governmental Authorities, health
maintenance organizations and similar Persons), (v) contracts and other agreements for the sale of
any of its assets or properties other than in the ordinary course of business or for the grant

- 14 -

 

to any Person of any preferential rights to purchase any of its assets or properties; (vi)
joint venture agreements relating to the assets, properties or business of the Company or
Significant Subsidiary or by or to which it or its assets or properties are bound or subject; (vii)
contracts or other agreements under which it agrees to indemnify any party, to share the tax
liability of any party or to refrain from competing with any party; or (viii) any other contract or
other agreement, whether or not made in the ordinary course of business. All of the contracts and
other agreements set forth on Schedule 3.14 are in full force and effect and the Company or
Significant Subsidiary has paid in full or accrued all amounts due thereunder, and has satisfied in
full or provided for all of its liabilities and obligations thereunder, and, except as set forth on
Schedule 3.14, is not in default under any of them, nor is any other party to any such contract or
other agreement in default thereunder, nor does any condition exist which with notice or lapse of
time or both would constitute a default thereunder. No approval or consent of any Person is needed
in order that the contracts or other agreements set forth on Schedule 3.14 and other Schedules
hereto continue in full force and effect following the consummation of the transactions
contemplated by the Basic Documents.

     The Company, each Significant Subsidiary, and, to the best of the Company’s knowledge, each
other party thereto, have performed all the obligations required to be performed by them to date,
have received no notice of default and are not in default (with due notice or lapse of time or
both) under any lease, agreement or contract now in effect to which the Company or any Significant
Subsidiary is a party or by which it or its property may be bound. Neither the Company nor any
Significant Subsidiary has a present expectation or intention of not fully performing all its
obligations under each such lease, contract or other agreement, and neither the Company nor any
Significant Subsidiary has knowledge of any breach or anticipated breach by the other party to any
contract or commitment to which the Company or any Significant Subsidiary is a party.

     Section 3.15 Real Estate.

     Neither the Company nor any Significant Subsidiary owns real property. Schedule 3.15 sets
forth a list and summary description of (i) all leases, subleases or other agreements under which
the Company is lessor or lessee of any real property; or (ii) all options held by the Company or
any Significant Subsidiary or contractual obligations on the part of the Company or Significant
Subsidiary to purchase or acquire, or sell or dispose of, any interest in real property. Such
leases, subleases, options and other agreements are in full force and effect, the Company has not
received any notice of any default thereunder and the Company has delivered to the Buyer at the
Closing true and complete copies of all such leases, subleases and other agreements. The Company’s
leasehold interests are subject to no lien or other encumbrance and enjoy a right of quiet
possession against any Lien on the property.

     Section 3.16 Accounts and Notes Receivable.

     All accounts and notes receivable reflected on the Financials and all accounts and notes
receivable arising subsequent to the Balance Sheet Date, have arisen in the ordinary course of
business, represent valid obligations to the Company and, subject only to consistently recorded
reserves for bad debts, have been collected or are collectible in the aggregate recorded amounts

- 15 -

 

thereof in accordance with their terms. All items which are required by GAAP to be reflected
as accounts and notes receivable on the Financials and on the books of the Company are so
reflected.

     Section 3.17 Certain Healthcare Regulatory Matters.

     (a) Except as set forth on Schedule 3.17, to the Company’s knowledge (for the purposes of this
Section 3.17 only, “knowledge” means the actual or imputed knowledge of Mary Jane Johnson or Robert
Landis after due inquiry reasonable under the circumstances), none of the Company, the Subsidiaries
or any of their respective officers, directors or employees (within the meaning of 42 U.S.C. (§
1320a-5(b)) has engaged in any activities which constitute violations of, or are cause for
imposition of civil penalties upon the Company or the Subsidiaries or mandatory or permissive
exclusion of such Persons from Medicare or Medicaid, under §§ 1320a-7, 1320a-7a, 1320a-7b, or
1395nn of Title 42 of the United States Code, the federal Civilian Health and Medical Plan of the
Uniformed Services Statute (“CHAMPUS”), any other state or federal health care program, or the
regulations promulgated pursuant to such statutes or regulations or related state or local statutes
or which constitute violations of or deficiencies under the standards of any private accrediting
organization from which the Company or the Subsidiaries is accredited or seeks accreditation,
including the following activities:

          (i) making or causing to be made a false statement or representation of a material fact in any
application for any benefit or payment;

          (ii) making or causing to be made any false statement or representation of a material fact
for use in determining rights to any benefit or payment;

          (iii) presenting or causing to be presented a claim for reimbursement under CHAMPUS,
Medicare, Medicaid or any other state healthcare program or federal healthcare program that is (A)
for an item or service that the Person presenting or causing to be presented knows or should know
was not provided as claimed, or (B) for an item or service where the Person presenting knows or
should know that the claim is false or fraudulent;

          (iv) offering, paying, soliciting or receiving any remuneration (including any kickback,
bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind (A) in return for
referring, or to induce the referral of, an individual to a Person for the furnishing or arranging
for the furnishing of any item or service for which payment may be made in whole or in part by
CHAMPUS, Medicare or Medicaid, or any other state healthcare program or any federal healthcare
program, or (B) in return for, or to induce, the purchase, lease, or order, or the arranging for or
recommending of the purchase, lease, or order, of any good, facility, service, or item for which
payment may be made in whole or in part by CHAMPUS, Medicare or Medicaid or any other state
healthcare program or any federal healthcare program;

          (v) making or causing to be made or inducing or seeking to induce the making of any false
statement or representation (or omitting to state a material fact required to be stated therein or
necessary to make the statements contained therein not misleading) of a material fact with respect
to (A) the conditions or operations of a facility in order that the facility may qualify

- 16 -

 

for CHAMPUS, Medicare, Medicaid or any other state healthcare program certification or any federal
healthcare program certification, or (B) information required to be provided under § 1124(A) of the
Social Security Act (“SSA”) (42 U.S.C. § 1320a-3); or

          (vi) failing substantially to provide medically necessary items or services, if the failure
adversely affects individuals covered by Medicare or Medicaid.

     Section 3.18 Tangible Property.

     The Company and each Significant Subsidiary has valid and marketable title to all of its
assets now carried on its books including those reflected on the Balance Sheet, or acquired since
the Balance Sheet Date (except personal property disposed of since said date in the ordinary course
of business) free of any Liens, except such Liens that arise in the ordinary course of business and
do not materially impair the Company’s ownership or use of such property or assets. The Company
and each Significant Subsidiary is in compliance under all leases for property and assets under
which it is operating, and all said leases are valid and subsisting and are in full force and
effect. Schedule 3.18 sets forth all interests, in excess of $10,000, owned or claimed by the
Company (including, without limitation, options) in or to the machinery, equipment, furniture,
leasehold improvements, fixtures, vehicles, structures, any related capitalized items and other
tangible property material to the business of the Company and which is treated by the Company as
depreciable or amortizable property (“Tangible Property”) not reflected on the Balance Sheet and
not sold or disposed of in the ordinary course of business since the Balance Sheet Date. All
material leases, conditional sale contracts, franchises or licenses pursuant to which the Company
may hold or use any interest owned or claimed by it (including, without limitation, options) in or
to Tangible Property are in full force and effect and, as respects the Company’s performance, there
is no default or event of default or event which with notice or lapse of time or both would
constitute a default. The Tangible Property of the Company currently used in its business is in
good operating condition and repair, and the Company has received no notice that any of it is in
violation of any existing law or any building, zoning, health, safety or other ordinance, code or
regulation. During the past three years there has not been any significant interruption of the
Company’s operations due to inadequate maintenance of the Tangible Property.

     Section 3.19 Intangible Property.

     Schedule 3.19 sets forth all patents, trademarks, service marks, trade names, franchises and
software and financial reporting systems, all applications for any of the foregoing, and all
permits, grants and licenses or other rights running to or from the Company relating to any of the
foregoing which are material to its business. The rights of the Company in the property set forth
on Schedule 3.19 are free and clear of any Liens. The Company has no notice of any adversely held
patent, invention, trademark, service mark or trade name of any other Person or notice of any claim
of any other Person relating to any of the property set forth on Schedule 3.19 or any process or
confidential information of the Company, and the Company does not know of any basis for any such
charge or claim.

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     Section 3.20 Medicare/Medicaid Participation.

          (a) To the Company’s knowledge (for the purposes of this Section 3.20 only, “knowledge” means
the actual or imputed knowledge of Mary Jane Johnson or Robert Landis after due inquiry reasonable
under the circumstances), none of the Company, the Subsidiaries or any of their respective
officers, directors or employees (as defined in SSA § 1126(b) or any regulations promulgated
thereunder): (x) have had a civil monetary penalty assessed against him, her or it under § 1128A
of the SSA or any regulations promulgated thereunder; (y) have been excluded from participation
under the Medicare program or a state health care program as defined in SSA § 1128(h) or any
regulations promulgated thereunder (“State Health Care Program”) or a federal health care program
as defined in SSA § 1128B(f) (“Federal Health Care Program”); or (z) have been convicted (as that
term is defined in 42 C.F.R. § 1001.2) of any of the following categories of offenses as described
in SSA §§ 1128(a) and (b)(1), (2), (3) or any regulations promulgated thereunder:

          (i) criminal offenses relating to the delivery of an item or service under Medicare or any
State Health Care Program or any Federal Health Care Program;

          (ii) criminal offenses under federal or state law relating to patient neglect or abuse in
connection with the delivery of a health care item or service;

          (iii) criminal offenses under federal or state law relating to fraud, theft, embezzlement,
breach of fiduciary responsibility, or other financial misconduct in connection with the delivery
of a health care item or service or with respect to any act or omission in a program operated by or
financed in whole or in part by any federal, state or local governmental agency;

          (iv) federal or state laws relating to the interference with or obstruction of any
investigation into any criminal offense; or

          (v) criminal offenses under federal or state law relating to the unlawful manufacture,
distribution, prescription or dispensing of a controlled substance.

     Section 3.21 Environmental Matters.

     (a) Except as disclosed in Schedule 3.21, each of the Company and the Significant
Subsidiaries:

	 	(i)	 	is and has been in compliance with all applicable
Environmental Laws;
	 
	 	(ii)	 	has not been, and is not required to obtain any
Environmental Permits for the continued conduct of the its business in the
manner now conducted and presently proposed to be conducted;
	 
	 	(iii)	 	does not generate or use any Hazardous Material in its
operations or in the conduct of its business;
	 
	 	(iv)	 	has never stored, disposed or released any Hazardous
Material in or at any present or prior on-site or off-site facility;

- 18 -

 

	 	(v)	 	has not received or is subject to, or within the past
three years has been subject to, any outstanding order, decree, judgment,
complaint, agreement, claim, citation, or notice indicating, or is subject
to any ongoing judicial or administrative proceeding claiming that any of
the Companies, or the past and present assets of such Company are or may be:
(A) in violation of any Environmental Law, (B) responsible for the on-site
or off-site storage or release of any Hazardous Material, or (C) liable for
any environmental liabilities and costs; and
	 
	 	(vi)	 	has never used, owned or operated any underground storage
tanks for storage of Hazardous Material.

     (b) Schedule 3.21 lists all environmental audits, inspections, assessments, investigations or
similar reports relating to the business of the Company and its Significant Subsidiaries or the
compliance of the same with applicable Environmental Laws.

     (c) Except as disclosed in Schedule 3.21:

	 	(i)	 	There are no past or present events, conditions or
circumstances, including, without limitation, that are likely to interfere
with or otherwise affect the business of the Company or the Significant
Subsidiaries in the manner now conducted or which would interfere with
compliance with any Environmental Law or Environmental Permit;
	 
	 	(ii)	 	There are no circumstances or conditions present at or
arising out of the present or former assets, properties, leaseholds,
businesses or operations of the Companies in respect of off-site or on-site
storage, transportation or disposal of, or any off-site or on-site release
of, a Hazardous Substance which reasonably may be expected to give rise to
any environmental liabilities and costs;
	 
	 	(iii)	 	None of the present or past assets, properties,
businesses, leaseholds or operations of the Company or the Significant
Subsidiaries has received or is subject to, or within the past three years
has been subject to, any outstanding order, decree, judgment, complaint,
agreement, claim, citation, or notice or is subject to any ongoing judicial
or administrative proceeding indicating that the past and present assets of
any of the Company or the Significant Subsidiaries are or may be: (A) in
violation of any Environmental Law; (B) responsible for the on-site or
off-site storage or release of any Hazardous Substance; or (C) liable for
any environmental liabilities and costs; or
	 
	 	(iv)	 	The Company has no any reason to believe that any of the
Company or the Significant Subsidiaries will become subject to a matter
identified in subsection (iii); and, no investigation or review with respect
to such

- 19 -

 

	 	 	 	matters is pending or threatened, nor has any governmental authority
or other third-party indicated an intention to conduct the same.

          (d) For purposes of this Section 3.21 only, all references to the “Company and the Significant
Subsidiaries” are intended to include any and all other entities to which any of the Companies
legally may be determined by a governmental authority to be liable as a successor under applicable
Environmental Laws.

     Section 3.22 Other Offerings Subject to Integration. 

     Neither the Company nor any Person acting on its behalf has taken or will take any other
action (including, without limitation, any offer, issuance or sale of any security of the Company
or any Significant Subsidiary under circumstances which might require the integration of such
security with Series A Preferred Shares under the Securities Act or the rules and regulations of
the SEC thereunder), in either case so as to subject the offering, issuance or sale of the Series A
Preferred Shares to the registration provisions of the Securities Act.

     Section 3.23 Significant Customers or Suppliers.

     Except as set forth on Schedule 3.23, no single customer or supplier is of material importance
(for purposes of this Section 3.23, “material” or words to such effect means amounting to more than
5% of the value of the goods or services provided by or to the Company or any of its Significant
Subsidiaries). The relationships of the Company and the Significant Subsidiaries with its customers
and suppliers are good commercial working relationships and, except as set forth on Schedule 3.23,
no customer or supplier of the Company has cancelled or otherwise terminated, or threatened in
writing to cancel or otherwise terminate, its relationship with the Company or has during the last
12 months decreased materially, or threatened to decrease or limit materially, its services,
supplies or materials to the Company or the Significant Subsidiaries. Neither the Company nor any
Significant Subsidiary has any notice that any such customer or supplier intends to cancel or
otherwise modify its relationship with the Company or any Significant Subsidiary or to decrease
materially or limit its business with the Company or any Significant Subsidiary.

     Section 3.24 ERISA.

     Schedule 3.24 sets forth all of the employee benefit plans of the Company (the “Benefit
Plans”). Except as set forth on Schedule 3.24 or as set forth in the employment agreements between
the Company and its executive officers, the Company and the Significant Subsidiaries do not
maintain or have any obligation to contribute to or any other liability with respect to or under
(including but not limited to current or potential withdrawal liability), nor have they ever
maintained or had any obligation to contribute to or any other liability with respect to or under:
(i) any plan or arrangement, whether or not terminated, which provides medical, health, life
insurance or other welfare types benefits for current or future retired or terminated
employees (except for limited continued medical benefit coverage required to be provided under
Section 4980B of the IRC or as required under applicable state law); (ii) any “multiemployer plan”
(as defined in Section 3(37) of the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”);

- 20 -

 

(iii) any employee plan which is a tax-qualified “defined benefit plan” (as defined in
Section 3(35) of ERISA), whether or not terminated; (iv) any employee plan which is tax-qualified
“defined contribution plan” (as defined in Section 3(34) of ERISA), whether or not terminated; or
(v) except as set forth on Schedule 3.24, any other plan or arrangement providing benefits to
current or former employees, including any bonus plan, plan for deferred compensation, employee
health or other welfare benefit plan or other arrangement, whether or not terminated. For purposes
of this Section 3.24 , the term “Company” includes all organizations under common control with the
Company pursuant to Section 414(b) or (c) of the IRC. Each Benefit Plan has been administered in
accordance with its terms and all applicable laws, rules or regulations . No Benefit Plan
established or maintained, or to which contributions have been made, by the Company or any
Subsidiary, which is subject to Part 3 of Subtitle B of Title I of ERISA had an accumulated funding
deficiency (as such term is defined in Section 302 of ERISA) as of the last day of the most recent
fiscal year of such plan ended prior to the date hereof, and no material liability to the Pension
Benefit Guaranty Corporation has been incurred with respect to any such plan by the Company or any
Significant Subsidiary.

     Section 3.25 Insurance.

     The Company and its Significant Subsidiaries maintain insurance (including, without
limitation, directors and officers liability insurance covering each of the Company’s directors in
an amount not less than $2,000,000 in the annual aggregate) of the type and in the amount described
in Schedule 3.25 covering their respective properties and business are in compliance with all
material requirements and provisions thereof. Such insurance coverage is customary and adequate in
amount, type and scope for such properties and business. Neither the Company nor any Significant
Subsidiary has received a notice of cancellation or non-renewal of any such policy or binder and
none of them has any knowledge of any inaccuracy in any application for such policies or binders,
any failure to pay premiums when due or any similar state of facts which might form the basis for
termination of any such insurance. The Company maintains, and has maintained during the past seven
years, directors and officers liability insurance in an amount and on terms reasonable under the
circumstances in which it conducts its business and as a public company.

     Section 3.26 Officers, Directors and Employees.

     Schedule 3.26 sets forth the name and total compensation of each officer and director of the
Company, and of each employee, consultant or agent of the Company, whose current annual rate of
compensation (including bonuses and commissions) exceeds $30,000. No such officer or employee has
advised the Company in writing that he intends to terminate employment with the Company. Except as
set forth on Schedule 3.26, the Company and each Subsidiary has complied in all material respects
with all applicable laws relating to the employment of labor, including provisions relating to
wages, hours, equal opportunity, collective bargaining and the payment of Social Security and other
taxes.

- 21 -

 

     Section 3.27 Operations of the Company.

     Except as set forth on Schedule 3.27 or as contemplated by this Agreement, from the Balance
Sheet Date through the date hereof, neither the Company nor any Significant Subsidiary has:

     (i) amended its Certificate of Incorporation or Bylaws or merged with or into or
consolidated with any other Person, or changed or agreed to change in any manner the
character of its business;

     (ii) entered into or amended any employment agreement, entered into any agreement with
any labor union or association representing any employee or entered into or amended any
Benefit Plan;

     (iii) except for short-term bank borrowings in the ordinary course of business,
incurred any Indebtedness;

     (iv) declared or paid any dividends or declared or made any distributions of any kind
to its stockholders;

     (v) reduced its cash or short-term investments or their equivalent, other than to meet
cash needs arising in the ordinary course of business, consistent with past practices;

     (vi) waived any right of material value to its business;

     (vii) made any change in its accounting methods or practices or made any change in
depreciation or amortization policies or rates adopted by it;

     (viii) materially changed any of its business policies, including, without limitation,
advertising, marketing, pricing, purchasing, personnel, sales, returns, budget or product
acquisition policies;

     (ix) made any wage or salary increase or bonus, or increase in any other direct or
indirect compensation, for or to any officer, director or employee of the Company, or any
accrual for or commitment or agreement to make or pay the same, other than to Persons not
officers, directors or stockholders of the Company made in the ordinary course of business;

     (x) made any loan or advance to any of its officers, directors, employees, consultants,
agents or stockholders, other than travel advances made in the ordinary course of business;

     (xi) made any payment or commitment to pay any severance or termination pay to any of
its officers, directors, employees, consultants or agents, other than to Persons not
officers, directors or stockholders of the Company made in the ordinary course of business;

     (xii) except in the ordinary course of business: entered into any lease (as lessor or
lessee); sold, abandoned or made any other disposition of any of its assets or properties;

- 22 -

 

granted or suffered any lien or other encumbrance on any of its assets or properties;
entered into or amended any contract or other agreement to which it is a party or by or to
which it or its assets or properties are bound or subject or pursuant to which it agrees to
indemnify any party or refrain from competing with any party;

     (xiii) except in the ordinary course of business, incurred or assumed any debt,
obligation or liability (whether absolute or contingent and whether or not currently due and
payable);

     (xiv) except for inventory or equipment acquired in the ordinary course of business,
made any acquisition of all or any part of the assets, properties, capital stock or business
of any other Person; or

     (xv) except in the ordinary course of business, entered into any other material
contract or other agreement or other material transaction.

     Section 3.28 Potential Conflicts of Interest.

     Except as set forth on Schedule 3.28, no officer or director of the Company (i) owns, directly
or indirectly, any interest in (except not more than 5% stock holdings for investment purposes in
securities of publicly-held and traded companies) or is an officer, director, employee or
consultant of any Person which is a competitor, lessor, lessee, customer or supplier of the
Company; (ii) owns, directly or indirectly, in whole or in part, any copyright, trademark, trade
name, service mark, franchise, patent, invention, permit, license or secret or confidential
information which the Company is using or the use of which is necessary for the business of the
Company; or (iii) has any cause of action or other claim whatsoever against, or owes any amount to,
the Company, except for claims in the ordinary course of business, such as for accrued vacation
pay, accrued benefits under Benefit Plans and similar matters and agreements existing on the date
hereof.

     Section 3.29 Full Disclosure.

     All documents and other information prepared and delivered by the Company and its
representatives in connection with the Basic Documents and the transactions contemplated thereby
are true, complete and authentic. The written information furnished by the Company and its
representatives to the Buyer in connection with the Basic Documents and the transactions
contemplated hereby and thereby does not contain any untrue statement of a material fact and does
not omit to state any material fact necessary to make the statements made, in the context in which
made, not false or misleading. There is no fact which the Company has not disclosed to the Buyer in
writing which materially adversely affects, or so far as the Company can now reasonably foresee
will materially adversely affect, the business or condition (financial or other) of the Company or
the ability of the Company to perform the Basic Documents. Except for the representations and
warranties set forth in this Article 3 or in the other Basic Documents, the
Company, for itself or on behalf of any of its subsidiaries, has not made any representation
or warranty, express or implied.

- 23 -

 

ARTICLE 3A

REPRESENTATIONS OF THE BUYER

     The Buyer hereby represents, warrants and acknowledges to the Company as follows:

     Section 3A.1 Organization; Good Standing, Etc.

     The Buyer is a limited liability company duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite power and authority to execute,
deliver and perform its obligations under this Agreement.

     Section 3A.2 Authority; No Violation, Etc.

     The execution, delivery and performance by the Buyer of this Agreement has been duly
authorized by all necessary limited liability company action. This Agreement and the other Basic
Documents to which it is a party have been duly executed and delivered by the Buyer, and the
execution, delivery and performance by the Buyer of this Agreement and the other Basic Documents to
which it is a party does not and will not (i) conflict with or violate any provision of its
certificate of formation or operating agreement; (ii) violate or result in a breach of any of the
terms of, result in a modification of, or otherwise give any other contracting party the right to
terminate, or constitute (or with notice or lapse of time or both would constitute) a default
under, any contract or other agreement to which the Buyer is a party or by or to which the Buyer or
any of its assets or properties may be bound or subject; (iii) violate any order, writ, judgment,
injunction, award or decree of any Governmental Authority against, or binding upon, the Buyer; (iv)
violate any statute, law or regulation of any jurisdiction; or (v) require the consent of any
Person under any agreement or instrument to which the Buyer is a party.

     Section 3A.2 Investment; Experience.

     It is the present intention of the Buyer to acquire the Securities for investment for its own
account, not as a nominee or agent, and not with the view to, or for resale in connection with, any
distribution thereof. The Buyer and its members have significant experience in evaluating and
investing in private placement transactions so that they are capable of evaluating the merits and
risks of their investment in the Company, and have the capacity to protect their own interests. The
Buyer represents that it and its members are “accredited investors” as defined in Rule 501(a) of
Regulation D promulgated under the Securities Act.

     Section 3A.3 Rule 144, etc.

     The Buyer acknowledges that the Securities must be held indefinitely unless subsequently
registered under the Securities Act and any applicable state securities laws or unless exemptions
from such registration are available. The Buyer is aware of the provisions of Rule 144
promulgated under the Securities Act which permit limited resale of shares purchased in a
private placement subject to the satisfaction of certain conditions.

- 24 -

 

     Section 3A.4 Brokers or Finders.

     The Company has not, and will not, incur, directly or indirectly, as a result of any action
taken by the Buyer, and liability for brokerage or finders’ fees in connection with this Agreement.
The Buyer represents that it has not paid or agreed to pay any brokerage or finders’ fees in
connection with this Agreement.

     Section 3A.5 Legends; Stop Transfer.

     Subject to the rights of the Buyer (and its permitted transferees) created under the
Registration Rights Agreement, all certificates representing ownership of the Series A Preferred
Shares and the Common Shares that may be purchased by the Buyer pursuant to the provisions of this
Agreement shall bear the following legend:

“These securities have not been registered under the Securities Act of 1933, as
amended. They may not be sold, offered for sale, pledged or hypothecated in the
absence of an effective registration statement as to the securities under said Acts
or an opinion of counsel satisfactory to the Company that such registration is not
required.”

     In addition, the Company shall make a notation regarding the restrictions on transfer of the
Series A Preferred Shares and the Common Shares in its books to the effect stated in this Section
3A.5.

     Section 3A.6 Enforceability.

     This Agreement is the legal, valid and binding obligation of the Buyer, enforceable against it
in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors’ rights generally or the effect of general
principles of equity.

     Section 3A.7 Governmental Approvals, etc.

     Except as set forth herein, no authorization, consent, approval, order, license or permit
from, or filing, registration or qualification with, or exemption from any of the foregoing from,
any Governmental Authority is or will be required to authorize or permit the execution, delivery
and performance by the Buyer of the Basic Documents.

     Section 3A.8 Certain Trading Activities.

     During the 15 calendar days before the date of this Agreement, the Buyer has not engaged in,
nor has the Buyer engaged any Person acting on its behalf to engage in, any trading of the Common
Stock, including Short Sales of the Common Stock, and no open position or Short Sale relating to
the Common Stock exists on the date hereof in the name or on behalf of the Buyer.
For purposes of this Section, “Short Sales” means all kinds of direct and indirect stock
pledges reflecting short positions, forward sale contracts, options, puts, calls, short sales,
swaps (including on a total return basis), and sales and any other transactions having the effect
of hedging any position in the Common Stock.

- 25 -

 

     Section 3A.9 Reliance on Exemptions. The Buyer understands that the
Securities are being offered and sold to the Buyer in reliance upon specific exemptions from the
registration requirements of the United States federal and state securities laws and that the
Company is relying upon the truth and accuracy of, and the Buyer’s compliance with, certain of the
representations, warranties, agreements and acknowledgments of the Buyer set forth herein to
determine the availability of such exemptions and the eligibility of the Buyer and its members to
acquire the Securities.

     Section 3A. 10 Information. The Buyer has been furnished with certain materials
(including the SEC Reports) relating to the business, finances and operations of the Company that
have been made publicly available by the Company, as well as materials relating to the offer and
sale of the Securities. Notwithstanding the foregoing, the Buyer does not know, and has no basis
for acknowledging, whether such materials are complete and accurate, or whether they comply with
applicable Securities Laws in form and content, and is relying solely upon the reps and warranties
of the Company set forth in this Agreement and the other Basic Documents with respect thereto. The
Buyer has been afforded the opportunity to ask questions of the Company and has received responses
from the Company and its advisors. The Buyer and its members acknowledge and understand that its
investment in the Securities involves a significant degree of risk. Except for the representations
and warranties set forth in this Article 3A or in the other Basic Documents, the Buyer has not made
any representation or warranty, express or implied.

ARTICLE 4

COVENANTS OF THE COMPANY

     The Company hereby agrees that, so long as the Buyer (or any successive holder) owns Series A
Preferred Shares or Common Shares, the Company shall:

     Section 4.1 Use of Proceeds. Use the proceeds from the sale of the Securities
to provide general working capital for corporate purposes.

     Section 4.2 Reports and Statements. Deliver to the Buyer promptly upon (but in
no case later than fifteen (15) days thereafter) any distribution to its security holders
generally, to its Board of Directors or to the financial community of an annual report, quarterly
report, proxy statement, registration statement or other similar reports or communications, a copy
of each such document, and promptly upon filing by the Company with the SEC or the NASD, Inc., the
National Market System, Inc. or any national securities exchange or other market system of any and
all regular and other reports or applications, a copy of each such document, and a copy of
such report or statement and copies of all press releases and other statements made available
generally by the Company to the public concerning developments in the Company.

     Section 4.3 Financial Statements. Furnish to the Buyer promptly upon (but in
no case later than fifteen (15) days thereafter) their becoming available, copies of all financial
statements, reports, notices and proxy statements sent or made available generally by the

- 26 -

 

Company to its security holders, of all regular and periodic reports and all final registration statements
and final prospectuses, if any, filed by the Company with any securities exchange or other
self-regulatory organization, or with the Securities and Exchange Commission or any Governmental
Authority. Concurrently with the delivery of the financial statements referred to in the preceding
sentence, a certificate of a Responsible Officer of the Company stating that, to the best of such
officer’s knowledge, the Company during such period has observed or performed all of its covenants
and other agreements, and satisfied every condition, contained in this Agreement and the Basic
Documents to be observed, performed or satisfied by it, and that such officer has obtained no
knowledge of any default of any other Person except as specified in such certificate.

     Section 4.4 Payment of Obligations. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent (allowing for any grace period granted therein),
as the case may be, all its obligations and liabilities of whatever nature, except when the amount
or validity thereof is currently being contested in good faith by appropriate proceedings and
reserves in conformity with GAAP with respect thereto have been provided on the books of the
Company, including without limitation, all amounts owing under the Tax Settlement Agreement.

     Section 4.5 Conduct of Business and Maintenance of Existence. Continue to
engage in business of the same type as now conducted by the Company with respect to the business
currently conducted, preserve, renew and keep in full force and effect its corporate existence and
take all reasonable action to maintain all rights, privileges and franchises necessary or desirable
in the normal conduct of its business; and comply with all material applicable Requirements of Law
and all of its obligations (allowing for any grace period granted therein) except to the extent
that the failure to comply therewith would not, individually or in the aggregate, have a Material
Adverse Effect.

     Section 4.6 Maintenance of Insurance. Keep all property useful and necessary
in its business in good working order and condition; maintain with financially sound and reputable
insurance companies insurance (including, without limitation, directors and officers liability
insurance covering each of the Company’s directors in an amount not less than $2,000,000 in the
annual aggregate), with no gaps in coverage, in at least such amounts and against at least such
risks as are usually insured against in the same general area by publicly-traded companies engaged
in the same or a similar business; and furnish to the Buyer, upon written request, full information
as to the insurance carried.

     Section 4.7 Inspection of Property; Books and Records; Discussions. Keep
proper books of record and account in which full, true and correct entries in conformity with GAAP
and all Requirements of Law shall be made of all dealings and transactions in relation to its
business and activities; and permit the Buyer and its representatives to visit and inspect any of
its properties and examine and make abstracts from any of its books and records at any
reasonable time and as often as may reasonably be requested, and to discuss the business,
operations, properties and financial and other condition of the Company with officers and employees
of the Company and with its independent certified public accountants.

     Section 4.8 Notices. Give to the Buyer, no later than five (5) days after any
fact, circumstance or event set forth below, notice of:

- 27 -

 

          (a) of any (i) default or event of default under any instrument or other agreement of
the Company or (ii) litigation, investigation or proceeding which may exist at any time
between the Company and any Governmental Authority, which in any such case, if adversely
determined, would have a Material Adverse Effect;

          (b) of any litigation or proceeding affecting or involving the Company (i) in which the
amount claimed is $75,000 (whether or not covered by insurance), or (ii) in which injunctive
or similar relief is sought; and/or

          (c) of a fact, circumstance or trend that could reasonably be expected to have a
Material Adverse Effect.

     Each notice pursuant to this subsection shall be accompanied by a statement of the chief
executive officer or chief financial officer of the Company setting forth details of the
occurrence, fact or circumstance referred to therein and stating what action the Company proposes
to take with respect thereto. In addition, each notice pursuant to clause (c) of this subsection
shall be accompanied by all pleadings and other papers filed in connection with such litigation or
proceeding, to the extent permitted under applicable Securities Laws.

     Section 4.9 Payment of Taxes; Filing of Returns. The Company shall file all
tax returns, statements, reports and forms when and as required to be filed by it, and will pay and
discharge or caused to be paid or discharged, all taxes shown thereon to be due for the periods
covered thereby, including interest and penalties, or will provide reserves for payment thereof to
the extent required under GAAP. The charges, accruals and reserves on the books of the Company in
respect of taxes and other governmental charges shall be adequate to cover the tax liabilities
accruing with respect to or payable by the Company with respect to any tax return of the Company.
The Company will take any and all actions required under, and will refrain from taking any action
that would reasonably be expected to cause it to be in non-compliance with, the Tax Settlement
Agreement on a timely basis so that the Tax Settlement Agreement remains in full force and effect
and so that the Company incurs no additional liability thereunder.

     Section 4.10 2005 Stockholders’ Meeting. The Company, acting through its Board
of Directors, shall, in accordance with the DGCL, the Exchange Act and any other applicable law
(including Securities Laws):

          (a) duly call, give notice of, and within 150 days of May 31, 2005 (allowing for any
additional days that may be required to respond to any comments of the SEC, if the Company acts in
a timely manner with respect thereto), convene and hold the 2005 Stockholders’ Meeting
in accordance with the Exchange Act, DGCL and the Company’s Certificate of Incorporation and
Bylaws for the purpose of considering and taking action to amend the Company’s Certificate of
Incorporation to remove the cumulative voting and classified board features currently in place.

          (b) prepare and file with the SEC a preliminary proxy statement relating to the 2005
Stockholders’ Meeting and use its best efforts to obtain and furnish the information required to be
included by the SEC in the definitive form of proxy statement and to respond promptly to any
comments made by the SEC with respect to the preliminary proxy statement and cause a

-28-

 

definitive
proxy statement, including any amendment or supplement thereto, to be mailed to its stockholders;

          (c) include in the definitive proxy statement the recommendation of the Board of Directors
that stockholders of the Company vote in favor of the amendments to the Certificate of
Incorporation and Bylaws described in subsection (a) above;

          (d) use its best efforts to solicit from holders of its outstanding shares of Common Stock,
proxies in favor of the aforementioned amendments to the Certificate of Incorporation and Bylaws
and to take all other action reasonably necessary or advisable to secure any vote or consent of
stockholders required by DGCL to approve such amendments; and

          (e) within fourteen (14) days of receipt by the Company of completed Directors’ and Officers’
Questionnaires of the Series A Directors (as defined in the Certificate of Designation), file with
the SEC the information statement required by and in accordance with Rule 14f-1 under the Exchange
Act, and within seven (7) days of such filing, deliver such information statement to the Company’s
stockholders as required by and in accordance with Rule 14f-1 under the Exchange Act.

Section 4.11 Preemptive Rights.

     (a) If, after the Closing Date but prior to the conversion of the Series A Preferred Shares
into Common Shares, the Company shall propose to issue or sell New Securities or enters into any
contract, commitment, agreement or understanding relating to the issuance or sale of any New
Securities, the Buyer shall have the right to purchase that number of New Securities at the same
price and on the same terms proposed to be issued or sold by the Company so that the Buyer would,
after the issuance and sale of all such New Securities, hold the same proportionate interest (the
“Proportionate Percentage”) of the then outstanding shares of Common Stock as was held by the Buyer
immediately prior to such issuance and sale (based on the number of shares of Common Stock to be
received upon conversion of the Series A Preferred Shares).

     (b) The Company shall give the Buyer written notice of its intention to issue and sell New
Securities, describing the type of New Securities, the price and the general terms and conditions
upon which the Company proposes to issue the same. The Buyer shall have fifteen (15) days (the
“Offer Period”) from the giving of such notice to agree to purchase all or any part of its
Proportionate Percentage of New Securities for the price and upon the terms and conditions
specified in the notice by giving written notice to the Company and stating therein the quantity of
New Securities to be purchased.

     (c) If the Buyer fails to provide written notice to the effect that the Buyer agrees to
exercise such right within the Offer Period, the Company shall have 125 days thereafter to sell the
New Securities in respect of which the Buyer’s rights were not exercised, at a price and upon the
terms and conditions no more favorable to the buyers thereof than specified in the Company’s notice
to the Buyer pursuant to this Section 4.11. If the Company has not sold the New Securities within
such 125-day period, the Company shall not thereafter issue or sell any New

-29-

 

Securities, except by
giving the Buyer the right to purchase its Proportionate Percentage in the manner provided in this
Section 4.11.

Section 4.12 Repurchase Rights.

     (a) Change of Control. If, at any time, there shall be a Change of Control of the
Company, the Buyer shall have the right (the “Repurchase Right”), at its sole option, upon ten (10)
days’ prior written notice to the Company (the “Redemption Notice”), to require the Company to
purchase for cash from the Buyer, all but not less than all, of the Series A Preferred Shares at a
price equal to 100% of the Liquidation Preference for such shares (subject to adjustment in
accordance with adjustments to the Series A Preferred Shares conversion price provided for in the
Certificate of Designation), plus any accrued and unpaid dividends to the date of repurchase. The
Company shall deliver written notice to the Buyer promptly upon occurrence of an event of a Change
of Control.

     (b) Tax Settlement Agreement. If, at any time, the Company shall be notified by the
IRS (which notice shall be transmitted to the Buyer within three (3) days upon receipt of such
notice by the Company) that, for whatever reason and whether or not the Company has breached the
provisions of Section 3.9 or Section 4.9 of this Agreement, the Tax Settlement Agreement is no
longer in valid and in full force and effect, or that the Company has violated the terms of the Tax
Settlement Agreement with the result (after the expiration of any grace or cure period permitted by
the IRS), in either case, that the Company has additional liabilities or must make additional
payments to the IRS beyond the settlement payment made to the IRS in 2003 pursuant to the Tax
Settlement Agreement, then the Buyer shall have the right, at its sole option, upon ten (10) days’
prior written notice to the Company, to require the Company to purchase for cash from the Buyer,
all but not less than all, of the Series A Preferred Shares at a price equal to 100% of the
Liquidation Preference for such shares (subject to adjustment in accordance with adjustments to the
Series A Preferred Shares conversion price provided for in the Certificate of Designation), plus
any accrued and unpaid dividends to the date of repurchase.

     Section 4.13. Reservation of Common Shares. From and after the Closing, the
Company shall at all times reserve for issuance the number of duly authorized Common Shares
issuable upon conversion of the Series A Preferred Shares, and, from and after the 2005
Stockholders’ Meeting (assuming the Company’s stockholders approve the necessary increase in the
number of authorized shares of Common Stock), the Company shall at all times reserve for issuance
the number of duly authorized Common Shares issuable in connection with any of the Put Option
Closings, on a fully-diluted basis, in accordance with the terms of this Agreement and the
Certificate of Designation.

     Section 4.14 Transactions with Affiliates. Not enter into any transaction,
including, without limitation, any purchase, sale, lease or exchange or property or the rendering
of any service with any Affiliate (other than with any consolidated subsidiary), except for the
transactions expressly permitted by this Agreement.

     Section 4.15 Subsidiaries. Not dissolve any Significant Subsidiaries.

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     Section 4.16 Further Assurances. The Company shall execute and deliver all
further instruments and documents and take all further action that may be necessary, or that the
Buyer may reasonably request, in order to carry out the provisions of this Agreement or the other
Basic Documents, including any assignments of the Buyer’s interest in the Securities or its rights
under or for the benefit of the Basic Documents.

ARTICLE 5

COVENANTS OF THE BUYER

     Section 5.1 Put Option Shares. Subject to the terms and conditions set forth
below, the Buyer hereby agrees as follows:

	 	(a)	 	First Put Option Shares. The Buyer hereby agrees to grant to the
Company the right to require the Buyer to purchase from the Company 500,000 First Put
Option Shares at a price of $2.00 per share on a date which is no later than the
sixtieth (60th) day after the date on which the Company’s Annual Report on
Form 10-K is required to be filed with the SEC under the Exchange Act (not giving
effect to Form 12b-25) (the “Filing Date”) with respect to FY 2006. No later than the
thirtieth (30th) day after the Filing Date, the Buyer shall have received in
writing from the Company: (i) a notice (the “Election Notice”) from the Company
indicating whether the Company will exercise the First Put Option and (ii) a
certificate of a Responsible Officer (the “Compliance Certificate”) certifying that all
of the conditions set forth in clauses (i) through (vi) below have been fulfilled (with
such confirming information as the Buyer may reasonably request, to the extent the
provision by the Company of such information is not already required by this
Agreement). If so the Company so elects to exercise the First Put Option, the Buyer
shall purchase the First Put Option Shares in accordance with the terms of this Section
5.1(a) and on a date which is no later than sixty (60) days after the Filing Date;
provided, however, that there shall be an extension of time beyond such closing date by
the number of days that the Company was late in delivering the Election Notice or the
Compliance Certificate, and further provided however, that if the Election Notice or
Compliance Certificate is not received by the sixtieth (60th) day after the
Filing Date, the First Put Option shall automatically become null and void and no
longer exercisable thereafter, unless the Buyer decides to the contrary in its sole
discretion and gives such written notice to the Company. The Buyer’s obligation to
purchase the First Put Option Shares is also subject to the following conditions:

(i) the Company reports total operating revenues greater than $32.25 million
for FY 2006 or $8.0625 million in total operating revenues for the fourth
quarter of FY 2006, as set forth in its Annual Report on Form 10-K for FY
2006; provided, however, that the foregoing revenue milestones shall
not be applicable in the event that the Buyer fails to purchase, upon the
exercise by the Company of the Variable Price Put Option, Variable Price Put
Option Shares in accordance with, and subject to the terms and conditions
set forth in, Section 5.1(c) of this Agreement, but further

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provided,
however, that all of the other conditions to the First Put Option
Closing set forth in clauses (ii) through (vi) below shall nevertheless
remain applicable in such event; and

(ii) the Tax Settlement Agreement remains in full force and effect and the
Company has incurred no additional liability thereunder; and

(iii) there has been no Change of Control since the Closing Date; and

(iv) there is not then (nor has there been, unless cured) a violation or
breach of any of the representations, warranties, covenants and agreements
of the Company under this Agreement or the other Basic Documents (as
qualified therein as to materiality or knowledge, as the case may be);
provided, however, that the Buyer shall not refuse to purchase the
First Put Option Shares solely as a result of the non-fulfillment of the
condition set forth in this clause (iv) if, but only if, Losses with respect
to which the Buyer is otherwise entitled to indemnification under Article 8
have not exceeded $75,000 in the aggregate as of the date of exercise by the
Company of the First Put Option; and

(v) (1) The Company or any Significant Subsidiary shall not have commenced
any case, proceeding or other action (A) under any existing or future law of
any jurisdiction, domestic of foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it or
its debts, or (B) seeking appointment or a receiver, trustee, custodian or
other similar official for it or for all or any substantial part of its
assets, or the Company shall make a general assignment for the benefit of
its creditors; or (2) there shall be commenced against the Company or any
Significant Subsidiary any case, proceeding or other action of a nature
referred to in clause (1) above which (A) results in the entry of an order
for relief or any such adjudication or appointment or (B) remains
undismissed, undischarged or unbonded for a period of sixty (60) days; or
(3) there shall not have been commenced against the Company or any
Significant Subsidiary any case, proceeding or other action seeking issuance
of a warrant of attachment, execution, distraint or similar process against
all or
any substantial part of its assets, which results in the entry of an order
for any such relief which shall not have been vacated, discharged, or stayed
or bonded pending appeal within ten (10) days from the entry thereof; or (4)
the Company or any Significant Subsidiary shall not have taken any action in
furtherance of, or indicating its consent to, approval of, or acquiescence
in, any of the acts set forth in clause (1), (2) or (3) above; or (5) the
Company and each Significant Subsidiary shall be able to pay, and has not

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admitted in writing that it is unable to pay, its debts as they generally
become due; and

(vi) One or more judgments or decrees shall be entered against the Company
or any Significant Subsidiary involving in the aggregate a liability (not
paid or fully covered by insurance) of $75,000 or more and all such
judgments or decrees shall not have been vacated, discharged, or stayed or
bonded pending appeal within sixty (60) days from the entry thereof.

	 	(b)	 	Second Put Option Shares. The Buyer hereby agrees to grant to the
Company the right to require the Buyer to purchase from the Company 500,000 Second Put
Option Shares at a price of $2.16 per share on a date which is no later than the
sixtieth (60th) day after the date on which the Company’s Annual Report on
Form 10-K is required to be filed with the SEC under the Exchange Act (not giving
effect to Form 12b-25) (the “Filing Date”) with respect to FY 2007. No later than the
thirtieth (30th) day after the Filing Date, the Buyer shall have received in
writing from the Company: (i) a notice (the “Election Notice”) from the Company
indicating whether the Company will exercise the Second Put Option and (ii) a
certificate of a Responsible Officer (the “Compliance Certificate”) certifying that all
of the conditions set forth in clauses (i) through (vi) below have been fulfilled (with
such confirming information as the Buyer may reasonably request, to the extent the
provision by the Company of such information is not already required by this
Agreement). If so the Company so elects to exercise the Second Put Option, the Buyer
shall purchase the Second Put Option Shares in accordance with the terms of this
Section 5.1(a) and on a date which is no later than sixty (60) days after the Filing
Date; provided, however, that there shall be an extension of time beyond such closing
date by the number of days that the Company was late in delivering the Election Notice
or the Compliance Certificate, and further provided however, that if the Election
Notice or Compliance Certificate is not received by the sixtieth (60th) day
after the Filing Date, the Second Put Option shall automatically become null and void
and no longer exercisable thereafter, unless the Buyer decides to the contrary in its
sole discretion and gives such written notice to the Company. The Buyer’s obligation
to purchase the Second Put Option Shares is also subject to the following conditions:

(i) the Company reports total operating revenues greater than $39.75 million
for FY 2007 or $9.9375 million in total operating revenues for the fourth
quarter of FY 2007, as set forth in its Annual Report on Form 10-K for FY
2007; and

(ii) the Tax Settlement Agreement remains in full force and effect and the
Company has incurred no additional liability thereunder; and

(iii) there has been no Change of Control; and

(iv) there is not then (nor has there been, unless cured) a violation or
breach of any of the representations, warranties, covenants and agreements

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of the Company under this Agreement or the other Basic Documents (as
qualified therein as to materiality or knowledge, as the case may be);
provided, however, that the Buyer shall not refuse to purchase the
Second Put Option Shares solely as a result of the non-fulfillment of the
condition set forth in this clause (iv) if, but only if, Losses with respect
to which the Buyer is otherwise entitled to indemnification under Article 8
have not exceeded $75,000 in the aggregate as of the date of exercise by the
Company of the Second Put Option; and

(v) (1) The Company or any Significant Subsidiary shall not have
commenced any case, proceeding or other action (A) under any existing or
future law of any jurisdiction, domestic of foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an order
for relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with
respect to it or its debts, or (B) seeking appointment or a receiver,
trustee, custodian or other similar official for it or for all or any
substantial part of its assets, or the Company shall make a general
assignment for the benefit of its creditors; or (2) there shall be commenced
against the Company or any Significant Subsidiary any case, proceeding or
other action of a nature referred to in clause (1) above which (A) results
in the entry of an order for relief or any such adjudication or appointment
or (B) remains undismissed, undischarged or unbonded for a period of sixty
(60) days; or (3) there shall not have been commenced against the Company or
any Significant Subsidiary any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar process
against all or any substantial part of its assets, which results in the
entry of an order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within ten (10) days from the
entry thereof; or (4) the Company or any Significant Subsidiary shall not
have taken any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth in clause (1),
(2) or (3) above; or (5) the Company and each Significant Subsidiary shall
be able to pay, and has not admitted in writing that it is unable to pay,
its debts as they generally become due; and

(vi) One or more judgments or decrees shall be entered against the Company
or any Significant Subsidiary involving in the aggregate a liability (not
paid or fully covered by insurance) of $75,000 or more and all such
judgments or decrees shall not have been vacated, discharged, or stayed or
bonded pending appeal within sixty (60) days from the entry.

	 	(c)	 	Variable Price Put Option Shares. The Buyer hereby agrees to grant to
the Company the right to require the Buyer to purchase from the Company that number of
Variable Price Put Option Shares as is determined below, on a date which is no later
than the

-34-

 

sixtieth (60th) day after the date on which the Company’s Annual
Report on Form 10-K is required to be filed with the SEC under the Exchange Act (not
giving effect to Form 12b-25) (the “Filing Date”) with respect to FY 2006. No later
than the thirtieth (30th) day after the Filing Date, the Buyer shall have
received in writing from the Company: (i) a notice (the “Election Notice”) from the
Company indicating whether the Company will exercise the Variable Price Put Option and
(ii) a certificate of a Responsible Officer (the “Compliance Certificate”) certifying
that all of the conditions set forth in clauses (i) through (vi) below have been
fulfilled (with such confirming information as the Buyer may reasonably request, to the
extent the provision by the Company of such information is not already required by this
Agreement). If so the Company so elects to exercise the Variable Price Put Option, the
Buyer shall purchase the Variable Price Put Option Shares in accordance with the terms
of this Section 5.1(a) and on a date which is no later than sixty (60) days after the
Filing Date; provided, however, that there shall be an extension of time beyond such
closing date by the number of days that the Company was late in delivering the Election
Notice or the Compliance Certificate, and further provided however, that if the
Election Notice or Compliance Certificate is not received by the sixtieth
(60th) day after the Filing Date, the Variable Put Option shall
automatically become null and void and no longer exercisable thereafter, unless the
Buyer decides to the contrary in its sole discretion and gives such written notice to
the Company. The number of Variable Price Put Option Shares purchasable hereunder will
be determined by dividing $800,000 by: (A) $0.85 per share if total operating revenue
of the Company for the six-month period commencing on December 1, 2005 and ending on
May 31, 2006 (the “Stub Period”) is at least $14,000,000; (B) $0.70 per share if total
operating revenue of the Company during the Stub Period is at least $13,000,000 but
less than $14,000,000; (C) $0.60 per share if total operating revenue of the Company
during the Stub Period is at least $12,000,000 but less than $13,000,000; (D) $0.52 per
share if total operating revenue of the Company during the Stub Period is at least
$11,000,000 but less than $12,000,000; (E) $0.46 per share if total operating revenue
of the Company during the Stub Period is at least $10,000,000 but less than
$11,000,000; and (F) $0.41 per share if total operating revenue of the Company during
the Stub Period is below $10,000,000. The Buyer’s obligation to purchase the Variable
Price Put Option Shares is also subject to the following conditions:

(i) the Tax Settlement Agreement remains in full force and effect and the
Company has incurred no additional liability thereunder; and

(ii) there has been no Change of Control since the Closing Date; and

(iii) there is not then (nor has there been, unless cured) a violation or
breach of any of the representations, warranties, covenants and agreements
of the Company under this Agreement or the other Basic Documents (as
qualified therein as to materiality or knowledge, as the case may be);
provided, however, that the Buyer shall not refuse to purchase the
Variable Price Put Option Shares solely as a result of the non-fulfillment
of the condition set forth in this clause (iii) if, but only if, Losses with
respect to

-35-

 

which the Buyer is otherwise entitled to indemnification under
Article 8 have not exceeded $75,000 in the aggregate as of the date of
exercise by the Company of the Variable Price Put Option; and

(iv) (1) The Company or any Significant Subsidiary shall not have commenced
any case, proceeding or other action (A) under any existing or future law of
any jurisdiction, domestic of foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it or
its debts, or (B) seeking appointment or a receiver, trustee, custodian or
other similar official for it or for all or any substantial part of its
assets, or the Company shall make a general assignment for the benefit of
its creditors; or (2) there shall be commenced against the Company or any
Significant Subsidiary any case, proceeding or other action of a nature
referred to in clause (1) above which (A) results in the entry of an order
for relief or any such adjudication or appointment or (B) remains
undismissed, undischarged or unbonded for a period of sixty (60) days; or
(3) there shall not have been commenced against the Company or any
Significant Subsidiary any case, proceeding or other action seeking issuance
of a warrant of attachment, execution, distraint or similar process against
all or any substantial part of its assets, which results in the entry of an
order for any such relief which shall not have been vacated, discharged, or
stayed or bonded pending appeal within ten (10) days from the entry thereof;
or (4) the Company or any Significant Subsidiary shall not have taken any
action in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clauses (1), (2) or (3) above;
or (5) the Company and each Significant Subsidiary shall be able to pay, and
has not admitted in writing that it is unable to pay, its debts as they
generally become due; and

(v) One or more judgments or decrees shall be entered against the Company or
any Significant Subsidiary involving in the aggregate a liability (not paid
or fully covered by insurance) of $75,000 or more and all such judgments or
decrees shall not have been vacated, discharged, or stayed or bonded pending
appeal within sixty (60) days from the entry thereof.

(d) Adjustments. The purchase price per Put Option Share purchasable by the
Buyer at any of the First Put Option Closing, the Second Put Option Closing or the Variable
Price Put Option Closing on the terms and conditions set forth above (the “Put Option
Purchase Price”) and the number of Put Option Shares are subject to adjustment from time to
time upon the occurrence of the events set forth below:

          (i) In the event the Company shall at any time after the date hereof (i) declare a
dividend on the Common Stock payable in Common Stock or other securities of

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the Company,
(ii) subdivide the outstanding Common Stock, (iii) combine the outstanding Common Stock into
a smaller number of shares or (iv) issue any shares of its capital stock in a
reclassification of the Common Stock (other than a change in par value, or from par value to
no par value, or from no par value to par value), including, without limitation, any such
reclassification in connection with a consolidation or merger in which the Company is the
continuing corporation, the Put Option Purchase Price in effect at the time of the record
date for such dividend or of the effective date of such subdivision, combination or
reclassification and the number and kind of shares of capital stock and other securities
issuable on such date shall be proportionately adjusted so that the Buyer shall be entitled
to receive after such time, upon exercise of the Company’s right to issue and sell Put
Option Shares to the Buyer under this Section 5.1 (the “Put Option Election”) and payment of
the same aggregate amount as would have been payable before such time, the aggregate number
and kind of shares of capital stock and other securities, which if the Put Option Election
had been exercised in full immediately prior to such date and at a time when the Common
Stock transfer books of the Company were open, the Buyer would have owned upon such exercise
and been entitled to receive by virtue of such dividend, subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any event above shall
occur.

          (ii) If, at any time, as a result of an adjustment made pursuant to paragraph (i)
above, the Buyer thereafter shall become entitled to receive upon exercise any shares of
capital stock of the Company other than Common Stock, the number of such other shares so
receivable upon exercise of the Put Option Election shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the provisions with
respect to the shares contained in paragraph (a) above and the provisions of Section 4.2 of
the Agreement shall apply on like terms to any such other shares.

     Section 5.2 Securities Laws. For so long as the Buyer holds any Securities,
the Buyer will comply in all material respects with all applicable Securities Laws, and will use
its best efforts to cause the Series A Directors to do the same.

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ARTICLE 6

RESERVED

ARTICLE 7

RESERVED

ARTICLE 8

INDEMNIFICATION

     Each of the Company and the Buyer agree (each, in such case, an “Indemnifier”) to indemnify
and hold harmless each other and their respective managers, members, directors, employees,
representatives, agents and Affiliates (each, in such case, an “Indemnified Person”) from and
against any and all claims, liabilities, judgments, actions, expenses, losses and damages
(including any attorneys’ or accountants’ fees and expenses) (collectively, “Losses”) in any way
related to, resulting from or arising out of any breach, violation or non-compliance of or with
such Indemnifier’s representations, warranties, covenants and agreements set forth in this
Agreement or any of the Basic Documents; provided, however, that any Indemnifier shall not be
responsible for any Losses to the extent that it is finally judicially determined that they result
primarily from actions taken or omitted to be taken by the Indemnified Person due to the
Indemnified Person’s gross negligence or willful misconduct.

     The Indemnifier shall assume the defense of any claim or proceeding in respect of which
indemnification is required hereunder, including the employment of counsel reasonably satisfactory
to the Indemnified Person and the payment of all expenses. The Indemnified Person shall have the
right to employ separate counsel selected by it with the reasonable approval of the Indemnifier in
any such action or proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Person unless (a) the Indemnifier has
agreed to pay such fees and expenses, (b) the Indemnifier shall have failed promptly to assume the
defense of such action or proceeding and employ counsel reasonably satisfactory to the Indemnified
Person in any such action or proceeding or (c) the named parties to any such action or proceeding
(including any impleaded parties) include both an Indemnified Person and the Indemnifier, and such
Indemnified Person shall have been advised by counsel that there may be one or more legal defenses
available to such Indemnified Person that are different from or additional to, and potentially in
conflict with, those available to the Indemnifier (in which case, if such Indemnified Person
notifies the Indemnifier in writing that it elects to employ separate counsel at the expense of the
Indemnifier, the Indemnifier shall not have the right to assume the defense of such action or
proceeding on behalf of such Indemnified Person).

     The Indemnifier shall not, in connection with any one such action or proceeding or separate
but substantially similar or related actions or proceedings arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than one separate firm of
attorneys (together with appropriate local counsel) at the time for the Indemnified Person and such
other Indemnified Persons. The Indemnifier shall not be liable for any settlement of any such

-38-

 

action or proceeding effected without its consent, which consent shall not be unreasonably
withheld, but if settled with its written consent or if there is a final and nonappealable judgment
in such action or proceeding, the Indemnifier, subject to the proviso in the first paragraph of
this Article 8, agrees to indemnify and hold harmless the Indemnified Person from and against any
loss or liability (to the extent stated above) by reason of such settlement or judgment.

     If the indemnification provided for in this Article 8 is unavailable to an Indemnified Person
under the first paragraph of this Article 8 (for any reason other than an Indemnified Person’s
gross negligence or willful misconduct) in respect of any losses, claims, damages or liabilities
referred to therein, then the Indemnifier, in lieu of indemnifying such Indemnified Person, and the
Indemnified Person each shall contribute to the amount paid or payable by such Indemnified Person
as a result of such losses, claims, damages or liabilities: (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company, on the one hand, and the
Buyer, on the other hand, in connection with the matters covered by this Agreement; or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause (i) but also the
relative fault of the Company on the one hand, and the Buyer, on the other, as well as any other
relevant equitable considerations. The amount paid or payable by a party as a result of the losses,
claims, damages and liabilities referred to above shall be deemed to include any legal or other
fees or expenses incurred in defending any action or claim. The Company and the Buyer agree that it
would not be just and equitable if contribution pursuant to this paragraph were determined by pro
rata allocation or by any other method which does not take into account the equitable
considerations referred to in this paragraph. Notwithstanding the provisions of this Article 8, the
Buyer shall not be required to contribute any amount in excess of the amount of fees actually
received by the Buyer pursuant to this Agreement.

     The indemnity and contribution agreements contained in this Article 8 shall remain operative
and in full force and effect regardless of any investigation made by or on behalf of any
Indemnified Person.

     The respective representations and warranties made by the Company or the Buyer in this
Agreement and the other Basic Documents shall survive the Closing until the later to occur of: (i)
the third (3rd) anniversary of the Closing Date, or (ii) with respect to the
representations and warranties contained in Sections 3.17, 3.20, 3.21 and 3.24 of this Agreement,
the date on which the applicable statute of limitations expires; provided, however, that
Sections 3.2 and 3.3 shall survive indefinitely.

     The Company (as Indemnifier) shall not be required to indemnify the Buyer or any other
Indemnified Person with respect to any claim for indemnification of Losses unless and until the
aggregate amount of all claims for Losses against the Company exceeds $75,000 (excluding from such
$75,000 aggregate, any claim for Losses under $10,000 per claim), in which case, the Company shall
be liable for the full amount of all such Losses (including the first $75,000 and not merely the
excess over $75,000) without respect to either of such dollar limitations (for the purposes of
determining whether the aggregate of such Losses exceeds $75,000 or if any individual Loss exceeds
$10,000, any representation or warranty that is qualified by reference as to materiality shall be
construed as not being so qualified); provided, however, that the foregoing

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indemnification
limitation shall not be applicable in the event of a binding and non-appealable finding that the
Company committed fraud or malfeasance, and further provided, however, that the foregoing
indemnification limitation shall not be applicable to Losses resulting from breaches or violations
of Sections 3.2, 3.3 or 3.7 of this Agreement.

ARTICLE 9

MISCELLANEOUS

     Section 9.1 Fees and Expenses. The Company agrees to pay or reimburse the
Buyer for paying any transfer, stamp, documentary or other similar taxes, assessments or charges
levied by any governmental or revenue authority in respect of this Agreement or any of the other
Basic Documents or any other document referred to herein or therein and all costs, expenses, taxes,
assessments and other charges incurred in connection with any filing or registration contemplated
by this Agreement or any other Basic Document or any document referred to herein or therein.

     Section 9.2 Certain Terms. As used herein, “Sections” refers to sections of
this Agreement. As used herein, the expression “this Agreement” means the body of this Agreement;
and the expressions “herein,” “hereof,” and “hereunder” and other words of similar import refer to
this Agreement and not to any particular part or subdivision thereof. Whenever herein the singular
number is used, the same shall include the plural where appropriate, and words of any gender shall
include each other gender where appropriate.

     Section 9.3 Captions. The captions, headings and arrangements used in this
Agreement are for convenience only and do not in any way affect, limit, amplify or modify the terms
and provisions hereof.

     Section 9.4 Notices. Whenever this Agreement requires or permits any consent,
approval, notice, request or demand from one party to another, such consent, approval, notice,
request or demand must be in writing to be effective and shall be deemed to be delivered and
received (i) if Personally delivered or if delivered by facsimile with telephonic confirmation,
when actually received by the party to whom notice is sent, (ii) if delivered by mail within the
United States (whether actually received or not), at the close of business on the third business
day next following the day when placed in the federal mail, postage prepaid, certified or
registered, addressed to the appropriate party or parties, at the address of such party set forth
below (or at such other address as such party may designate by written notice to all other parties
in accordance herewith) or (iii) if delivered by mail to any party located outside the United
States, when received by the party to whom notice is sent:

If to the Buyer, to:

Woodcliff Healthcare Investment Partners LLC

35th Floor

535 Madison Avenue

New York, New York 10022

-40-

 

Attention: Nicholas Lewin

Fax: 212-898-1161

and, with a copy to:

Attention: George Soterakis, Esq.

Holland & Knight LLP

195 Broadway

New York, New York 10007

Fax: 212-385-9010

If to the Company, to:

Comprehensive Care Corporation

204 South Hoover Boulevard, Suite 200

Tampa, Florida 33609

Attention: Chief Executive Officer

Fax: 813-288-4805

with a copy to:

Foley & Lardner LLP

100 N. Tampa Street, Suite 2700

Tampa, Florida 33602

Attention: Carolyn Long, Esq.

Fax: 813-221-4210

     Section 9.5 Governing Law. THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND
INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE.

     Section 9.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs, representatives, successors,
and permitted assigns, and any receiver, trustee in bankruptcy, or representative of the creditors
of each such Person.

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     Section 9.7 Invalid Provisions. If any provision of this Agreement is held to
be illegal, invalid, or unenforceable under present or future laws effective during the term of
this Agreement, such provision shall be fully severable; this Agreement shall be construed and
enforced as if such illegal, invalid, or unenforceable provision had never comprised a part of this
Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and
shall not be affected by the illegal, invalid, or unenforceable provision or by its severance from
this Agreement. Furthermore, in lieu of each such illegal, invalid, or unenforceable provision
there shall be added automatically as a part of this Agreement a provision as similar in terms to
such illegal, invalid, or unenforceable provision as may be possible and be legal, valid, and
enforceable.

     Section 9.8  Amendments. This Agreement may be amended, at any time and from
time to time in whole or in part, or terminated, only by an instrument in writing, duly executed by
all of the parties hereto.

     Section 9.9  Counterparts. This Agreement may be executed in any number of
identical counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same agreement.

     Section 9.10  Continuation of Rights. The failure or refusal of a party
hereto to exercise any right granted in this Agreement shall not be deemed a waiver of the right to
exercise future rights which may arise hereunder.

     Section 9.11  Entire Agreement. This Agreement, together with the other
Basic Documents, contains the entire understanding of the parties hereto respecting the subject
matter hereof and supersedes all prior agreements, discussions and understandings.

     Section 9.12  Consent to Jurisdiction and Service of Process. Any legal
action, suit or proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby may be instituted in any federal court in the State of New York, and each party
waives any objection which such party may now or hereafter have to the laying of the venue of any
such action, suit or proceeding, and irrevocably submits to the jurisdiction of any such court in
any such action, suit or proceeding. Any and all service of process and any other notice in any
such action, suit or proceeding shall be effective against any party if given by registered or
certified mail, return receipt requested, or by any other means of mail which requires a signed
receipt, postage prepaid, mailed to such party as herein provided. Nothing contained herein shall
be deemed to affect the right of any party to serve process in any manner permitted by law or to
commence legal proceedings or otherwise proceed against any other party in any jurisdiction other
than the federal courts in New York.

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     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the
date first above written.

	 	 	 	 	 
	 	 	COMPREHENSIVE CARE

CORPORATION
	 
	 	 	 	 
	 

	 	By:
	 	Robert J. Landis
	 

	 	 	 	 
	 

	 	 	 	Name: Robert J. Landis

Title: Chief Financial Officer
	 
	 	 	 	 
	 	 	WOODCLIFF HEALTHCARE
	 	 	INVESTMENT PARTNERS, LLC
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Nicholas Lewin
	 

	 	 	 	 
	 

	 	 	 	Name: Nicholas Lewin
	 

	 	 	 	Title: Managing Member

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